The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of R.A. No. 9337.
After a careful study of the positions presented by the parties, this Court finds the petition partly meritorious.
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1977, petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs that are exempt from it. Petitioner argues that such omission is unconstitutional, as it is violative of its right to equal protection of the laws under Section 1, Article III of the Constitution:
Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.
In City of Manila v. Laguio, Jr., this Court expounded the meaning and scope of equal protection, thus:
Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated differently, so as to give undue favor to some and unjustly discriminate against others. The guarantee means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other classes in like circumstances. The “equal protection of the laws is a pledge of the protection of equal laws.” It limits governmental discrimination. The equal protection clause extends to artificial persons but only insofar as their property is concerned.
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Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the law may operate only on some and not all of the people without violating the equal protection clause. The classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the following requirements:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.
It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs exempted from payment of corporate income tax as shown in R.A. No. 8424, Section 27 (c) of which, reads:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. – The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies or instrumentalities owned and controlled by the Government, except the Government Service and Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in similar business, industry, or activity.
A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways on Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of corporate income tax was due to the acquiescence of the Committee on Ways on Means to the request of PAGCOR that it be exempt from such tax. The records of the Bicameral Conference Meeting reveal:
HON. R. DIAZ. The other thing, sir, is we — I noticed we imposed a tax on lotto winnings.
CHAIRMAN ENRILE. Wala na, tinanggal na namin yon.
HON. R. DIAZ. Tinanggal na ba natin yon?
CHAIRMAN ENRILE. Oo.
HON. R. DIAZ. Because I was wondering whether we covered the tax on — Whether on a universal basis, we included a tax on cockfighting winnings.
CHAIRMAN ENRILE. No, we removed the —
HON. R. DIAZ. I . . . (inaudible) natin yong lotto?
CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request.
CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission.
CHAIRMAN ENRILE. Philippine Insurance — Health, health ba. Yon ang request ng Chairman, I will accept. (laughter) Pag-Pag-ibig yon, maliliit na sa tao yon.
HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we factored in an amount that would reflect the VAT and other sales taxes—
CHAIRMAN ENRILE. No, we’re talking of this measure only. We will not — (discontinued)
HON. ROXAS. No, no, no, no, from the — arising from the exemption. Assuming that when we release the money into the hands of the public, they will not use that to — for wallpaper. They will spend that eh, Mr. Chairman. So when they spend that—
CHAIRMAN ENRILE. There’s a VAT.
HON. ROXAS. There will be a VAT and there will be other sales taxes no. Is there a quantification? Is there an approximation?
CHAIRMAN JAVIER. Not anything.
HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In effect, it is not circulating in the economy which is unrealistic.
CHAIRMAN ENRILE. It does, it does, because this is taken and spent by government, somebody receives it in the form of wages and supplies and other services and other goods. They are not being taken from the public and stored in a vault.
CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be extra income for the taxpayers.
HON. ROXAS. Precisely, so they will be spending it.
The discussion above bears out that under R.A. No. 8424, the exemption of PAGCOR from paying corporate income tax was not based on a classification showing substantial distinctions which make for real differences, but to reiterate, the exemption was granted upon the request of PAGCOR that it be exempt from the payment of corporate income tax.
With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. The records of the Bicameral Conference Meeting dated April 18, 2005, of the Committee on the Disagreeing Provisions of Senate Bill No. 1950 and House Bill No. 3555, show that it is the legislative intent that PAGCOR be subject to the payment of corporate income tax, thus:
THE CHAIRMAN (SEN. RECTO). Yes, Osmeña, the proponent of the amendment.
SEN. OSMEÑA. Yeah. Mr. Chairman, one of the reasons why we’re even considering this VAT bill is we want to show the world who our creditors, that we are increasing official revenues that go to the national budget. Unfortunately today, Pagcor is unofficial.
Now, in 2003, I took a quick look this morning, Pagcor had a net income of 9.7 billion after paying some small taxes that they are subjected to. Of the 9.7 billion, they claim they remitted to national government seven billion. Pagkatapos, there are other specific remittances like to the Philippine Sports Commission, etc., as mandated by various laws, and then about 400 million to the President’s Social Fund. But all in all, their net profit today should be about 12 billion. That’s why I am questioning this two billion. Because while essentially they claim that the money goes to government, and I will accept that just for the sake of argument. It does not pass through the appropriation process. And I think that at least if we can capture 35 percent or 32 percent through the budgetary process, first, it is reflected in our official income of government which is applied to the national budget, and secondly, it goes through what is constitutionally mandated as Congress appropriating and defining where the money is spent and not through a board of directors that has absolutely no accountability.
REP. PUENTEBELLA. Well, with all due respect, Mr. Chairman, follow up lang.
There is wisdom in the comments of my good friend from Cebu, Senator Osmeña.
SEN. OSMEÑA. And Negros.
REP. PUENTEBELLA. And Negros at the same time ay Kasimanwa. But I would not want to put my friends from the Department of Finance in a difficult position, but may we know your comments on this knowing that as Senator Osmeña just mentioned, he said, “I accept that that a lot of it is going to spending for basic services,” you know, going to most, I think, supposedly a lot or most of it should go to government spending, social services and the like. What is your comment on this? This is going to affect a lot of services on the government side.
THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair.
SEN. OSMEÑA. It goes from pocket to the other, Monico.
REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator, because you may have your own pre-judgment on this and I don’t blame you. I don’t blame you. And I know you have your own research. But will this not affect a lot, the disbursements on social services and other?
REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question also. Wouldn’t it be easier for you to explain to, say, foreign creditors, how do you explain to them that if there is a fiscal gap some of our richest corporations has [been] spared [from] taxation by the government which is one rich source of revenues. Now, why do you save, why do you spare certain government corporations on that, like Pagcor? So, would it be easier for you to make an argument if everything was exposed to taxation?
REP. TEVES. Mr. Chair, please.
THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those before we call Congressman Teves?
MR. PURISIMA. Thank you, Mr. Chair.
Yes, from definitely improving the collection, it will help us because it will then enter as an official revenue although when dividends declare it also goes in as other income. (sic)
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REP. TEVES. Mr. Chairman.
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THE CHAIRMAN (REP. LAPUS). Congressman Teves.
REP. TEVES. Yeah. Pagcor is controlled under Section 27, that is on income tax. Now, we are talking here on value-added tax. Do you mean to say we are going to amend it from income tax to value-added tax, as far as Pagcor is concerned?
THE CHAIRMAN (SEN. RECTO). No. We are just amending that section with regard to the exemption from income tax of Pagcor.
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REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr. Chairman.
THE CHAIRMAN (REP. LAPUS). Congressman Nograles.
REP. NOGRALES. Just a point of inquiry from the Chair. What exactly are the functions of Pagcor that are VATable? What will we VAT in Pagcor?
THE CHAIRMAN (REP. LAPUS). This is on own income tax. This is Pagcor income tax.
REP. NOGRALES. No, that’s why. Anong i-va-Vat natin sa kanya. Sale of what?
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REP. VILLAFUERTE. Mr. Chairman, my question is, what are we VATing Pagcor with, is it the . . .
REP. NOGRALES. Mr. Chairman, this is a secret agreement or the way they craft their contract, which basis?
THE CHAIRMAN (SEN. RECTO). Congressman Nograles, the Senate version does not discuss a VAT on Pagcor but it just takes away their exemption from non-payment of income tax.
Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is, in fact, covered by the exemption so claimed. As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provision.
In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting PAGCOR from the exemption. The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR from exemption from the payment of corporate income tax. It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. Thus, the express mention of the GOCCs exempted from payment of corporate income tax excludes all others. Not being excepted, petitioner PAGCOR must be regarded as coming within the purview of the general rule that GOCCs shall pay corporate income tax, expressed in the maxim: exceptio firmat regulam in casibus non exceptis.