G. Fundamental powers of the State

Atty. Jericho Del Puerto

Atty. Jericho Del Puerto

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The State has three fundamental powers:

1) Police power;

2) Eminent domain; and

3) Taxation. (Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)

1. Police power

a. Concept

Police power is the power of the state to promote public welfare by restraining and regulating the use of liberty and property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the State. The justification is found in the Latin maxim salus populi est suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut alienum non laedas (so use your property as not to injure the property of others). As an inherent attribute of sovereignty which virtually extends to all public needs, police power grants a wide panoply of instruments through which the State, as parens patriae, gives effect to a host of its regulatory powers. We have held that the power to “regulate” means the power to protect, foster, promote, preserve, and control, with due regard for the interests, first and foremost, of the public, then of the utility and of its patrons. (Gerochi v. Department of Energy, En Banc, G.R. No. 159796, 17 July 2007)

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.” Even then, the State’s claim of police power cannot be arbitrary or unreasonable. After all, the overriding purpose of the exercise of the power is to promote general welfare, public health and safety, among others. It is a measure, which by sheer necessity, the State exercises, even to the point of interfering with personal liberties or property rights in order to advance common good. To warrant such interference, two requisites must concur: (a) the interests of the public generally, as distinguished from those of a particular class, require the interference of the! State; and (b) the means employed are reasonably necessary to the: attainment of the object sought to be accomplished and not unduly oppressive upon individuals. In other words, the proper exercise of the police power requires the concurrence of a lawful subject and a lawful method.

The legislature may also grant rights and impose additional burdens: It may also regulate industries, in the exercise of police power, for the protection of the public. R.A. Nos. 9257 and 9442 are akin to regulatory laws, the issuance of which is within the ambit of police power. The minimum wage law, zoning ordinances, price control laws, laws regulating the operation of motels and hotels, laws limiting the working hours to eight, and the like fall under this category. (Southern Luzon Drug Corporation v. DSWD, En Banc, G.R. No. 199669, 25 April 2017)

Indeed, regulatory laws are within the category of police power measures from which affected persons or entities cannot claim exclusion or compensation. For instance, private establishments cannot protest that the imposition of the minimum wage is confiscatory since it eats up a considerable chunk of its profits or that the mandated remuneration is not commensurate for the work done. The compulsory nature of the provision for minimum wages underlies the effort of the State; as R.A. No. 6727 expresses it, to promote productivity-improvement and gain-sharing measures to ensure a decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the fruits of production; to enhance employment generation in the countryside through industry dispersal; and to allow business and industry reasonable returns on investment, expansion and growth, and as the Constitution expresses it, to affirm labor as a primary social economic force. (Southern Luzon Drug Corporation v. DSWD, En Banc, G.R. No. 199669, 25 April 2017)

Similarly, the imposition of price control on staple goods in R.A. No. 7581 is likewise a valid exercise of police power and affected establishments cannot argue that the law was depriving them of supposed gains. The law seeks to ensure the availability of basic necessities and prime commodities at reasonable prices at all times without denying legitimate business a fair return on investment. It likewise aims to provide effective and sufficient protection to consumers against hoarding, profiteering and cartels with respect to the supply, distribution, marketing and pricing of said goods, especially during periods of calamity, emergency, widespread illegal price manipulation and other similar situations. (Southern Luzon Drug Corporation v. DSWD, En Banc, G.R. No. 199669, 25 April 2017)

It is within the bounds of the police power of the state to impose burden on private entities, even if it may affect their profits, such as in the imposition of price control measures. There is no compensable taking but only a recognition of the fact that they are subject to the regulation of the State and that all personal or private interests must bow down to the more paramount interest of the State. (Southern Luzon Drug Corporation v. DSWD, En Banc, G.R. No. 199669, 25 April 2017)

1) Congress, repository of police power

The legislature, which is the constitutional repository of police power and exercises the prerogative of determining the policy of the State, is by force of circumstances primarily the judge of necessity, adequacy or reasonableness and wisdom, of any law promulgated in the exercise of the police power, or of the measures adopted to implement the public policy or to achieve public interest. (Lao Ichong v. Hernandez, G.R. No. L-7995, 31 May 1957)

b. Limitations on Police Power

1) Due process and equal protection

The basic limitations of due process and equal protection are found in the following provisions of our Constitution: SECTION 1. (1) No person shall be deprived of life, liberty or property without due process of law, nor any person be denied the equal protection of the laws (Article III, Phil. Constitution). (Lao Ichong v. Hernandez, G.R. No. L-7995, 31 May 1957)

The power to regulate is not the power to destroy useful and harmless enterprises, but is the power to protect, foster, promote, preserve, and control with due regard for the interest, first and foremost, of the public, then of the utility and of its patrons. Any regulation, therefore, which operates as an effective confiscation of private property or constitutes an arbitrary or unreasonable infringement of property rights is void, because it is repugnant to the constitutional guaranties of due process and equal protection of the laws. (Philippine Communications Satellite Corporation v. Alcuaz, En Banc, G.R. No. 84818, 18 December 1989)

2) Reasonableness in regulation, particularly rate-fixing

The regulatory power of the State does not authorize the destruction of the business. While a business may be regulated, such regulation must be within the bounds of reason, i.e., the regulatory ordinance must be reasonable, and its provision cannot be oppressive amounting to an arbitrary interference with the business or calling subject of regulation. A lawful business or calling may not, under the guise of regulation, be unreasonably interfered with even by the exercise of police power. After all, regulation only signifies control or restraint, it does not mean suppression or absolute prohibition. (Southern Luzon Drug Corporation v. DSWD, En Banc, G.R. No. 199669, 25 April 2017)

Hence, the inherent power and authority of the State, or its authorized agent, to regulate the rates charged by public utilities should be subject always to the requirement that the rates so fixed shall be reasonable and just. A commission has no power to fix rates which are unreasonable or to regulate them arbitrarily. This basic requirement of reasonableness comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive. (Philippine Communications Satellite Corporation v. Alcuaz, En Banc, G.R. No. 84818, 18 December 1989)

c. Comparison to other Inherent Powers

1) Police power v. Eminent domain

The power being exercised by the State in the imposition of senior citizen discount is its police power. Unlike in the exercise of the power of eminent domain, just compensation is not required in wielding police power. This is precisely because there is no taking involved, but only an imposition of burden. (Southern Luzon Drug Corporation v. DSWD, En Banc, G.R. No. 199669, 25 April 2017)

2) Police power v. Power of taxation

Police power and the power of taxation are inherent powers of the State. These powers are distinct and have different tests for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or property in order to promote the general welfare, while the power of taxation is the power to levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while taxation is revenue generation. The “lawful subjects” and “lawful means” tests are used to determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is circumscribed by inherent and constitutional limitations. (Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)

If generation 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 revenue is incidentally raised does not make the imposition a tax. (Gerochi v. Department of Energy, En Banc, G.R. No. 159796, 17 July 2007)

It is in the exercise of its police power that the Congress enacted R.A. Nos. 9257 and 9442, the laws mandating a 20% discount on purchases of medicines made by senior citizens and PWDs. It is also in further exercise of this power that the legislature opted that the said discount be claimed as tax deduction, rather than tax credit, by covered establishments. (Southern Luzon Drug Corporation v. DSWD, En Banc, G.R. No. 199669, 25 April 2017)

The imposition of a levy is an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. (Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)

The imposition of a vehicle registration fee is not an exercise by the State of its police power, but of its taxation power. (Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)

Taxation may be made the implement of the state’s police power. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. (Philippine Airlines, Inc. v. Edu, En Banc, G.R. No. L-41383, 15 August 1988)

2. Eminent domain

a. Concept

The power of eminent domain is an inherent competence of the state. It is essential to a sovereign. Thus, the Constitution does not explicitly define this power but subjects it to a limitation: that it be exercised only for public use and with payment of just compensation. Whether the use is public or whether the compensation is constitutionally just will be determined finally by the courts. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

The power of eminent domain is an inherent and indispensable power of the State. Also called the power of expropriation, it is described as “the highest and most exact idea of property remaining in the government” that may be acquired for some public purpose through a method “in the nature of a compulsory sale to the State.” By virtue of its sovereign character, the exercise of the power prevails over the non-impairment clause, and is clearly superior to the final and executory judgment rendered by a court in an ejectment case. (Manapat v. CA, National Housing Authority, G.R. No. 110478, 15 October 2007)

Eminent domain is the right or power of a sovereign state to appropriate private property to particular uses to promote public welfare. It is an indispensable attribute of sovereignty; a power grounded in the primary duty of government to serve the common need and advance the general welfare. The power of eminent domain is inseparable in sovereignty being essential to the existence of the State and inherent in government. (National Transmission Corporation v. Oroville Development Corporation, G.R. No. 223366, 01 August 2017)

1) Requirements for validity

Over the years and in a plethora of cases, this Court has recognized the following requisites for the valid exercise of the power of eminent domain: (1) the property taken must be private property; (2) there must be genuine necessity to take the private property; (3) the taking must be for public use; (4) there must be payment of just compensation; and (5) the taking must comply with due process of law. (Manapat v. CA, National Housing Authority, G.R. No. 110478, 15 October 2007)

2) Delegation, allowed

Just like its two companion fundamental powers of the State, the power of eminent domain is exercised by the Legislature. However, it may be delegated by Congress to the President, administrative bodies, local government units, and even to private enterprises performing public services. (Manapat v. CA, National Housing Authority, G.R. No. 110478, 15 October 2007)

When the power of eminent domain is exercised by the Legislature, the question of necessity is essentially a political question. (Manapat v. CA, National Housing Authority, G.R. No. 110478, 15 October 2007)

The legislature, in providing for the exercise of the power of eminent domain, may directly determine the necessity for appropriating private property for a particular improvement for public use, and it may select the exact location of the improvement. In such a case, it is well-settled that the utility of the proposed improvement, the extent of the public necessity for its construction, the expediency of constructing it, the suitableness of the location selected and the consequent necessity of taking the land selected for its site, are all questions exclusively for the legislature to determine, and the courts have no power to interfere, or to substitute their own views for those of the representatives of the people. (The City of Manila v. Chinese Community of Manila, G.R. No. L-14355, 31 October 1919)

b. Limitation on Eminent Domain

The power of eminent domain is an inherent competence of the state. It is essential to a sovereign. Thus, the Constitution does not explicitly define this power but subjects it to a limitation: that it be exercised only for public use and with payment of just compensation. Whether the use is public or whether the compensation is constitutionally just will be determined finally by the courts. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

Being inherent, the power need not be specifically conferred on the government by the Constitution. Section 9, Article III of the Constitution, which mandates that “private property shall not be taken for a public use without just compensation,” merely imposes a limit on the government’s exercise of the power and provides a measure of protection to the individual’s right to property. (Manapat v. CA, National Housing Authority, G.R. No. 110478, 15 October 2007)

1) Public use

Art. 435. No person shall be deprived of his property except by competent authority and for public use… (Civil Code)

Public use, as an eminent domain concept, has now acquired an expansive meaning to include any use that is of “usefulness, utility, or advantage, or what is productive of general benefit [of the public].” If the genuine public necessity—the very reason or condition as it were—allowing, at the first instance, the expropriation of a private land ceases or disappears, then there is no more cogent point for the government’s retention of the expropriated land. The same legal situation should hold if the government devotes the property to another public use very much different from the original or deviates from the declared purpose to benefit another private person. It has been said that the direct use by the state of its power to oblige landowners to renounce their productive possession to another citizen, who will use it predominantly for that citizen’s own private gain, is offensive to our laws. (Vda. de Ouano, et al. v. Republic, G.R. Nos. 168770 and 168812, 09 February 2011)

The “public use” requisite for the valid exercise of the power of eminent domain is a flexible and evolving concept influenced by changing conditions. (The City of Manila v. Chinese Community of Manila, G.R. No. L-14355, 31 October 1919)

2) Just compensation

Art. 435. No person shall be deprived of his property except by competent authority and for public use and always upon payment of just compensation.
Should this requirement be not first complied with, the courts shall protect and, in a proper case, restore the owner in his possession. (Civil Code)

Just compensation means the value of the property at the time of the taking. It means a fair and full equivalent for the loss sustained. All the facts as to the condition of the property and its surroundings, its improvements and capabilities, should be considered. (Export Processing Zone Authority v. Dulay, G.R. No. L-59603, 29 April 1987)

a) Legal interest on just compensation

Section 9, Article III of the 1987 Constitution provides that “no private property shall be taken for public use without just compensation.” Just compensation in expropriation cases has been held to contemplate just and timely payment, and prompt payment is the payment in full of the just compensation as finally determined by the courts. Thus, just compensation envisions a payment in full of the expropriated property. Absent full payment, interest on the balance would necessarily be due on the unpaid amount. (Evergreen Manufacturing Corporation v. Republic, G.R. No. 218628, 218631, 06 September 2017)

Interest on the unpaid compensation becomes due if there is no full compensation for the expropriated property, in accordance with the concept of just compensation. (Ibid., citing Republic v. Mupas, En Banc, G.R. No. 181892, 08 September 2015)

Republic v. Mupas (2015)
The reason is that just compensation would not be “just” if the State does not pay the property owner interest on the just compensation from the date of the taking of the property. Without prompt payment, the property owner suffers the immediate deprivation of both his land and its fruits or income. The owner’s loss, of course, is not only his property but also its income-generating potential.
Ideally, just compensation should be immediately made available to the property owner so that he may derive income from this compensation, in the same manner that he would have derived income from his expropriated property.
However, if full compensation is not paid for the property taken, then the State must pay for the shortfall in the earning potential immediately lost due to the taking, and the absence of replacement property from which income can be derived. Interest on the unpaid compensation becomes due as compliance with the constitutional mandate on eminent domain and as a basic measure of fairness.
Thus, interest in eminent domain cases “runs as a matter of law and follows as a matter of course from the right of the landowner to be placed in as good a position as money can accomplish, as of the date of taking.”

c. May be delegated via power to condemn

The manner of the exercise of the power of eminent domain such as which government instrumentality can be delegated with the power to condemn, under what conditions, and how may be limited by law. Republic Act No. 8974 does these, but it should not be read as superseding the power of this court to promulgate rules of procedure. Thus, our existing rules should be read in conjunction with the law that limits and conditions the power of eminent domain. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

d. Expropriation Procedure

Expropriation, the procedure by which the government takes possession of private property, is outlined primarily in Rule 67 of the Rules of Court. It undergoes two phases. The first phase determines the propriety of the action. The second phase determines the compensation to be paid to the landowner. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

1) First phase

The first is concerned with the determination of the authority of the plaintiff to exercise the power of eminent domain and the propriety of its exercise in the context of the facts involved in the suit. It ends with an order, if not of dismissal of the action, “of condemnation declaring that the plaintiff has a lawful right to take the property sought to be condemned, for the public use or purpose described in the complaint, upon the payment of just compensation to be determined as of the date of the filing of the complaint.” An order of dismissal, if this be ordained, would be a final one, of course, since it finally disposes of the action and leaves nothing more to be done by the Court on the merits. So, too, would an order of condemnation be a final one, for thereafter, as the Rules expressly state, in the proceedings before the Trial Court, “no objection to the exercise of the right of condemnation (or the propriety thereof) shall be filed or heard.” (Municipality of Biñan v. Garcia, G.R. No. 69260, 22 December 1989)

The first phase of expropriation commences with the filing of the complaint. It ends with the order of the trial court to proceed with the expropriation and determination of just compensation. During the pendency of the complaint before the trial court, the state may already enter and possess the property subject to the guidelines in Rule 67 of the Rules of Court. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

a) Public use/purpose, required to be alleged

In esse, expropriation is forced private property taking, the landowner being really without a ghost of a chance to defeat the case of the expropriating agency. In other words, in expropriation, the private owner is deprived of property against his will. Withal, the mandatory requirement of due process ought to be strictly followed, such that the state must show, at the minimum, a genuine need, an exacting public purpose to take private property, the purpose to be specifically alleged or least reasonably deducible from the complaint. (Vda. de Ouano, et al. v. Republic, G.R. Nos. 168770 and 168812, 09 February 2011)

A condemnor should commit to use the property pursuant to the purpose stated in the petition for expropriation, failing which it should file another petition for the new purpose. If not, then it behooves the condemnor to return the said property to its private owner, if the latter so desires. The government cannot plausibly keep the property it expropriated in any manner it pleases and, in the process, dishonor the judgment of expropriation. This is not in keeping with the idea of fair play. (Vda. de Ouano, et al. v. Republic, G.R. Nos. 168770 and 168812, 09 February 2011)

b) Burden of proof on the State

It is the state that bears the burden of proving that the taking of private property is for a public purpose. If it fails in discharging this burden, it must return the property to the private owner, subject to whatever damages were incurred in the course of the taking. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

c) When public use ceases, reconveyance allowed

A constructive trust is created when public use ceases in the middle of the expropriation proceedings and the property owners have not been fully paid. In such a case, the property owners may seek for a reconveyance of their properties.

Considering that eminent domain is the taking of private property for public use, no expropriation proceeding can continue if the property to be expropriated will not be for public use. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

National Corporation v. Posada (2015)
In Heirs of Moreno v. Mactan-Cebu International Airport Authority, private property was expropriated for the proposed expansion of Lahug Airport in 1949. The property owners were assured that they would be given a right to repurchase once Lahug Airport is closed or its operations are transferred to Mactan Airport. In 1991, Lahug Airport ceased operations when Mactan Airport became fully operational. The former owners filed a Complaint for Reconveyance to compel the repurchase of the expropriated properties.
This court considered the case “difficult” as it called for “a difficult but just solution.” In allowing the reconveyance, this court stated:  Mactan-Cebu International Airport Authority[v. Court of Appeals] is correct in stating that one would not find an express statement in the Decision in Civil Case No. R-1881 to the effect that “the [condemned] lot would return to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport.” This omission notwithstanding, and while the inclusion of this pronouncement in the judgment of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the cause of petitioners herein. No doubt, the return or repurchase of the condemned properties of petitioners could be readily justified as the manifest legal effect or consequence of the trial court’s underlying presumption that “Lahug Airport will continue to be in operation” when it granted the complaint for eminent domain and the airport discontinued its activities.
The predicament of petitioners involves a constructive trust, one that is akin to the implied trust referred to in Art. 1454 of the Civil Code, “If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.” In the case at bar, petitioners conveyed Lots Nos. 916 and 920 to the government with the latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a state of affairs that was not conceived nor contemplated when the expropriation was authorized.
Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of trusts: “The only problem of great importance in the field of constructive trusts is to decide whether in the numerous and varying fact situations presented to the courts there is a wrongful holding of property and hence a threatened unjust enrichment of the defendant.” Constructive trusts are fictions of equity which are bound by no unyielding formula when they are used by courts as devices to remedy any situation in which the holder of the legal title may not in good conscience retain the beneficial interest.

2) Second phase

The second phase of the eminent domain action is concerned with the determination by the Court of “the just compensation for the property sought to be taken.” This is done by the Court with the assistance of not more than three (3) commissioners. The order fixing the just compensation on the basis of the evidence before, and findings of, the commissioners would be final, too. It would finally dispose of the second stage of the suit, and leave nothing more to be done by the Court regarding the issue. Obviously, one or another of the parties may believe the order to be erroneous in its appreciation of the evidence or findings of fact or otherwise. Obviously, too, such a dissatisfied party may seek a reversal of the order by taking an appeal therefrom. (Municipality of Biñan v. Garcia, G.R. No. 69260, 22 December 1989)

a) Just compensation

Various factors can come into play in the valuation of specific properties singled out for expropriation. The values given by provincial assessors are usually uniform for very wide areas covering several barrios or even an entire town with the exception of the poblacion. Individual differences are never taken into account. The value of land is based on such generalities as its possible cultivation for rice, corn, coconuts, or other crops. Very often land described as “cogonal” has been cultivated for generations. Buildings are described in terms of only two or three classes of building materials and estimates of areas are more often inaccurate than correct. Tax values can serve as guides but cannot be absolute substitutes for just compensation. (Export Processing Zone Authority v. Dulay, G.R. No. L-59603, 29 April 1987)

Once the amount of just compensation has been determined, it stands to reason that this is the amount that must be paid to the landowner as compensation for his or her property. In the exercise of the power of eminent domain, taking of private property necessarily includes its possession. Government, then, must pay the proper amount of just compensation, instead of the provisional value in order to enter and take the private property. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

b) Judicial function

The determination of “just compensation” in eminent domain cases is a judicial function. The executive department or the legislature may make the initial determinations but when a party claims a violation of the guarantee in the Bill of Rights that private property may not be taken for public use without just compensation, no statute, decree, or executive order can mandate that its own determination shall prevail over the court’s findings. Much less can the courts be precluded from looking into the “just-ness” of the decreed compensation. (Export Processing Zone Authority v. Dulay, G.R. No. L-59603, 29 April 1987)

c) Immediate payment required for writ of possession

Republic Act No. 8974 “provides for a procedure eminently more favorable to the property owner than Rule 67” since it requires the immediate payment of the zonal value and the value of the improvements on the land to the property owner before the trial court can allow the government to take possession. In contrast, Rule 67 only requires the government to deposit the assessed value of the property for it to enter and take possession. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

The law also requires the immediate payment of the value of the improvements and/or structures on the land before the trial court can issue the Writ of Possession. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

Without such direct payment, no writ of possession may be obtained. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

There are, of course, instances when immediate payment cannot be made even if the implementing agency is willing to do so. The owner of the property is not precluded from contesting the power of the implementing agency to exercise eminent domain, the necessity of the taking, the public character of its use, or the proffered value by the implementing agency. In these instances, the implementing agency may deposit the proffered value with the trial court having jurisdiction over the expropriation proceedings. (National Corporation v. Posada, G.R. No. 191945, 11 March 2015)

3. Taxation

a. Concept

1) State

1) Inherent power, attribute of sovereignty

The power to tax is inherent in the State. (Batangas City v. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, 08 July 2015)

The power to tax “is an attribute of sovereignty,” and as such, inheres in the State. (Pelizloy Realty Corporation v. The Province of Benguet, G.R. No. 183137, 10 April 2013)

2) Local Government Units

a) Not inherent in LGUs

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. (Icard v. The City Council of Baguio, G.R. No. L-1281, 31 May 1949)

The power to tax “is an attribute of sovereignty,” and as such, inheres in the State. Such, however, is not true for provinces, cities, municipalities and barangays as they are not the sovereign; rather, there are mere “territorial and political subdivisions of the Republic of the Philippines.” (Pelizloy Realty Corporation v. The Province of Benguet, G.R. No. 183137, 10 April 2013)

b) 1987 Constitution

Although the power to tax is inherent in the State, the same is not true for LGUs because although the mandate to impose taxes granted to LGUs is categorical and long established in the 1987 Philippine Constitution, the same is not all encompassing as it is subject to limitations as explicitly stated in Section 5, Article X of the 1987 Constitution, viz.: “SECTION 5. Each local government unit shall have the power to create its own sources of revenues and 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.” (Batangas City v. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, 08 July 2015)

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”. (Pelizloy Realty Corporation v. The Province of Benguet, G.R. No. 183137, 10 April 2013)

c) R.A. 7160, Local Government Code

The LGUs’ power to tax is subject to the limitations set forth under Section 133 of the LGC. Thus: It is already well-settled that although the power to tax is inherent in the State, the same is not true for the LGUs to whom the power must be delegated by Congress and must be exercised within the guidelines and limitations that Congress may provide. (Batangas City v. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, 08 July 2015)

d) Strict interpretation

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. (Icard v. The City Council of Baguio, G.R. No. L-1281, 31 May 1949)

Indisputably, the power of LGUs to impose business taxes derives from Section 143 of the LGC. However, the same is subject to the explicit statutory impediment provided for under Section 133(h) of the same Code which prohibits LGUs from imposing “taxes, fees or charges on petroleum products.” It can, therefore, be deduced that although petroleum products are subject to excise tax, the same is specifically excluded from the broad power granted to LGUs under Section 143(h) of the LGC to impose business taxes. (Batangas City v. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, 08 July 2015)

Strictly speaking, as long as the subject matter of the taxing powers of the LGUs is the petroleum products per se or even the activity or privilege related to the petroleum products, such as manufacturing and distribution of said products, it is covered by the said limitation and thus, no levy can be imposed… On the contrary, Section 143 of the LGC defines the general power of LGUs to tax businesses within its jurisdiction. Thus, the omnibus grant of power to LGUs under Section 143(h)of the LGC cannot overcome the specific exception or exemption in Section 133(h) of the same Code. This is in accord with the rule on statutory construction that specific provisions must prevail over general ones. A special and specific provision prevails over a general provision irrespective of their relative positions in the statute. Generalia specialibus non derogant. Where there is in the same statute a particular enactment and also a general one which in its most comprehensive sense would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language as are not within the provisions of the particular enactment. (Batangas City v. Pilipinas Shell Petroleum Corporation, G.R. No. 187631, 08 July 2015)

b. Limitation on Taxation

1) Public purpose

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds generated for a private purpose. As an old United States case bluntly put it: “To lay with one hand, the power of the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms of law and is called taxation.” (Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)

The term “public purpose” is not defined. It is an elastic concept that can be hammered to fit modern standards. Jurisprudence states that “public purpose” should be given a broad interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian reform. (Planters Products, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008)

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Subjects

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