G.R. No. 172087; March 15, 2011
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Petitioner, vs. THE BUREAU OF INTERNAL REVENUE (BIR), represented herein by HON. JOSE MARIO BUÑAG, in his official capacity as COMMISSIONER OF INTERNAL REVENUE, Public Respondent, JOHN DOE and JANE DOE, who are persons acting for, in behalf, or under the authority of Respondent. Public and Private Respondents.

FACTS

Petitioner Philippine Amusement and Gaming Corporation (PAGCOR) was created by Presidential Decree (P.D.) No. 1067-A. Its charter, P.D. No. 1869, granted it a tax exemption under Section 13, stating that “no tax of any kind or form, income or otherwise… shall be assessed and collected under this Franchise from the Corporation,” except for a 5% franchise tax on gross revenue. This exemption was later removed by P.D. No. 1931 but restored by Letter of Instruction No. 1430. The National Internal Revenue Code (NIRC) of 1997 (R.A. No. 8424) took effect on January 1, 1998. Its Section 27(c) exempted specific government-owned and controlled corporations (GOCCs), including PAGCOR, from corporate income tax. On May 24, 2005, Republic Act (R.A.) No. 9337 was enacted, amending the NIRC. Section 1 of R.A. No. 9337 amended Section 27(c) of the NIRC by removing PAGCOR from the list of GOCCs exempt from corporate income tax. On September 1, 2005, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 16-2005, which identified PAGCOR as subject to the 10% value-added tax (VAT) imposed under Section 108 of the NIRC, as amended. PAGCOR filed a Petition for Certiorari and Prohibition, seeking to declare Section 1 of R.A. No. 9337 (amending Section 27(c) of the NIRC) null and void for being repugnant to Sections 1 and 10 of Article III of the Constitution, and to prohibit the implementation of BIR RR No. 16-2005 for being contrary to law.

ISSUE

Whether Section 1 of Republic Act No. 9337, which amended Section 27(c) of the National Internal Revenue Code of 1997 by removing PAGCOR’s exemption from corporate income tax, is unconstitutional for violating the non-impairment clause of the Constitution and for constituting a deprivation of property without due process of law.

RULING

The Supreme Court DISMISSED the petition and upheld the constitutionality of Section 1 of R.A. No. 9337. The Court ruled that PAGCOR’s tax exemption, being granted by statute (P.D. No. 1869), could be withdrawn by a subsequent statute (R.A. No. 9337). The power to tax is legislative, and the grant of a tax exemption is a matter of legislative policy that can be revoked. The non-impairment clause of the Constitution does not apply to statutes that grant tax exemptions, as such exemptions are privileges that the state can revoke at will. The removal of the exemption did not violate due process, as it was done through a valid exercise of the legislative power to tax and was intended for a public purpose—to raise revenues for the government. The Court also found that BIR RR No. 16-2005, which implemented the VAT provisions of the amended NIRC, was a valid exercise of the BIR’s rule-making authority. The regulation was consistent with the law, as R.A. No. 9337 removed PAGCOR’s exemption, thereby subjecting it to the regular tax regime, including VAT. The petition was dismissed for lack of merit.