G.R. No. 203754, June 16, 2015
Film Development Council of the Philippines, Petitioner, vs. Colon Heritage Realty Corporation, operator of Oriente Group Theaters, represented by Isidoro A. Canizares, Respondent. (Consolidated with Film Development Council of the Philippines, Petitioner, vs. City of Cebu and SM Prime Holdings, Inc., Respondents.)
FACTS
The City of Cebu enacted City Ordinance No. LXIX, imposing a 30% amusement tax on gross receipts from admission fees, to be paid by proprietors/operators of places of amusement like cinemas. Later, Congress passed Republic Act No. 9167, creating the Film Development Council of the Philippines (FDCP). Sections 13 and 14 of RA 9167 provided that graded films (“A” or “B”) were entitled to an “amusement tax reward.” This reward consisted of a percentage (100% for Grade A, 65% for Grade B) of the amusement tax collected on such films. The law required cinema proprietors/operators to deduct and withhold the amusement tax proceeds and remit them to the FDCP, which would then reward the corresponding amount to the film producers. Cebu City and several cinema operators (including Colon Heritage Realty Corp. and SM Prime Holdings, Inc.) refused to comply, arguing that RA 9167 effectively diverted local government funds. The FDCP issued demand letters for unpaid amusement tax rewards. In response, Cebu City and Colon Heritage filed separate petitions before the Regional Trial Court (RTC) seeking a declaration that Sections 13 and 14 of RA 9167 were invalid and unconstitutional. The RTC branches in Cebu City granted the petitions, declaring the said sections unconstitutional for violating the principle of local autonomy under Section 5, Article X of the 1987 Constitution, which states that all taxes, fees, and charges imposed by local government units shall accrue exclusively to them. The RTC viewed the law as a confiscatory measure transferring local government revenue to a national agency and then to private film producers.
ISSUE
Whether Sections 13 and 14 of Republic Act No. 9167, which mandate the remittance of amusement tax collections to the FDCP for reward to film producers, are unconstitutional for violating the fiscal autonomy of local governments under Section 5, Article X of the 1987 Constitution.
RULING
No, Sections 13 and 14 of RA 9167 are constitutional. The Supreme Court reversed the RTC decisions. The Court held that the provisions do not violate local fiscal autonomy. The power of local governments to levy taxes, such as the amusement tax under the Local Government Code, is not absolute but subject to limitations and guidelines Congress may prescribe. Congress, in exercising its plenary legislative power, can amend the Local Government Code and alter the allocation of revenue from specific taxes. RA 9167 effectively amended Section 140 of the Local Government Code regarding the disposition of amusement tax collections from graded films. The law does not impose a new tax nor confiscate local funds; it merely reallocates the proceeds of an existing tax for a specific national policy objective—the development of the Philippine film industry. The amusement tax reward is a valid form of tax expenditure, akin to a tax subsidy or incentive, which Congress can establish in pursuit of a legitimate state interest. The constitutional guarantee that local taxes “shall accrue exclusively to the local governments” is subject to exceptions that Congress may provide by law. Therefore, Sections 13 and 14 of RA 9167 constitute a valid exercise of congressional power to design fiscal policy and promote the film industry, and cinema operators in Cebu City are obligated to remit the amusement tax proceeds from graded films to the FDCP.
