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PHILIPPINE AMUSEMENT v. BIR, GR No. 172087, 2011-03-15 Ruling:

Facts: Anent the validity of RR No. 16-2005, the Court holds that the
provision subjecting PAGCOR to 10% VAT is invalid for being
Petitioner further seeks to prohibit the implementation of Bureau of contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided
Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being that petitioner can be subjected to VAT. R.A. No. 9337 is clear only
contrary to law.
as to... the removal of petitioner's exemption from the payment of
With the enactment of R.A. No. 9337[10] on May 24, 2005, certain corporate income tax, which was already addressed above by this
sections of the National Internal Revenue Code of 1997 were Court.
amended. As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner
Different groups came to this Court via petitions for certiorari and from VAT pursuant to Section 7 (k) thereof... the following
prohibition[11] assailing the validity and constitutionality of R.A. No. transactions shall be exempt from the value-added tax:
9337 Transactions which are exempt under international agreements to
10% Value Added Tax (VAT) on sale of goods and properties which the Philippines is a signatory or under special laws

10% VAT on importation of goods Petitioner is exempt from the payment of VAT, because PAGCOR's
charter, P.D. No. 1869, is a special law that grants petitioner
10% VAT on sale of services and use or lease of properties... the exemption from taxes.
Court dismissed all the petitions and upheld the constitutionality of
R.A. No. 9337. Moreover, the exemption of PAGCOR from VAT is supported by
Section 6 of R.A. No. 9337
On the same date, respondent BIR issued Revenue Regulations
(RR) No. 16-2005,[13] specifically identifying PAGCOR as one of The following services performed in the Philippines by VAT-
the franchisees subject to 10% VAT imposed under Section 108 of registered persons shall be subject to zero percent (0%) rate;
the National Internal Revenue Code of 1997, as amended by R.A.
Services rendered to persons or entities whose exemption under
No. 9337. special laws... subjects the supply of such services to zero percent
(0%) rate... although R.A. No. 9337 introduced amendments to
Furthermore, according to the OSG,... public respondent BIR Section 108 of R.A. No. 8424 by imposing VAT on other services
exceeded its statutory authority when it enacted RR No. 16-2005, not previously covered, it did not amend the portion of Section 108
because the latter's provisions are contrary to the mandates of P.D. (B) (3) that subjects to zero percent rate services performed by
No. 1869 in relation to R.A. No. 9337.
VAT-registered persons to persons or entities whose exemption
Issues: under special laws or international agreements to which the
whether or not PAGCOR is still exempt... hether or not PAGCOR is Philippines is a signatory effectively subjects the supply of such
still exempt... t from services to 0% rate.

VAT with the enactment of R.A. No. 9337.

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G.R. No. 172087. March 15, 2011.* The facts are stated in the opinion of the Court.
PHILIPPINE AMUSEMENT AND GAMING Bautista, Consolacion, Gloria, Salvosa, Apigo, Sevilla,
CORPORATION (PAGCOR), petitioner, vs. THE Noblejas, Siosana, Sagsagat, Bagasbas & Papica for petitioner.
BUREAU OF INTERNAL REVENUE (BIR), represented Claro B. Ortiz, Jethro M. Sabariaga and Rose F.
herein by HON. JOSE MARIO BUÑAG, in his official Ventayen for Bureau of Internal Revenue.
capacity as COMMISSIONER OF INTERNAL REVENUE,
public respondent,
JOHN DOE and JANE DOE, who are persons acting for,
in behalf, or under the authority of Respondent. Public
and private respondents.
Taxation; Tax Exemptions; As a rule, tax exemptions are
construed strongly against the claimant.—Taxation is the rule and
exemption is the exception. The burden of proof rests upon the party
claiming exemption to prove that it is, in fact, covered by the
exemption so claimed. As a rule, tax exemptions are construed
strongly against the claimant. Exemptions must be shown to exist
clearly and categorically, and supported by clear legal provision. In
this case, PAGCOR failed to prove that it is still exempt from the
payment of corporate income tax, considering that Section 1 of R.A.
No. 9337 amended Section 27 (c) of the National Internal Revenue
Code of 1997 by omitting PAGCOR from the exemption. The
legislative intent, as shown by the discussions in the Bicameral
Conference Meeting, is to require PAGCOR to pay corporate income
tax; hence, the omission or removal of PAGCOR from exemption from
the payment of corporate income tax.
Same; Value Added Tax; The provision subjecting Philippine
Amusement and Gaming Corporation (PAGCOR) to 10% Value Added
Tax (VAT) is invalid for being contrary to Republic Act (R.A.) No.
9337.—Anent the validity of RR No. 16-2005, the Court holds that the
provision subjecting PAGCOR to 10% VAT is invalid for being
contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided
that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as
to the removal of petitioner’s exemption from the payment of
corporate income tax, which was already addressed above by this
Court.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and
Prohibition.
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Republic of the Philippines To consolidate the laws pertaining to the franchise and powers of
SUPREME COURT PAGCOR, P.D. No. 18696 was issued. Section 13 thereof reads as follows:
Manila
Sec. 13. Exemptions. — x x x
EN BANC
(1) Customs Duties, taxes and other imposts on importations. - All
G.R. No. 172087 March 15, 2011 importations of equipment, vehicles, automobiles, boats, ships,
barges, aircraft and such other gambling paraphernalia, including
PHILIPPINE AMUSEMENT AND GAMING CORPORATION accessories or related facilities, for the sole and exclusive use of
(PAGCOR), Petitioner, the casinos, the proper and efficient management and
vs. administration thereof and such other clubs, recreation or
THE BUREAU OF INTERNAL REVENUE (BIR), represented herein by amusement places to be established under and by virtue of this
HON. JOSE MARIO BUÑAG, in his official capacity as Franchise shall be exempt from the payment of duties, taxes and
COMMISSIONER OF INTERNAL REVENUE, Public Respondent, other imposts, including all kinds of fees, levies, or charges of any
JOHN DOE and JANE DOE, who are persons acting for, in behalf, or kind or nature.
under the authority of Respondent. Public and Private Respondents.
Vessels and/or accessory ferry boats imported or to be imported by
DECISION any corporation having existing contractual arrangements with the
Corporation, for the sole and exclusive use of the casino or to be
PERALTA, J.: used to service the operations and requirements of the casino, shall
likewise be totally exempt from the payment of all customs duties,
taxes and other imposts, including all kinds of fees, levies,
For resolution of this Court is the Petition for Certiorari and
assessments or charges of any kind or nature, whether National or
Prohibition1 with prayer for the issuance of a Temporary Restraining Order
Local.
and/or Preliminary Injunction, dated April 17, 2006, of petitioner Philippine
Amusement and Gaming Corporation (PAGCOR), seeking the declaration
of nullity of Section 1 of Republic Act (R.A.) No. 9337 insofar as it amends (2) Income and other taxes. - (a) Franchise Holder: No tax of any
Section 27 (c) of the National Internal Revenue Code of 1997, by excluding kind or form, income or otherwise, as well as fees, charges, or
petitioner from exemption from corporate income tax for being repugnant to levies of whatever nature, whether National or Local, shall be
Sections 1 and 10 of Article III of the Constitution. Petitioner further seeks assessed and collected under this Franchise from the Corporation;
to prohibit the implementation of Bureau of Internal Revenue (BIR) nor shall any form of tax or charge attach in any way to the
Revenue Regulations No. 16-2005 for being contrary to law. earnings of the Corporation, except a Franchise Tax of five percent
(5%)of the gross revenue or earnings derived by the Corporation
from its operation under this Franchise. Such tax shall be due and
The undisputed facts follow.
payable quarterly to the National Government and shall be in lieu of
all kinds of taxes, levies, fees or assessments of any kind, nature or
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067- description, levied, established, or collected by any municipal,
A2 on January 1, 1977. Simultaneous to its creation, P.D. No. 1067- provincial or national government authority.
B3 (supplementing P.D. No. 1067-A) was issued exempting PAGCOR from
the payment of any type of tax, except a franchise tax of five percent (5%)
(b) Others: The exemption herein granted for earnings
of the gross revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was
derived from the operations conducted under the franchise,
issued expanding the scope of PAGCOR's exemption.5
specifically from the payment of any tax, income or
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otherwise, as well as any form of charges, fees or levies, On January 1, 1998, R.A. No. 8424,8 otherwise known as the National
shall inure to the benefit of and extend to corporation(s), Internal Revenue Code of 1997, took effect. Section 27 (c) of R.A. No.
association(s), agency(ies), or individual(s) with whom the 8424 provides that government-owned and controlled corporations
Corporation or operator has any contractual relationship in (GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the
connection with the operations of the casino(s) authorized Government Service and Insurance Corporation, the Social Security
to be conducted under this Franchise and to those receiving System, the Philippine Health Insurance Corporation, and the Philippine
compensation or other remuneration from the Corporation Charity Sweepstakes Office, thus:
as a result of essential facilities furnished and/or technical
services rendered to the Corporation or operator. (c) Government-owned or Controlled Corporations, Agencies or
Instrumentalities. - The provisions of existing special general laws to the
The fee or remuneration of foreign entertainers contracted by the contrary notwithstanding, all corporations, agencies or instrumentalities
Corporation or operator in pursuance of this provision shall be free owned and controlled by the Government, except the Government Service
of any tax. and Insurance Corporation (GSIS), the Social Security System (SSS), the
Philippine Health Insurance Corporation (PHIC), the Philippine Charity
(3) Dividend Income. − Notwithstanding any provision of law to the Sweepstakes Office (PCSO), and the Philippine Amusement and Gaming
contrary, in the event the Corporation should declare a cash Corporation (PAGCOR), shall pay such rate of tax upon their taxable
dividend income corresponding to the participation of the private income as are imposed by this Section upon corporations or associations
sector shall, as an incentive to the beneficiaries, be subject only to engaged in similar business, industry, or activity.9
a final flat income rate of ten percent (10%) of the regular income
tax rates. The dividend income shall not in such case be With the enactment of R.A. No. 933710 on May 24, 2005, certain sections of
considered as part of the beneficiaries' taxable income; provided, the National Internal Revenue Code of 1997 were amended. The particular
however, that such dividend income shall be totally exempted from amendment that is at issue in this case is Section 1 of R.A. No. 9337,
income or other form of taxes if invested within six (6) months from which amended Section 27 (c) of the National Internal Revenue Code of
the date the dividend income is received in the following: 1997 by excluding PAGCOR from the enumeration of GOCCs that are
exempt from payment of corporate income tax, thus:
(a) operation of the casino(s) or investments in any affiliate
activity that will ultimately redound to the benefit of the (c) Government-owned or Controlled Corporations, Agencies or
Corporation; or any other corporation with whom the Instrumentalities. - The provisions of existing special general laws to the
Corporation has any existing arrangements in connection contrary notwithstanding, all corporations, agencies, or instrumentalities
with or related to the operations of the casino(s); owned and controlled by the Government, except the Government Service
and Insurance Corporation (GSIS), the Social Security System (SSS), the
(b) Government bonds, securities, treasury notes, or Philippine Health Insurance Corporation (PHIC), and the Philippine Charity
government debentures; or Sweepstakes Office (PCSO), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations
(c) BOI-registered or export-oriented corporation(s).7 engaged in similar business, industry, or activity.

PAGCOR's tax exemption was removed in June 1984 through P.D. No. Different groups came to this Court via petitions for certiorari and
1931, but it was later restored by Letter of Instruction No. 1430, which was prohibition11 assailing the validity and constitutionality of R.A. No. 9337, in
issued in September 1984. particular:
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1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale Hence, the present petition for certiorari.
of goods and properties; Section 5, which imposes a 10% VAT on
importation of goods; and Section 6, which imposes a 10% VAT on PAGCOR raises the following issues:
sale of services and use or lease of properties, all contain a uniform
proviso authorizing the President, upon the recommendation of the I
Secretary of Finance, to raise the VAT rate to 12%. The said
provisions were alleged to be violative of Section 28 (2), Article VI
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB
of the Constitution, which section vests in Congress the exclusive
INITIO FOR BEING REPUGNANT TO THE EQUAL PROTECTION
authority to fix the rate of taxes, and of Section 1, Article III of the
[CLAUSE] EMBODIED IN SECTION 1, ARTICLE III OF THE 1987
Constitution on due process, as well as of Section 26 (2), Article VI
CONSTITUTION.
of the Constitution, which section provides for the "no amendment
rule" upon the last reading of a bill;
II
2) Sections 8 and 12 were alleged to be violative of Section 1,
Article III of the Constitution, or the guarantee of equal protection of WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB
the laws, and Section 28 (1), Article VI of the Constitution; and INITIO FOR BEING REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE]
EMBODIED IN SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION.
3) other technical aspects of the passage of the law, questioning
the manner it was passed. III

On September 1, 2005, the Court dismissed all the petitions and upheld the WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS
constitutionality of R.A. No. 9337.12 NULL AND VOID AB INITIO FOR BEING BEYOND THE SCOPE OF THE
BASIC LAW, RA 8424, SECTION 108, INSOFAR AS THE SAID
REGULATION IMPOSED VAT ON THE SERVICES OF THE PETITIONER
On the same date, respondent BIR issued Revenue Regulations (RR) No.
AS WELL AS PETITIONER’S LICENSEES OR FRANCHISEES WHEN
16-2005,13 specifically identifying PAGCOR as one of the franchisees
THE BASIC LAW, AS INTERPRETED BY APPLICABLE
subject to 10% VAT imposed under Section 108 of the National Internal
JURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER OR ON
Revenue Code of 1997, as amended by R.A. No. 9337. The said revenue
PETITIONER’S LICENSEES OR FRANCHISEES.14
regulation, in part, reads:
The BIR, in its Comment15 dated December 29, 2006, counters:
Sec. 4. 108-3. Definitions and Specific Rules on Selected Services. —
I
xxxx
SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE
(h) x x x
BOTH VALID AND CONSTITUTIONAL PROVISIONS OF LAWS THAT
SHOULD BE HARMONIOUSLY CONSTRUED TOGETHER SO AS TO
Gross Receipts of all other franchisees, other than those covered by Sec. GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER POSSIBLE.
119 of the Tax Code, regardless of how their franchisees may have been
granted, shall be subject to the 10% VAT imposed under Sec.108 of the
II
Tax Code. This includes, among others, the Philippine Amusement and
Gaming Corporation (PAGCOR), and its licensees or franchisees.
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SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND Equal protection requires that all persons or things similarly situated should
SECTION 10, ARTICLE III OF THE 1987 CONSTITUTION. be treated alike, both as to rights conferred and responsibilities imposed.
Similar subjects, in other words, should not be treated differently, so as to
III give undue favor to some and unjustly discriminate against others. The
guarantee means that no person or class of persons shall be denied the
BIR REVENUE REGULATIONS ARE PRESUMED VALID AND same protection of laws which is enjoyed by other persons or other classes
CONSTITUTIONAL UNTIL STRICKEN DOWN BY LAWFUL in like circumstances. The "equal protection of the laws is a pledge of the
AUTHORITIES. protection of equal laws." It limits governmental discrimination. The equal
protection clause extends to artificial persons but only insofar as their
property is concerned.
The Office of the Solicitor General (OSG), by way of Manifestation
In Lieu of Comment,16 concurred with the arguments of the petitioner. It
added that although the State is free to select the subjects of taxation and xxxx
that the inequity resulting from singling out a particular class for taxation or
exemption is not an infringement of the constitutional limitation, a tax law Legislative bodies are allowed to classify the subjects of legislation. If the
must operate with the same force and effect to all persons, firms and classification is reasonable, the law may operate only on some and not all
corporations placed in a similar situation. Furthermore, according to the of the people without violating the equal protection clause. The
OSG, public respondent BIR exceeded its statutory authority when it classification must, as an indispensable requisite, not be arbitrary. To be
enacted RR No. 16-2005, because the latter's provisions are contrary to valid, it must conform to the following requirements:
the mandates of P.D. No. 1869 in relation to R.A. No. 9337.
1) It must be based on substantial distinctions.
The main issue is whether or not PAGCOR is still exempt from corporate
income tax and VAT with the enactment of R.A. No. 9337. 2) It must be germane to the purposes of the law.

After a careful study of the positions presented by the parties, this Court 3) It must not be limited to existing conditions only.
finds the petition partly meritorious.
4) It must apply equally to all members of the class.18
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National
Internal Revenue Code of 1977, petitioner is no longer exempt from It is not contested that before the enactment of R.A. No. 9337, petitioner
corporate income tax as it has been effectively omitted from the list of was one of the five GOCCs exempted from payment of corporate income
GOCCs that are exempt from it. Petitioner argues that such omission is tax as shown in R.A. No. 8424, Section 27 (c) of which, reads:
unconstitutional, as it is violative of its right to equal protection of the laws
under Section 1, Article III of the Constitution: (c) Government-owned or Controlled Corporations, Agencies or
Instrumentalities. - The provisions of existing special or general laws to the
Sec. 1. No person shall be deprived of life, liberty, or property without due contrary notwithstanding, all corporations, agencies or instrumentalities
process of law, nor shall any person be denied the equal protection of the owned and controlled by the Government, except the Government Service
laws. and Insurance Corporation (GSIS), the Social Security System (SSS), the
Philippine Health Insurance Corporation (PHIC), the Philippine Charity
In City of Manila v. Laguio, Jr.,17 this Court expounded the meaning and Sweepstakes Office (PCSO), and the Philippine Amusement and Gaming
scope of equal protection, thus: Corporation (PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations
engaged in similar business, industry, or activity.19
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A perusal of the legislative records of the Bicameral Conference Meeting of they will not use that to --- for wallpaper. They will spend that eh, Mr.
the Committee on Ways on Means dated October 27, 1997 would show Chairman. So when they spend that---
that the exemption of PAGCOR from the payment of corporate income tax
was due to the acquiescence of the Committee on Ways on Means to the CHAIRMAN ENRILE. There’s a VAT.
request of PAGCOR that it be exempt from such tax.20 The records of the
Bicameral Conference Meeting reveal: HON. ROXAS. There will be a VAT and there will be other sales taxes no.
Is there a quantification? Is there an approximation?
HON. R. DIAZ. The other thing, sir, is we --- I noticed we imposed a tax on
lotto winnings. CHAIRMAN JAVIER. Not anything.

CHAIRMAN ENRILE. Wala na, tinanggal na namin yon. HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In
effect, it is not circulating in the economy which is unrealistic.
HON. R. DIAZ. Tinanggal na ba natin yon?
CHAIRMAN ENRILE. It does, it does, because this is taken and spent by
CHAIRMAN ENRILE. Oo. government, somebody receives it in the form of wages and supplies and
other services and other goods. They are not being taken from the public
HON. R. DIAZ. Because I was wondering whether we covered the tax on -- and stored in a vault.
- Whether on a universal basis, we included a tax on cockfighting winnings.
CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be
CHAIRMAN ENRILE. No, we removed the --- extra income for the taxpayers.

HON. R. DIAZ. I . . . (inaudible) natin yong lotto? HON. ROXAS. Precisely, so they will be spending it.21

CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request. The discussion above bears out that under R.A. No. 8424, the exemption of
PAGCOR from paying corporate income tax was not based on a
CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission. classification showing substantial distinctions which make for real
differences, but to reiterate, the exemption was granted upon the request of
CHAIRMAN ENRILE. Philippine Insurance --- Health, health ba. Yon ang PAGCOR that it be exempt from the payment of corporate income tax.
request ng Chairman, I will accept. (laughter) Pag-Pag-ibig yon, maliliit na
sa tao yon. With the subsequent enactment of R.A. No. 9337, amending R.A. No.
8424, PAGCOR has been excluded from the enumeration of GOCCs that
HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we are exempt from paying corporate income tax. The records of the
factored in an amount that would reflect the VAT and other sales taxes--- Bicameral Conference Meeting dated April 18, 2005, of the Committee on
the Disagreeing Provisions of Senate Bill No. 1950 and House Bill No.
3555, show that it is the legislative intent that PAGCOR be subject to the
CHAIRMAN ENRILE. No, we’re talking of this measure only. We will not ---
payment of corporate income tax, thus:
(discontinued)
THE CHAIRMAN (SEN. RECTO). Yes, Osmeña, the proponent of the
HON. ROXAS. No, no, no, no, from the --- arising from the exemption.
amendment.
Assuming that when we release the money into the hands of the public,
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SEN. OSMEÑA. Yeah. Mr. Chairman, one of the reasons why we're even SEN. OSMEÑA. It goes from pocket to the other, Monico.
considering this VAT bill is we want to show the world who our creditors,
that we are increasing official revenues that go to the national budget. REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator,
Unfortunately today, Pagcor is unofficial. because you may have your own pre-judgment on this and I don't blame
you. I don't blame you. And I know you have your own research. But will
Now, in 2003, I took a quick look this morning, Pagcor had a net income of this not affect a lot, the disbursements on social services and other?
9.7 billion after paying some small taxes that they are subjected to. Of the
9.7 billion, they claim they remitted to national government seven billion. REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question
Pagkatapos, there are other specific remittances like to the Philippine also. Wouldn't it be easier for you to explain to, say, foreign creditors, how
Sports Commission, etc., as mandated by various laws, and then about do you explain to them that if there is a fiscal gap some of our richest
400 million to the President's Social Fund. But all in all, their net profit today corporations has [been] spared [from] taxation by the government which is
should be about 12 billion. That's why I am questioning this two one rich source of revenues. Now, why do you save, why do you spare
billion. Because while essentially they claim that the money goes to certain government corporations on that, like Pagcor? So, would it be
government, and I will accept that just for the sake of argument. It easier for you to make an argument if everything was exposed to taxation?
does not pass through the appropriation process. And I think that at
least if we can capture 35 percent or 32 percent through the REP. TEVES. Mr. Chair, please.
budgetary process, first, it is reflected in our official income of
government which is applied to the national budget, and secondly, it
THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those
goes through what is constitutionally mandated as Congress
before we call Congressman Teves?
appropriating and defining where the money is spent and not through
a board of directors that has absolutely no accountability.
MR. PURISIMA. Thank you, Mr. Chair.
REP. PUENTEBELLA. Well, with all due respect, Mr. Chairman, follow up
lang. Yes, from definitely improving the collection, it will help us because it
will then enter as an official revenue although when dividends declare
it also goes in as other income. (sic)
There is wisdom in the comments of my good friend from Cebu, Senator
Osmeña.
xxxx
SEN. OSMEÑA. And Negros.
REP. TEVES. Mr. Chairman.
REP. PUENTEBELLA. And Negros at the same time ay Kasimanwa. But I
would not want to put my friends from the Department of Finance in a xxxx
difficult position, but may we know your comments on this knowing that as
Senator Osmeña just mentioned, he said, "I accept that that a lot of it is THE CHAIRMAN (REP. LAPUS). Congressman Teves.
going to spending for basic services," you know, going to most, I think,
supposedly a lot or most of it should go to government spending, social REP. TEVES. Yeah. Pagcor is controlled under Section 27, that is on
services and the like. What is your comment on this? This is going to affect income tax. Now, we are talking here on value-added tax. Do you
a lot of services on the government side. mean to say we are going to amend it from income tax to value-added
tax, as far as Pagcor is concerned?
THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair.
 Page 9 of 17

THE CHAIRMAN (SEN. RECTO). No. We are just amending that section shown by the discussions in the Bicameral Conference Meeting, is to
with regard to the exemption from income tax of Pagcor. require PAGCOR to pay corporate income tax; hence, the omission or
removal of PAGCOR from exemption from the payment of corporate
xxxx income tax. It is a basic precept of statutory construction that the express
mention of one person, thing, act, or consequence excludes all others as
REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr. Chairman. expressed in the familiar maxim expressio unius est exclusio
alterius.27 Thus, the express mention of the GOCCs exempted from
payment of corporate income tax excludes all others. Not being excepted,
THE CHAIRMAN (REP. LAPUS). Congressman Nograles.
petitioner PAGCOR must be regarded as coming within the purview of the
general rule that GOCCs shall pay corporate income tax, expressed in the
REP. NOGRALES. Just a point of inquiry from the Chair. What exactly are maxim: exceptio firmat regulam in casibus non exceptis.28
the functions of Pagcor that are VATable? What will we VAT in Pagcor?
PAGCOR cannot find support in the equal protection clause of the
THE CHAIRMAN (REP. LAPUS). This is on own income tax. This is Pagcor Constitution, as the legislative records of the Bicameral Conference
income tax. Meeting dated October 27, 1997, of the Committee on Ways and Means,
show that PAGCOR’s exemption from payment of corporate income tax, as
REP. NOGRALES. No, that's why. Anong i-va-Vat natin sa kanya. Sale of provided in Section 27 (c) of R.A. No. 8424, or the National Internal
what? Revenue Code of 1997, was not made pursuant to a valid classification
based on substantial distinctions and the other requirements of a
xxxx reasonable classification by legislative bodies, so that the law may operate
only on some, and not all, without violating the equal protection clause. The
REP. VILLAFUERTE. Mr. Chairman, my question is, what are we VATing legislative records show that the basis of the grant of exemption to
Pagcor with, is it the . . . PAGCOR from corporate income tax was PAGCOR’s own request to be
exempted.
REP. NOGRALES. Mr. Chairman, this is a secret agreement or the way
they craft their contract, which basis? Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and
void ab initio for violating the non-impairment clause of the Constitution.
THE CHAIRMAN (SEN. RECTO). Congressman Nograles, the Senate Petitioner avers that laws form part of, and is read into, the contract even
version does not discuss a VAT on Pagcor but it just takes away their without the parties expressly saying so. Petitioner states that the private
exemption from non-payment of income tax.22 parties/investors transacting with it considered the tax exemptions, which
inure to their benefit, as the main consideration and inducement for their
Taxation is the rule and exemption is the exception.23 The burden of proof decision to transact/invest with it. Petitioner argues that the withdrawal of
rests upon the party claiming exemption to prove that it is, in fact, covered its exemption from corporate income tax by R.A. No. 9337 has the effect of
by the exemption so claimed.24 As a rule, tax exemptions are construed changing the main consideration and inducement for the transactions of
strongly against the claimant.25 Exemptions must be shown to exist clearly private parties with it; thus, the amendatory provision is violative of the non-
and categorically, and supported by clear legal provision.26 impairment clause of the Constitution.

In this case, PAGCOR failed to prove that it is still exempt from the Petitioner’s contention lacks merit.
payment of corporate income tax, considering that Section 1 of R.A. No.
9337 amended Section 27 (c) of the National Internal Revenue Code of The non-impairment clause is contained in Section 10, Article III of the
1997 by omitting PAGCOR from the exemption. The legislative intent, as Constitution, which provides that no law impairing the obligation of
 Page 10 of 17

contracts shall be passed. The non-impairment clause is limited in sea, within the territorial jurisdiction of the Republic of the
application to laws that derogate from prior acts or contracts by enlarging, Philippines.36 Under Section 11, Article XII of the Constitution, PAGCOR’s
abridging or in any manner changing the intention of the parties.29 There is franchise is subject to amendment, alteration or repeal by Congress such
impairment if a subsequent law changes the terms of a contract between as the amendment under Section 1 of R.A. No. 9377. Hence, the provision
the parties, imposes new conditions, dispenses with those agreed upon or in Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by
withdraws remedies for the enforcement of the rights of the parties.30 withdrawing the exemption of PAGCOR from corporate income tax, which
may affect any benefits to PAGCOR’s transactions with private parties, is
As regards franchises, Section 11, Article XII of the Constitution31 provides not violative of the non-impairment clause of the Constitution.
that no franchise or right shall be granted except under the condition that it
shall be subject to amendment, alteration, or repeal by the Congress when Anent the validity of RR No. 16-2005, the Court holds that the provision
the common good so requires.32 subjecting PAGCOR to 10% VAT is invalid for being contrary to R.A. No.
9337. Nowhere in R.A. No. 9337 is it provided that petitioner can be
In Manila Electric Company v. Province of Laguna,33 the Court held that a subjected to VAT. R.A. No. 9337 is clear only as to the removal of
franchise partakes the nature of a grant, which is beyond the purview of the petitioner's exemption from the payment of corporate income tax, which
non-impairment clause of the Constitution.34 The pertinent portion of the was already addressed above by this Court.
case states:
As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from
While the Court has, not too infrequently, referred to tax exemptions VAT pursuant to Section 7 (k) thereof, which reads:
contained in special franchises as being in the nature of contracts and a
part of the inducement for carrying on the franchise, these exemptions, Sec. 7. Section 109 of the same Code, as amended, is hereby further
nevertheless, are far from being strictly contractual in nature. Contractual amended to read as follows:
tax exemptions, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, are those Section 109. Exempt Transactions. - (1) Subject to the provisions of
agreed to by the taxing authority in contracts, such as those contained in Subsection (2) hereof, the following transactions shall be exempt from the
government bonds or debentures, lawfully entered into by them under value-added tax:
enabling laws in which the government, acting in its private capacity, sheds
its cloak of authority and waives its governmental immunity. Truly, tax xxxx
exemptions of this kind may not be revoked without impairing the
obligations of contracts. These contractual tax exemptions, however, are
(k) Transactions which are exempt under international agreements to which
not to be confused with tax exemptions granted under franchises. A
the Philippines is a signatory or under special laws, except Presidential
franchise partakes the nature of a grant which is beyond the purview of the
Decree No. 529.37
non-impairment clause of the Constitution. Indeed, Article XII, Section 11,
of the 1987 Constitution, like its precursor provisions in the 1935 and the
1973 Constitutions, is explicit that no franchise for the operation of a public Petitioner is exempt from the payment of VAT, because PAGCOR’s
utility shall be granted except under the condition that such privilege shall charter, P.D. No. 1869, is a special law that grants petitioner exemption
be subject to amendment, alteration or repeal by Congress as and when from taxes.
the common good so requires.35
Moreover, the exemption of PAGCOR from VAT is supported by Section 6
In this case, PAGCOR was granted a franchise to operate and maintain of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424,
gambling casinos, clubs and other recreation or amusement places, sports, thus:
gaming pools, i.e., basketball, football, lotteries, etc., whether on land or
 Page 11 of 17

[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR.
amended, is hereby further amended to read as follows: However, PAGCOR refused to pay the taxes because of its tax-exempt
status. PAGCOR paid only the amount due to Acesite minus VAT in the
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of sum of ₱30,152,892.02. Acesite paid VAT in the amount of ₱30,152,892.02
Properties. — to the Commissioner of Internal Revenue, fearing the legal consequences
of its non-payment. In May 1998, Acesite sought the refund of the amount it
(A) Rate and Base of Tax. — There shall be levied, assessed and paid as VAT on the ground that its transaction with PAGCOR was subject
collected, a value-added tax equivalent to ten percent (10%) of gross to zero rate as it was rendered to a tax-exempt entity. The Court ruled that
receipts derived from the sale or exchange of services, including the use or PAGCOR and Acesite were both exempt from paying VAT, thus:
lease of properties: x x x
xxxx
xxxx
PAGCOR is exempt from payment of indirect taxes
(B) Transactions Subject to Zero Percent (0%) Rate. — The following
services performed in the Philippines by VAT-registered persons shall be It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the
subject to zero percent (0%) rate; latter an exemption from the payment of taxes. Section 13 of P.D. 1869
pertinently provides:
xxxx
Sec. 13. Exemptions. —
(3) Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Philippines is a xxxx
signatory effectively subjects the supply of such services to zero percent
(0%) rate; (2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or
form, income or otherwise, as well as fees, charges or levies of whatever
x x x x38 nature, whether National or Local, shall be assessed and collected under
this Franchise from the Corporation; nor shall any form of tax or charge
As pointed out by petitioner, although R.A. No. 9337 introduced attach in any way to the earnings of the Corporation, except a Franchise
amendments to Section 108 of R.A. No. 8424 by imposing VAT on other Tax of five (5%) percent of the gross revenue or earnings derived by the
services not previously covered, it did not amend the portion of Section 108 Corporation from its operation under this Franchise. Such tax shall be due
(B) (3) that subjects to zero percent rate services performed by VAT- and payable quarterly to the National Government and shall be in lieu of all
registered persons to persons or entities whose exemption under special kinds of taxes, levies, fees or assessments of any kind, nature or
laws or international agreements to which the Philippines is a signatory description, levied, established or collected by any municipal, provincial, or
effectively subjects the supply of such services to 0% rate. national government authority.

Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. (b) Others: The exemptions herein granted for earnings derived from the
8424 has been thoroughly and extensively discussed in Commissioner of operations conducted under the franchise specifically from the payment of
Internal Revenue v. Acesite (Philippines) Hotel Corporation.39 Acesite was any tax, income or otherwise, as well as any form of charges, fees or
the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased a levies, shall inure to the benefit of and extend to corporation(s),
portion of the hotel’s premises to PAGCOR. It incurred VAT amounting to association(s), agency(ies), or individual(s) with whom the Corporation or
₱30,152,892.02 from its rental income and sale of food and beverages to operator has any contractual relationship in connection with the operations
PAGCOR from January 1996 to April 1997. Acesite tried to shift the said of the casino(s) authorized to be conducted under this Franchise and to
 Page 12 of 17

those receiving compensation or other remuneration from the Corporation seller or lessor has the option to follow either way in charging its clients and
or operator as a result of essential facilities furnished and/or technical customer. In the instant case, Acesite followed the latter method, that is,
services rendered to the Corporation or operator. charging an additional 10% of the gross sales and rentals. Be that as it
may, the use of either method, and in particular, the first method, does not
Petitioner contends that the above tax exemption refers only to PAGCOR's denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.
direct tax liability and not to indirect taxes, like the VAT.
VAT exemption extends to Acesite
We disagree.
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by
A close scrutiny of the above provisos clearly gives PAGCOR a blanket Acesite, the latter is not liable for the payment of it as it is exempt in this
exemption to taxes with no distinction on whether the taxes are direct or particular transaction by operation of law to pay the indirect tax. Such
indirect. We are one with the CA ruling that PAGCOR is also exempt from exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code,
indirect taxes, like VAT, as follows: as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides:

Under the above provision [Section 13 (2) (b) of P.D. 1869], the term Section 102. Value-added tax on sale of services.- (a) Rate and base of tax
"Corporation" or operator refers to PAGCOR. Although the law does not - There shall be levied, assessed and collected, a value-added tax
specifically mention PAGCOR's exemption from indirect taxes, PAGCOR is equivalent to 10% of gross receipts derived by any person engaged in the
undoubtedly exempt from such taxes because the law exempts from taxes sale of services x x x; Provided, that the following services performed in the
persons or entities contracting with PAGCOR in casino operations. Philippines by VAT registered persons shall be subject to 0%.
Although, differently worded, the provision clearly exempts PAGCOR from
indirect taxes. In fact, it goes one step further by granting tax exempt status xxxx
to persons dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and (3) Services rendered to persons or entities whose exemption under
neither is Acesite as the latter is effectively subject to zero percent rate special laws or international agreements to which the Philippines is a
under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.) signatory effectively subjects the supply of such services to zero (0%) rate
(emphasis supplied).
Indeed, by extending the exemption to entities or individuals dealing with
PAGCOR, the legislature clearly granted exemption also from indirect The rationale for the exemption from indirect taxes provided for in P.D.
taxes. It must be noted that the indirect tax of VAT, as in the instant case, 1869 and the extension of such exemption to entities or individuals dealing
can be shifted or passed to the buyer, transferee, or lessee of the goods, with PAGCOR in casino operations are best elucidated from the 1987 case
properties, or services subject to VAT. Thus, by extending the tax of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where
exemption to entities or individuals dealing with PAGCOR in casino the absolute tax exemption of the World Health Organization (WHO) upon
operations, it is exempting PAGCOR from being liable to indirect an international agreement was upheld. We held in said case that the
taxes. exemption of contractee WHO should be implemented to mean that the
entity or person exempt is the contractor itself who constructed the building
The manner of charging VAT does not make PAGCOR liable to said owned by contractee WHO, and such does not violate the rule that tax
tax. exemptions are personal because the manifest intention of the agreement
is to exempt the contractor so that no contractor's tax may be shifted to the
It is true that VAT can either be incorporated in the value of the goods, contractee WHO. Thus, the proviso in P.D. 1869, extending the exemption
properties, or services sold or leased, in which case it is computed as 1/11 to entities or individuals dealing with PAGCOR in casino operations, is
of such value, or charged as an additional 10% to the value. Verily, the
 Page 13 of 17

clearly to proscribe any indirect tax, like VAT, that may be shifted to
PAGCOR.40 CONCHITA CARPIO
ANTONIO T. CARPIO
MORALES
Associate Justice
Although the basis of the exemption of PAGCOR and Acesite from VAT in Associate Justice
the case of The Commissioner of Internal Revenue v. Acesite (Philippines)
Hotel Corporation was Section 102 (b) of the 1977 Tax Code, as amended,
which section was retained as Section 108 (B) (3) in R.A. No. 8424,41 it is On Official Leave
PRESBITERO J.
ANTONIO EDUARDO B.
still applicable to this case, since the provision relied upon has been VELASCO, JR.
NACHURA
retained in R.A. No. 9337.42 Associate Justice
Associate Justice
1avvphi1

It 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, TERESITA J. LEONARDO- On Official Leave
because the said rule or regulation cannot go beyond the terms and DE CASTRO ARTURO D. BRION
provisions of the basic law.43 RR No. 16-2005, therefore, cannot go beyond Associate Justice Associate Justice
the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under
R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to
10% VAT under RR No. 16-2005; hence, the said regulatory provision is MARIANO C. DEL
LUCAS P. BERSAMIN
hereby nullified. CASTILLO
Associate Justice
Associate Justice
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic
Act No. 9337, amending Section 27 (c) of the National Internal Revenue
Code of 1997, by excluding petitioner Philippine Amusement and Gaming MARTIN S. VILLARAMA,
ROBERTO A. ABAD
Corporation from the enumeration of government-owned and controlled JR.
Associate Justice
corporations exempted from corporate income tax is valid and Associate Justice
constitutional, while BIR Revenue Regulations No. 16-2005 insofar as it
subjects PAGCOR to 10% VAT is null and void for being contrary to the JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA
National Internal Revenue Code of 1997, as amended by Republic Act No. Associate Justice Associate Justice
9337.

No costs. MA. LOURDES P.A. SERENO

Associate Justice
SO ORDERED.
CERTIFICATION
DIOSDADO M. PERALTA
Associate Justice Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified
that the conclusions in the above Decision had been reached in
WE CONCUR: consultation before the case was assigned to the writer of the opinion of the
Court.
RENATO C. CORONA
Chief Justice RENATO C. CORONA
Chief Justice
 Page 14 of 17

established, or collected by any municipal, provincial or

National authority. (Emphasis supplied.)

Footnotes 5
Section 3, P.D. No. 1399, in part, reads:

* On official leave. Section 3. Section 4 of Presidential Decree No. 1067-B is

hereby amended to read as follows:
1
Under Rule 65 of the Rules of Court.
Section 4. Exemptions. — x x x
2
CREATING THE PHILIPPINE AMUSEMENTS AND GAMING
CORPORATION, DEFINING ITS POWERS AND FUNCTIONS, (1) Duties, taxes and other imposts on importation. – x x x
PROVIDING FUNDS THEREFOR, AND FOR OTHER
PURPOSES. (2) Income and other taxes. —

3
GRANTING THE PAGCOR A FRANCHISE TO ESTABLISH, (a) Franchise Holder: No tax of any kind or form, income or
OPERATE AND MAINTAIN GAMBLING CASINOS ON LAND OR otherwise, as well as fees, charges, or levies of whatever
WATER WITHIN THE TERRITORIAL JURISDICTION OF THE nature, shall be assessed and collected under this
REPUBLIC OF THE PHILIPPINES. Franchise from the Franchise Holder; nor shall any form of
tax or charge attach in any way to the earnings of the
4
Section 4 of P.D. No. 1067-B, provides: Franchise Holder, except a Franchise Tax of five percent (5
%) of the gross revenue or earnings derived by the
Section 4. Exemptions. — Franchise Holder form its operation under this Franchise.
Such tax shall be due and payable to the National
Government and shall be in lieu of all taxes, levies, fees or
(1) Duties, taxes and other imposts on importations. - All
assessments of any kind, nature or description, levied,
importations of equipment, vehicles, boats, ships, barges,
established, or collected by any municipal, provincial or
aircraft and other gambling paraphernalia or facilities for the
sale and exclusive use of the casinos, clubs and other national authority.
recreation or amusement places to be established under
and by virtue of this Franchise shall be exempt from the (b) Others: The exemption herein granted for earnings
payment of duties, taxes and other imports. derived from the operations conducted under the franchise,
specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies,
(2) Income and other taxes. - No income or any other form
shall inure to the benefit of and extend to corporation/s,
shall be assessed and collected under this Franchise from
association/s, agency/ies, or individual/s with whom the
the franchise holder; nor shall any form of tax or charge
Franchise has any contractual relationship in connection
attach in any way to the earnings of the franchise holder,
with the operations of the casino/s authorized to be
EXCEPT a Franchise Tax of five percent (5%) of the gross
conducted under the franchise and to those receiving
revenue or earnings derived by the franchise holder from its
compensation or other remuneration from the Franchise
operation under this Franchise. Such tax shall be due and
Holder as a result of essential facilities furnished and/or
payable quarterly to the National Government and shall be
technical services rendered to the Franchise Holder.
in lieu of all taxes of any kind, nature or description, levied,
(Emphasis supplied.)
 Page 15 of 17
6
CONSOLIDATING AND AMENDING PRESIDENTIAL DECREE Canada, 305 U.S. 337, 59 S. Ct. 232, 83 L. Ed. 208 (1938), reh'g
NOS. 1067-A, 1067-B, 1067-C, 1399 AND 1632, RELATIVE TO denied, 305 U.S. 676, 59 S. Ct. 356, 83 L. Ed. 437 (1939) and
THE FRANCHISE AND POWERS OF THE PHILIPPINE mandate conformed to, 344 Mo. 1238, 131 S.W. 2d 217 (1939),
AMUSEMENT AND GAMING CORPORATION (PAGCOR). Romer v. Evans, 517 U.S. 620, 116 S. Ct. 1620, 134 L. Ed. 2d 855,
109 Ed. Law Rep. 539, 70 Fair Empl. Prac. Cas. (BNA) 1180, 68
7
Emphasis supplied. Empl. Prac. Dec. (CCH) 44013 (1996), Walker v. Board of
Supervisors of Monroe County, 224 Miss. 801, 81 So. 2d 225
8
AN ACT AMENDING THE NATIONAL INTERNAL REVENUE (1955), cert. denied, 350 U.S. 887, 76 S. Ct. 142, 100 L. Ed. 782
CODE, AS AMENDED, AND FOR OTHER PURPOSES. (1955); Preisler v. Calcaterra, 362 Mo. 662, 243 S.W. 2d 62 (1951);
Smith, Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919): Nuñez v.
Sandiganbayan, 197 Phil. 407 (1982); Cruz, Isagani
9
Emphasis supplied.
A., Constitutional Law 125 (1998) and People v. Cayat, 68 Phil. 12
(1939).
10
AN ACT AMENDING SECTIONS 27, 28, 34, 106. 107, 108, 109,
110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237, 19
Emphasis supplied.
AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF
1997, AS AMENDED, AND FOR OTHER PURPOSES. 20
Emphasis supplied.
11
G.R. Nos. 168056, 168207, 168461, 168463 and 168730. 21
Emphasis supplied.
12
See Abakada Guro Party List v. Ermita, 506 Phil. 1 (2005). 22
Emphasis supplied.
13
Revenue Regulations No. 16-2005 states: "Pursuant to the
provisions of Secs. 244 and 245 of the National Internal Revenue
23
National Power Corporation v. Province of Isabela, G.R. No.
Code of 1997, as last amended by Republic Act No. 9337 (Tax 165827, June 16, 2006, 491 SCRA 169, 180.
Code), in relation to Sec. 23 of the said Republic Act, these
Regulations are hereby promulgated to implement Title IV of the 24
Id.
Tax Code, as well as other provisions pertaining to Value-Added
Tax (VAT). These Regulations supersedes Revenue Regulations 25
National Power Corporation v. City of Cabanatuan, 449 Phil. 233,
No. 14-2005 dated June 22, 2005." 259 (2003).

14
Rollo, pp. 18-19; 318-319. 26
Id.

15
Id. at 230-260. 27
Id.; Ruben E. Agpalo, Statutory Construction, Fifth Edition, ©
2003, p. 222.
16
Id. at 190-222.
28
C.N. Hodges v. Municipal Board, Iloilo City, et al.,125 Phil. 442,
17
495 Phil. 289 (2005). 449 (1967); Ruben E. Agpalo, Statutory Construction, Fifth Edition,
© 2003, pp. 222-223.
Id. at 326, citing Ichong v. Hernandez, 101 Phil. 1155 (1957), 16B
18

Am Jur. 2d § 779 299, citing State of Missouri ex rel. Gaines v.

 Page 16 of 17
29
BANAT Party-list v. COMELEC, G.R. No. 177508, August 7, 40
Id. at 98-101. (Emphasis supplied.)
2009, 595 SCRA 477, 498, citing Serrano v. Gallant Maritime
Services, Inc., 582 SCRA 254 (2009). 41
R.A. No. 8424, SEC. 108. Value-Added Tax on Sale of Services
and Use or Lease of Properties. — x x x
30
Id., citing Clemons v. Nolting, 42 Phil. 702 (1922).
Rate and Base of Tax. — There shall be levied, assessed
31
The Constitution, Art. XII, Sec. 11. No franchise, certificate, or and collected, a value-added tax equivalent to ten percent
any other form of authorization for the operation of a public utility (10%) of gross receipts derived from the sale or exchange
shall be granted except to citizens of the Philippines or to of services, including the use or lease of properties.
corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by The phrase "sale or exchange of services" means the
such citizens, nor shall such franchise, certificate or authorization performance of all kinds of services in the Philippines for
be exclusive in character or for a longer period than fifty years. others for a fee, remuneration or consideration, including
Neither shall any such franchise or right be granted except under those performed or rendered by xxx services of franchise
the condition that it shall be subject to amendment, alteration, or grantees of telephone and telegraph, radio and television
repeal by the Congress when the common good so requires. The broadcasting and all other franchise grantees except those
State shall encourage equity participation in public utilities by the under Section 119 of this Code; x x x
general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to xxxx
their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be
(B) Transactions Subject to Zero Percent (0%) Rate.—The
citizens of the Philippines. (Emphasis supplied.)
following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%)
32
Emphasis supplied. rate;
33
366 Phil. 428 (1999). xxxx
34
Id. at 438. (Emphasis supplied.) (3) Services rendered to persons or entities whose
exemption under special laws or international agreements
35
Id. at 438-439. (Emphasis supplied.) to which the Philippines is a signatory effectively subjects
the supply of such services to zero percent (0%) rate;
36
See P.D. No. 1869, Sec. 10.
x x x x (Emphasis supplied.)
37
Emphasis supplied.
42
Section 6 of R.A. No. 9337states:
38
Emphasis supplied.
SEC. 6. Section 108 of the same Code, as amended, is
39
G.R. No. 147295, February 16, 2007, 516 SCRA 93, 101, hereby further amended to read as follows:
citing Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc., 148 SCRA 36 (1987).
 Page 17 of 17

SEC. 108. Value-Added Tax on Sale of Services and Use

or Lease of Properties. —

(A) Rate and Base of Tax— There shall be levied, assessed

and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange
of services, including the use or lease of properties x x x

xxxx

(B) Transactions Subject to Zero percent (0%) Rate.—The

following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%)
rate;

xxxx

(3) Services rendered to persons or entities whose

exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects
the supply of such services to zero percent (0%) rate;

x x x x (Emphasis supplied.)

43
Hijo Plantation, Inc. v. Central Bank, 247 Phil. 154, 162 (1988),
citing People v. Lim, 108 Phil. 1091 (1960).