Mactan Cebu International Airport Authority v. Marcos

G.R. No. 120082 (September 11, 1996)

Facts:

The Mactan Cebu International Airport Authority (MCIAA) was established under Republic Act No. 6958, which tasked it with the management and supervision of the Mactan International Airport and other airports in Cebu. As part of its charter, Section 14 of RA 6958 granted MCIAA an exemption from realty taxes imposed by the National Government or any of its political subdivisions.

On October 11, 1994, the City of Cebu, through its Treasurer, Eustaquio B. Cesa, demanded payment of realty taxes amounting to P2,229,078.79 for several parcels of land owned by MCIAA. The petitioner contested this demand, asserting its tax exemption under Section 14 of its charter and citing Section 133 of the Local Government Code of 1991, which limits the taxing powers of local government units regarding the National Government and its instrumentalities.

The City of Cebu, however, maintained that MCIAA, as a government-owned corporation, was subject to local taxation due to the withdrawal of tax exemptions under Sections 193 and 234 of the Local Government Code, which took effect on January 1, 1992. The City insisted that these provisions applied to all government-owned or controlled corporations, including MCIAA.

Faced with the threat of a tax levy, MCIAA paid the assessed taxes "under protest" and subsequently filed a Petition for Declaratory Relief in the Regional Trial Court of Cebu, seeking a declaration that it was exempt from realty taxes.

Legal Issues:

1. Whether the MCIAA is an instrumentality of the National Government, thus exempt from local taxation under Section 133 of the Local Government Code.
2. Whether the tax exemption granted to MCIAA under its charter was effectively withdrawn by the provisions of the Local Government Code.

Arguments:

Petitioner (MCIAA):

• MCIAA argued that it is an instrumentality of the National Government, performing governmental functions, and therefore should be exempt from local taxes as per Section 133 of the Local Government Code.
• It contended that the tax exemption under Section 14 of RA 6958 was not repealed by the Local Government Code, as the latter's provisions do not apply to national government instrumentalities.

Respondent (City of Cebu):

• The City of Cebu argued that MCIAA is a government-owned corporation performing proprietary functions, and thus, it is subject to local taxation.
• The City maintained that the Local Government Code explicitly withdrew tax exemptions for government-owned corporations, including MCIAA, under Sections 193 and 234.

Court's Decision and Legal Reasoning:

The Regional Trial Court dismissed MCIAA's petition, concluding that the Local Government Code's provisions on tax exemptions applied to MCIAA. The court found that the Local Government Code expressly repealed the tax exemption granted to MCIAA under its charter, as indicated by the repealing clause in the Code.

The court emphasized the importance of local autonomy and the need for local government units to generate revenue through taxation. It ruled that the taxing powers of local government units do not extend to the National Government and its instrumentalities, but since MCIAA is a government-owned corporation, it does not fall under the same protections.

The court also noted that the terms "Republic of the Philippines" and "National Government" are not interchangeable, and the Local Government Code did not extend the exemption to government-owned corporations like MCIAA.

Significant Legal Principles Established:

1. The distinction between government-owned corporations and instrumentalities of the National Government is crucial in determining tax exemption eligibility.
2. The Local Government Code's provisions on tax exemptions and the withdrawal of such exemptions are applicable to government-owned corporations, thereby allowing local government units to impose taxes on them.
3. The principle of local autonomy allows local government units to levy taxes to support their functions, even on entities that may perform governmental functions.