G.R. No.

167330 September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

CORONA, J.:

ARTICLE II
Declaration of Principles and State Policies

Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.

ARTICLE XIII
Social Justice and Human Rights

Section 11. The State shall adopt an integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available to all the
people at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly,
disabled, women, and children. The State shall endeavor to provide free medical care to paupers.1

For resolution are a motion for reconsideration and supplemental motion for reconsideration dated
July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers,
Inc.2

We recall the facts of this case, as follows:

Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization
to take care of the sick and disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization." Individuals enrolled in its
health care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its duly licensed physicians, specialists and
other professional technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.

xxx xxx xxx

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
₱224,702,641.18. xxxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care
agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax
Code xxxx

xxx xxx xxx

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act
on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:

WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED.
Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to ₱22,054,831.75 inclusive of
25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency
and ₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully
paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without
force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST
deficiency tax.

SO ORDERED.

Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the
DST assessment. He claimed that petitioner’s health care agreement was a contract of insurance
subject to DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement
was in the nature of a non-life insurance contract subject to DST.

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals,
insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax
assessment and ordered petitioner to desist from collecting the same is REVERSED and SET
ASIDE.

Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency

Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and
20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code,
until the same shall have been fully paid.

SO ORDERED.

Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.

xxx xxx xxx

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We
held that petitioner’s health care agreement during the pertinent period was in the nature of non-life
insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4We also ruled that petitioner’s contention that
it is a health maintenance organization (HMO) and not an insurance company is irrelevant because
contracts between companies like petitioner and the beneficiaries under their plans are treated as
insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the
privilege, opportunity or facility offered at exchanges for the transaction of the business.

Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental
motion for reconsideration, asserting the following arguments:
 (a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on
a company engaged in the business of fidelity bonds and other insurance policies. Petitioner,
as an HMO, is a service provider, not an insurance company.

(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect
the CA’s disposition that health care services are not in the nature of an insurance business.

(c) Section 185 should be strictly construed.

(d) Legislative intent to exclude health care agreements from items subject to DST is clear,
especially in the light of the amendments made in the DST law in 2002.

(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not
those contemplated under Section 185.

(f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health
insurance is not covered by Section 185.

(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in
Section 185.

(h) The June 12, 2008 decision should only apply prospectively.

(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005
and all prior years. Therefore, the questioned assessments on the DST are now rendered
moot and academic.6

Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda
on June 8, 2009.

In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty
under RA 94807(also known as the "Tax Amnesty Act of 2007") by fully paying the amount of
₱5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005.8

We find merit in petitioner’s motion for reconsideration.

Petitioner was formally registered and incorporated with the Securities and Exchange Commission
on June 30, 1987.9 It is engaged in the dispensation of the following medical services to individuals
who enter into health care agreements with it:

Preventive medical services such as periodic monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise and other healthy habits, and immunization;

Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis,
complete blood count, and the like and

Curative medical services which pertain to the performing of other remedial and therapeutic
processes in the event of an injury or sickness on the part of the enrolled member.10

Individuals enrolled in its health care program pay an annual membership fee. Membership is on a
year-to-year basis. The medical services are dispensed to enrolled members in a hospital or clinic
owned, operated or accredited by petitioner, through physicians, medical and dental practitioners
under contract with it. It negotiates with such health care practitioners regarding payment schemes,
financing and other procedures for the delivery of health services. Except in cases of emergency, the
professional services are to be provided only by petitioner's physicians, i.e. those directly employed
by it11 or whose services are contracted by it.12 Petitioner also provides hospital services such as
room and board accommodation, laboratory services, operating rooms, x-ray facilities and general
nursing care.13 If and when a member avails of the benefits under the agreement, petitioner pays the
participating physicians and other health care providers for the services rendered, at pre-agreed
rates.14

To avail of petitioner’s health care programs, the individual members are required to sign and
execute a standard health care agreement embodying the terms and conditions for the provision of
the health care services. The same agreement contains the various health care services that can be
engaged by the enrolled member, i.e., preventive, diagnostic and curative medical services. Except
for the curative aspect of the medical service offered, the enrolled member may actually make use of
the health care services being offered by petitioner at any time.

Health Maintenance Organizations Are Not Engaged In The Insurance Business

We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an
insurer because its agreements are treated as insurance contracts and the DST is not a tax on the
business but an excise on the privilege, opportunity or facility used in the transaction of the
business.15

Petitioner, however, submits that it is of critical importance to characterize the business it is engaged
in, that is, to determine whether it is an HMO or an insurance company, as this distinction is
indispensable in turn to the issue of whether or not it is liable for DST on its health care
agreements.16

A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of
petitioner are meritorious.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made
or renewed by any person, association or company or corporation transacting the business
of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), and all
bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or
position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing
the validity or legality of any bond or other obligations issued by any province, city, municipality, or
other public body or organization, and on all obligations guaranteeing the title to any real estate, or
guaranteeing any mercantile credits, which may be made or renewed by any such person, company
or corporation, there shall be collected a documentary stamp tax of fifty centavos (₱0.50) on each
four pesos (₱4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)

It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a
statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To this
end, a construction which renders every word operative is preferred over that which makes some
words idle and nugatory.17 This principle is expressed in the maxim Ut magis valeat quam
pereat, that is, we choose the interpretation which gives effect to the whole of the statute – its every
word.18

From the language of Section 185, it is evident that two requisites must concur before the DST can
apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business of accident, fidelity, employer’s
liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance).

Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"),
an HMO is "an entity that provides, offers or arranges for coverage of designated health services
needed by plan members for a fixed prepaid premium."19 The payments do not vary with the extent,
frequency or type of services provided.

The question is: was petitioner, as an HMO, engaged in the business of insurance during the
pertinent taxable years? We rule that it was not.

Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes
"doing an insurance business" or "transacting an insurance business:"

a) making or proposing to make, as insurer, any insurance contract;

b) making or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety;

c) doing any kind of business, including a reinsurance business, specifically recognized as

constituting the doing of an insurance business within the meaning of this Code;

d) doing or proposing to do any business in substance equivalent to any of the foregoing in a

manner designed to evade the provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions or that no separate or direct consideration is
received therefore, shall not be deemed conclusive to show that the making thereof does not
constitute the doing or transacting of an insurance business.

Various courts in the United States, whose jurisprudence has a persuasive effect on our
decisions,21 have determined that HMOs are not in the insurance business. One test that they have
applied is whether the assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the organization or whether they are
merely incidental to its business. If these are the principal objectives, the business is that of
insurance. But if they are merely incidental and service is the principal purpose, then the business is
not insurance.

Applying the "principal object and purpose test,"22 there is significant American case law supporting
the argument that a corporation (such as an HMO, whether or not organized for profit), whose main
object is to provide the members of a group with health services, is not engaged in the insurance
business.

The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals of the
District of Columbia Circuit held that Group Health Association should not be considered as engaged
in insurance activities since it was created primarily for the distribution of health care services rather
than the assumption of insurance risk.

xxx Although Group Health’s activities may be considered in one aspect as creating security against
loss from illness or accident more truly they constitute the quantity purchase of well-rounded,
continuous medical service by its members. xxx The functions of such an organization are not
identical with those of insurance or indemnity companies. The latter are concerned primarily, if
not exclusively, with risk and the consequences of its descent, not with service, or its extension in
kind, quantity or distribution; with the unusual occurrence, not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is concerned principally with getting service
rendered to its members and doing so at lower prices made possible by quantity purchasing
and economies in operation. Its primary purpose is to reduce the cost rather than the risk of
medical care; to broaden the service to the individual in kind and quantity; to enlarge the
number receiving it; to regularize it as an everyday incident of living, like purchasing food
and clothing or oil and gas, rather than merely protecting against the financial loss caused by
extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It is,
in this instance, to take care of colds, ordinary aches and pains, minor ills and all the temporary
bodily discomforts as well as the more serious and unusual illness. To summarize, the distinctive
features of the cooperative are the rendering of service, its extension, the bringing of
physician and patient together, the preventive features, the regularization of service as well
as payment, the substantial reduction in cost by quantity purchasing in short, getting the
medical job done and paid for; not, except incidentally to these features, the indemnification
for cost after the services is rendered. Except the last, these are not distinctive or generally
characteristic of the insurance arrangement. There is, therefore, a substantial difference between
contracting in this way for the rendering of service, even on the contingency that it be needed, and
contracting merely to stand its cost when or after it is rendered.

That an incidental element of risk distribution or assumption may be present should not outweigh all
other factors. If attention is focused only on that feature, the line between insurance or indemnity and
other types of legal arrangement and economic function becomes faint, if not extinct. This is
especially true when the contract is for the sale of goods or services on contingency. But obviously it
was not the purpose of the insurance statutes to regulate all arrangements for assumption or
distribution of risk. That view would cause them to engulf practically all contracts, particularly
conditional sales and contingent service agreements. The fallacy is in looking only at the risk
element, to the exclusion of all others present or their subordination to it. The question turns,
not on whether risk is involved or assumed, but on whether that or something else to which it
is related in the particular plan is its principal object purpose.24 (Emphasis supplied)

In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan
of operation as a whole of the corporation, it was service rather than indemnity which stood as its
principal purpose.

There is another and more compelling reason for holding that the service is not engaged in the
insurance business. Absence or presence of assumption of risk or peril is not the sole test to
be applied in determining its status. The question, more broadly, is whether, looking at the
plan of operation as a whole, ‘service’ rather than ‘indemnity’ is its principal object and
purpose. Certainly the objects and purposes of the corporation organized and maintained by the
California physicians have a wide scope in the field of social service. Probably there is no more
impelling need than that of adequate medical care on a voluntary, low-cost basis for persons
of small income. The medical profession unitedly is endeavoring to meet that need.
Unquestionably this is ‘service’ of a high order and not ‘indemnity.’26 (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an insurance
company is that HMOs undertake to provide or arrange for the provision of medical services through
participating physicians while insurance companies simply undertake to indemnify the insured for
medical expenses incurred up to a pre-agreed limit. Somerset Orthopedic Associates, P.A. v.
Horizon Blue Cross and Blue Shield of New Jersey27 is clear on this point:

The basic distinction between medical service corporations and ordinary health and accident
insurers is that the former undertake to provide prepaid medical services through participating
physicians, thus relieving subscribers of any further financial burden, while the latter only undertake
to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained
in the policy.

xxx xxx xxx

The primary purpose of a medical service corporation, however, is an undertaking to provide

physicians who will render services to subscribers on a prepaid basis. Hence, if there are no
physicians participating in the medical service corporation’s plan, not only will the
subscribers be deprived of the protection which they might reasonably have expected would
be provided, but the corporation will, in effect, be doing business solely as a health and
accident indemnity insurer without having qualified as such and rendering itself subject to the
more stringent financial requirements of the General Insurance Laws….

A participating provider of health care services is one who agrees in writing to render health care
services to or for persons covered by a contract issued by health service corporation in return for
which the health service corporation agrees to make payment directly to the participating
provider.28 (Emphasis supplied)

Consequently, the mere presence of risk would be insufficient to override the primary purpose of the
business to provide medical services as needed, with payment made directly to the provider of these
services.29 In short, even if petitioner assumes the risk of paying the cost of these services even if
significantly more than what the member has prepaid, it nevertheless cannot be considered as being
engaged in the insurance business.

By the same token, any indemnification resulting from the payment for services rendered in case of
emergency by non-participating health providers would still be incidental to petitioner’s purpose of
providing and arranging for health care services and does not transform it into an insurer. To fulfill its
obligations to its members under the agreements, petitioner is required to set up a system and the
facilities for the delivery of such medical services. This indubitably shows that indemnification is not
its sole object.

In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical
services intended to keep members from developing medical conditions or diseases.30 As an HMO, it
is its obligation to maintain the good health of its members. Accordingly, its health care programs
are designed to prevent or to minimize thepossibility of any assumption of risk on its
part. Thus, its undertaking under its agreements is not to indemnify its members against any loss or
damage arising from a medical condition but, on the contrary, to provide the health and medical
services needed to prevent such loss or damage.31

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them
medical care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance business.

It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted
U.S. cases, we are not saying that petitioner’s operations are identical in every respect to those of
the HMOs or health providers which were parties to those cases. What we are stating is that, for the
purpose of determining what "doing an insurance business" means, we have to scrutinize the
operations of the business as a whole and not its mere components. This is of course only prudent
and appropriate, taking into account the burdensome and strict laws, rules and regulations
applicable to insurers and other entities engaged in the insurance business. Moreover, we are also
not unmindful that there are other American authorities who have found particular HMOs to be
actually engaged in insurance activities.32

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident
from the fact that it is not supervised by the Insurance Commission but by the Department of
Health.33 In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that
petitioner is not engaged in the insurance business. This determination of the commissioner must be
accorded great weight. It is well-settled that the interpretation of an administrative agency which is
tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of
laws by the courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of
Appeals:34

The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience and growth of specialized
capabilities by the administrative agency charged with implementing a particular statute. In Asturias
Sugar Central, Inc. vs. Commissioner of Customs,35 the Court stressed that executive officials are
presumed to have familiarized themselves with all the considerations pertinent to the meaning and
purpose of the law, and to have formed an independent, conscientious and competent expert
opinion thereon. The courts give much weight to the government agency officials charged with the
implementation of the law, their competence, expertness, experience and informed judgment, and
the fact that they frequently are the drafters of the law they interpret.36

A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of
The NIRC of 1997

Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of
indemnity for loss, damage, or liability…." In our decision dated June 12, 2008, we ruled that
petitioner’s health care agreements are contracts of indemnity and are therefore insurance contracts:

It is … incorrect to say that the health care agreement is not based on loss or damage because,
under the said agreement, petitioner assumes the liability and indemnifies its member for hospital,
medical and related expenses (such as professional fees of physicians). The term "loss or damage"
is broad enough to cover the monetary expense or liability a member will incur in case of illness or
injury.

Under the health care agreement, the rendition of hospital, medical and professional services to the
member in case of sickness, injury or emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the contingent event which gives rise to liability on
the part of the member. In case of exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses
arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses
to be incurred by each member cannot be predicted beforehand, if they can be predicted at all.
Petitioner assumes the risk of paying for the costs of the services even if they are significantly and
substantially more than what the member has "prepaid." Petitioner does not bear the costs alone but
distributes or spreads them out among a large group of persons bearing a similar risk, that is, among
all the other members of the health care program. This is insurance.37

We reconsider. We shall quote once again the pertinent portion of Section 185:

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association or company or corporation transacting the
business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance),
xxxx (Emphasis supplied)

In construing this provision, we should be guided by the principle that tax statutes are strictly
construed against the taxing authority.38 This is because taxation is a destructive power which
interferes with the personal and property rights of the people and takes from them a portion of their
property for the support of the government.39 Hence, tax laws may not be extended by implication
beyond the clear import of their language, nor their operation enlarged so as to embrace matters not
specifically provided.40

We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. However,
those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of
a health service provider to a member under the terms of their health care agreement. Such
contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly
against the HMO. For this reason, we reconsider our ruling that Blue Cross and Philamcare are
applicable here.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designed peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk and

5. In consideration of the insurer’s promise, the insured pays a premium.41

Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract
contains all the elements of an insurance contract, if its primary purpose is the rendering of service,
it is not a contract of insurance:

It does not necessarily follow however, that a contract containing all the four elements mentioned
above would be an insurance contract. The primary purpose of the parties in making the
contract may negate the existence of an insurance contract. For example, a law firm which
enters into contracts with clients whereby in consideration of periodical payments, it promises to
represent such clients in all suits for or against them, is not engaged in the insurance business. Its
contracts are simply for the purpose of rendering personal services. On the other hand, a contract by
which a corporation, in consideration of a stipulated amount, agrees at its own expense to defend a
physician against all suits for damages for malpractice is one of insurance, and the corporation will
be deemed as engaged in the business of insurance. Unlike the lawyer’s retainer contract, the
essential purpose of such a contract is not to render personal services, but to indemnify against loss
and damage resulting from the defense of actions for malpractice.42 (Emphasis supplied)

Second. Not all the necessary elements of a contract of insurance are present in petitioner’s
agreements. To begin with, there is no loss, damage or liability on the part of the member that
should be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and professional services
rendered by the petitioner’s physician or affiliated physician to him. In case of availment by a
member of the benefits under the agreement, petitioner does not reimburse or indemnify the
member as the latter does not pay any third party. Instead, it is the petitioner who pays the
participating physicians and other health care providers for the services rendered at pre-agreed
rates. The member does not make any such payment.

In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on
the part of the member to any third party-provider of medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or
claim has already been incurred. There is no indemnity precisely because the member merely avails
of medical services to be paid or already paid in advance at a pre-agreed price under the
agreements.

Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, x-ray, routine annual physical examination and consultations,
vaccine administration as well as family planning counseling, even in the absence of any peril, loss
or damage on his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from
a non-participating physician or hospital. However, this is only a very minor part of the list of services
available. The assumption of the expense by petitioner is not confined to the happening of a
contingency but includes incidents even in the absence of illness or injury.

In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health
care contracts called for the defendant to partially reimburse a subscriber for treatment received
from a non-designated doctor, this did not make defendant an insurer. Citing Jordan, the Court
determined that "the primary activity of the defendant (was) the provision of podiatric services to
subscribers in consideration of prepayment for such services."44 Since indemnity of the insured was
not the focal point of the agreement but the extension of medical services to the member at an
affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk
alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation always
bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid service
contracts (like those of petitioner) from the usual insurance contracts.

Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services:
the risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type
peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the
cost of insurance claims might be higher than the premiums paid. The amount of premium is
calculated on the basis of assumptions made relative to the insured.45

However, assuming that petitioner’s commitment to provide medical services to its members can be
construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not
qualify as an insurance contract because petitioner’s objective is to provide medical services at
reduced cost, not to distribute risk like an insurer.

In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is
not an insurance contract within the context of our Insurance Code.

There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs

Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health
care agreements under Section 185 of the NIRC of 1997 is the provision’s legislative history. The
text of Section 185 came into U.S. law as early as 1904 when HMOs and health care agreements
were not even in existence in this jurisdiction. It was imposed under Section 116, Article XI of Act
No. 1189 (otherwise known as the "Internal Revenue Law of 1904")46enacted on July 2, 1904 and
became effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a
verbatim reproduction of the pertinent portion of Section 116, to wit:

ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied, collected, and paid for and in respect to the several bonds,
debentures, or certificates of stock and indebtedness, and other documents, instruments, matters,
and things mentioned and described in this section, or for or in respect to the vellum, parchment, or
paper upon which such instrument, matters, or things or any of them shall be written or printed by
any person or persons who shall make, sign, or issue the same, on and after January first, nineteen
hundred and five, the several taxes following:

xxx xxx xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for
loss, damage, or liability made or renewed by any person, association, company, or
corporation transacting the business of accident, fidelity, employer’s liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except life,
marine, inland, and fire insurance) xxxx (Emphasis supplied)

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and
consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section 116,
Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No.
2339. The very detailed and exclusive enumeration of items subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section
1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917,
the pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the
Administrative Code of 1917.

Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939),
which codified all the internal revenue laws of the Philippines. In an amendment introduced by RA 40
on October 1, 1946, the DST rate was increased but the provision remained substantially the same.

Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD
1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and
October 10, 1984 respectively, the DST rate was again increased. 1avvphi1

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was
renumbered as Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was again
renumbered and became Section 185.

On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to
the rate of tax.

Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of
1997), the subject legal provision was retained as the present Section 185. In 2004, amendments to
the DST provisions were introduced by RA 924348 but Section 185 was untouched.

On the other hand, the concept of an HMO was introduced in the Philippines with the formation of
Bancom Health Care Corporation in 1974. The same pioneer HMO was later reorganized and
renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who claim
that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as early
as 1965 and having been formally incorporated in 1991. Afterwards, HMOs proliferated quickly and
currently, there are 36 registered HMOs with a total enrollment of more than 2 million.49

We can clearly see from these two histories (of the DST on the one hand and HMOs on the other)
that when the law imposing the DST was first passed, HMOs were yet unknown in the Philippines.
However, when the various amendments to the DST law were enacted, they were already in
existence in the Philippines and the term had in fact already been defined by RA 7875. If it had been
the intent of the legislature to impose DST on health care agreements, it could have done so in clear
and categorical terms. It had many opportunities to do so. But it did not. The fact that the NIRC
contained no specific provision on the DST liability of health care agreements of HMOs at a time
they were already known as such, belies any legislative intent to impose it on them. As a matter of
fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a
decade in the business as an HMO.50

Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe
to say that health care agreements were never, at any time, recognized as insurance contracts or
deemed engaged in the business of insurance within the context of the provision.

The Power To Tax Is Not The Power To Destroy

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency who is to pay it.51 So
potent indeed is the power that it was once opined that "the power to tax involves the power to
destroy."52

Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way beyond its
net worth of ₱259 million.54 Respondent never disputed these assertions. Given the realities on the
ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the government ought to encourage private
enterprise.55 Petitioner, just like any concern organized for a lawful economic activity, has a right to
maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA, et al.:57

The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised
fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."58

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring
losses because of a tax imposition may be an acceptable consequence but killing the business of an
entity is another matter and should not be allowed. It is counter-productive and ultimately subversive
of the nation’s thrust towards a better economy which will ultimately benefit the majority of our
people.59

Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840

Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996
and 1997 became moot and academic60 when it availed of the tax amnesty under RA 9480 on
December 10, 2007. It paid ₱5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of
RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising
from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.61

Far from disagreeing with petitioner, respondent manifested in its memorandum:

Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from
payment of the tax involved, including the civil, criminal, or administrative penalties provided under
the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.

In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this
case as discussed above, respondent concedes that such tax amnesty extinguishes the tax
liabilities of petitioner. This admission, however, is not meant to preclude a revocation of the
amnesty granted in case it is found to have been granted under circumstances amounting to tax
fraud under Section 10 of said amnesty law.62 (Emphasis supplied)

Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty
program under RA 9480.63 There is no other conclusion to draw than that petitioner’s liability for DST
for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty
under RA 9480.

Is The Court Bound By A Minute Resolution In Another Case?

Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is
bound by the ruling of the CA64 in CIR v. Philippine National Bank65 that a health care agreement of
Philamcare Health Systems is not an insurance contract for purposes of the DST.

In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court
dismissing the appeal in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the
dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the Court
should apply the CA ruling there that a health care agreement is not an insurance contract.

It is true that, although contained in a minute resolution, our dismissal of the petition was a
disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the CA
ruling being questioned. As a result, our ruling in that case has already become final.67 When a
minute resolution denies or dismisses a petition for failure to comply with formal and substantive
requirements, the challenged decision, together with its findings of fact and legal conclusions, are
deemed sustained.68 But what is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata.69 However, if other parties or another subject matter (even with the same
parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-
Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving the same parties and
the same issues, was previously disposed of by the Court thru a minute resolution dated February
17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case
"ha(d) no bearing" on the latter case because the two cases involved different subject matters as
they were concerned with the taxable income of different taxable years.72

Besides, there are substantial, not simply formal, distinctions between a minute resolution and a
decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the
Constitution that the facts and the law on which the judgment is based must be expressed clearly
and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only
by the clerk of court by authority of the justices, unlike a decision. It does not require the certification
of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.73Indeed,
as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a
decision duly signed by the members of the Court and certified by the Chief Justice.

Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for
DST on its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot
successfully invoke the minute resolution in that case (which is not even binding precedent) in its
favor. Nonetheless, in view of the reasons already discussed, this does not detract in any way from
the fact that petitioner’s health care agreements are not subject to DST.

A Final Note

Taking into account that health care agreements are clearly not within the ambit of Section 185 of
the NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the
same should not be arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for adequate medical services
at a cost which the average wage earner can afford. HMOs arrange, organize and manage health
care treatment in the furtherance of the goal of providing a more efficient and inexpensive health
care system made possible by quantity purchasing of services and economies of scale. They offer
advantages over the pay-for-service system (wherein individuals are charged a fee each time they
receive medical services), including the ability to control costs. They protect their members from
exposure to the high cost of hospitalization and other medical expenses brought about by a
fluctuating economy. Accordingly, they play an important role in society as partners of the State in
achieving its constitutional mandate of providing its citizens with affordable health services.

The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its imposition
will elevate the cost of health care services. This will in turn necessitate an increase in the
membership fees, resulting in either placing health services beyond the reach of the ordinary wage
earner or driving the industry to the ground. At the end of the day, neither side wins, considering the
indispensability of the services offered by HMOs.

WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the
Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997
deficiency DST assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent
is ordered to desist from collecting the said tax.

No costs.

SO ORDERED.

G.R. No. 149110 April 9, 2003

NATIONAL POWER CORPORATION, petitioner,

vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated
March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC)
liable to pay franchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No.
120, as amended.4 It is tasked to undertake the "development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner
has, among others, the power to construct, operate and maintain power plants, auxiliary plants,
power stations and substations for the purpose of developing hydraulic power and supplying such
power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 165-92,8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latter's gross receipts for the preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees11 in accordance with sec.
13 of Rep. Act No. 6395, as amended, viz:
 "Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return from its capital investment, as
well as excess revenues from its operation, for expansion. To enable the Corporation to pay
its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section one of this Act, the Corporation is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power."12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and
2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been
repealed by section 193 of Rep. Act No. 7160,14 which reads as follows:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code."

On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the
following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act
No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied
repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the
national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may expressly repeal a law by incorporating
therein repealing provisions which expressly and specifically cite(s) the particular law or
laws, and portions thereof, that are intended to be repealed. A declaration in a statute,
usually in its repealing clause, that a particular and specific law, identified by its number or
title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
is an implied repealing clause because it fails to identify the act or acts that are intended to
be repealed. It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and repugnancy for the
 legislative is presumed to know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law
does not repeal a special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus, despite the passage of
R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the
case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it
was held that:

'Local governments have no power to tax instrumentalities of the National

Government. PAGCOR is a government owned or controlled corporation with an
original charter, PD 1869. All of its shares of stocks are owned by the National
Government. xxx Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original
charter and its shares of stocks owned by the National Government, is beyond the taxing
power of the Local Government. Corollary to this, it should be noted here that in the NPC
Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the
Philippines through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are primary objectives
of the nations which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To
allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is
limited to that which is provided for in its charter or other statute. Any grant of taxing power is
to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the defendant."16

On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum
of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the
tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense.19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision.
This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local Government
Code refers merely to private persons or corporations in which category it (NPC) does not
belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the
NPC Charter which is a special law—finds the answer in Section 193 of the LGC to the effect
that 'tax exemptions or incentives granted to, or presently enjoyed by all persons, whether
 natural or juridical, including government-owned or controlled corporations except local water
districts xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC
NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO
CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION
TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION

FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE
LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION,
WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN

EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER
THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in
relation to section 137 of the LGC, viz:

"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein." (emphasis supplied)

x x x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that are engaged in trade or
occupation for profit.22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of the public welfare, security
and safety." From the phraseology of this provision, the petitioner claims that the word "private"
modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise,"
petitioner submits that it should refer specifically to franchises granted to private natural persons and
to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity
regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and improvement of its
facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government,25 and as such, may
not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation26where this Court held that local governments have no power
to tax instrumentalities of the National Government, viz:

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually
is exempt from local taxes. Otherwise, its operation might be burdened, impeded or
subjected to control by a mere local government.

'The states have no power by taxation or otherwise, to retard, impede, burden or in

any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v.
Maryland, 4 Wheat 316, 4 L Ed. 579)'

This doctrine emanates from the 'supremacy' of the National Government over local
governments.

'Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least,
the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it
can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even seriously burden it from accomplishment of them.'
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics supplied)
 Otherwise, mere creatures of the State can defeat National policies thru extermination of
what local authorities may perceive to be undesirable activities or enterprise using the power
to tax as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc Culloch
v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its
charter cannot be amended or modified impliedly by the local government code which is a general
law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC, viz:

"It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored and as much as possible, effect must be given to all enactments of the legislature.
Moreover, it has to be conceded that the charter of the NPC constitutes a special law.
Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot be construed to have repealed
a special law. Where there is a conflict between a general law and a special statute, the
special statute should prevail since it evinces the legislative intent more clearly than the
general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC. It alleges that the power of the local government to impose franchise tax is
subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the
least limitable and most demanding of all powers, including the power of taxation."29

The petition is without merit.

Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the general welfare
and well-being of the people.

In recent years, the increasing social challenges of the times expanded the scope of state activity,
and taxation has become a tool to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as public welfare and similar
objectives.33 Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant to
Article X, section 5 of the 1987 Constitution, viz:

"Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees
and charges shall accrue exclusively to the Local Governments."

This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country's highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the part of local government
leaders."35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the
purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy, set the
guidelines and limitations to this grant of taxing powers, viz:

"Section 3. The Congress shall enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through a system of
decentralization with effective mechanisms of recall, initiative, and referendum, allocate
among the different local government units their powers, responsibilities, and resources, and
provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and
operation of the local units."

To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local Government
Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These
include the Barrio Charter of 1959,37 the Local Autonomy Act of 1959,38 the Decentralization Act of
196739 and the Local Government Code of 1983.40 Despite these initiatives, however, the shackles of
dependence on the national government remained. Local government units were faced with the
same problems that hamper their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of
income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence
on external sources of income, and (e) limited supervisory control over personnel of national line
agencies.41

Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC effectively
deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes
which were prohibited by previous laws such as the imposition of taxes on forest products, forest
concessionaires, mineral products, mining operations, and the like. The LGC likewise provides
enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not
prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and
leaves the determination of the actual rates to the respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when
specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the Local Government Units.-
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

x x x

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation44 relied upon by the petitioner to support its claim no longer applies. To
emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering
the local government units to tax instrumentalities of the National Government was in effect.
However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs.
Marcos,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.46 In enacting the LGC,
Congress exercised its prerogative to tax instrumentalities and agencies of government as it sees fit.
Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an
instrumentality of the national government, was subject to real property tax, viz:

"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments cannot
extend to the levy of inter alia, 'taxes, fees and charges of any kind on the national
government, its agencies and instrumentalities, and local government units'; however,
pursuant to section 232, provinces, cities and municipalities in the Metropolitan Manila Area
may impose the real property tax except on, inter alia, 'real property owned by the Republic
of the Philippines or any of its political subdivisions except when the beneficial use thereof
has been granted for consideration or otherwise, to a taxable person as provided in the item
(a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does
not belong to citizens of the country generally as a matter of common right.48 In its specific sense, a
franchise may refer to a general or primary franchise, or to a special or secondary franchise. The
former relates to the right to exist as a corporation, by virtue of duly approved articles of
incorporation, or a charter pursuant to a special law creating the corporation.49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the
corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an
existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect
poles or string wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property, except such special or secondary franchises as are charged
with a public use.52

In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is used in the
context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state."53 It is not levied on
the corporation simply for existing as a corporation, upon its property54 or its income,55 but on its
exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise.56 It is within this
context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise
tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter,
defining its composition, capitalization, the appointment and the specific duties of its corporate
officers, and its corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as
amended, vests the petitioner the following powers which are not available to ordinary
corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power in any part of
the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters
from lands of riparian owners and from persons owning or interested in waters which are or
may be necessary for said purposes, upon payment of just compensation therefor; to alter,
straighten, obstruct or increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs,
pipes, mains, transmission lines, power stations and substations, and other works for the
purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the
Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install,
maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the production of electric
power; to establish, develop, operate, maintain and administer power and lighting systems
for the transmission and utilization of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems and other government
institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x
x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary, convenient or proper to carry out the purposes
for which the Corporation was created: Provided, That in case a right of way is necessary for
its transmission lines, easement of right of way shall only be sought: Provided, however,
That in case the property itself shall be acquired by purchase, the cost thereof shall be the
fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume,
street, avenue, highway or railway of private and public ownership, as the location of said
works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided
by law for instituting condemnation proceedings by the national, provincial and municipal
governments;

x x x

(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;
 (n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs
of plants and/or projects constructed or proposed to be constructed by the Corporation. Upon
determination by the Corporation of the areas required for watersheds for a specific project,
the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands shall, upon
written advice by the Corporation, forthwith surrender jurisdiction to the Corporation of all
areas embraced within the watersheds, subject to existing private rights, the needs of
waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures
to prevent environmental pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40,59 nationalizing
the electric power industry. Although Exec. Order No. 21560 thereafter allowed private sector
participation in the generation of electricity, the transmission of electricity remains the monopoly of
the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as
amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the
franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because
its stocks are wholly owned by the National Government, and its charter characterized it as a "non-
profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and be sued under its own
name,61 and can exercise all the powers of a corporation under the Corporation Code.62

To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
202963 classifies government-owned or controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which is directly
chartered by special law or if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting capital stock x x x."
(emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are
treated as absolute obligation on the part of the state to perform while proprietary functions are those
that are undertaken only by way of advancing the general interest of society, and are merely optional
on the government.64 Included in the class of GOCCs performing proprietary functions are "business-
like" entities such as the National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and
the National Water Sewerage Authority (NAWASA),65 among others.

Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and
sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply and irrigation companies,
gas, coal or light companies, power plants, ice plant among others; all of which are declared by this
Court as ministrant or proprietary functions of government aimed at advancing the general interest of
society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the
proper transaction of its business or to carry out the purposes for which it was organized, to
contract indebtedness and issue bonds subject to approval of the President upon
recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry
out the business and purposes for which it was organized, or which, from time to time, may
be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the
said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote "all its returns from its
capital investment, as well as excess revenues from its operation, for expansion"70 while other
franchise holders have the option to distribute their profits to its stockholders by declaring dividends.
We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders.

We also do not find merit in the petitioner's contention that its tax exemptions under its charter
subsist despite the passage of the LGC.

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 provisions.71 In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all
income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities." However, section 193 of
the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by
private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an
express, albeit general, repeal of all statutes granting tax exemptions from local taxes.72 It reads:

"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations, except local water
 districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-
stock and non-profit hospital or educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that
expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can
impose franchise tax "notwithstanding any exemption granted by any law or other special law." This
particular provision of the LGC does not admit any exception. In City Government of San Pablo,
Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an
issue before this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we
ruled that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO
under special laws, viz:

"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC
to support their position that MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
'notwithstanding any exemption granted by any law or other special law' is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
unless otherwise provided in this Code, tax exemptions or incentives granted to or presently
enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations except (1) local water districts, (2) cooperatives duly registered under
R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to
the contrary, and we find no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar based on the incoming receipts realized
within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on (sic) Sections
137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used."76(emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance No.
165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend to exempt the petitioner
from the coverage thereof.

Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to
the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the
people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax
exemption privileges granted to government-owned or controlled corporations and all other units of
government were that such privilege resulted in serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises."78 With the added burden of devolution, it is even more
imperative for government entities to share in the requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED.

SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

G.R. No. 210551 June 30, 2015

JOSE J. FERRER, JR., Petitioner,

vs.
CITY MAYOR HERBERT BAUTISTA, CITY COUNCIL OF QUEZON CITY, CITY TREASURER OF
QUEZON CITY, and CITY ASSESSOR OF QUEZON CITY, Respondents.

DECISION

PERALTA, J.:

Before this Court is a petition for certiorari under Rule 65 of the Rules of Court with prayer for the
issuance of a temporary restraining order (TRO) seeking to declare unconstitutional and illegal
Ordinance Nos. SP-2095, S-2011 and SP-2235, S-2013 on the Socialized Housing Tax and
Garbage Fee, respectively, which are being imposed by the respondents.

The Case

On October 17, 2011,1 respondent Quezon City Council enacted Ordinance No. SP-2095, S-
2011,2 or the Socialized Housing Tax of Quezon City, Section 3 of which provides:

SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%) on the

assessed value of land in excess of One Hundred Thousand Pesos (Php100,000.00) shall be
collected by the City Treasurer which shall accrue to the Socialized Housing Programs of the
Quezon City Government. The special assessment shall accrue to the General Fund under a special
account to be established for the purpose.

Effective for five (5) years, the Socialized Housing Tax ( SHT ) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land banking; (b) improvement of
current/existing socialized housing facilities; (c) land development; (d) construction of core houses,
sanitary cores, medium-rise buildings and other similar structures; and (e) financing of public-private
partners hip agreement of the Quezon City Government and National Housing Authority ( NHA ) with
the private sector.3

Under certain conditions, a tax credit shall be enjoyed by taxpayers regularly paying the special
assessment:

SECTION 7. TAX CREDIT. Taxpayers dutifully paying the special assessment tax as imposed by
this ordinance shall enjoy a tax credit. The tax credit may be availed of only after five (5) years of
continue[d] payment. Further, the taxpayer availing this tax credit must be a taxpayer in good
standing as certified by the City Treasurer and City Assessor.

The tax credit to be granted shall be equivalent to the total amount of the special assessment paid
by the property owner, which shall be given as follows:

1. 6th year - 20%

2. 7th year - 20%

3. 8th year - 20%

4. 9th year - 20%

5. 10th year - 20%

Furthermore, only the registered owners may avail of the tax credit and may not be continued by the
subsequent property owners even if they are buyers in good faith, heirs or possessor of a right in
whatever legal capacity over the subject property.4

On the other hand, Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013 and took
effect ten days after when it was approved by respondent City Mayor.6 The proceeds collected from
the garbage fees on residential properties shall be deposited solely and exclusively in an earmarked
special account under the general fund to be utilized for garbage collections.7 Section 1 of the
Ordinance se t forth the schedule and manner for the collection of garbage fees:

SECTION 1. The City Government of Quezon City in conformity with and in relation to Republic Act
No. 7160, otherwise known as the Local Government Code of 1991 HEREBY IMPOSES THE
FOLLOWING SCHEDULE AND MANNER FOR THE ANNUAL COLLECTION OF GARBAGE FEES,
AS FOLLOWS: On all domestic households in Quezon City;

LAND AREA IMPOSABLE FEE

Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq. m. PHP 400.00
1,501 sq. m. – 2,000 sq. m. or more PHP 500.00
On all condominium unit and socialized housing projects/units in Quezon City;

FLOOR AREA IMPOSABLE FEE

Less than 40 sq. m. PHP 25.00
41 sq. m. – 60 sq. m. PHP 50.00
61 sq. m. – 100 sq. m. PHP 75.00
101 sq. m. – 150 sq. m. PHP 100.00
151 sq. m. – 200 sq. [m.] or more PHP 200.00

On high-rise Condominium Units

a) High-rise Condominium – The Homeowners Association of high- rise condominiums shall

pay the annual garbage fee on the total size of the entire condominium and socialized
Housing Unit and an additional garbage fee shall be collected based on area occupied for
every unit already so ld or being amortized.

b) High-rise apartment units – Owners of high-rise apartment units shall pay the annual
garbage fee on the total lot size of the entire apartment and an additional garbage fee based
on the schedule prescribed herein for every unit occupied.

The collection of the garbage fee shall accrue on the first day of January and shall be paid
simultaneously with the payment of the real property tax, but not later than the first quarter
installment.8 In case a household owner refuses to pay, a penalty of 25% of the garbage fee due,
plus an interest of 2% per month or a fraction thereof, shall be charged.9

Petitioner alleges that he is a registered co-owner of a 371-square-meter residential property in

Quezon City which is covered by Transfer Certificate of Title (TCT ) No. 216288, and that, on
January 7, 2014, he paid his realty tax which already included the garbage fee in the sum of

Php100.00.10

The instant petition was filed on January 17, 2014. We issued a TRO on February 5, 2014, which
enjoined the enforcement of Ordinance Nos. SP-2095 and SP-2235 and required respondents to
comment on the petition without necessarily giving due course thereto.11

Respondents filed their Comment12 with urgent motion to dissolve the TRO on February 17, 2014.
Thereafter, petitioner filed a Reply and a Memorandum on March 3, 2014 and September 8, 2014,
respectively.

Procedural Matters

A. Propriety of a Petition for Certiorari

Respondents are of the view that this petition for certiorari is improper since they are not tribunals,
boards or officers exercising judicial or quasi-judicial functions. Petitioner, however, counters that in
enacting Ordinance Nos. SP-2095 and SP-2235, the Quezon City Council exercised quasi-judicial
function because the ordinances ruled against the property owners who must pay the SHT and the
garbage fee, exacting from them funds for basic essential public services that they should not be
held liable. Even if a Rule 65 petition is improper, petitioner still asserts that this Court, in a number
of cases like in Rosario v. Court of Appeals,13 has taken cognizance of an improper remedy in the
interest of justice.

We agree that respondents neither acted in any judicial or quasi-judicial capacity nor arrogated unto
themselves any judicial or quasi-judicial prerogatives.

A respondent is said to be exercising judicial function where he has the power to determine what the
law is and what the legal rights of the parties are, and then undertakes to determine these questions
and adjudicate upon the rights of the parties.

Quasi-judicial function, on the other hand, is "a term which applies to the actions, discretion, etc., of
public administrative officers or bodies … required to investigate facts or ascertain the existence of
facts, hold hearings, and draw conclusions from them as a basis for their official action and to
exercise discretion of a judicial nature."

Before a tribunal, board, or officer may exercise judicial or quasi-judicial acts, it is necessary that
there be a law that gives rise to some specific rights of person s or property under which adverse
claims to such rights are made, and the controversy en suing therefrom is brought before a tribunal,
board, or officer clothed with power and authority to determine the law and adjudicate the respective
rights of the contending parties.14

For a writ of certiorari to issue, the following requisites must concur: (1) it must be directed against a
tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) the tribunal, board, or
officer must have acted without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law. The enactment by the Quezon City Council of the
assailed ordinances was done in the exercise of its legislative, not judicial or quasi-judicial, function.
Under Republic Act (R.A.) No.7160, or the Local Government Code of 1991 (LGC), local legislative
power shall be exercised by the Sangguniang Panlungsod for the city.15Said law likewise is specific
in providing that the power to impose a tax, fee, or charge , or to generate revenue shall be
exercised by the sanggunian of the local government unit concerned through an appropriate
ordinance.16

Also, although the instant petition is styled as a petition for certiorari, it essentially seeks to declare
the unconstitutionality and illegality of the questioned ordinances. It, thus, partakes of the nature of a
petition for declaratory relief, over which this Court has only appellate, not original, jurisdiction.17

Despite these, a petition for declaratory relief may be treated as one for prohibition or mandamus,
over which we exercise original jurisdiction, in cases with far-reaching implications or one which
raises transcendental issues or questions that need to be resolved for the public good.18The judicial
policy is that this Court will entertain direct resort to it when the redress sought cannot be obtained in
the proper courts or when exceptional and compelling circumstances warrant availment of a remedy
within and calling for the exercise of Our primary jurisdiction.19

Section 2, Rule 65 of the Rules of Court lay down under what circumstances a petition for prohibition
may be filed:
SEC. 2. Petition for prohibition. - When the proceedings of any tribunal, corporation, board, officer or
person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of
its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction,
and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of
law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered commanding the respondent to desist from further
proceeding in the action or matter specified therein, or otherwise granting such incidental reliefs as
law and justice may require.

In a petition for prohibition against any tribunal, corporation, board, or person – whether exercising
judicial, quasi-judicial, or ministerial functions – who has acted without or in excess of jurisdiction or
with grave abuse of discretion, the petitioner prays that judgment be rendered, commanding the
respondents to desist from further proceeding in the action or matter specified in the petition. In this
case, petitioner's primary intention is to prevent respondents from implementing Ordinance Nos. SP-
2095 and SP-2235. Obviously, the writ being sought is in the nature of a prohibition, commanding
desistance.

We consider that respondents City Mayor, City Treasurer, and City Assessor are performing
ministerial functions. A ministerial function is one that an officer or tribunal performs in the context of
a given set of facts, in a prescribed manner and without regard for the exercise of his or its own
judgment, upon the propriety or impropriety of the act done.20 Respondent Mayor, as chief executive
of the city government, exercises such powers and performs such duties and functions as provided
for by the LGC and other laws.21 Particularly, he has the duty to ensure that all taxes and other
revenues of the city are collected, and that city funds are applied to the payment of expenses and
settlement of obligations of the city, in accordance with law or ordinance.22 On the other hand, under
the LGC, all local taxes, fees, and charges shall be collected by the provincial, city, municipal, or
barangay treasurer, or their duly-authorized deputies, while the assessor shall take charge, among
others, of ensuring that all laws and policies governing the appraisal and assessment of real
properties for taxation purposes are properly executed.23 Anent the SHT, the Department of Finance
(DOF) Local Finance Circular No. 1-97, dated April 16, 1997, is more specific:

6.3 The Assessor’s office of the Identified LGU shall:

a. immediately undertake an inventory of lands within its jurisdiction which

shall be subject to the levy of the Social Housing Tax (SHT) by the local
sanggunian concerned;

b. inform the affected registered owners of the effectivity of the SHT; a list of
the lands and registered owners shall also be posted in 3 conspicuous places
in the city/municipality;

c. furnish the Treasurer’s office and the local sanggunian concerned of the
list of lands affected;

6.4 The Treasurer’s office shall:

a. collect the Social Housing Tax on top of the Real Property Tax, SEF Tax
and other special assessments;

b. report to the DOF, thru the Bureau of Local Government Finance, and the
Mayor’s office the monthly collections on Social Housing Tax (SHT). An
annual report should likewise be submitted to the HUDCC on the total
 revenues raised during the year pursuant to Sec. 43, R.A. 7279 and the
manner in which the same was disbursed.

Petitioner has adduced special and important reasons as to why direct recourse to us should be
allowed. Aside from presenting a novel question of law, this case calls for immediate resolution since
the challenged ordinances adversely affect the property interests of all paying constituents of
Quezon City. As well, this petition serves as a test case for the guidance of other local government
units (LGUs).Indeed, the petition at bar is of transcendental importance warranting a relaxation of
the doctrine of hierarchy of courts. In Social Justice Society (SJS) Officers, et al. v. Lim ,24the Court
cited the case of Senator Jaworski v. Phil. Amusement & Gaming Corp.,25 where We ratiocinated:

Granting arguendo that the present action cannot be properly treated as a petition for prohibition, the
transcendental importance of the issues involved in this case warrants that we set aside the
technical defects and take primary jurisdiction over the petition at bar . x x x This is in accordance
with the well entrenched principle that rules of procedure are not inflexible tools designed to hinder
or delay, but to facilitate and promote the administration of justice. Their strict and rigid application,
which would result in technicalities that tend to frustrate, rather than promote substantial justice,
must always be eschewed.26

B. Locus Standi of Petitioner

Respondents challenge petitioner’s legal standing to file this case on the ground that, in relation to
Section 3 of Ordinance No. SP-2095, petitioner failed to allege his ownership of a property that has
an assessed value of more than Php100,000.00 and, with respect to Ordinance No. SP-2335, by
what standing or personality he filed the case to nullify the same. According to respondents, the
petition is not a class suit, and that, for not having specifically alleged that petitioner filed the case as
a taxpayer, it could only be surmised whether he is a party-in-interest who stands to be directly
benefited or injured by the judgment in this case.

It is a general rule that every action must be prosecuted or defended in the name of the real party-in-
interest, who stands to be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit.

Jurisprudence defines interest as "material interest, an interest in issue and to be affected by the
decree, as distinguished from mere interest in the question involved, or a mere incidental interest. By
real interest is meant a present substantial interest, as distinguished from a mere expectancy or a
future, contingent, subordinate, or consequential interest." "To qualify a person to be a real party-in-
interest in whose name an action must be prosecuted, he must appear to be the present real owner
of the right sought to be enforced."27

"Legal standing" or locus standi calls for more than just a generalized grievance.28 The concept has
been define d as a personal and substantial interest in the case such that the party has sustained or
will sustain direct injury as a result of the government al act that is being challenged.29 The gist of the
question of standing is whether a party alleges such personal stake in the outcome of the
controversy as to assure that concrete adverseness which sharpens the presentation of issues upon
which the court depends for illumination of difficult constitutional questions.30

A party challenging the constitutionality of a law, act, or statute must show "not only that the law is
invalid, but also that he has sustained or is in immediate, or imminent danger of sustaining some
direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite
way." It must be shown that he has been, or is about to be, denied some right or privilege to which
he is lawfully entitled, or that he is about to be subjected to some burdens or penalties by reason of
the statute complained of.31

Tested by the foregoing, petitioner in this case clearly has legal standing to file the petition. He is a
real party-in-interest to assail the constitutionality and legality of Ordinance Nos. SP-2095 and SP-
2235 because respondents did not dispute that he is a registered co-owner of a residential property
in Quezon City an d that he paid property tax which already included the SHT and the garbage fee.
He has substantial right to seek a refund of the payments he made and to stop future imposition.
While he is a lone petitioner, his cause of action to declare the validity of the subject ordinances is
substantial and of paramount interest to similarly situated property owners in Quezon City.

C. Litis Pendentia

Respondents move for the dismissal of this petition on the ground of litis pendentia. They claim that,
as early as February 22, 2012, a case entitled Alliance of Quezon City Homeowners, Inc., et al., v.
Hon. Herbert Bautista, et al. , docketed as Civil Case No. Q-12- 7-820, has been pending in the
Quezon City Regional Trial Court, Branch 104, which assails the legality of Ordinance No. SP-2095.
Relying on City of Makati, et al. v. Municipality (now City) of Taguig, et al.,32 respondents assert that
there is substantial identity of parties between the two cases because petitioner herein and plaintiffs
in the civil case filed their respective cases as taxpayers of Quezon City.

For petitioner, however, respondents’ contention is untenable since he is not a party in Alliance and
does not even have the remotest identity or association with the plaintiffs in said civil case.
Moreover, respondents’ arguments would deprive this Court of its jurisdiction to determine the
constitutionality of laws under Section 5, Article VIII of the 1987 Constitution.33

Litis pendentia is a Latin term which literally means "a pending suit" and is variously referred to in
some decisions as lis pendens and auter action pendant.34 While it is normally connected with the
control which the court has on a property involved in a suit during the continuance proceedings, it is
more interposed as a ground for the dismissal of a civil action pending in court.35 In Film
Development Council of the Philippines v. SM Prime Holdings, Inc.,36 We elucidated:

Litis pendentia, as a ground for the dismissal of a civil action, refers to a situation where two actions
are pending between the same parties for the same cause of action, so that one of them becomes
unnecessary and vexatious. It is based on the policy against multiplicity of suit and authorizes a
court to dismiss a case motu proprio.

xxxx

The requisites in order that an action may be dismissed on the ground of litis pendentia are: (a) the
identity of parties, or at least such as representing the same interest in both actions; (b) the identity
of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the
identity of the two cases such that judgment in one, regardless of which party is successful, would
amount to res judicata in the other.

The underlying principle of litis pendentia is the theory that a party is not allowed to vex another
more than once regarding the same subject matter and for the same cause of action. This theory is
founded on the public policy that the same subject matter should not be the subject of controversy in
courts more than once, in order that possible conflicting judgments may be avoided for the sake of
the stability of the rights and status of persons, and also to avoid the costs and expenses incident to
numerous suits.
Among the several tests resorted to in ascertaining whether two suits relate to a single or common
cause of action are: (1) whether the same evidence would support and sustain both the first and
second causes of action; and (2) whether the defenses in one case may be used to substantiate the
complaint in the other.

The determination of whether there is an identity of causes of action for purposes of litis pendentia is
inextricably linked with that of res judicata , each constituting an element of the other. In either case,
both relate to the sound practice of including, in a single litigation, the disposition of all issues
relating to a cause of action that is before a court.37

There is substantial identity of the parties when there is a community of interest between a party in
the first case and a party in the second case albeit the latter was not impleaded in the first
case.38Moreover, the fact that the positions of the parties are reversed, i.e., the plaintiffs in the first
case are the defendants in the second case or vice-versa, does not negate the identity of parties for
purposes of determining whether the case is dismissible on the ground of litis pendentia .39

In this case, it is notable that respondents failed to attach any pleading connected with the alleged
civil case pending before the Quezon City trial court. Granting that there is substantial identity of
1âwphi 1

parties between said case and this petition, dismissal on the ground of litis pendentia still cannot be
had in view of the absence of the second and third requisites. There is no way for us to determine
whether both cases are based on the same set of facts that require the presentation of the same
evidence. Even if founded on the same set of facts, the rights asserted and reliefs prayed for could
be different. Moreover, there is no basis to rule that the two cases are intimately related and/or
intertwined with one another such that the judgment that may be rendered in one, regardless of
which party would be successful, would amount to res judicata in the other.

D. Failure to Exhaust Administrative Remedies

Respondents contend that petitioner failed to exhaust administrative remedies for his non-
compliance with Section 187 of the LGC, which mandates:

Section 187. Procedure for Approval and Effectivity of Tax Ordinances and Revenue Measures;
Mandatory Public Hearings. – The procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code: Provided, That public hearings
shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any
question on the constitutionality or legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render
a decision within sixty (60) days from the date of receipt of the appeal: Provided, however, That such
appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and
payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after
receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting
upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent
jurisdiction.

The provision, the constitutionality of which was sustained in Drilon v. Lim ,40 has been construed as
mandatory41 considering that –

A municipal tax ordinance empowers a local government unit to impose taxes. The power to tax is
the most effective instrument to raise needed revenues to finance and support the myriad activities
of local government units for the delivery of basic services essential to the promotion of the general
welfare and enhancement of peace, progress, and prosperity of the people. Consequently, any delay
in implementing tax measures would be to the detriment of the public. It is for this reason that
protests over tax ordinances are required to be done within certain time frames. x x x.42

The obligatory nature of Section 187 was underscored in Hagonoy Market Vendor Asso. v.
Municipality of Hagonoy:43

x x x [T]he timeframe fixed by law fo r parties to avail of their legal remedies before competent courts
is not a "mere technicality" that can be easily brushed aside. The periods stated in Section 187 of the
Local Government Code are mandatory. x x x Being its lifeblood, collection of revenues by the
government is of paramount importance. The funds for the operation of its agencies and provision of
basic services to its inhabitants are largely derived from its revenues and collections. Thus, it is
essential that the validity of revenue measures is not left uncertain for a considerable length of time.
Hence, the law provided a time limit for an aggrieved party to assail the legality of revenue measures
and tax ordinances."44

Despite these cases, the Court, in Ongsuco, et al. v. Hon. Malones,45held that there was no need for
petitioners therein to exhaust administrative remedies before resorting to the courts, considering that
there was only a pure question of law, the parties did not dispute any factual matter on which they
had to present evidence. Likewise, in Cagayan Electric Power and Light Co., Inc. v. City of Cagayan
de Oro,46 We relaxed the application of the rules in view of the more substantive matters. For the
same reasons, this petition is an exception to the general rule.

Substantive Issues

Petitioner asserts that the protection of real properties from informal settlers and the collection of
garbage are basic and essential duties and functions of the Quezon City Government. By imposing
the SHT and the garbage fee, the latter has shown a penchant and pattern to collect taxes to pay for
public services that could be covered by its revenues from taxes imposed on property, idle land,
business, transfer, amusement, etc., as well as the Internal Revenue Allotment (IRA ) from the
National Government. For petitioner, it is noteworthy that respondents did not raise the issue that the
Quezon City Government is in dire financial state and desperately needs money to fund housing for
informal settlers and to pay for garbage collection. In fact, it has not denied that its revenue
collection in 2012 is in the sum of ₱13.69 billion.

Moreover, the imposition of the SHT and the garbage fee cannot be justified by the Quezon City
Government as an exercise of its power to create sources of income under Section 5, Article X of the
1987 Constitution.47 According to petitioner, the constitutional provision is not a carte blanche for the
LGU to tax everything under its territorial and political jurisdiction as the provision itself admits of
guidelines and limitations.

Petitioner further claims that the annual property tax is an ad valorem tax, a percentage of the
assessed value of the property, which is subject to revision every three (3) years in order to reflect
an increase in the market value of the property. The SHT and the garbage fee are actually increases
in the property tax which are not based on the assessed value of the property or its reassessment
every three years; hence, in violation of Sections 232 and 233 of the LGC.48

For their part, respondents relied on the presumption in favor of the constitutionality of Ordinance
Nos. SP-2095 and SP-2235, invoking Victorias Milling Co., Inc. v. Municipality of Victorias,
etc.,49 People v. Siton, et al.,50 and Hon. Ermita v. Hon. Aldecoa-Delorino .51 They argue that the
burden of establishing the invalidity of an ordinance rests heavily upon the party challenging its
constitutionality. They insist that the questioned ordinances are proper exercises of police power
similar to Telecom. & Broadcast Attys. of the Phils., Inc. v. COMELEC52 and Social Justice Society
(SJS), et al. v. Hon. Atienza, Jr.53 and that their enactment finds basis in the social justice principle
enshrined in Section 9,54 Article II of the 1987 Constitution.

As to the issue of publication, respondents argue that where the law provides for its own effectivity,
publication in the Official Gazette is not necessary so long as it is not punitive in character, citing
Balbuna, et al. v. Hon. Secretary of Education, et al.55 and Askay v. Cosalan .[56]] Thus, Ordinance
No. SP-2095 took effect after its publication, while Ordinance No. SP-2235 became effective after its
approval on December 26, 2013.

Additionally, the parties articulate the following positions:

On the Socialized Housing Tax

Respondents emphasize that the SHT is pursuant to the social justice principle found in Sections 1
and 2, Article XIII57 of the 1987 Constitution and Sections 2 (a)58 and 4359 of R.A. No. 7279, or the
"Urban Development and Housing Act of 1992 ( UDHA ).

Relying on Manila Race Horse Trainers Assn., Inc. v. De La Fuente,60and Victorias Milling Co., Inc. v.
Municipality of Victorias, etc.,61respondents assert that Ordinance No. SP-2095 applies equally to all
real property owners without discrimination. There is no way that the ordinance could violate the
equal protection clause because real property owners and informal settlers do not belong to the
same class.

Ordinance No. SP-2095 is also not oppressive since the tax rate being imposed is consistent with
the UDHA. While the law authorizes LGUs to collect SHT on properties with an assessed value of
more than ₱50,000.00, the questioned ordinance only covers properties with an assessed value
exceeding ₱100,000.00. As well, the ordinance provides for a tax credit equivalent to the total
amount of the special assessment paid by the property owner beginning in the sixth (6th) year of the
effectivity of the ordinance.

On the contrary, petitioner claims that the collection of the SHT is tantamount to a penalty imposed
on real property owners due to the failure of respondent Quezon City Mayor and Council to perform
their duty to secure and protect real property owners from informal settlers, thereby burdening them
with the expenses to provide funds for housing. For petitioner, the SHT cannot be viewed as a
"charity" from real property owners since it is forced, not voluntary.

Also, petitioner argues that the collection of the SHT is a kind of class legislation that violates the
right of property owners to equal protection of the laws since it favors informal settlers who occupy
property not their own and pay no taxes over law-abiding real property owners w ho pay income and
realty taxes.

Petitioner further contends that respondents’ characterization of the SHT as "nothing more than an
advance payment on the real property tax" has no statutory basis. Allegedly, property tax cannot be
collected before it is due because, under the LGC, chartered cities are authorized to impose property
tax based on the assessed value and the general revision of assessment that is made every three
(3) years.

As to the rationale of SHT stated in Ordinance No. SP-2095, which, in turn, was based on Section
43 of the UDHA, petitioner asserts that there is no specific provision in the 1987 Constitution stating
that the ownership and enjoyment of property bear a social function. And even if there is, it is
seriously doubtful and far-fetched that the principle means that property owners should provide
funds for the housing of informal settlers and for home site development. Social justice and police
power, petitioner believes, does not mean imposing a tax on one, or that one has to give up
something, for the benefit of another. At best, the principle that property ownership and enjoyment
bear a social function is but a reiteration of the Civil Law principle that property should not be
enjoyed and abused to the injury of other properties and the community, and that the use of the
property may be restricted by police power, the exercise of which is not involved in this case.

Finally, petitioner alleges that 6 Bistekvilles will be constructed out of the SHT collected. Bistek is the
monicker of respondent City Mayor. The Bistekvilles makes it clear, therefore, that politicians will
take the credit for the tax imposed on real property owners.

On the Garbage Fee

Respondents claim that Ordinance No. S-2235, which is an exercise of police power, collects on the
average from every household a garbage fee in the meager amount of thirty-three (33) centavos per
day compared with the sum of ₱1,659.83 that the Quezon City Government annually spends for
every household for garbage collection and waste management.62

In addition, there is no double taxation because the ordinance involves a fee. Even assuming that
the garbage fee is a tax, the same cannot be a direct duplicate tax as it is imposed on a different
subject matter and is of a different kind or character. Based on Villanueva, et al. v. City of Iloilo63 and
Victorias Milling Co., Inc. v. Municipality of Victorias, etc.,64 there is no "taxing twice" because the real
property tax is imposed on ownership based on its assessed value, while the garbage fee is required
on the domestic household. The only reference to the property is the determination of the applicable
rate and the facility of collection.

Petitioner argues, however, that Ordinance No. S-2235 cannot be justified as an exercise of police
power. The cases of Calalang v. Williams,65 Patalinghug v. Court of Appeals,66 and Social Justice
Society (SJS), et al. v. Hon. Atienza, Jr.,67 which were cited by respondents, are inapplicable since
the assailed ordinance is a revenue measure and does not regulate the disposal or other aspect of
garbage.

The subject ordinance, for petitioner, is discriminatory as it collects garbage fee only from domestic
households and not from restaurants, food courts, fast food chains, and other commercial dining
places that spew garbage much more than residential property owners.

Petitioner likewise contends that the imposition of garbage fee is tantamount to double taxation
because garbage collection is a basic and essential public service that should be paid out from
property tax, business tax, transfer tax, amusement tax, community tax certificate, other taxes, and
the IRA of the Quezon City Government. To bolster the claim, he states that the revenue collection
of the Quezon City Government reached Php13.69 billion in 2012. A small portion of said amount
could be spent for garbage collection and other essential services.

It is further noted that the Quezon City Government already collects garbage fee under Section
4768 of R.A. No. 9003, or the Ecological Solid Waste Management Act of 2000, which authorizes
LGUs to impose fees in amounts sufficient to pay the costs of preparing, adopting, and implementing
a solid waste management plan, and that LGUs have access to the Solid Waste Management
(SWM) Fund created under Section 4669 of the same law. Also, according to petitioner, it is evident
that Ordinance No. S2235 is inconsistent with R.A. No. 9003 for whil e the law encourages
segregation, composting, and recycling of waste, the ordinance only emphasizes the collection and
payment of garbage fee; while the law calls for an active involvement of the barangay in the
collection, segregation, and recycling of garbage, the ordinance skips such mandate. Lastly, in
challenging the ordinance, petitioner avers that the garbage fee was collected even if the required
publication of its approval had not yet elapsed. He notes that on January 7, 2014, he paid his realty
tax which already included the garbage fee.

The Court's Ruling

Respondents correctly argued that an ordinance, as in every law, is presumed valid.

An ordinance carries with it the presumption of validity. The question of reasonableness though is
open to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will
go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be
prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained acceptance
is that factors relevant to such an inquiry are the municipal conditions as a whole and the nature of
the business made subject to imposition.70

For an ordinance to be valid though, it must not only be within the corporate powers of the LGU to
enact and must be passed according to the procedure prescribed by law, it should also conform to
the following requirements: (1) not contrary to the Constitution or any statute; (2) not unfair or
oppressive; (3) not partial or discriminatory; (4) not prohibit but may regulate trade; (5) general and
consistent with public policy; and (6) not unreasonable.71 As jurisprudence indicates, the tests are
divided into the formal (i.e., whether the ordinance was enacted within the corporate powers of the
LGU and whether it was passed in accordance with the procedure prescribed by law), and the
substantive ( i.e., involving inherent merit, like the conformity of the ordinance with the limitations
under the Constitution and the statutes, as well as with the requirements of fairness and reason, and
its consistency with public policy).72

An ordinance must pass muster under the test of constitutionality and the test of consistency with the
prevailing laws.73 If not, it is void.74

Ordinance should uphold the principle of the supremacy of the Constitution.75 As to conformity with
existing statutes,

Batangas CATV, Inc. v. Court of Appeals76 has this to say:

It is a fundamental principle that municipal ordinances are inferior in status and subordinate to the
laws of the state. An ordinance in conflict with a state law of general character and statewide
application is universally held to be invalid. The principle is frequently expressed in the declaration
that municipal authorities, under a general grant of power, cannot adopt ordinances which infringe
the spirit of a state law or repugnant to the general policy of the state. In every power to pass
ordinances given to a municipality, there is an implied restriction that the ordinances shall be
consistent with the general law. In the language of Justice Isagani Cruz (ret.), this Court, in Magtajas
vs. Pryce Properties Corp., Inc., ruled that:

The rationale of the requirement that the ordinances should not contravene a statute is obvious.
Municipal governments are only agents of the national government. Local councils exercise only
delegated legislative powers conferred on them by Congress as the national lawmaking body. The
delegate cannot be superior to the principal or exercise powers higher than those of the latter. It is a
heresy to suggest that the local government units can undo the acts of Congress, from which they
have derived their power in the first place, and negate by mere ordinance the mandate of the statute.

Municipal corporations owe their origin to, and derive their powers and rights wholly from the
legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so it
may destroy. As it may destroy, it may abridge and control. Unless there is some constitutional
limitation on the right, the legislature might, by a single act, and if we can suppose it capable of so
great a folly and so great a wrong, sweep from existence all of the municipal corporations in the
State, and the corporation could not prevent it. We know of no limitation on the right so far as to the
corporation themselves are concerned. They are so to phrase it, the mere tenants at will of the
legislature.

This basic relationship between the national legislature and the local government units has not been
enfeebled by the new provisions in the Constitution strengthening the policy of local autonomy.
Without meaning to detract from that policy, we here confirm that Congress retains control of the
local government units although in significantly reduced degree now than under our previous
Constitutions. The power to create still includes the power to destroy. The power to grant still
includes the power to withhold or recall. True, there are certain notable innovations in the
Constitution, like the direct conferment on the local government units of the power to tax, which
cannot now be withdrawn by mere statute. By and large, however, the national legislature is still the
principal of the local government units, which cannot defy its will or modify or violate it.77

LGUs must be reminded that they merely form part of the whole; that the policy of ensuring the
autonomy of local governments was never intended by the drafters of the 1987 Constitution to create
an imperium in imperio and install an intra-sovereign political subdivision independent of a single
sovereign state.78

"[M]unicipal corporations are bodies politic and corporate, created not only as local units of local self-
government, but as governmental agencies of the state. The legislature, by establishing a municipal
corporation, does not divest the State of any of its sovereignty; absolve itself from its right and duty
to administer the public affairs of the entire state; or divest itself of any power over the inhabitants of
the district which it possesses before the charter was granted."79

LGUs are able to legislate only by virtue of a valid delegation of legislative power from the national
legislature; they are mere agents vested with what is called the power of subordinate
legislation.80 "Congress enacted the LGC as the implementing law for the delegation to the various
LGUs of the State’s great powers, namely: the police power, the power of eminent domain, and the
power of taxation. The LGC was fashioned to delineate the specific parameters and limitations to be
complied with by each LGU in the exercise of these delegated powers with the view of making each
LGU a fully functioning subdivision of the State subject to the constitutional and statutory
limitations."81

Specifically, with regard to the power of taxation, it is indubitably the most effective instrument to
raise needed revenues in financing and supporting myriad activities of the LGUs for the delivery of
basic services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people.82 As this Court opined in National Power Corp. v. City of
Cabanatuan:83

In recent years, the increasing social challenges of the times expanded the scope of state activity,
and taxation has become a tool to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as public welfare and similar
objectives. Taxation assume s even greater significance with the ratification of the 1987 Constitution.
Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies
are now given direct authority to levy taxes, fees and other charges pursuant to Article X, Section 5
of the 1987 Constitution, viz: "Section 5. Each Local Government unit shall have the power to create
its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees and charges shall accrue exclusively to the local governments."
This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country’s highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also "dampened the spirit of initiative,
innovation and imaginative resilience in matters of local development on the part of local government
leaders." The only way to shatter this culture of dependence is to give the LGUs a wider role in the
delivery of basic services, and confer them sufficient powers to generate their own sources for the
purpose. To achieve this goal, Section 3 of Article X of the 1987 Constitution mandates Congress to
enact a local government code that will, consistent with the basic policy of local autonomy , set the
guidelines and limitations to this grant of taxing powers x x x84

Fairly recently, We also stated in Pelizloy Realty Corporation v. Province of Benguet85 that:

The rule governing the taxing power of provinces, cities, municipalities and barangays is
summarized in Icard v. City Council of Baguio :

It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality,
cannot assume it. And the power when granted is to be construed in strictissimi juris . Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the
municipality. Inferences, implications, deductions – all these – have no place in the interpretation of
the taxing power of a municipal corporation. [Underscoring supplied]

xxxx

Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees and other
charges." Nevertheless, such authority is "subject to such guidelines and limitations as the Congress
may provide."

In conformity with Section 3, Article X of the 1987 Constitution, Congress enacted Republic Act No.
7160, otherwise known as the Local Government Code of 1991. Book II of the LGC governs local
taxation and fiscal matters.86

Indeed, LGUs have no inherent power to tax except to the extent that such power might be
delegated to them either by the basic law or by the statute.87 "Under the now prevailing Constitution ,
where there is neither a grant nor a prohibition by statute , the tax power must be deemed to exist
although Congress may provide statutory limitations and guidelines. The basic rationale for the
current rule is to safeguard the viability and self-sufficiency of local government units by directly
granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the
delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that,
while the local government units are being strengthened and made more autonomous , the
legislature must still see to it that (a) the taxpayer will not be over-burdened or saddled with multiple
and unreasonable impositions; (b) each local government unit will have its fair share of available
resources; (c) the resources of the national government will not be unduly disturbed; and (d) local
taxation will be fair, uniform, and just."88

Subject to the provisions of the LGC and consistent with the basic policy of local autonomy, every
LGU is now empowered and authorized to create its own sources of revenue and to levy taxes, fees,
and charges which shall accrue exclusively to the local government unit as well as to apply its
resources and assets for productive, developmental, or welfare purposes, in the exercise or
furtherance of their governmental or proprietary powers and functions.89 The relevant provisions of
the LGC which establish the parameters of the taxing power of the LGUs are as follows:

SECTION 130. Fundamental Principles. – The following fundamental principles shall govern th e
exercise of the taxing and other revenue-raising powers of local government units:

(a) Taxation shall be uniform in each local government unit;

(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayer’s ability to pay;

(2) be levied and collected only for public purposes;

(3) not be unjust, excessive, oppressive, or confiscatory;

(4) not be contrary to law, public policy, national economic policy, or in restraint of
trade;

(c) The collection of local taxes, fees, charges and other impositions shall in no case be left
to any private person;

(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the
benefit of, and be subject to the disposition by, the local government unit levying the tax, fee,
charge or other imposition unless otherwise specifically provided herein; and,

(e) Each local government unit shall, as far as practicable, evolve a progressive system of
taxation.

SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except
as otherwise provided herein;

(d) Customs duties, registration fees of vessel and wharage on wharves, tonnage dues, and
all other kinds of customs fees, charges and dues except wharfage on wharves constructed
and maintained by the local government unit concerned;

(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or
passing through, the territorial jurisdictions of local government units in the guise of charges
for wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise;
 (f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal
farmers or fishermen;

(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar

transactions on goods or services except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;

(k) Taxes on premiums paid by way of reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all
kinds of licenses or permits for the driving thereof, except tricycles;

(m) Taxes, fees, or other charges on Philippine products actually exported, except as
otherwise provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine
hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the
Philippines" respectively; and

(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.

SECTION 151. Scope of Taxing Powers. – Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the provisions
of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or
municipality by not more than fifty percent (50%) except the rates of professional and amusement
taxes.

SECTION 186. Power to Levy Other Taxes, Fees or Charges. – Local government units may
exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically
enumerated herein or taxed under the provisions of the National Internal Revenue Code, as
amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust,
excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That
the ordinance levying such taxes, fees or charges shall not be enacted without any prior public
hearing conducted for the purpose.

On the Socialized Housing Tax

Contrary to petitioner’s submission, the 1987 Constitution explicitly espouses the view that the use of
property bears a social function and that all economic agents shall contribute to the common
good.90 The Court already recognized this in Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.:91

Property has not only an individual function, insofar as it has to provide for the needs of the owner,
but also a social function insofar as it has to provide for the needs of the other members of society.
The principle is this:

Police power proceeds from the principle that every holder of property, however absolute and
unqualified may be his title, holds it under the implied liability that his use of it shall not be injurious to
the equal enjoyment of others having an equal right to the enjoyment of their property, no r injurious
to the right of the community. Rights of property, like all other social and conventional rights, are
subject to reasonable limitations in their enjoyment as shall prevent them from being injurious, and to
such reasonable restraints and regulations established by law as the legislature, under the
governing an d controlling power vested in them by the constitution, may think necessary and
expedient.92

Police power, which flows from the recognition that salus populi est suprema lex (the welfare of the
people is the supreme law), is the plenary power vested in the legislature to make statutes and
ordinances to promote the health, morals, peace, education, good order or safety and general
welfare of the people.93 Property rights of individuals may be subjected to restraints and burdens in
order to fulfill the objectives of the government in the exercise of police power. 94 In this jurisdiction, it
is well-entrenched that taxation may be made the implement of the state’s police power.95

Ordinance No. SP-2095 imposes a Socialized Housing Tax equivalent to 0.5% on the assessed
value of land in excess of Php100,000.00. This special assessment is the same tax referred to in
R.A. No. 7279 or the UDHA.96 The SHT is one of the sources of funds for urban development and
housing program.97 Section 43 of the law provides:

Sec. 43. Socialized Housing Tax . – Consistent with the constitutional principle that the ownership
and enjoyment of property bear a social function and to raise funds for the Program, all local
government units are hereby authorized to impose an additional one-half percent (0.5%) tax on the
assessed value of all lands in urban areas in excess of Fifty thousand pesos (₱50,000.00).

The rationale of the SHT is found in the preambular clauses of the subject ordinance, to wit:

WHEREAS, the imposition of additional tax is intended to provide the City Government with
sufficient funds to initiate, implement and undertake Socialized Housing Projects and other related
preliminary activities;

WHEREAS, the imposition of 0.5% tax will benefit the Socialized Housing Programs and Projects of
the City Government, specifically the marginalized sector through the acquisition of properties for
human settlements;

WHEREAS, the removal of the urban blight will definitely increase fair market value of properties in
the city[.]

The above-quoted are consistent with the UDHA, which the LGUs are charged to implement in their
respective localities in coordination with the Housing and Urban Development Coordinating Council,
the national housing agencies, the Presidential Commission for the Urban Poor, the private sector,
and other non-government organizations.98 It is the declared policy of the State to undertake a
comprehensive and continuing urban development and housing program that shall, among others,
uplift the conditions of the underprivileged and homeless citizens in urban areas and in resettlement
areas, and provide for the rational use and development of urban land in order to bring a bout,
among others, reduction in urban dysfunctions, particularly those that adversely affect public health,
safety and ecology, and access to land and housing by the underprivileged and homeless
citizens.99 Urban renewal and resettlement shall include the rehabilitation and development of
blighted and slum areas100 and the resettlement of program beneficiaries in accordance with the
provisions of the UDHA.101 Under the UDHA, socialized housing102 shall be the primary strategy in
providing shelter for the underprivileged and homeless.103 The LGU or the NHA, in cooperation with
the private developers and concerned agencies, shall provide socialized housing or re settlement
areas with basic services and facilities such as potable water, power and electricity, and an
adequate power distribution system, sewerage facilities, and an efficient and adequate solid waste
disposal system; and access to primary roads and transportation facilities.104 The provisions for
health, education, communications, security, recreation, relief and welfare shall also be planned and
be given priority for implementation by the LGU and concerned agencies in cooperation with the
private sector and the beneficiaries themselves.105

Moreover, within two years from the effectivity of the UDHA, the LGUs, in coordination with the NHA,
are directed to implement the relocation and resettlement of persons living in danger areas such as
esteros , railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and other public places
like sidewalks, roads, parks, and playgrounds.106 In coordination with the NHA, the LG Us shall
provide relocation or resettlement sites with basic services and facilities and access to employment
and livelihood opportunities sufficient to meet the basic needs of the affected families.107

Clearly, the SHT charged by the Quezon City Government is a tax which is within its power to
impose. Aside from the specific authority vested by Section 43 of the UDHA, cities are allowed to
exercise such other powers and discharge such other functions and responsibilities as are
necessary, appropriate, or incidental to efficient and effective provision of the basic services and
facilities which include, among others, programs and projects for low-cost housing and other mass
dwellings.108 The collections made accrue to its socialized housing programs and projects.

The tax is not a pure exercise of taxing power or merely to raise revenue; it is levied with a
regulatory purpose. The levy is primarily in the exercise of the police power for the general welfare of
the entire city. It is greatly imbued with public interest. Removing slum areas in Quezon City is not
only beneficial to the underprivileged and homeless constituents but advantageous to the real
property owners as well. The situation will improve the value of the their property investments, fully
enjoying the same in view of an orderly, secure, and safe community, and will enhance the quality of
life of the poor, making them law-abiding constituents and better consumers of business products.

Though broad and far-reaching, police power is subordinate to constitutional limitations and is
subject to the requirement that its exercise must be reasonable and for the public good.109 In the
words of City of Manila v. Hon. Laguio, Jr.:110

The police power granted to local government units must always be exercised with utmost
observance of the rights of the people to due process and equal protection of the law. Such power
cannot be exercised whimsically, arbitrarily or despotically as its exercise is subject to a qualification,
limitation or restriction demanded by the respect and regard due to the prescription of the
fundamental law, particularly those forming part of the Bill of Rights. Individual rights, it bears
emphasis, may be adversely affected only to the extent that may fairly be required by the legitimate
demands of public interest or public welfare. Due process requires the intrinsic validity of the law in
interfering with the rights of the person to his life, liberty and property.

xxxx
To successfully invoke the exercise of police power as the rationale for the enactment of the
Ordinance, and to free it from the imputation of constitutional infirmity, not only must it appear that
the interests of the public generally, as distinguished from those of a particular class, require an
interference with private rights, but the means adopted must be reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon individuals. It must be evident that
no other alternative for the accomplishment of the purpose less intrusive of private rights can work. A
reasonable relation must exist between the purposes of the police measure and the means
employed for its accomplishment, for even under the guise of protecting the public interest, personal
rights and those pertaining to private property will not be permitted to be arbitrarily invaded.

Lacking a concurrence of these two requisites, the police measure shall be struck down as an
arbitrary intrusion into private rights – a violation of the due process clause.111

As with the State, LGUs may be considered as having properly exercised their police power only if
there is a lawful subject and a lawful method or, to be precise, if the following requisites are met: (1)
the interests of the public generally, as distinguished from those of a particular class, require its
exercise and (2) the mean s employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals.112

In this case, petitioner argues that the SHT is a penalty imposed on real property owners because it
burdens them with expenses to provide funds for the housing of informal settlers, and that it is a
class legislation since it favors the latter who occupy properties which is not their own and pay no
taxes.

We disagree.

Equal protection requires that all persons or things similarly situated should be treated alike, both as
to rights conferred and responsibilities imposed.113 The guarantee means that no person or class of
persons shall be denied the same protection of laws which is enjoyed by other persons or other
classes in like circumstances.114 Similar subjects should not be treated differently so as to give undue
favor to some and unjustly discriminate against others.115 The law may, therefore, treat and regulate
one class differently from another class provided there are real and substantial differences to
distinguish one class from another.116

An ordinance based on reasonable classification does not violate the constitutional guaranty of the
equal protection of the law. The requirements for a valid and reasonable classification are: (1) it must
rest on substantial distinctions; (2) it must be germane to the purpose of the law; (3) it must not be
limited to existing conditions only; and (4) it must apply equally to all members of the same
class.117For the purpose of undertaking a comprehensive and continuing urban development and
housing program, the disparities between a real property owner and an informal settler as two
distinct classes are too obvious and need not be discussed at length. The differentiation conforms to
the practical dictates of justice and equity and is not discriminatory within the meaning of the
Constitution. Notably, the public purpose of a tax may legally exist even if the motive which impelled
the legislature to impose the tax was to favor one over another.118 It is inherent in the power to tax
that a State is free to select the subjects of taxation.119Inequities which result from a singling out of
one particular class for taxation or exemption infringe no constitutional limitation.120

Further, the reasonableness of Ordinance No. SP-2095 cannot be disputed. It is not confiscatory or
oppressive since the tax being imposed therein is below what the UDHA actually allows. As pointed
out by respondents, while the law authorizes LGUs to collect SHT on lands with an assessed value
of more than ₱50,000.00, the questioned ordinance only covers lands with an assessed value
exceeding ₱100,000.00. Even better, on certain conditions, the ordinance grants a tax credit
equivalent to the total amount of the special assessment paid beginning in the sixth (6th) year of its
effectivity. Far from being obnoxious, the provisions of the subject ordinance are fair and just.

On the Garbage Fee

In the United States of America, it has been held that the authority of a municipality to regulate
garbage falls within its police power to protect public health, safety, and welfare.121 As opined, the
purposes and policy underpinnings of the police power to regulate the collection and disposal of
solid waste are: (1) to preserve and protect the public health and welfare as well as the environment
by minimizing or eliminating a source of disease and preventing and abating nuisances; and (2) to
defray costs and ensure financial stability of the system for the benefit of the entire community, with
the sum of all charges marshalled and designed to pay for the expense of a systemic refuse disposal
scheme.122

Ordinances regulating waste removal carry a strong presumption of

validity.123 Not surprisingly, the overwhelming majority of U.S. cases addressing a city's authority to
impose mandatory garbage service and fees have upheld the ordinances against constitutional and
statutory challenges.124

A municipality has an affirmative duty to supervise and control the collection of garbage within its
corporate limits.125The LGC specifically assigns the responsibility of regulation and oversight of solid
waste to local governing bodies because the Legislature determined that such bodies were in the
best position to develop efficient waste management programs.126 To impose on local governments
the responsibility to regulate solid waste but not grant them the authority necessary to fulfill the same
would lead to an absurd result."127 As held in one U.S. case:

x x x When a municipality has general authority to regulate a particular subject matter, the manner
and means of exercising those powers, where not specifically prescribed by the legislature, are left
to the discretion of the municipal authorities. x x x Leaving the manner of exercising municipal
powers to the discretion of municipal authorities "implies a range of reasonableness within which a
municipality's exercise of discretion will not be interfered with or upset by the judiciary."128

In this jurisdiction, pursuant to Section 16 of the LGC and in the proper exercise of its corporate
powers under Section 22 of the same, the Sangguniang Panlungsod of Quezon City, like other local
legislative bodies, is empowered to enact ordinances, approve resolutions, and appropriate funds for
the genera l welfare of the city and its inhabitants.129Section 16 of the LGC provides:

SECTION 16. General Welfare . – Every local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or incidental
for its efficient and effective governance, and those which are essential to the promotion of the
general welfare. Within their respective territorial jurisdictions, local government units shall ensure
and support, among other things, the preservation and enrichment of culture, promote health and
safety, enhance the right of the people to a balanced ecology, encourage and support the
development of appropriate and self-reliant scientific and technological capabilities, improve public
morals, enhance economic prosperity and social justice, promote full employment among their
residents, maintain peace and order, and preserve the comfort and convenience of their inhabitants.

The general welfare clause is the delegation in statutory form of the police power of the State to
LGUs.130 The provisions related thereto are liberally interpreted to give more powers to LGUs in
accelerating economic development and upgrading the quality of life for the people in the
community.131 Wide discretion is vested on the legislative authority to determine not only what the
interests of the public require but also what measures are necessary for the protection of such
interests since the Sanggunian is in the best position to determine the needs of its constituents.132

One of the operative principles of decentralization is that, subject to the provisions of the LGC and
national policies, the LGUs shall share with the national government the responsibility in the
management and maintenance of ecological balance within their territorial jurisdiction.133 In this
regard, cities are allowed to exercise such other powers and discharge such other functions and
responsibilities as are necessary, appropriate, or incidental to efficient and effective provision of the
basic services and facilities which include, among others, solid waste disposal system or
environmental management system and services or facilities related to general hygiene and
sanitation.134R.A. No. 9003, or the Ecological Solid Waste Management Act of 2000,135 affirms this
authority as it expresses that the LGUs shall be primarily responsible for the implementation and
enforcement of its provisions within their respective jurisdictions while establishing a cooperative
effort among the national government, other local government units, non-government organizations,
and the private sector.136

Necessarily, LGUs are statutorily sanctioned to impose and collect such reasonable fees and
charges for services rendered.137 "Charges" refer to pecuniary liability, as rents or fees against
persons or property, while "Fee" means a charge fixed by law or ordinance for the regulation or
inspection of a business or activity.138

The fee imposed for garbage collections under Ordinance No. SP-2235 is a charge fixed for the
regulation of an activity. The basis for this could be discerned from the foreword of said Ordinance,
to wit:

WHEREAS, Quezon City being the largest and premiere city in the Philippines in terms of population
and urban geographical areas, apart from being competent and efficient in the delivery of public
service, apparently requires a big budgetary allocation in order to address the problems relative and
connected to the prompt and efficient delivery of basic services such as the effective system of
waste management, public information programs on proper garb age and proper waste disposal,
including the imposition of waste regulatory measures;

WHEREAS, to help augment the funds to be spent for the city’s waste management system, the City
Government through the Sangguniang Panlungsod deems it necessary to impose a schedule of
reasonable fees or charges for the garbage collection services for residential (domestic household)
that it renders to the public.

Certainly, as opposed to petitioner’s opinion, the garbage fee is not a tax. In Smart Communications,
Inc. v. Municipality of Malvar, Batangas ,139the Court had the occasion to distinguish these two
concepts:

In Progressive Development Corporation v. Quezon City, the Court declared that "if the generating of
revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if
regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make
the imposition a tax."

In Victorias Milling Co., Inc. v. Municipality of Victorias, the Court reiterated that the purpose and
effect of the imposition determine whether it is a tax or a fee, and that the lack of any standards for
such imposition gives the presumption that the same is a tax.

We accordingly say that the designation given by the municipal authorities does not decide whether
the imposition is properly a license tax or a license fee. The determining factors are the purpose
1aw p++i1
and effect of the imposition as may be apparent from the provisions of the ordinance. Thus, "[w]hen
no police inspection, supervision, or regulation is provided, nor any standard set for the applicant to
establish, or that he agrees to attain or maintain, but any and all persons engaged in the business
designated, without qualification or hindrance, may come, and a license on payment of the stipulated
sum will issue, to do business, subject to no prescribed rule of conduct and under no guardian eye,
but according to the unrestrained judgment or fancy of the applicant and licensee, the presumption is
strong that the power of taxation, and not the police power, is being exercised."

In Georgia, U.S.A., assessments for garbage collection services have been consistently treated as a
fee and not a tax.140

In another U.S. case,141 the garbage fee was considered as a "service charge" rather than a tax as it
was actually a fee for a service given by the city which had previously been provided at no cost to its
citizens.

Hence, not being a tax, the contention that the garbage fee under Ordinance No. SP-2235 violates
the rule on double taxation142 must necessarily fail.

Nonetheless, although a special charge, tax, or assessment may be imposed by a municipal

corporation, it must be reasonably commensurate to the cost of providing the garbage service.143 To
pass judicial scrutiny, a regulatory fee must not produce revenue in excess of the cost of the
regulation because such fee will be construed as an illegal tax when the revenue generated by the
regulation exceeds the cost of the regulation.144

Petitioner argues that the Quezon City Government already collects garbage fee under Section 47 of
R.A. No. 9003, which authorizes LGUs to impose fees in amounts sufficient to pay the costs of
preparing, adopting, and implementing a solid waste management plan, and that it has access to the
SWM Fund under Section 46 of the same law. Moreover, Ordinance No. S-2235 is inconsistent with
R.A. No. 9003, because the ordinance emphasizes the collection and payment of garbage fee with
no concern for segregation, composting and recycling of wastes. It also skips the mandate of the law
calling for the active involvement of the barangay in the collection, segregation, and recycling of
garbage.

We now turn to the pertinent provisions of R.A. No. 9003.

Under R.A. No. 9003, it is the declared policy of the State to adopt a systematic, comprehensive and
ecological solid waste management program which shall, among others, ensure the proper
segregation, collection, transport, storage, treatment and disposal of solid waste through the
formulation and adoption of the best environmental practices in ecological waste
management.145 The law provides that segregation and collection of solid waste shall be conducted
at the barangay level, specifically for biodegradable, compostable and reusable wastes, while the
collection of non-recyclable materials and special wastes shall be the responsibility of the
municipality or city.146Mandatory segregation of solid wastes shall primarily be conducted at the
source, to include household, institutional, industrial, commercial and agricultural
sources.147 Segregation at source refers to a solid waste management practice of separating, at the
point of origin, different materials found in soli d waste in order to promote recycling and re-use of
resources and to reduce the volume of waste for collection and disposal.148 Based on Rule XVII of the
Department of Environment and Natural Resources (DENR) Administrative Order No. 2001-34,
Series of 2001,149which is the Implementing Rules and Regulations ( IRR ) of R.A. No. 9003,
barangays shall be responsible for the collection, segregation, and recycling of biodegradable,
recyclable , compostable and reusable wastes.150
For the purpose, a Materials Recovery Facility (MRF), which shall receive biodegradable wastes for
composting and mixed non-biodegradable wastes for final segregation, re-use and recycling, is to be
established in every barangay or cluster of barangays.151

According to R.A. 9003, an LGU, through its local solid waste management board, is mandated by
law to prepare a 10-year solid waste management plan consistent with the National Solid Waste
Management Framework.152 The plan shall be for the re-use, recycling and composting of wastes
generated in its jurisdiction; ensure the efficient management of solid waste generated within its
jurisdiction; and place primary emphasis on implementation of all feasible re-use, recycling, and
composting programs while identifying the amount of landfill and transformation capacity that will be
needed for solid waste which cannot be re-used, recycled, or composted.153 One of the components
of the so lid waste management plan is source reduction:

(e) Source reduction – The source reduction component shall include a program and implementation
schedule which shows the methods by which the LGU will, in combination with the recycling and
composting components, reduce a sufficient amount of solid waste disposed of in accordance with
the diversion requirements of Section 20.

The source reduction component shall describe the following:

(1) strategies in reducing the volume of solid waste generated at source;

(2) measures for implementing such strategies and the resources necessary to carry out
such activities;

(3) other appropriate waste reduction technologies that may also be considered, provide d
that such technologies conform with the standards set pursuant to this Act;

(4) the types of wastes to be reduced pursuant to Section 15 of this Act;

(5) the methods that the LGU will use to determine the categories of solid wastes to be
diverted from disposal at a disposal facility through re-use , recycling and composting; and

(6) new facilities and of expansion of existing facilities which will be needed to implement re-
use, recycling and composting.

The LGU source reduction component shall include the evaluation and identification of rate
structures and fees for the purpose of reducing the amount of waste generated, and other source
reduction strategies, including but not limited to, program s and economic incentives provided under
Sec. 45 of this Act to reduce the use of non-recyclable materials, replace disposable materials and
products with reusable materials and products, reduce packaging, and increase the efficiency of the
use of paper, cardboard, glass, metal, and other materials. The waste reduction activities of the
community shall al so take into account, among others, local capability, economic viability, technical
requirements, social concerns, disposition of residual waste and environmental impact: Provided ,
That, projection of future facilities needed and estimated cost shall be incorporated in the plan. x x
x154

The solid waste management pl an shall also include an implementation schedule for solid waste
diversion:
SEC. 20. Establishing Mandatory Solid Waste Diversion. – Each LGU plan shall include an
implementation schedule which shows that within five (5) years after the effectivity of this Act, the
LGU shall divert at least 25% of all solid waste from waste disposal facilities through re-use,
recycling, and composting activities and other resource recovery activities: Provided , That the waste
diversion goals shall be increased every three (3) years thereafter: Provided , further, That nothing in
this Section prohibits a local government unit from implementing re-use, recycling, and composting
activities designed to exceed the goal.

The baseline for the twenty-five percent (25%) shall be derived from the waste characterization
result155 that each LGU is mandated to undertake.156In accordance with Section 46 of R.A. No. 9003,
the LGUs are entitled to avail of the SWM Fund on the basis of their approved solid waste
management plan. Aside from this, they may also impose SWM Fees under Section 47 of the law,
which states:

SEC. 47. Authority to Collect Solid Waste Management Fees – The local government unit shall
impose fees in amounts sufficient to pay the costs of preparing, adopting, and implementing a solid
waste management plan prepared pursuant to this Act. The fees shall be based on the following
minimum factors:

(a) types of solid waste;

(b) amount/volume of waste; and

(c) distance of the transfer station to the waste management facility.

The fees shall be used to pay the actual costs incurred by the LGU in collecting the local fees. In
determining the amounts of the fees, an LGU shall include only those costs directly related to the
adoption and implementation of the plan and the setting and collection of the local fees.

Rule XVII of the IRR of R.A. No. 9003 sets forth the details:

Section 1. Power to Collect Solid Waste Management Fees . – The Local SWM Board/Local SWM
Cluster Board shall impose fees on the SWM services provided for by the LGU and/or any
authorized organization or unit. In determining the amounts of the fees, a Local SWM Board/Local
SWM Cluster Board shall include only those costs directly related to the adoption and
implementation of the SWM Plan and the setting and collection of the local fees. This power to
impose fees may be ceded to the private sector and civil society groups which have been duly
accredited by the Local SWM Boar d/Local SWM Cluster Board; provided, the SWM fees shall be
covered by a Contract or Memorandum of Agreement between the respective boa rd and the private
sector or civil society group.

The fees shall pay for the costs of preparing, adopting and implementing a SWM Plan prepared
pursuant to the Act. Further, the fees shall also be used to pay the actual costs incurred in collecting
the local fees and for project sustainability.

Section 2. Basis of SWM Service Fees

Reasonable SWM service fees shall be computed based on but not limited to the following minimum
factors:

a) Types of solid waste to include special waste

 b) amount/volume of waste

c) distance of the transfer station to the waste management facility

d) capacity or type of LGU constituency

e) cost of construction

f) cost of management

g) type of technology

Section 3. Collection of Fees. – Fees may be collected corresponding to the following levels:

a) Barangay – The Barangay may impose fees for collection and segregation of
biodegradable, compostable and reusable wastes from households, commerce, other
sources of domestic wastes, and for the use of Barangay MRFs. The computation of the fees
shall be established by the respective SWM boards. The manner of collection of the fees
shall be dependent on the style of administration of respective Barangay Councils. However,
all transactions shall follow the Commission on Audit rules on collection of fees.

b) Municipality – The municipal and city councils may impose fees on the barangay MRFs for
the collection and transport of non-recyclable and special wastes and for the disposal of
these into the sanitary landfill. The level and procedure for exacting fees shall be defined by
the Local SWM Board/Local SWM Cluster Board and supported by LGU ordinances;
however, payments shall be consistent with the accounting system of government.

c) Private Sector/Civil Society Group – On the basis of the stipulations of contract or

Memorandum of Agreement, the private sector or civil society group shall impose fees for
collection, transport and tipping in their SLFs. Receipts and invoices shall be issued to the
paying public or to the government.

From the afore-quoted provisions, it is clear that the authority of a municipality or city to impose fees
is limited to the collection and transport of non-recyclable and special wastes and for the disposal of
these into the sanitary landfill. Barangays, on the other hand, have the authority to impose fees for
the collection and segregation of biodegradable, compostable and reusable wastes from
households, commerce, other sources of domestic wastes, and for the use of barangay MRFs. This
is but consistent with

Section 10 of R.A. No. 9003 directing that segregation and collection of biodegradable, compostable
and reusable wastes shall be conducted at the barangay level, while the collection of non-recyclable
materials and special wastes shall be the responsibility of the municipality or city.

In this case, the alleged bases of Ordinance No. S-2235 in imposing the garbage fee is the volume
of waste currently generated by each person in Quezon City, which purportedly stands at 0.66
kilogram per day, and the increasing trend of waste generation for the past three
years.157 Respondents

did not elaborate any further. The figure presented does not reflect the specific types of wastes
generated – whether residential, market, commercial, industrial, construction/demolition, street
waste, agricultural, agro-industrial, institutional, etc. It is reasonable, therefore, for the Court to
presume that such amount pertains to the totality of wastes, without any distinction, generated by
Quezon City constituents. To reiterate, however, the authority of a municipality or city to impose fees
extends only to those related to the collection and transport of non-recyclable and special wastes.

Granting, for the sake of argument, that the 0.66 kilogram of solid waste per day refers only to non-
recyclable and special wastes, still, We cannot sustain the validity of Ordinance No. S-2235. It
violates the equal protection clause of the Constitution and the provisions of the LGC that an
ordinance must be equitable and based as far as practicable on the taxpayer’s ability to pay, and not
unjust, excessive, oppressive, confiscatory.158

In the subject ordinance, the rates of the imposable fee depend on land or floor area and whether
the payee is an occupant of a lot, condominium, social housing project or apartment. For easy
reference, the relevant provision is again quoted below:

On all domestic households in Quezon City;

LAND AREA IMPOSABLE FEE

Less than 200 sq. m. PHP 100.00
201 sq. m. – 500 sq. m. PHP 200.00
501 sq. m. – 1,000 sq. m. PHP 300.00
1,001 sq. m. – 1,500 sq. m. PHP 400.00
1,501 sq. m. – 2,000 sq. m. or more PHP 500.00

On all condominium unit and socialized housing projects/units in Quezon City;

FLOOR AREA IMPOSABLE FEE

Less than 40 sq. m. PHP 25.00
41 sq. m. – 60 sq. m. PHP 50.00
61 sq. m. – 100 sq. m. PHP 75.00
101 sq. m. – 150 sq. m. PH₱100.00
151 sq. m. – 200 sq. [m.] or more PHP 200.00

On high-rise Condominium Units

a) High-rise Condominium – The Homeowners Association of high rise condominiums shall

pay the annual garbage fee on the total size of the entire condominium and socialized
Housing Unit and an additional garbage fee shall be collected based on area occupied for
every unit already so ld or being amortized.

b) High-rise apartment units – Owners of high-rise apartment units shall pay the annual
garbage fee on the total lot size of the entire apartment and an additional garbage fee based
on the schedule prescribed herein for every unit occupied.
For the purpose of garbage collection, there is, in fact, no substantial distinction between an
occupant of a lot, on one hand, and an occupant of a unit in a condominium, socialized housing
project or apartment, on the other hand. Most likely, garbage output produced by these types of
occupants is uniform and does not vary to a large degree; thus, a similar schedule of fee is both just
and equitable.159

The rates being charged by the ordinance are unjust and inequitable: a resident of a 200 sq. m. unit
in a condominium or socialized housing project has to pay twice the amount than a resident of a lot
similar in size; unlike unit occupants, all occupants of a lot with an area of 200 sq. m. and less have
to pay a fixed rate of Php100.00; and the same amount of garbage fee is imposed regardless of
whether the resident is from a condominium or from a socialized housing project.

Indeed, the classifications under Ordinance No. S-2235 are not germane to its declared purpose of
"promoting shared responsibility with the residents to attack their common mindless attitude in over-
consuming the present resources and in generating waste."160 Instead of simplistically categorizing
the payee into land or floor occupant of a lot or unit of a condominium, socialized housing project or
apartment, respondent City Council should have considered factors that could truly measure the
amount of wastes generated and the appropriate fee for its collection. Factors include, among
others, household age and size, accessibility to waste collection, population density of the barangay
or district, capacity to pay, and actual occupancy of the property. R.A. No. 9003 may also be looked
into for guidance. Under said law, WM service fees may be computed based on minimum factors
such as type s of solid waste to include special waste, amount/volume of waste, distance of the
transfer station to the waste management facility, capacity or type of LGU constituency, cost of
construction, cost of management, and type of technology. With respect to utility rates set by
municipalities, a municipality has the right to classify consumers under reasonable classifications
based upon factors such as the cost of service, the purpose for which the service or the product is
received, the quantity or the amount received, the different character of the service furnished, the
time of its use or any other matter which presents a substantial difference as a ground of
distinction.161[A] lack of uniformity in the rate charged is not necessarily unlawful discrimination. The
establishment of classifications and the charging of different rates for the several classes is not
unreasonable and does not violate the requirements of equality and uniformity. Discrimination to be
unlawful must draw an unfair line or strike an unfair balance between those in like circumstances
having equal rights and privileges. Discrimination with respect to rates charged does not vitiate
unless it is arbitrary and without a reasonable fact basis or justification.162

On top of an unreasonable classification, the penalty clause of Ordinance No. SP-2235, which
states:

SECTION 3. Penalty Clause – A penalty of 25% of the garbage fee due plus an interest of 2% per
month or a fraction thereof (interest) shall be charged against a household owner who refuses to pay
the garbage fee herein imposed. lacks the limitation required by Section 168 of the LGC, which
provides:

SECTION 168. Surcharges and Penalties on Unpaid Taxes, Fees, or Charges. – The sanggunian
may impose a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or charges
not paid on time and an interest at the rate not exceeding two percent (2%) per month of the unpaid
taxes, fees or charges including surcharges, until such amount is fully paid but in no case shall the
total interest on the unpaid amount or portion thereof exceed thirty-six (36) months. (Emphasis
supplied)

Finally, on the issue of publication of the two challenged ordinances.

Petitioner argues that the garbage fee was collected even if the required publication of its approval
had not yet elapsed. He notes that he paid his realty tax on January 7, 2014 which already included
the garbage fee. Respondents counter that if the law provides for its own effectivity, publication in
the Official Gazette is not necessary so long as it is not penal in nature. Allegedly, Ordinance No.
SP-2095 took effect after its publication while Ordinance No. SP-2235 became effective after its
approval on December 26, 2013.

The pertinent provisions of the LGC state:

SECTION 59. Effectivity of Ordinances or Resolutions. – (a) Unless otherwise stated in the
ordinance or the resolution approving the local development plan and public investment program,
the same shall take effect after ten (10) days from the date a copy thereof is posted in a bulletin
board at the entrance of the provincial capital or city, municipal, or barangay hall, as the case may
be, and in at least two (2) other conspicuous places in the local government unit concerned.

(b) The secretary to the sanggunian concerned shall cause the posting of an ordinance or
resolution in the bulletin board at the entrance of the provincial capital and the city,
municipal, or barangay hall in at least two

(2) conspicuous places in the local government unit concerned not later than five (5) days
after approval thereof.

The text of the ordinance or resolution shall be disseminated and posted in Filipino or
English and in the language or dialect understood by the majority of the people in the local
government unit concerned, and the secretary to the sanggunian shall record such fact in a
book kept for the purpose, stating the dates of approval and posting.

(c) The gist of all ordinances with penal sanctions shall be published in a newspaper of
general circulation within the province where the local legislative body concerned belongs. In
the absence of any newspaper of general circulation within the province, posting of such
ordinances shall be made in all municipalities and cities of the province where the
sanggunian of origin is situated.

(d) In the case of highly urbanized and independent component cities, the main features of
the ordinance or resolution duly enacted or adopted shall, in addition to being posted, be
published once in a local newspaper of general circulation within the city: Provided, That in
the absence thereof the ordinance or resolution shall be published in any newspaper of
general circulation.

SECTION 188. Publication of Tax Ordinances and Revenue Measures. – Within ten (10) days after
their approval, certified true copies of all provincial, city, and municipal tax ordinances or revenue
measures shall be published in full for three (3) consecutive days in a newspaper of local circulation:
Provided, however, That in provinces, cities and municipalities where there are no newspapers of
local circulation, the same may be posted in at least two (2) conspicuous and publicly accessible
places. (Emphasis supplied)

On October 17, 2011, respondent Quezon City Council enacted Ordinance No. SP-2095, which
provides that it would take effect after its publication in a newspaper of general circulation.163 On the
other hand, Ordinance No. SP-2235, which was passed by the City Council on December 16, 2013,
provides that it would be effective upon its approval.164
Ten (10) days after its enactment, or on December 26, 2013, respondent City Mayor approved the
same.165

The case records are bereft of any evidence to prove petitioner’s negative allegation that
respondents did not comply with the posting and publication requirements of the law. Thus, We are
constrained not to give credit to his unsupported claim.

WHEREFORE, the petition is PARTIALLY GRANTED. The constitutionality and legality of Ordinance
No. SP-2095, S-2011, or the "Socialized Housing Tax of Quezon City," is· SUSTAINED for being
consistent ·with Section·43 of Republic Act No. ·7279. On the other hand, Ordinance No. SP-2235,
S-2013, which collects an annual garbage fee on all domestic households in Quezon City, is hereby
declared as UNCONSTITUTIONAL AND ILLEGAL. Respondents are DIRECTED to REFUND with
reasonable dispatch the sums of money collected relative to its enforcement. The temporary
restraining order issued by the Court on February 5, 2014 is LIFTED with respect to Ordinance No.
SP-2095. In contrast, respondents are PERMANENTLY ENJOINED from taking any further action to
enforce Ordinance No. SP. 2235.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

G.R. No. 194561, September 14, 2016 - DRUGSTORES ASSOCIATION OF THE PHILIPPINES, INC. AND
NORTHERN LUZON DRUG CORPORATION, Petitioners, v. NATIONAL COUNCIL ON DISABILITY AFFAIRS;
DEPARTMENT OF HEALTH; DEPARTMENT OF FINANCE; BUREAU OF INTERNAL REVENUE; DEPARTMENT OF
THE INTERIOR AND LOCAL GOVERNMENT; AND DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT,
Respondent.

THIRD DIVISION

G.R. No. 194561, September 14, 2016

DRUGSTORES ASSOCIATION OF THE PHILIPPINES, INC. AND NORTHERN LUZON DRUG

CORPORATION, Petitioners, v. NATIONAL COUNCIL ON DISABILITY AFFAIRS; DEPARTMENT OF
HEALTH; DEPARTMENT OF FINANCE; BUREAU OF INTERNAL REVENUE; DEPARTMENT OF THE
INTERIOR AND LOCAL GOVERNMENT; AND DEPARTMENT OF SOCIAL WELFARE AND
DEVELOPMENT, Respondent.

DECISION
 PERALTA, J.:

Before us is a Petition for Review on Certiorari1 with a Prayer for a Temporary Restraining Order and/or Writ
of Preliminary Injunction which seeks to annul and set aside the Decision2 dated July 26, 2010, and the
Resolution3 dated November 19, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 109903. The CA
dismissed petitioners' Petition for Prohibition4 and upheld the constitutionality of the mandatory twenty
percent (20%) discount on the purchase of medicine by persons with disability (PWD).

The antecedents are as follows:

On March 24, 1992, Republic Act (R.A.) No. 7277, entitled "An Act Providing for the Rehabilitation, Self-
chanRoble svirtual Lawlib ra ry

Development and Self-Reliance of Disabled Persons and their Integration into the Mainstream of Society and
for Other Purposes," otherwise known as the "Magna Carta for Disabled Persons," was passed into law.5 The
law defines "disabled persons", "impairment" and "disability" as follows: ChanRobles Vi rtua lawlib rary

SECTION 4. Definition of Terms. - For purposes of this Act, these terms are defined as follows:

(a) Disabled Persons are those suffering from restriction of different abilities, as a result of a mental,
chanRoble svirtual Lawlib ra ry

physical or sensory impairment, to perform an activity in the manner or within the range considered normal
for a human being;

(b) Impairment is any loss, diminution or aberration of psychological, physiological, or anatomical structure
of function;

(c) Disability shall mean (1) a physical or mental impairment that substantially limits one or more
psychological, physiological or anatomical function of an individual or activities of such individual; (2) a
record of such an impairment; or (3) being regarded as having such an impairment.6 chan roblesv irt uallawl ibrary

On April 30, 2007, Republic Act No. 94427 was enacted amending R.A. No. 7277. The Title of R.A. No. 7277
was amended to read as "Magna Carta for Persons with Disability" and all references on the law to "disabled
persons" were amended to read as "persons with disability" (PWD).8 Specifically, R.A. No. 9442 granted the
PWDs a twenty (20) percent discount on the purchase of medicine, and a tax deduction scheme was
adopted wherein covered establishments may deduct the discount granted from gross income based on the
net cost of goods sold or services rendered: ChanRoble sVirt ualawli bra ry

CHAPTER 8. Other Privileges and Incentives. SEC. 32. Persons with disability shall be entitled to the
following:

chanRoble svirtual Lawlib ra ry xxxx

(d) At least twenty percent (20%) discount for the purchase of medicines in
all drugstores for the exclusive use or enjoyment of persons with
disability;

xxxx

The abovementioned privileges are available only to persons with disability who are Filipino citizens upon
submission of any of the following as proof of his/her entitlement thereto:
chanRoble svirtual Lawlib ra ry

(i) An identification card issued by the city or municipal mayor or the

barangay captain of the place where the person with disability resides;

(ii) The passport of the person with disability concerned; or

(ii) Transportation discount fare Identification Card (ID) issued by the

 National Council for the Welfare of Disabled Persons (NCWDP).

xxxx

The establishments may claim the discounts granted in subsections (a), (b), (c), (f) and (g) as tax
deductions based on the net cost of the goods sold or services rendered: Provided, however, That the cost
of the discount shall be allowed as deduction from gross income for the same taxable year that the discount
is granted: Provided, further, That the total amount of the claimed tax deduction net of value-added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code (NIRC), as amended.9 chanroble svirtuallaw lib rary

The Implementing Rules and Regulations (IRR) of R.A. No. 944210 was jointly promulgated by the
Department of Social Welfare and Development (DSWD), Department of Education, Department of Finance
(DOF), Department of Tourism, Department of Transportation and Communication, Department of the
Interior and Local Government (DILG) and Department of Agriculture. Insofar as pertinent to this petition,
the salient portions of the IRR are hereunder quoted:11
RULE III. DEFINITION OF TERMS

Section 5. Definition of Terms. For purposes of these Rules and Regulations, these terms are defined as
follows:

5.1. Persons with Disability - are those individuals defined under Section 4 of RA 7277 "An Act Providing
chanRoble svirtual Lawlib ra ry

for the Rehabilitation, Self-Development and Self-Reliance of Persons with Disability as amended and their
integration into the Mainstream of Society and for Other Purposes". This is defined as a person suffering
from restriction or different abilities, as a result of a mental, physical or sensory impairment, to perform an
activity in a manner or within the range considered normal for human being. Disability shall mean (1) a
physical or mental impairment that substantially limits one or more psychological, physiological or
anatomical function of an individual or activities of such individual; (2) a record of such an impairment; or
(3) being regarded as having such an impairment.

xxxx

RULE IV. PRIVILEGES AND INCENTIVES FOR THE PERSONS WITH DISABILITY

Section 6. Other Privileges and Incentives. Persons with disability shall be entitled to the following:

chanRoble svirtual Lawlib ra ry xxxx

6.1.d. Purchase of Medicine - at least twenty percent (20%) discount on the purchase of medicine for the
exclusive use and enjoyment of persons with disability. All drugstores, hospital, pharmacies, clinics and
other similar establishments selling medicines are required to provide at least twenty percent (20%)
discount subject to the guidelines issued by DOH and PHILHEALTH.12 chanroble slaw

xxxx

6.11 The abovementioned privileges are available only to persons with disability who are Filipino citizens
upon submission of any of the following as proof of his/her entitlement thereto subject to the guidelines
issued by the NCWDP in coordination with DSWD, DOH and DILG.
6.11.1 An identification card issued by the city or municipal mayor or the barangay captain of the place
where the person with disability resides;

6.11.2 The passport of the persons with disability concerned; or

6.11.3 Transportation discount fare Identification Card (ID) issued by the National Council for the Welfare of
Disabled Persons (NCWDP). However, upon effectivity of this Implementing Rules and Regulations, NCWDP
will already adopt the Identification Card issued by the Local Government Unit for purposes of uniformity in
the implementation. NCWDP will provide the design and specification of the identification card that will be
issued by the Local Government Units.13 chanrob lesvi rtua llawli bra ry

6.14. Availmenl of Tax Deductions by Establishment Granting Twenty Percent. 20% Discount - The
establishments may claim the discounts granted in sub-sections (6.1), (6.2), (6.4), (6.5) and (6.6) as tax
deductions based on the net cost of the goods sold or services rendered: Provided, however, that the cost of
the discount shall be allowed as deduction from gross income for the same taxable year that the discount is
granted: Provided, further, That the total amount of the claimed tax deduction net of value-added tax if
applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as amended.
On April 23, 2008, the National Council on Disability Affairs (NCDA)14 issued Administrative Order (A.O.) No.
1, Series of 2008,15 prescribing guidelines which should serve as a mechanism for the issuance of a PWD
Identification Card (IDC) which shall be the basis for providing privileges and discounts to bona fidePWDs in
accordance with R.A. 9442: ChanRoblesVirtualawl ibra ry

IV. INSTITUTIONAL ARRANGEMENTS

A. The Local Government Unit of the City or Municipal Office shall implement these guidelines in the
issuance of the PWD-IDC

xxxx

D. Issuance of the appropriate document to confirm the medical condition of the applicant is as follows: ChanRobles Vi rt ualawlib ra ry

Disability Document Issuing Entity

Apparent Medical Licensed Private or Government

Disability Certificate Physician

School Licensed Teacher duly signed by the

Assessment School Principal

Certificate of Head of the Business Establishment or

Disability Head of Non-Government Organization

Non-Apparent Medical Licensed Private or Government

Disability Certificate Physician
E. PWD Registration Forms and ID Cards shall be issued and signed by the City or Municipal Mayor, or
Barangay Captain.

xxxx
V. IMPLEMENTING GUIDELINES AND PROCEDURES
Any bonafide person with permanent disability can apply for the issuance of the PWD-IDC. His/her caregiver
can assist in the application process. Procedures for the issuance of the ID Cards are as follows:

chanRoble svirtual Lawlib ra ry A. Completion of the Requirements. Complete and/or make available the following requirements: Cha nRobles Vi rtua lawlib rary

1. Two "1x1" recent ID pictures with the names, and signatures or thumbmarks at the back of the
picture

2. One (1) Valid ID

3. Document to confirm the medical or disability condition (See Section IV, D for the required
document).

On December 9, 2008, the DOF issued Revenue Regulations No. 1-200916 prescribing rules and regulations
to implement R.A. 9442 relative to the tax privileges of PWDs and tax incentives for establishments granting
the discount. Section 4 of Revenue Regulations No. 001-09 states that drugstores can only deduct the 20%
discount from their gross income subject to some conditions.17 chanrob leslaw

On May 20, 2009, the DOH issued A.O. No. 2009-001118 specifically stating that the grant of 20% discount
shall be provided in the purchase of branded medicines and unbranded generic medicines from all
establishments dispensing medicines for the exclusive use of the PWDs.19 It also detailed the guidelines for
the provision of medical and related discounts and special privileges to PWDs pursuant to R.A. 9442.20 chanrob leslaw
On July 28, 2009, petitioners filed a Petition for Prohibition with application for a Temporary Restraining
Order and/or a Writ of Preliminary Injunction21 before the Court of Appeals to annul and enjoin the
implementation of the following laws: ChanRobles Vi rtua lawlib rary

1) Section 32 of R.A. No. 7277 as amended by R.A. No. 9442;

2) Section 6, Rule IV of the Implementing Rules and Regulations of R.A. No. 9442;

3) NCDA A.O. No. 1;

4) DOF Revenue Regulation No. 1-2009;

5) DOH A.O. No. 2009-0011.

On July 26, 2010, the CA rendered a Decision upholding the constitutionality of R.A. 7277 as amended, as
well as the assailed administrative issuances. However, the CA suspended the effectivity of NCDA A.O. No. 1
pending proof of respondent NCDA's compliance with filing of said administrative order with the Office of the
National Administrative Register (ONAR) and its publication in a newspaper of general circulation. The
dispositive portion of the Decision states: ChanRobles Vi rtualawl ib rary

WHEREFORE, the petition is PARTLY GRANTED. The effectivity of NCDA Administrative Order No. 1 is hereby
SUSPENDED pending Respondent's compliance with the proof of filing of NCDA Administrative Order No. 1
with the Office of the National Administrative Register and its publication in a newspaper of general
circulation.
Respondent NCDA filed a motion for reconsideration before the CA to lift the suspension of the
implementation of NCDA A.O. No. 1 attaching thereto proof of its publication in the Philippine Star and Daily
Tribune on August 12, 2010, as well as a certification from the ONAR showing that the same was filed with
the said office on October 22, 2009.22 Likewise, petitioners filed a motion for reconsideration of the CA
Decision.

In a Resolution dated November 19, 2010, the CA dismissed petitioners' motion for reconsideration and
lifted the suspension of the effectivity of NCDA A.O. No. 1 considering the filing of the same with ONAR and
its publication in a newspaper of general circulation.

Hence, the instant petition raising the following issues: ChanRobles Vi rtualawlib ra ry

I. THE CA SERIOUSLY ERRED ON A QUESTION OF SUBSTANCE WHEN IT RULED THAT THE MANDATED PWD
DISCOUNT IS A VALID EXERCISE OF POLICE POWER. ON THE CONTRARY, IT IS AN INVALID EXERCISE OF
THE POWER OF EMINENT DOMAIN BECAUSE IT FAILS TO PROVIDE JUST COMPENSATION TO PETITIONERS
AND OTHER SIMILARLY SITUATED DRUGSTORES;

II. THE CA SERIOUSLY ERRED WHEN IT RULED THAT SECTION 32 OF RA 7277 AS AMENDED BY RA 9442,
NCDA AO 1 AND THE OTHER IMPLEMENTING REGULATIONS DID NOT VIOLATE THE DUE PROCESS CLAUSE;

III. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE DEFINITIONS OF DISABILITIES UNDER SECTION
4(A), SECTION 4(B) AND SECTION 4(C) OF RA 7277 AS AMENDED BY RA 9442, RULE 1 OF THE
IMPLEMENTING RULES AND REGULATIONS23 OF RA 7277, SECTION 5.1 OF THE IMPLEMENTING RULES AND
REGULATIONS OF RA 9442, NCDA AO 1 AND DOH AO 2009-11 ARE NOT VAGUE, AMBIGUOUS AND
UNCONSTITUTIONAL;

IV. THE CA SERIOUSLY ERRED WHEN IT RULED THAT THE MANDATED PWD DISCOUNT DOES NOT VIOLATE
THE EQUAL PROTECTION CLAUSE.
We deny the petition.

The CA is correct when it applied by analogy the case of Carlos Superdrug Corporation et al. v. DSWD, et
al.24 wherein We pronouced that Section 4 of R.A. No. 9257 which grants 20% discount on the purchase of
medicine of senior citizens is a legitimate exercise of police power: ChanRoble sVirtualawl ibra ry

The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general
welfare for its object. Police power is not capable of an exact definition, but has been purposely veiled in
general terms to underscore its comprehensiveness to meet all exigencies and provide enough room for an
efficient and flexible response to conditions and circumstances, thus assuring the greatest
benefits.25 Accordingly, it has been described as the most essential, insistent and the least limitable of
cra lawred

powers, extending as it does to all the great public needs.26 It is [t]he power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for
the good and welfare of the commonwealth, and of the subjects of the same.27 chanrobleslaw

For this reason, when the conditions so demand as determined by the legislature, property rights must bow
to the primacy of police power because property rights, though sheltered by due process, must yield to
general welfare.28 c hanrobles law

Police power as an attribute to promote the common good would be diluted considerably if on the mere plea
of petitioners that they will suffer loss of earnings and capital, the questioned provision is invalidated.
Moreover, in the absence of evidence demonstrating the alleged confiscatory effect of the provision in
question, there is no basis for its nullification in view of the presumption of validity which every law has in
its favor.29 chanro blesvi rtua llawli bra ry

Police power is the power of the state to promote public welfare by restraining and regulating the use of
liberty and property. On the other hand, the power of eminent domain is the inherent right of the state (and
of those entities to which the power has been lawfully delegated) to condemn private property to public use
upon payment of just compensation. In the exercise of police power, property rights of private individuals
are subjected to restraints and burdens in order to secure the general comfort, health, and prosperity of the
state.30 A legislative act based on the police power requires the concurrence of a lawful subject and a lawful
method. In more familiar words, (a) the interests of the public generally, as distinguished from those of a
particular class, should justify the interference of the state; and (b) the means employed are reasonably
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.31 cha nrob leslaw

R.A. No. 7277 was enacted primarily to provide full support to the improvement of the total well-being of
PWDs and their integration into the mainstream of society. The priority given to PWDs finds its basis in the
Constitution: ChanRoblesVirt ualawli bra ry

ARTICLE XII

NATIONAL ECONOMY AND PATRIMONY

xxxx

Section 6. The use of property bears a social function, and all economic agents shall contribute to the
common good. Individuals and private groups, including corporations, cooperatives, and similar collective
organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty
of the State to promote distributive justice and to intervene when the common good so demands.32 chanroble slaw

ARTICLE XIII

SOCIAL JUSTICE AND HUMAN RIGHTS

xxxx

Section 11. The State shall adopt an integrated and comprehensive approach to health development which
shall endeavor to make essential goods, health and other social services available to all the people at
affordable cost. There shall be priority for the needsof the underprivileged, sick, elderly, disabled, women,
and children. The State shall endeavor to provide free medical care to paupers.33 chan roblesv irtuallaw lib rary

Thus, R.A. No. 7277 provides: ChanRobles Vi rtualaw lib rary

SECTION 2. Declaration of Policy. The grant of the rights and privileges for disabled persons shall be guided
by the following principles:

(a). Disabled persons are part of the Philippine society, thus the Senate shall give full support to the
chanRoble svirtual Lawlib ra ry

improvement of the total well-being of disabled persons and their integration into the mainstream of society.

Toward this end, the State shall adopt policies ensuring the rehabilitation, self-development and self-reliance
of disabled persons.

It shall develop their skills and potentials to enable them to compete favorably for available opportunities.

(b). Disabled persons have the same rights as other people to take their proper place in society. They
should be able to live freely and as independently as possible. This must be the concern of everyone - the
family, community and all government and non-government organizations.

Disabled person's rights must never be perceived as welfare services by the Government.
xxxx

(d). The State also recognizes the role of the private sector in promoting the welfare of disabled persons and
shall encourage partnership in programs that address their needs and concerns.34 chan roble svirtuallaw lib rary

To implement the above policies, R.A. No. 9442 which amended R.A. No. 7277 grants incentives and
benefits including a twenty percent (20%) discount to PWDs in the purchase of medicines; fares for
domestic air, sea and land travels including public railways and skyways; recreation and amusement centers
including theaters, food chains and restaurants.35 This is specifically stated in Section 4 of the IRR of R.A.
No. 9442: ChanRobles Vi rtualawl ib rary

Section 4. Policies and Objectives - It is the objective of Republic Act No. 9442 to provide persons with
disability, the opportunity to participate fully into the mainstream of society by granting them at
least twenty percent (20%) discount in all basic services. It is a declared policy of RA 7277 that
persons with disability are part of Philippine society, and thus the State shall give full support to the
improvement of their total wellbeing and their integration into the mainstream of society. They
have the same rights as other people to take their proper place in society. They should be able to live freely
and as independently as possible. This must be the concern of everyone the family, community and all
government and non-government organizations. Rights of persons with disability must never be perceived
as welfare services. Prohibitions on verbal, non-verbal ridicule and vilification against persons with disability
shall always be observed at all times.36 cha nrob lesvi rtua llawli bra ry

Hence, the PWD mandatory discount on the purchase of medicine is supported by a valid objective or
purpose as aforementioned. It has a valid subject considering that the concept of public use is no longer
confined to the traditional notion of use by the public, but held synonymous with public interest, public
benefit, public welfare, and public convenience. As in the case of senior citizens,37 the discount privilege to
which the PWDs are entitled is actually a benefit enjoyed by the general public to which these citizens
belong. The means employed in invoking the active participation of the private sector, in order to achieve
the purpose or objective of the law, is reasonably and directly related.38 Also, the means employed to
provide a fair, just and quality health care to PWDs are reasonably related to its accomplishment, and are
not oppressive, considering that as a form of reimbursement, the discount extended to PWDs in the
purchase of medicine can be claimed by the establishments as allowable tax deductions pursuant to Section
32 of R.A. No. 9442 as implemented in Section 4 of DOF Revenue Regulations No. 1-2009. Otherwise stated,
the discount reduces taxable income upon which the tax liability of the establishments is computed.

Further, petitioners aver that Section 32 of R.A. No. 7277 as amended by R.A. No. 9442 is unconstitutional
and void for violating the due process clause of the Constitution since entitlement to the 20% discount is
allegedly merely based on any of the three documents mentioned in the provision, namely: (i) an
identification card issued by the city or municipal mayor or the barangay captain of the place where the PWD
resides; (ii) the passport of the PWD; or (iii) transportation discount fare identification card issued by NCDA.
Petitioners, thus, maintain that none of the said documents has any relation to a medical finding of
disability, and the grant of the discount is allegedly without any process for the determination of a PWD in
accordance with law.

Section 32 of R.A. No. 7277, as amended by R.A. No. 9442, must be read with its IRR which stated that
upon its effectivity, NCWDP (which is the government agency tasked to ensure the implementation of RA
7277), would adopt the IDC issued by the local government units for purposes of uniformity in the
implementation.39 Thus, NCDA A.O. No. 1 provides the reasonable guidelines in the issuance of IDCs to
PWDs as proof of their entitlement to the privileges and incentives under the law40 and fills the details in the
implementation of the law.

As stated in NCDA A.O. No. 1, before an IDC is issued by the city or municipal mayor or the barangay
captain,41 or the Chairman of the NCDA,42 the applicant must first secure a medical certificate issued by a
licensed private or government physician that will confirm his medical or disability condition. If an applicant
is an employee with apparent disability, a "certificate of disability" issued by the head of the business
establishment or the head of the non-governmental organization is needed for him to be issued a PWD-IDC.
For a student with apparent disability, the "school assessment" issued by the teacher and signed by the
school principal should be presented to avail of a PWD-ID.

Petitioners' insistence that Part IV (D) of NCDA Administrative Order No. 1 is void because it allows allegedly
non-competent persons like teachers, head of establishments and heads of Non-Governmental Organizations
(NGOs) to confirm the medical condition of the applicant is misplaced. It must be stressed that only for
apparent disabilities can the teacher or head of a business establishment validly issue the mentioned
required document because, obviously, the disability is easily seen or clearly visible. It is, therefore, not an
unqualified grant of authority for the said non-medical persons as it is simply limited to apparent disabilities.
For a non-apparent disability or a disability condition that is not easily seen or clearly visible, the disability
can only be validated by a licensed private or government physician, and a medical certificate has to be
presented in the procurement of an IDC. Relative to this issue, the CA validly ruled, thus: ChanRoblesVirt ualawli bra ry

We agree with the Office of the Solicitor General's (OSG) ratiocination that teachers, heads of business
establishments and heads of NGOs can validly confirm the medical condition of their students/employees
with apparent disability for obvious reasons as compared to non-apparent disability which can only be
determined by licensed physicians. Under the Labor Code, disabled persons are eligible as apprentices
or learners provided that their handicap are not as much as to effectively impede the performance of their
job. We find that heads of business establishments can validly issue certificates of disability of their
employees because aside from the fact that they can obviously validate the disability, they also
have medical records of the employees as a pre-requisite in the hiring of employees. Hence, Part IV
(D) of NCDA AO No. 1 is logical and valid.43 chanrob lesvi rtua llawli bra ry

Furthermore, DOH A.O. No. 2009-11 prescribes additional guidelines for the 20% discount in the purchase
of all medicines for the exclusive use of PWD.44 To avail of the discount, the PWD must not only present his
I.D. but also the doctor's prescription stating, among others, the generic name of the medicine, the
physician's address, contact number and professional license number, professional tax receipt number and
narcotic license number, if applicable. A purchase booklet issued by the local social/health office is also
required in the purchase of over-the-counter medicines. Likewise, any single dispensing of medicine must be
in accordance with the prescription issued by the physician and should not exceed a one (1) month supply.
Therefore, as correctly argued by the respondents, Section 32 of R.A. No. 7277 as amended by R.A. No.
9442 complies with the standards of substantive due process.

We are likewise not persuaded by the argument of petitioners that the definition of "disabilities" under the
subject laws is vague and ambiguous because it is allegedly so general and broad that the person tasked
with implementing the law will undoubtedly arrive at different interpretations and applications of the law.
Aside from the definitions of a "person with disability" or "disabled persons" under Section 4 of R.A. No.
7277 as amended by R.A. No. 9442 and in the IRR of RA 9442, NCDA A.O. No. 1 also provides: ChanRob les Virtualawl ibra ry

4. Identification Cards shall be issued to any bonafide PWD with permanent disabilities due to any one
or more of the following conditions: psychosocial, chronic illness, learning, mental, visual,
orthopedic, speech and hearing conditions. This includes persons suffering from disabling diseases
resulting to the person's limitations to do day to day activities as normally as possible such as but
not limited to those undergoing dialysis, heart disorders, severe cancer cases and such other similar
cases resulting to temporary or permanent disability.45

Similarly, DOH A.O. No. 2009-0011 defines the different categories of disability as follows: ChanRob les Virtualawl ibra ry

Rule IV, Section 4, Paragraph B of the Implementing Rules and Regulations (IRR) of this Act required the
Department of Health to address the health concerns of seven (7) different categories of disability, which
include the following: (1) Psychological and behavioral disabilities (2) Chronic illness with disabilities
(3)Learning(cognitive or intellectual) disabilities (4) Mental disabilities (5) Visual/seeing disabilities (6)
Orthopedic/moving, and (7) communication deficits.46 chan roblesv irt uallawl ib rary

Elementary is the rule that when laws or rules are clear, when the law is unambiguous and unequivocal,
application not interpretation thereof is imperative. However, where the language of a statute is vague and
ambiguous, an interpretation thereof is resorted to. A law is deemed ambiguous when it is capable of being
understood by reasonably well-informed persons in either of two or more senses. The fact that a law admits
of different interpretations is the best evidence that it is vague and ambiguous.47 chanrob leslaw

In the instant case, We do not find the aforestated definition of terms as vague and ambiguous. Settled is
the rule that courts will not interfere in matters which are addressed to the sound discretion of the
government agency entrusted with the regulation of activities coming under the special and technical
training and knowledge of such agency.48 As a matter of policy, We accord great respect to the decisions
and/or actions of administrative authorities not only because of the doctrine of separation of powers but also
for their presumed knowledge, ability, and expertise in the enforcement of laws and regulations entrusted to
their jurisdiction. The rationale for this rule relates not only to the emergence of the multifarious needs of a
modern or modernizing society and the establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience and growth of specialized
capabilities by the administrative agency charged with implementing a particular statute.49 chanroble slaw

Lastly, petitioners contend that R.A. No. 7227, as amended by R.A. No. 9442, violates the equal protection
clause of the Constitution because it fairly singles out drugstores to bear the burden of the discount, and
that it can hardly be said to "rationally" meet a legitimate government objective which is the purpose of the
law. The law allegedly targets only retailers such as petitioners, and that the other enterprises in the drug
industry are not imposed with similar burden. This same argument had been raised in the case of Carlos
Superdrug Corp., et al. v. DSWD, et al.,50 and We reaffirm and apply the ruling therein in the case at
bar:ChanRobles Vi rtualaw lib rary

The Court is not oblivious of the retail side of the pharmaceutical industry and the competitive pricing
component of the business. While the Constitution protects property rights, petitioners must accept the
realities of business and the State, in the exercise of police power, can intervene in the operations of a
business which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of the Constitution provides the
precept for the protection of property, various laws and jurisprudence, particularly on agrarian reform and
the regulation of contracts and public utilities, continuously serve as a reminder that the right to property
can be relinquished upon the command of the State for the promotion of public good.51 chan roblesv irtuallaw lib rary

Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the
privileges conferred and the obligations imposed. Conversely, all persons or things differently situated
should be treated differently.52 In the case of ABAKADA Guro Party List, et al. v. Hon. Purisima, et al.,53 We
held: ChanRoble sVirtualawl ibra ry

Equality guaranteed under the equal protection clause is equality under the same conditions and among
persons similarly situated; it is equality among equals, not similarity of treatment of persons who are
classified based on substantial differences in relation to the object to be accomplished. When things or
persons are different in fact or circumstance, they may be treated in law differently. In Victoriano v. Elizalde
Rope Workers' Union, this Court declared: ChanRob les Virtualawl ibra ry

The guaranty of equal protection of the laws is not a guaranty of equality in the application of the laws upon
all citizens of the State. It is not, therefore, a requirement, in order to avoid the constitutional prohibition
against inequality, that every man, woman and child should be affected alike by a statute. Equality of
operation of statutes does not mean indiscriminate operation on persons merely as such, but on persons
according to the circumstances surrounding them. It guarantees equality, not identity of rights. The
Constitution does not require that things which are different in fact be treated in law as though
they were the same. The equal protection clause does not forbid discrimination as to things that
are different. It does not prohibit legislation which is limited either in the object to which it is
directed or by the territory within which it is to operate.

The equal protection of the laws clause of the Constitution allows classification. Classification in law, as in
the other departments of knowledge or practice, is the grouping of things in speculation or practice because
they agree with one another in certain particulars. A law is not invalid because of simple inequality. The very
idea of classification is that of inequality, so that it goes without saying that the mere fact of inequality in no
manner determines the matter of constitutionality. All that is required of a valid classification is that it
be reasonable, which means that the classification should be based on substantial distinctions
which make for real differences, that it must be germane to the purpose of the law; that it must
not be limited to existing conditions only; and that it must apply equally to each member of the
class. This Court has held that the standard is satisfied if the classification or distinction is based
on a reasonable foundation or rational basis and is not palpably arbitrary.

In the exercise of its power to make classifications for the purpose of enacting laws over matters within its
jurisdiction, the state is recognized as enjoying a wide range of discretion. It is not necessary that the
classification be based on scientific or marked differences of things or in their relation. Neither is it
necessary that the classification be made with mathematical nicety. Hence, legislative classification may in
many cases properly rest on narrow distinctions, for the equal protection guaranty does not preclude the
legislature from recognizing degrees of evil or harm, and legislation is addressed to evils as they may
appear.
The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable
foundation or rational basis and not arbitrary.54 With respect to R.A. No. 9442, its expressed public policy is
the rehabilitation, self-development and self-reliance of PWDs. Persons with disability form a class separate
and distinct from the other citizens of the country. Indubitably, such substantial distinction is germane and
intimately related to the purpose of the law. Hence, the classification and treatment accorded to the PWDs
fully satisfy the demands of equal protection. Thus, Congress may pass a law providing for a different
treatment to persons with disability apart from the other citizens of the country.

Subject to the determination of the courts as to what is a proper exercise of police power using the due
process clause and the equal protection clause as yardsticks, the State may interfere wherever the public
interests demand it, and in this particular, a large discretion is necessarily vested in the legislature to
determine, not only what interests of the public require, but what measures are necessary for the protection
of such interests.55 Thus, We are mindful of the fundamental criteria in cases of this nature that all
reasonable doubts should be resolved in favor of the constitutionality of a statute.56 The burden of proof is
on him who claims that a statute is unconstitutional. Petitioners failed to discharge such burden of proof.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated July 26, 2010, and the
Resolution dated November 19, 2010, in CA-G.R. SP No. 109903 are AFFIRMED.

SO ORDERED. chanRoblesvirt ual Lawlib rary

National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012), was
a landmark[2][3][4] United States Supreme Court decision in which the Court upheld Congress' power to
enact most provisions of the Patient Protection and Affordable Care Act(ACA), commonly called
Obamacare,[5][6] and the Health Care and Education Reconciliation Act (HCERA), including a
requirement for most Americans to have health insurance by 2014.[7][8] The Acts represented a major
set of changes to the American health care system that had been the subject of highly
contentious debate, largely divided on political party lines.
The Supreme Court, in an opinion written by Chief Justice John Roberts, upheld by a vote of 5 to 4
the individual mandate to buy health insurance as a constitutional exercise of Congress's taxing
power. A majority of the justices, including Chief Justice Roberts, agreed that the individual mandate
was not a proper use of Congress's Commerce Clause or Necessary and Proper Clause powers,
though they did not join in a single opinion. A majority of the justices also agreed that another
challenged provision of the Act, a significant expansion of Medicaid, was not a valid exercise of
Congress's spending power as it would coerce states to either accept the expansion or risk losing
existing Medicaid funding.

National Federation of Independent Business

v. Sebelius

Supreme Court of the United States

Argued March 26–28, 2012

Decided June 28, 2012

Full case name National Federation of Independent

Business, et al. v. Kathleen Sebelius,
Secretary of Health and Human Services, et
 al.; Department of Health and Human
Services, et al. v. Florida, et al.; Florida, et al.
v. Department of Health and Human
Services, et al.

Docket nos. 11-393

11-398
11-400

Citations 567 U.S. 519 (more)

132 S. Ct. 2566; 183 L. Ed. 2d 450;

2012 U.S. LEXIS4876; 80 U.S.L.W. 4579;
2012-2 U.S. Tax Cas. (CCH) ¶ 50,423; 109
A.F.T.R.2d (RIA) 2563; 53 Employee
Benefits Cas. (BNA) 1513; 23 Fla. L. Weekly
Fed. S 480

 * Anti-Injunction Act
Argument
o Individual Mandate
o Severability
o Medicaid Expansion

Prior history Act declared unconstitutional sub.

nom. Florida ex rel. Bondi v. US Dept. of
Health and Human Services,
780 F.Supp.2d 1256 (N.D. Fla.2011);
Affirmed and reversed in parts,
648 F.3d 1235 (11th Cir. 2011); Certiorari
granted, 565 U.S. ___ (2011)

Holding

(1) The Tax Anti-Injunction Act does not apply because

the Patient Protection and Affordable Care Act (ACA)'s labeling
of the individual mandate as a "penalty" instead of a "tax"
precludes it from being treated as a tax under the Anti-
Injunction Act. (2) The individual mandate provision of the ACA
functions constitutionally as a tax, and is therefore a valid
exercise of Congress's taxing power. (3) Congress exceeded its
Spending Clause authority by coercing states into a
transformative change in their Medicaid programs by
 threatening to revoke all of their Medicaid funding if they did not
participate in the Medicaid expansion, which would have an
excessive impact on a state's budget. Congress may withhold
from states refusing to comply with the ACA's Medicaid
expansion provision only the additional funding for Medicaid
provided under the ACA.[1]

Eleventh Circuit affirmed in part and reversed in part.

Court membership

Chief Justice
John Roberts

Associate Justices
Antonin Scalia · Anthony Kennedy
Clarence Thomas · Ruth Bader Ginsburg
Stephen Breyer · Samuel Alito
Sonia Sotomayor · Elena Kagan

Case opinions

Majority Roberts (parts I, II, III-C), joined by Ginsburg,

Breyer, Sotomayor, Kagan

Concurrence Roberts (part IV), joined by Breyer, Kagan

Concurrence Roberts (parts III-A, III-B, III-D)

Concur/dissent Ginsburg, joined by Sotomayor; and Breyer,

Kagan (parts I, II, III, IV)

Dissent Scalia, Kennedy, Thomas, Alito

Dissent Thomas

Background[edit]
Main article: Constitutional challenges to the Patient Protection and Affordable Care Act
In March 2010, President Barack Obama signed the Patient Protection and Affordable Care Act into
law. A number of parties sued, including the National Federation of Independent Business, claiming
that the sweeping reform law was unconstitutional for various reasons.[9][10][11] The Supreme Court
granted certiorari to three cases, totaling 5½ hours of oral arguments: National Federation of
Independent Business v. Sebelius (which consolidated a part of Florida v. Dept. of Health and
Human Services) on the issues of the constitutionality of the individual mandate and
the severability of any unconstitutional provisions, Dept. of Health and Human Services v. Florida on
the issue of whether review was barred by the Anti-Injunction Act, and Florida v. Dept. of Health and
Human Services on the matter of the constitutionality of the Medicaid expansion.[12]

District Court proceedings[edit]

The state of Florida filed a lawsuit against the United States Department of Health and Human
Services, challenging the constitutionality of the law. On January 31, 2011, Judge Roger
Vinson ruled that the mandatory health insurance "individual mandate"—the provision of Internal
Revenue Code section 5000A imposing a "shared responsibility penalty" on nearly all Americans
who fail to purchase health insurance—was outside the power of Congress. Vinson also held that
the mandate could not be severed from the rest of the Affordable Care Act and struck down the
entire Act.[13]

Eleventh Circuit appeal[edit]

Lawsuits
Original litigants (March 2010)
Joined January 2011
Virginia and Oklahoma, also highlighted, were involved in similar lawsuits.[citation needed]

The Department of Health and Human Services appealed to the 11th Circuit Court of Appeals. A
three-judge panel issued a 2–1 ruling affirming Judge Vinson's findings in part and reversing in
part.[14] The court affirmed the District Court's holding that the individual mandate was
unconstitutional, but, contrary to the District Court's view, it held that the individual mandate could be
severed, leaving the rest of the law intact.[15] The government decided to not seek en banc review
from the full Circuit and instead petitioned the United States Supreme Court to review the Eleventh
Circuit's rulings.[16]

Related cases[edit]
Other federal courts heard cases related to the Affordable Care Act that were not directly reviewed
by the Supreme Court, but caused a divide regarding the constitutionality of the law. Two federal
judges appointed by President Bill Clinton upheld the individual mandate in 2010. Judge Jeffrey
Sutton, a member of the Sixth Circuit Court of Appeals appointed by George W. Bush, was the first
Republican-appointed judge to rule that the law is constitutional in June 2011, as part of a divided
three-judge panel that upheld the constitutionality of the law.[17][18]

Briefing and oral argument[edit]

On November 14, 2011, the Supreme Court granted certiorari to portions of three cross-appeals of
the Eleventh Circuit's opinion: one by the states (Florida v. U.S. Dept. of Health and Human Svcs.),
one by the federal government (U.S. Dept. of Health and Human Svcs. v. Florida); and one by
the National Federation of Independent Business (Nat'l Fed. of Independent Bus. v. Sebelius).[19]

Oral arguments[edit]
The Court announced in December 2011 that it would hear approximately six hours of oral
argumentation over a three-day period, from Monday, March 26, to Wednesday, March 28, 2012,
covering the various aspects being questioned by the principal parties involved in this and other
related cases concerning the ACA.[20][21][22]
The court first heard argument on whether the Anti-Injunction Act, which limits suits "for the purpose
of restraining the assessment or collection of any tax",[23] barred a decision before the ACA fully
entered into force in 2014.[24] Since neither the government, represented by Solicitor General Donald
Verrilli, nor the states, represented that day by Gregory G. Katsas of the law firm Jones Day, were
willing to defend that position (which had been accepted by three of the twelve appellate court
judges that heard the cases)[25] the Court appointed Robert Long of the law firm Covington &
Burling as amicus curiae to defend that position.
On the second day, the court heard arguments over whether the "individual mandate" component of
the ACA fell under the constitutional powers of Congress. The states (Florida et al.) were
represented during the hearings by former Bush administration Solicitor General Paul Clement while
the government was represented by current Solicitor General Donald Verrilli.[26]
On the morning of the third day, the Court considered the issue of severability—whether the
Affordable Care Act could survive if the Court struck down the individual mandate.[27]Paul Clement,
Deputy Solicitor General Edwin Kneedler, and Court-appointed amicus curiae H. Bartow Farr, III of
the law firm Farr & Taranto argued their various positions before the Court.[28]
On the afternoon of the third day, the Court considered whether the Medicaid expansion the
Affordable Care Act instituted was coercive. Both Paul Clement and Donald Verilli again argued
before the Court. Chief Justice Roberts extended the time limit for both parties by 15 minutes during
the arguments.[29]
Solicitor General Verrilli's performance during the hearings was widely criticized by analysts.[30][31]

Opinion of the Court[edit]

Chief Justice John Robertswrote the majority opinion nominally upholding the Affordable Care Act but
overturning a key provision.

The Supreme Court was fragmented on many of the issues. Chief Justice Roberts wrote the opinion
of the Court on the Anti-Injunction Act and Congress's taxing power.

Tax Anti-Injunction Act[edit]

The Court held, in an opinion by Chief Justice Roberts, on this issue joined by Justices Ginsburg,
Breyer, Sotomayor and Kagan, that litigation over the validity of the individual mandate is not
precluded by the Anti-Injunction Act, because the ACA labels the individual mandate as a "penalty"
instead of a "tax", which prevents it from being treated as a tax under the Anti-Injunction Act.[15] The
four remaining Justices—Scalia, Kennedy, Thomas and Alito in their joint dissent—agreed that the
Anti-Injunction Act did not apply, but for a different reason: in their opinion the mandate was not a tax
in the first place and the labeling did not matter.[32]

Congress's taxing power[edit]

Further information: Taxing and Spending Clause
By a vote of 5–4, the Court upheld the individual mandate component of the ACA as a valid exercise
of Congress's power to "lay and collect taxes" (Art. I, §8, cl. 1).[33] Roberts, writing for the Court,
explained:[34]
The Affordable Care Act's requirement that certain individuals pay a financial penalty for not
obtaining health insurance may reasonably be characterized as a tax. Because the Constitution
permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.

Further, the Court ruled that while the section 5000A penalty is treated as a tax for constitutional
purposes, it is not a direct tax, and therefore is not required to be apportioned among the states
according to population. The Court concluded: "A tax on going without health insurance does not fall
within any recognized category of direct tax ... The shared responsibility payment is thus not a direct
tax that must be apportioned among the several States."[35]

Other opinions[edit]
Issues supported by a majority of the Court[edit]
Majorities of the justices agreed on the ACA's expansion of Medicaid and certain aspects of the
constitutionality of the individual mandate, although the Court did not issue an official opinion on
those issues.
Medicaid expansion[edit]
On the question of the expansion of Medicaid, no single opinion commanded the support of a
majority of the Justices. However, a majority of the Court did find the expansion in some way
unconstitutionally coercive and severed the coercive mechanism from the act.

 Chief Justice Roberts, joined by Justices Breyer and Kagan, would have ruled that the Medicaid
expansion could survive, but that states must be given the right to opt out of the expansion
without losing their pre-existing Medicaid funding.[36]
 Justice Ginsburg, joined by Justice Sotomayor, would have upheld the Medicaid expansion in its
entirety (with non-participating states losing all their federal Medicaid funding).[37]
 Justices Scalia, Kennedy, Thomas, and Alito would have struck down the Medicaid expansion
completely (along with the entire Act).[32]
Constitutional scholars have questioned whether Roberts's view that states must be given the right
to opt out without losing their pre-existing Medicaid funding constitutes a holding of the court, given
that it only attracted three justices, with the additional four justices objecting to the entire Medicaid
provision in dissent but not joining Roberts's opinion.[38]
Commerce Clause and the Necessary and Proper Clause[edit]
On the issue of whether the individual mandate fell within the powers allotted to Congress under the
Commerce Clause and Necessary and Proper Clause, no single opinion was joined by a majority of
the Court. However, a majority of the Justices were of the opinion that the individual mandate did not
fall under these powers.

 Chief Justice Roberts would have held that the individual mandate lay outside Congress's
Commerce and Necessary and Proper Clause powers, distinguishing the mandate from the
federal prohibition on marijuana cultivation and possession upheld in Gonzales v. Raich in part
on the ground that the latter regulated economic activity, while the individual mandate penalizes
economic inactivity.[39]
 Justices Scalia, Kennedy, Thomas, and Alito would have held that the individual mandate was
unconstitutional, for similar reasons.[40]
 Justice Ginsburg, joined by Justices Breyer, Sotomayor and Kagan, would have held that the
individual mandate lay within Congress's Commerce Clause and Necessary and Proper Clause
powers.[41]
Chief Justice Roberts' opinion[edit]
Chief Justice Roberts, writing only for himself, would have held that Congress's power to "regulate
Commerce" (the "Commerce Clause" Art. I, §8, cl. 3) does not extend to the regulation of economic
inactivity.[42][43]
A similar argument was made by the joint dissent, although the dissenters did not join this section (or
any section) of the Chief Justice's opinion. Thus a majority of the justices held that the individual
mandate did not fall within Congress's powers under the Commerce Clause.
Regarding the argument that the mandate penalizes or taxes "inactivity", Roberts wrote:
...it is abundantly clear the Constitution does not guarantee that individuals may avoid taxation
through inactivity. A capitation, after all, is a tax that everyone must pay simply for existing, and
capitations are expressly contemplated by the Constitution. The Court today holds that our
Constitution protects us from federal regulation under the Commerce Clause so long as we abstain
from the regulated activity. But from its creation, the Constitution has made no such promise with
respect to taxes.[42]

Further, five Justices including Roberts would have held that the individual mandate was
unsupported by the Necessary and Proper Clause (Art. I, §8, cl. 18).[44]
The Court narrowed the Medicaid penalty provision by ruling that the federal government could not
withhold existing Medicaid funding from states that choose not to participate the Act's extension of
the Medicaid program. Justices Roberts, Breyer, and Kagan concluded that punishing states for
failure to comply in the Medicaid expansion by withholding existing Medicaid funding (42 U.S.C.
§1396c) is unconstitutional.[45] Roberts noted "[the] constitutional violation is fully remedied by
precluding [Sebelius] from applying §1396c to withdraw existing Medicaid funds for failure to comply
with the requirements set out the expansion", leaving the other provisions of the ACA unaffected.[46]
Chief Justice Roberts concluded:
The Affordable Care Act is constitutional in part and unconstitutional in part. The individual mandate
cannot be upheld as an exercise of Congress's power under the Commerce Clause. That Clause
authorizes Congress to regulate interstate commerce, not to order individuals to engage in it. In this
case, however, it is reasonable to construe what Congress has done as increasing taxes on those
who have a certain amount of income, but choose to go without health insurance. Such legislation is
within Congress's power to tax.
As for the Medicaid expansion, that portion of the Affordable Care Act violates the Constitution by
threatening existing Medicaid funding. Congress has no authority to order the States to regulate
according to its instructions. Congress may offer the States grants and require the States to comply
with accompanying conditions, but the States must have a genuine choice whether to accept the
offer.[47]
...
The Federal Government does not have the power to order people to buy health insurance. Section
5000A [of the Internal Revenue Code] would therefore be unconstitutional if read as a command.
The Federal Government does have the power to impose a tax on those without health insurance.
Section 5000A is therefore constitutional, because it can reasonably be read as a tax.[48]

Justice Ginsburg's concurrence/dissent[edit]

Justice Ginsburg concurred in the judgment in part and dissented in part. Joined by Justices Breyer,
Sotomayor, and Kagan, she would have upheld the individual mandate under the Commerce Clause
and Necessary and Proper Clause:[49]
Congress had a rational basis for concluding that the uninsured, as a class, substantially affect
interstate commerce. Those without insurance consume billions of dollars of health-care products
and services each year. Those goods are produced, sold, and delivered largely by national and
regional companies who routinely transact business across state lines. The uninsured also cross
state lines to receive care.

Further, joined only by Sotomayor, she dissented on striking down the Medicaid expansion penalty,
arguing that it was within Congress's power under the Spending Clause:[50]
At bottom, my colleagues' position is that the States' reliance on federal funds limits Congress's
authority to alter its spending programs. This gets things backwards: Congress, not the States, is
tasked with spending federal money in service of the general welfare. And each successive
Congress is empowered to appropriate funds as it sees fit. When the 110th Congress reached a
conclusion about Medicaid funds that differed from its predecessors' view, it abridged no State's right
to "existing", or "pre-existing", funds.... For, in fact, there are no such funds. There is only money
States anticipate receiving from future Congresses.

Ginsburg's dissent went on to highlight the implications of the majority's finding that the federal
government's threat of taking away existing funding from states unwilling to implement Medicaid
expansion left states with no "legitimate choice".
When future Spending Clause challenges arrive, as they likely will in the wake of today's decision,
how will litigants and judges assess whether "a State has a legitimate choice whether to accept the
federal conditions in exchange for federal funds"? Are courts to measure the number of dollars the
Federal Government might withhold for noncompliance? The portion of the State's budget at stake?
And which State's—or States'—budget is determinative: the lead plaintiff, all challenging States (26
in this case, many with quite different fiscal situations), or some national median?[47]

Joint dissent[edit]
Justices Scalia, Kennedy, Thomas, and Alito joined an unsigned dissent that argued the individual
mandate was unconstitutional because it represented an attempt by Congress to regulate beyond its
power under the Commerce Clause.[51] Further, they argued that reclassifying the Individual Mandate
as a tax rather than a penalty in order to sustain its constitutionality was not to interpret the statute
but to rewrite it, which they deemed a troubling exercise of judicial power:[52]
In answering that question [whether the individual mandate is independently authorized by
Congress's taxing power] we must, if "fairly possible", Crowell v. Benson, 285 U. S. 22, 62 (1932),
construe the provision to be a tax rather than a mandate-with-penalty, since that would render it
constitutional rather than unconstitutional (ut res magis valeat quam pereat). But we cannot rewrite
the statute to be what it is not. "'[A]lthough this Court will often strain to construe legislation so as to
save it against constitutional attack, it must not and will not carry this to the point of perverting the
purpose of a statute ...' or judicially rewriting it." Commodity Futures Trading Comm'n v. Schor, 478
U. S. 833, 841 (1986) (quoting Aptheker v. Secretary of State, 378 U. S. 500, 515 (1964), in turn
quoting Scales v. United States, 367 U. S. 203, 211 (1961)). In this case, there is simply no way,
"without doing violence to the fair meaning of the words used", Grenada County Supervisors v.
Brogden, 112 U. S. 261, 269 (1884), to escape what Congress enacted: a mandate that individuals
maintain minimum essential coverage, enforced by a penalty.

The dissent also disputed Justice Ginsburg's claim that the court's opinion failed "to explain why the
individual mandate threatens our constitutional order":[53]
[The individual mandate] threatens that order because it gives such an expansive meaning to the
Commerce Clause that all private conduct (including failure to act) becomes subject to federal
control, effectively destroying the Constitution's division of governmental powers. Thus the dissent,
on the theories proposed for the validity of the Mandate, would alter the accepted constitutional
relation between the individual and the National Government. The dissent protests that the
Necessary and Proper Clause has been held to include "the power to enact criminal laws, ... the
power to imprison, ... and the power to create a national bank", ante, at 34–35. Is not the power to
compel purchase of health insurance much lesser? No, not if (unlike those other dispositions) its
application rests upon a theory that everything is within federal control simply because it exists.

Finally, the joint dissent argued that since the ACA exceeded its constitutional powers in both
compelling the purchase of health insurance and in denying non-consenting States Medicaid
funding, the whole statute should have been deemed inoperative because the two parts were central
to the statute's design and operation.[54] The joint dissent mentioned that "the Constitution requires
tax increases to originate in the House of Representatives" per the Origination Clause,[55] though that
issue was not addressed by the majority opinion.[56]

Justice Thomas's dissent[edit]

In a one-paragraph dissent, Justice Thomas emphasized his long-held belief that the Supreme
Court's precedents have broadened Congress's powers under the Commerce Clause in a manner
"inconsistent with the original understanding of Congress's powers and with this Court's early
Commerce Clause cases". Thomas wrote that he agreed with Roberts' interpretation of precedents
allowing Congress to use the Commerce Clause to regulate "the channels of interstate commerce"
and the "persons or things in interstate commerce" and disallowing the regulation of commercial
inactivity. However, he disagreed with the court's third, "substantial effects" test as established
by Wickard v. Filburn, articulated within United States v. Morrison, and strengthened by Gonzales v.
Raich.

Reaction and commentary[edit]

Media coverage[edit]
The Court convened on the morning of June 28, 2012, to announce its decisions on the ACA and
two other cases; it announced its ruling on the ACA shortly after 10:00 am EDT. CNN and Fox
News initially reported that the individual mandate was found unconstitutional, but corrected
themselves within minutes.[57] President Obama initially heard from CNN and Fox News that the
mandate had been found unconstitutional, but then heard the correct information shortly thereafter.[58]

Speculation over Roberts' vote[edit]

Immediately following the decision, there was speculation that the joint dissent was the original
internal majority opinion, and that Chief Justice Roberts' vote changed some time between March
and the public issuance of the decision.[59][60][61]
On July 1, 2012, CBS News, citing unnamed sources within the Court, said that over the course of
internal deliberations Roberts changed his position from striking down the mandate to upholding
it.[62] The article, written by journalist Jan Crawford, reported that during the Court's private
conference immediately after the oral arguments, Roberts was inclined to strike down the mandate
but, in disagreement with the other four conservative justices, was not certain this required striking
down the law in its entirety.[63] News articles in May 2012 that warned of potential "damage to the
court—and to Roberts' reputation—if the court were to strike down the mandate" increased the
external pressure on Roberts, who "is keenly aware of his leadership role on the court [and] is
sensitive to how the court is perceived by the public", and pays more attention to media coverage of
the Court than some of his colleagues.[64] It was around this time that Roberts decided to uphold the
law. One of the conservative justices reportedly pressed Roberts to explain why he had changed his
view on the mandate, but was "unsatisfied with the response".
On July 2, Adam Liptak of The New York Times reported that leak could have come from Justice
Thomas, as Liptak pointed out that Crawford has long had a relationship with Thomas, granting rare
interviews and Thomas singled her out as his favorite reporter, saying "There are wonderful people
out here who do a good job—do a fantastic job—like Jan [Crawford]."[65]
Some observers have suggested Roberts' philosophy of judicial restraint[66] or the lack of Supreme
Court precedents available "to say the individual mandate crossed a constitutional line" played a part
in his decision.[67] The article reported that after Roberts "withstood a month-long, desperate
campaign to bring him back to his original position", with Kennedy, who is typically the swing vote in
5–4 decisions, leading the effort, the conservatives essentially told him "You're on your own."[68] The
conservative dissent was unsigned and did not, despite efforts by Roberts to convince them to do
so, make any attempt to join the Court's opinion, an unusual situation in which the four justices
"deliberately ignored Roberts' decision, the sources said, as if they were no longer even willing to
engage with him in debate".[69]

Political reactions[edit]

Then President Obama's comments on the Supreme Court's ruling

President Obama praised the decision in a series of remarks,[70] while discussing the benefits of the
legislation in a statement shortly after the decision. Former House speaker Nancy Pelosi said that
Senator Edward Kennedy of Massachusetts, a longtime proponent of health care reform who died
before the bill became law, could now "rest".[71]
The ruling quickly became a rallying cry for Republicans who criticized the Supreme Court's
reasoning and vowed to repeal the ACA. Though they had already repeatedly attempted to do so
starting in January 2011, they were unsuccessful in enacting a repeal. Conservatives quickly seized
on the fact that Obama and the bill's proponents insisted repeatedly throughout the protracted
political debate 2009 and 2010 that the mandate was not a tax, but the Supreme Court upheld it on
the grounds that it was a tax.[71] Republican presidential candidate Mitt Romneysaid he would repeal
the bill,[71] as did Speaker of the House John Boehner[72] and Senate Minority Leader Mitch
McConnell.[73] A spokesperson for the Romney campaign announced that they raised more than $3.2
million in the hours after the announcement of the decision.[71] Several state attorneys general who
challenged the law stated that they were disappointed with the Supreme Court's ultimate decision
but happy that in doing so, the Court limited the powers of Congress under the commerce
clause.[74][75] Several state Republican officials indicated their desire to utilize the option granted to
them by the Supreme Court to not further expand Medicaid.[76]
The American Medical Association, the National Physicians Alliance, the American Academy of
Pediatrics, and the Association of American Medical Colleges said that the ruling was a victory.[77]
The New York Times reported the ruling "may secure Obama's place in history".[78]

Academic commentary[edit]
The New York Times reported that the court's ruling was the most significant federalism decision
since the New Deal. It reported in this respect about the new limits the ruling placed on federal
regulation of commerce and about the conditions the federal government may impose on money it
gives the states. With respect to the Commerce Clause, the Court ruled that the federal government
had no permission to force individuals not engaged in commercial activities to buy services they did
not want.[7] With respect to the Medicaid expansion under the Affordable Care Act, the Supreme
Court held that the ACA's requirement that states rapidly extend coverage to new beneficiaries or
lose existing federal payments was unduly coercive.[8] The health-care law had to allow states to
choose between participating in the expansion while receiving additional payments, or forgoing the
expansion and retaining existing payments.[7] Cuccinelli praised the limits the Court placed on federal
regulation of commerce and on the conditions the federal government could impose on money it
gives the states.[75]
Randy Barnett at SCOTUSblog stated that by invalidating the withholding of existing Medicaid
funding as unconstitutionally coercive[79] the Supreme Court found an enforceable limit on the
Spending Power of the federal government.[80] This limit on the Spending Power of the federal
government is part of Neal K. Katyal's ruling analysis. Law professor Neal K. Katyal at Georgetown
University, who served as acting solicitor general of the United States and argued the health care
cases at the appellate level, argued that the Supreme Court ruling could change the relationship
between the federal government and the states because of "the existence of an extraconstitutional
limit"[81] on the federal government's power under the Spending Clause. Katyal said that until now it
had been understood that when the federal government gave money to a state in exchange for the
state's doing something, the federal government was free to do so as long as a reasonable
relationship existed between the federal funds and the act the federal government wanted the state
to perform. He then referred to the Court holding that the ACA's requirement that states rapidly
extend Medicaid coverage to new beneficiaries or lose existing federal payments was unduly
coercive by noting that the court found that "such a threat is coercive and that the states cannot be
penalized for not expanding their Medicaid coverage after receiving funds. And it does so in the
context of Medicaid, which Congress created and can alter, amend or abolish at any time.... This
was the first significant loss for the federal government's spending power in decades. The fancy
footwork that the court employed to view the act as coercive could come back in later cases to haunt
the federal government. Many programs are built on the government's spending power, and the
existence of an extraconstitutional limit on that power is a worrisome development."[81] Katyal also
mentioned that the federal government told the court that long-standing laws contain clauses that
condition money on state performance of certain activities. "The decision leaves open the question
of whether those acts, and many others (like the Clean Air Act), are now unconstitutional as
well."[81] However Reuters reported later that Katyal reversed his opinion and stated that he didn't see
any litigation coming out of the Supreme Court holding in the near term.[82]
In the same direction as Katyal argues Kevin Russell, who teaches Supreme Court litigation at
Harvard and Stanford Law Schools and clerked for Judge William Norris of the Ninth Circuit and
Justice Stephen Breyer. According to him several significant civil rights statutes, enacted under
Congress's Spending Power, are at risk to be unconstitutional, because the Court held that
Congress exceeded its Spending Clause authority by forcing states into an all-or-nothing choice by
threatening to revoke all of their Medicaid funding if they did not participate in the Medicaid
expansion. Russell remembers that a decade ago several states made challenges to a number of
important civil rights statutes that condition receipt of federal funds on the state's agreement to abide
by non-discrimination principles in the federally funded programs. "These statutes include Title IX
(sex discrimination in federally funded education programs), Title IV (race discrimination in any
federally funded program), and the Rehabilitation Act (disability discrimination in federally funded
programs). States argued that by threatening to take away all of a program's funds if the State's
didn't agree to abide by these statutes, Congress was engaging in unconstitutional coercion."[83]
David B. Kopel, an adjunct professor of constitutional law at Denver University, said that Supreme
Court ruling is the court's most important ruling in defining the limits of Congress's power under
the Spending Clause, because this clause must, like Congress's other powers, conform to the
principles of state sovereignty that are embodied in the United States Constitution, the Tenth
Amendment and Eleventh Amendment. According to him this has a tremendous impact on state
budgets: "Today (and from now on!), states do not need to provide Medicaid to able-bodied childless
adults. Likewise, states today have discretion about whether to provide Medicaid to middle-class
parents. Undoubtedly, some states will choose to participate in the ACA's massive expansion of
medical welfare, but fiscally responsible states now have the choice not to."[84]
University of Michigan law professor Samuel Bagenstos told The Atlantic that the Court's holding on
the Medicaid Expansion could be a landmark decision in federalism jurisprudence, if the Medicaid
issue were not in the same case as the individual mandate. He deemed it "a big deal"[85] that the
Supreme Court has for the first time struck down a condition on federal spending on the grounds that
it coerced the states. In his opinion this means that a number of federal statutes that had not really
been subject to effective legal challenge before can now be challenged by the states.[85]
Public Opinion Summary[edit]
Fairleigh Dickinson University's PublicMind conducted research on the public's constitutional
perspective by asking registered voters about key legal issues brought up by PPACA litigation
through two surveys based upon a random sampling of the United States population. The authors,
Bruce G. Peabody and Peter J. Woolley contend that, through public response on this case, that
despite claims of an ignorant and uninformed public, the masses can be confident, properly
conflicted, and principled when considering major controversies and dilemmas.[86] Rather than polling
the public on raw personal opinion, the study conducted inquired into the random voters legal
judgement on PPACA constitutionality. For example, 56% of Americans (as of February 2012)
deemed that Congress does not have the legal right to require everyone to have health insurance,
while 34% believed that such a mandate was legally permissible.