Sangalang, John Norbert P.

08 NPC vs Cabanatuan
GR No. 149110 9 April 2003

Doctrine: A Government Owned and Controlled Corporation (GOCC) can be

tasked by a Local Government Unit.

Facts:
 Petitioner is a government-owned and controlled corporation tasked to develop
hydroelectric generations of power for the production of electricity from nuclear,
geothermal and other sources, as well as, the transmission of electric power on a
nationwide basis." Petitioner also has the duty 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.
 Petitioner sells electric power to the residents of Cabanatuan City, posting a gross
income of P107,814,187.96 in 1992. Pursuant to section 37 of Ordinance No.
165-92, 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.
 Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government, 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 fees in accordance with sec. 13 of Rep. Act No. 6395.
 The assessed tax due, plus a surcharge equivalent to 25% of the amount of tax,
and 2% monthly interest. Respondent alleged that petitioner's exemption from
local taxes has been repealed by section 193 of Rep. Act No. 7160 or the
Local Government Code of 1991.

Issue: Whether or not petitioner, a government-owned-controlled corporation, may be

taxed by the City Government of Cabanatuan

Held: YES.

Ruling:

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
Sangalang, John Norbert P.

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).

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.” 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.