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.
Taxation; Tax Exemptions; As a rule, tax exemptions are construed strongly against the claimant .—
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.
Same; Value Added Tax; The provision subjecting Philippine Amusement and Gaming Corporation
(PAGCOR) to 10% Value Added Tax (VAT) is invalid for being contrary to Republic Act (R.A.) No. 9337.
—Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10%
VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that
petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner’s
exemption from the pay-
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* EN BANC.

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Philippine Amusement and Gaming Corporation
(PAGCOR) vs. Bureau of Internal Revenue
ment of corporate income tax, which was already addressed above by this Court.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari and Prohibition.
The facts are stated in the opinion of the Court.
Bautista, Consolacion, Gloria, Salvosa, Apigo, Sevilla, Noblejas, Siosana, Sagsagat,
Bagasbas & Papica for petitioner.
Claro B. Ortiz, Jethro M. Sabariaga and Rose F. Ventayen for Bureau of Internal Revenue.
PERALTA, J.:
For resolution of this Court is the Petition for Certiorariand Prohibition1 with prayer for the
issuance of a Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006,
of petitioner Philippine Amusement and Gaming Corporation (PAGCOR), seeking the
declaration of nullity of Section 1 of Republic Act (R.A.) No. 9337 insofar as it amends Section
27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner from exemption
from corporate income tax for being repugnant to Sections 1 and 10 of Article III of the
Constitution. Petitioner further seeks to prohibit the implementation of Bureau of Internal
Revenue (BIR) Revenue Regulations No. 16-2005 for being contrary to law.
 The undisputed facts follow.
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A 2 on January 1,
1977. Simultaneous to its
_______________

1 Under Rule 65 of the Rules of Court.

2 CREATING THE PHILIPPINE AMUSEMENT AND GAMING CORPORATION, DEFINING ITS POWERS AND FUNCTIONS,
PROVIDING FUNDS THEREFOR, AND FOR OTHER PURPOSES.

340
340 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
creation, P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued exempting PAGCOR
from the payment of any type of tax, except a franchise tax of five percent (5%) of the gross
revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of
PAGCOR’s exemption.5
_______________

3 GRANTING THE PAGCOR A FRANCHISE TO ESTABLISH, OPERATE AND MAINTAIN GAMBLING CASINOS ON LAND OR
WATER WITHIN THE TERRITORIAL JURISDICTION OF THE REPUBLIC OF THE PHILIPPINES.
4 Section 4 of P.D. No. 1067-B, provides:
Section 4. Exemptions.—
(1) Duties, taxes and other imposts on importations.—All importations of equipment, vehicles, boats, ships,
barges, aircraft and other gambling paraphernalia or facilities for the sale and exclusive use of the casinos, clubs
and other recreation or amusement places to be established under and by virtue of this Franchise shall be exempt
from the payment of duties, taxes and other imports.
(2) Income and other taxes.—No income or any other form shall be assessed and collected under this
Franchise from the franchise holder; nor shall any form of tax or charge attach in any way to the earnings
of the franchise holder, EXCEPT a Franchise Tax of five percent (5%) of the gross revenue or earnings
derived by the franchise holder from its operation under this Franchise. Such tax shall be due and payable
quarterly to the National Government and shall be in lieu of all taxes of any kind, nature or description,
levied, established, or collected by any municipal, provincial or National authority. (Emphasis supplied.)
5 Section 3, P.D. No. 1399, in part, reads:
Section 3. Section 4 of Presidential Decree No. 1067-B is hereby amended to read as follows:
Section 4. Exemptions.—x x x
(1) Duties, taxes and other imposts on importation.—
xxx
(2) Income and other taxes.—

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Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No.
18696 was issued. Section 13 thereof reads as follows:
“Sec. 13. Exemptions. — x x x
(1) Customs Duties, taxes and other imposts on importations.—All importations of equipment,
vehicles, automobiles, boats, ships, barges, aircraft and such other gambling paraphernalia, including
accessories or related facilities, for the sole and exclusive use
_______________

(a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges, or levies of
whatever nature, shall be assessed and collected under this Franchise from the Franchise Holder; nor shall any form of
 tax or charge attach in any way to the earnings of the Franchise Holder, except a Franchise Tax of five percent (5 %) of
the gross revenue or earnings derived by the Franchise Holder form its operation under this Franchise. Such tax shall be
due and payable to the National Government and shall be in lieu of all taxes, levies, fees or assessments of any kind,
nature or description, levied, established, or collected by any municipal, provincial or national authority.
(b) Others: The exemption herein granted for earnings derived from the operations conducted under the
franchise, specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or
levies, shall inure to the benefit of and extend to corporation/s, association/s, agency/ies, or individual/s with
whom the Franchise has any contractual relationship in connection with the operations of the casino/s authorized
to be conducted under the franchise and to those receiving compensation or other remuneration from the
Franchise Holder as a result of essential facilities furnished and/or technical services rendered to the Franchise
Holder. (Emphasis supplied.)
6 CONSOLIDATING AND AMENDING PRESIDENTIAL DECREE NOS. 1067-A, 1067-B, 1067-C, 1399 AND 1632, RELATIVE TO
THE FRANCHISE AND POWERS OF THE PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR).

342

342 SUPREME COURT REPORTS ANNOTATED

Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
of the casinos, the proper and efficient management and administration thereof and such other clubs,
recreation or amusement places to be established under and by virtue of this Franchise shall be exempt
from the payment of duties, taxes and other imposts, including all kinds of fees, levies, or charges of any
kind or nature.
Vessels and/or accessory ferry boats imported or to be imported by any corporation having existing
contractual arrangements with the Corporation, for the sole and exclusive use of the casino or to be used
to service the operations and requirements of the casino, shall likewise be totally exempt from the
payment of all customs duties, taxes and other imposts, including all kinds of fees, levies, assessments or
charges of any kind or nature, whether National or Local.
(2) Income and other taxes.—(a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges, or levies of whatever nature, whether National or Local, shall be
assessed and collected under this Franchise from the Corporation; nor shall any form of tax or
charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five percent
(5%)of the gross revenue or earnings derived by the Corporation from its operation under this
Franchise. Such tax shall be due and payable quarterly to the National Government and shall be in
lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied,
established, or collected by any municipal, provincial or national government authority.
(b) Others: The exemption herein granted for earnings derived from the operations conducted under
the franchise, specifically from the payment of any tax, income or otherwise, as well as any form of
charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in
connection with the operations of the casino(s) authorized to be conducted under this Franchise and to
those receiving compensation or other remuneration from the Corporation as a result of essential facilities
furnished and/or technical services rendered to the Corporation or operator.
The fee or remuneration of foreign entertainers contracted by the Corporation or operator in pursuance
of this provision shall be free of any tax.343

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Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
(3) Dividend Income.—Notwithstanding any provision of law to the contrary, in the event the
Corporation should declare a cash dividend income corresponding to the participation of the private
sector shall, as an incentive to the beneficiaries, be subject only to a final flat income rate of ten percent
(10%) of the regular income tax rates. The dividend income shall not in such case be considered as part of
the beneficiaries' taxable income; provided, however, that such dividend income shall be totally exempted
from income or other form of taxes if invested within six (6) months from the date the dividend income is
received in the following:
(a) operation of the casino(s) or investments in any affiliate activity that will ultimately
redound to the benefit of the Corporation; or any other corporation with whom the Corporation has
any existing arrangements in connection with or related to the operations of the casino(s);
(b) Government bonds, securities, treasury notes, or government debentures; or
(c) BOI-registered or export-oriented corporation(s).” 7

PAGCOR’s tax exemption was removed in June 1984 through P.D. No. 1931, but it was later
restored by Letter of Instruction No. 1430, which was issued in September 1984.
On January 1, 1998, R.A. No. 8424,8 otherwise known as the National Internal Revenue Code
of 1997, took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned and
controlled corporations (GOCCs) shall pay corporate income tax, except petitioner PAGCOR,
the Government Service and Insurance Corporation, the Social Security System, the Philippine
Health Insurance Corporation, and the Philippine Charity Sweepstakes Office, thus:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities.—The provisions
of existing special general laws to the contrary notwithstanding, all corporations, agencies or instru-
_______________

7 Emphasis supplied.
8 AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.

344

344 SUPREME COURT REPORTS ANNOTATED

Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
mentalities 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.”
9

With the enactment of R.A. No. 9337 10 on May 24, 2005, certain sections of the National
Internal Revenue Code of 1997 were amended. The particular amendment that is at issue in this
case is Section 1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal
Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that are exempt
from payment of corporate income tax, thus:
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities.—The provisions
of existing special 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), and the Philippine Charity Sweepstakes Office (PCSO), 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.
Different groups came to this Court via petitions for certiorari and prohibition11 assailing the
validity and constitutionality of R.A. No. 9337, in particular:
_______________
 9 Emphasis supplied.
10 AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148,
151, 236, 237, AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES.
11 G.R. Nos. 168056, 168207, 168461, 168463 and 168730.

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VOL. 645, MARCH 15, 2011 345
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods and
properties; Section 5, which imposes a 10% VAT on importation of goods; and Section 6, which
imposes a 10% VAT on sale of services and use or lease of properties, all contain a uniform
provisoauthorizing the President, upon the recommendation of the Secretary of Finance, to raise
the VAT rate to 12%. The said provisions were alleged to be violative of Section 28 (2), Article
VI of the Constitution, which section vests in Congress the exclusive authority to fix the rate of
taxes, and of Section 1, Article III of the Constitution on due process, as well as of Section 26
(2), Article VI of the Constitution, which section provides for the “no amendment rule” upon the
last reading of a bill;
2) Sections 8 and 12 were alleged to be violative of Section 1, Article III of the
Constitution, or the guarantee of equal protection of the laws, and Section 28 (1), Article VI of
the Constitution; and
3) other technical aspects of the passage of the law, questioning the manner it was passed.
On September 1, 2005, the Court dismissed all the petitions and upheld the constitutionality
of R.A. No. 9337.12On the same date, respondent BIR issued Revenue Regulations (RR) No. 16--
2005,13 specifically identifying PAGCOR as one of the franchisees subject to 10% VAT imposed
under Section 108 of the National Internal Revenue Code of 1997, as
_______________

12 See Abakada Guro Party List v. Ermita, 506 Phil. 1; 469 SCRA 1 (2005).
13 Revenue Regulations No. 16-2005 states: “Pursuant to the provisions of Secs. 244 and 245 of the National Internal
Revenue Code of 1997, as last amended by Republic Act No. 9337 (Tax Code), in relation to Sec. 23 of the said Republic
Act, these Regulations are hereby promulgated to implement Title IV of the Tax Code, as well as other provisions
pertaining to Value-Added Tax (VAT). These Regulations supersedes Revenue Regulations No. 14-2005 dated June 22,
2005.”

346
346 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
amended by R.A. No. 9337. The said revenue regulation, in part, reads:
“Sec. 4. 108-3. Definitions and Specific Rules on Selected Services.
xxxx
(h) x x x
Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code,
regardless of how their franchisees may have been granted, shall be subject to the 10% VAT imposed
under Sec.108 of the Tax Code. This includes, among others, the Philippine Amusement and Gaming
Corporation (PAGCOR), and its licensees or franchisees.”
Hence, the present petition for certiorari.
PAGCOR raises the following issues:
 I
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE
III OF THE 1987 CONSTITUTION.
II
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III
OF THE 1987 CONSTITUTION.
III
WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL AND VOID AB
INITIO FOR BEING BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION 108,
INSOFAR AS THE SAID REGULATION IMPOSED VAT ON THE SERVICES OF THE
PETITIONER AS WELL AS PETITIONER’S LICENSEES OR FRANCHISEES WHEN THE BASIC
LAW, AS INTERPRETED BY APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE VAT
347

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Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
ON PETITIONER OR ON PETITIONER’S LICENSEES OR FRANCHISEES. 14

The BIR, in its Comment15 dated December 29, 2006, counters:

I
SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTH VALID AND
CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY
CONSTRUED TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR PROVISIONS
WHENEVER POSSIBLE.
II
SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10, ARTICLE
III OF THE 1987 CONSTITUTION.
III
BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL
STRICKEN DOWN BY LAWFUL AUTHORITIES.
The Office of the Solicitor General (OSG), by way of Manifestation In Lieu of
Comment,16 concurred with the arguments of the petitioner. It added that although the State is
free to select the subjects of taxation and that the inequity resulting from singling out a particular
class for taxation or exemption is not an infringement of the constitutional limitation, a tax law
must operate with the same force and effect to all persons, firms and corporations placed in a
similar situation. Furthermore, according to the OSG, public respondent BIR exceeded its
statutory authority when it enacted RR No. 16-2005, because the latter's provisions are contrary
to the mandates of P.D. No. 1869 in relation to R.A. No. 9337.
_______________

14 Rollo, pp. 18-19; 318-319.

15 Id. at pp. 230-260.
16 Id. at pp. 190-222.

348
348 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
 vs. Bureau of Internal Revenue
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.,17 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.
xxxx
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
_______________

17 495 Phil. 289; 455 SCRA 308 (2005).

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Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
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.” 18

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. 19
_______________

18 Id. at p. 326; P. 348-349, citing Ichong v. Hernandez, 101 Phil. 1155 (1957), 16B Am Jur. 2d § 779 299,
citing State of Missouri ex rel. Gaines v. Canada, 305 U.S. 337, 59 S. Ct. 232, 83 L. Ed. 208 (1938), reh’g denied, 305
U.S. 676, 59 S. Ct. 356, 83 L. Ed. 437 (1939) and mandate conformed to, 344 Mo. 1238, 131 S.W. 2d 217 (1939), Romer
v. Evans, 517 U.S. 620, 116 S. Ct. 1620, 134 L. Ed. 2d 855, 109 Ed. Law Rep. 539, 70 Fair Empl. Prac. Cas. (BNA) 1180,
68 Empl. Prac. Dec. (CCH) 44013 (1996), Walker v. Board of Supervisors of Monroe County, 224 Miss. 801, 81 So. 2d
225 (1955), cert. denied, 350 U.S. 887, 76 S. Ct. 142, 100 L. Ed. 782 (1955); Preisler v. Calcaterra, 362 Mo. 662, 243
S.W. 2d 62 (1951); Smith, Bell & Co. v. Natividad, 40 Phil. 136, 145 (1919): Nuñez v. Sandiganbayan, 197 Phil. 407; 111
SCRA 433 (1982); Cruz, Isagani A., Constitutional Law 125 (1998) and People v. Cayat, 68 Phil. 12 (1939).
19 Emphasis supplied.

350
350 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
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. 20 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
_______________

20 Emphasis supplied.

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Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
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.21
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:
_______________

21 Emphasis supplied.

352
352 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
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, go-
353

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Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
ing 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)
xxxx
REP. TEVES. Mr. Chairman.
xxxx
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
354
354 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
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.
xxxx
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?
xxxx
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.22
Taxation is the rule and exemption is the exception. 23The burden of proof rests upon the party
claiming exemption to prove that it is, in fact, covered by the exemption so claimed. 24
_______________

22 Emphasis supplied.
23 National Power Corporation v. Province of Isabela, G.R. No. 165827, June 16, 2006, 491 SCRA 169, 180.
24 Id.

355
VOL. 645, MARCH 15, 2011 355
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
As a rule, tax exemptions are construed strongly against the claimant. 25 Exemptions must be
shown to exist clearly and categorically, and supported by clear legal provision.26
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.27Thus, 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.28
PAGCOR cannot find support in the equal protection clause of the Constitution, as the
legislative records of the Bicameral Conference Meeting dated October 27, 1997, of the
Committee on Ways and Means, show that PAGCOR’s exemption from payment of corporate
income tax, as provided in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue
Code of 1997, was not made pursuant to a valid classification based
_______________

25 National Power Corporation v. City of Cabanatuan, 449 Phil. 233, 259; 401 SCRA 259, 280 (2003).
26 Id.
27 Id.; Ruben E. Agpalo, Statutory Construction, Fifth Edition, © 2003, p. 222.
28 C.N. Hodges v. Municipal Board, Iloilo City, et al., 125 Phil. 442, 449; 19 SCRA 28, 34 (1967); Ruben E.
Agpalo, Statutory Construction, Fifth Edition, © 2003, pp. 222-223.

356
356 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
on substantial distinctions and the other requirements of a reasonable classification by
legislative bodies, so that the law may operate only on some, and not all, without violating the
equal protection clause. The legislative records show that the basis of the grant of exemption to
PAGCOR from corporate income tax was PAGCOR’s own request to be exempted.
Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for
violating the non-impairment clause of the Constitution. Petitioner avers that laws form part of,
and is read into, the contract even without the parties expressly saying so. Petitioner states that
the private parties/investors transacting with it considered the tax exemptions, which inure to
their benefit, as the main consideration and inducement for their decision to transact/invest with
it. Petitioner argues that the withdrawal of its exemption from corporate income tax by R.A. No.
9337 has the effect of changing the main consideration and inducement for the transactions of
private parties with it; thus, the amendatory provision is violative of the non-impairment clause
of the Constitution.
Petitioner’s contention lacks merit.
The non-impairment clause is contained in Section 10, Article III of the Constitution, which
provides that no law impairing the obligation of contracts shall be passed. The non-impairment
clause is limited in application to laws that derogate from prior acts or contracts by enlarging,
abridging or in any manner changing the intention of the parties. 29 There is impairment if a
subsequent law changes the terms of a contract between the parties, imposes new conditions,
dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the
parties.30
_______________

29 BANAT Party-list v. COMELEC, G.R. No. 177508, August 7, 2009, 595 SCRA 477, 498, citing Serrano v.
Gallant Maritime Services, Inc., 582 SCRA 254 (2009).
30 Id., citing Clemons v. Nolting, 42 Phil. 702 (1922).

357
VOL. 645, MARCH 15, 2011 357
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
As regards franchises, Section 11, Article XII of the Constitution31 provides that no
franchise or right shall be granted except under the condition that it shall be subject to
amendment, alteration, or repeal by the Congress when the common good so requires.32
 In Manila Electric Company v. Province of Laguna,33 the Court held that a franchise
partakes the nature of a grant, which is beyond the purview of the non-impairment clause
of the Constitution.34 The pertinent portion of the case states:
“While the Court has, not too infrequently, referred to tax exemptions contained in special franchises
as being in the nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax exemptions, in
the real sense of the term and where the non-impairment clause of the Constitution can rightly be
invoked, are those agreed to by the taxing authority in contracts, such as those contained in government
bonds or debentures,
_______________

31 The Constitution, Art. XII, Sec. 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of
the Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public utilities by the general public. The
participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied.)
32 Emphasis supplied.
33 366 Phil. 428; 306 SCRA 750 (1999).
34 Id., at p. 438; p. 761. (Emphasis supplied.)

358

358 SUPREME COURT REPORTS ANNOTATED

Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
lawfully entered into by them under enabling laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its governmental immunity. Truly, tax exemptions of this
kind may not be revoked without impairing the obligations of contracts. These contractual tax
exemptions, however, are not to be confused with tax exemptions granted under franchises. A franchise
partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions
in the 1935 and the 1973 Constitutions, is explicit that no franchise for the operation of a public
utility shall be granted except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the common good so requires.” 35

In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos,
clubs and other recreation or amusement places, sports, gaming pools, i.e., basketball, football,
lotteries, etc., whether on land or sea, within the territorial jurisdiction of the Republic of the
Philippines.36 Under Section 11, Article XII of the Constitution, PAGCOR’s franchise is subject
to amendment, alteration or repeal by Congress such as the amendment under Section 1 of R.A.
No. 9377. Hence, the provision in Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A.
No. 8424 by withdrawing the exemption of PAGCOR from corporate income tax, which may
affect any benefits to PAGCOR’s transactions with private parties, is not violative of the non-
impairment clause of the Constitution.
Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting
PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No.
9337 is it provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the
removal of petitioner’s exemption
_______________

35 Id. at 438-439; pp. 760-761. (Emphasis supplied.)

36 See P.D. No. 1869, Sec. 10.

359
VOL. 645, MARCH 15, 2011 359
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
from the payment of corporate income tax, which was already addressed above by this Court.
As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to
Section 7 (k) thereof, which reads:
“Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows:
Section 109. Exempt Transactions.—(1) Subject to the provisions of Subsection (2) hereof,
the following transactions shall be exempt from the value-added tax:
xxxx
(k) Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, except Presidential Decree No. 529.”37

Petitioner is exempt from the payment of VAT, because PAGCOR’s charter, P.D. No. 1869,
is a special law that grants petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No.
9337, which retained Section 108 (B) (3) of R.A. No. 8424, thus:
“[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is hereby
further amended to read as follows:
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties.—
(A) Rate and Base of Tax.—There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties: x x x
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate.—The following services performed in
the Philippines by
_______________

37 Emphasis supplied.

360

360 SUPREME COURT REPORTS ANNOTATED

Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
VAT-registered persons shall be subject to zero percent (0%) rate;
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the supply of
such services to zero percent (0%) rate;
xxxx 38

As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108
of R.A. No. 8424 by imposing VAT on other services not previously covered, it did not amend
the portion of Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-
registered persons to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such
services to 0% rate.
Petitioner’s exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been
thoroughly and extensively discussed in Commissioner of Internal Revenue v. Acesite
(Philippines) Hotel Corporation.39 Acesite was the owner and operator of the Holiday Inn Manila
Pavilion Hotel. It leased a portion of the hotel’s premises to PAGCOR. It incurred VAT
amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR
from January 1996 to April 1997. Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR. However, PAGCOR refused to pay the
taxes because of its tax-exempt status. PAGCOR paid only the amount due to Acesite minus
VAT in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02 to the
Commissioner of Internal Revenue, fearing the legal consequences of its non-payment.
_______________

38 Emphasis supplied.
39 G.R. No. 147295, February 16, 2007, 516 SCRA 93, 101, citing Commissioner of Internal Revenue v. John
Gotamco & Sons, Inc., 148 SCRA 36 (1987).

361
VOL. 645, MARCH 15, 2011 361
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
In May 1998, Acesite sought the refund of the amount it paid as VAT on the ground that its
transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
The Court ruled that PAGCOR and Acesite were both exempt from paying VAT, thus:
xxxx
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the
payment of taxes. Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions. —
xxxx
(2) Income and other taxes.—(a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be
assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge
attach in any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the
gross revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax
shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes,
levies, fees or assessments of any kind, nature or description, levied, established or collected by any
municipal, provincial, or national government authority.
(b) Others: The exemptions herein granted for earnings derived from the operations conducted under
the franchise specifically from the payment of any tax, income or otherwise, as well as any form of
charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in
connection with the operations of the casino(s) authorized to be conducted under this Franchise and to
those receiving compensation or other remuneration from the Corporation or operator as a result of
essential facilities furnished and/or technical services rendered to the Corporation or operator. 362

362 SUPREME COURT REPORTS ANNOTATED

Philippine Amusement and Gaming Corporation (PAGCOR)
 vs. Bureau of Internal Revenue
Petitioner contends that the above tax exemption refers only to PAGCOR’s direct tax liability and not
to indirect taxes, like the VAT.
We disagree.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with
no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that
PAGCOR is also exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term “Corporation” or
operator refers to PAGCOR. Although the law does not specifically mention PAGCOR’s
exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the
law exempts from taxes persons or entities contracting with PAGCOR in casino
operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect
taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with
PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for
the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent
rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.)
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature
clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the
instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or
services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with
PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes.
The manner of charging VAT does not make PAGCOR
liable to said tax.
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value.
Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the
instant case, Acesite
363

VOL. 645, MARCH 15, 2011 363

Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be that as it
may, the use of either method, and in particular, the first method, does not denigrate the fact that
PAGCOR is exempt from an indirect tax, like VAT.
VAT exemption extends to Acesite
Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not
liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the
indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as
amended (now Sec. 108 [b] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services.—(a) Rate and base of tax.—There shall be
levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by
any person engaged in the sale of services x x x; Provided, that the following services performed in
the Philippines by VAT registered persons shall be subject to 0%.
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the supply of
such services to zero (0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of
such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated
from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where the
absolute tax exemption of the World Health Organization (WHO) upon an international agreement was
upheld. We held in said case that the exemption of contractee WHO should be implemented to mean that
the entity or person exempt is the contractor itself who constructed the building owned by contractee
WHO, and such does not violate the rule that tax exemptions are personal because the manifest intention
of the agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee
WHO. Thus, the proviso in P.D. 1869, extending the exemption to entities or individuals dealing
364

364 SUPREME COURT REPORTS ANNOTATED

Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
with PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be
shifted to PAGCOR.” 40

Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The
Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporationwas Section 102
(b) of the 1977 Tax Code, as amended, which section was retained as Section 108 (B) (3) in R.A.
No. 8424,41 it is still applicable to this case, since the provision relied upon has been retained in
R.A. No. 9337.42
_______________

40 Id. at pp. 98-101. (Emphasis supplied.)

41 R.A. No. 8424, SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties.—x x x
Rate and Base of Tax.—There shall be levied, assessed and collected, a value-added tax equivalent to ten percent
(10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
The phrase “sale or exchange of services” means the performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration, including those performed or rendered by xxx services of franchise grantees of
telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119
of this Code; x x x
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate.—The following services performed in the Philippines
by VAT-registered persons shall be subject to zero percent (0%) rate;
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;
x x x x (Emphasis supplied.)
42 Section 6 of R.A. No. 9337states:
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:

365
VOL. 645, MARCH 15, 2011 365
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
It is settled rule that in case of discrepancy between the basic law and a rule or regulation
issued to implement said law, the basic law prevails, because the said rule or regulation cannot
go beyond the terms and provisions of the basic law. 43 RR No. 16-2005, therefore, cannot go
beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No.
9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-
2005; hence, the said regulatory provision is hereby nullified.
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337,
amending Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner
Philippine Amusement and Gaming Corporation from the enumeration of government-owned
and -controlled corporations exempted from corporate income tax is valid and constitutional,
while BIR Revenue Regulations No. 16-2005 inso-
_______________

SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties.—
(A) Rate and Base of Tax—There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of
properties x x x
xxxx
(B) Transactions Subject to Zero percent (0%) Rate.—The following services performed in the Philippines
by VAT-registered persons shall be subject to zero percent (0%) rate;
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;
x x x x (Emphasis supplied.)
43 Hijo Plantation, Inc. v. Central Bank, 247 Phil. 154, 162; 164 SCRA 192, 199 (1988), citing People v. Lim, 108
Phil. 1091 (1960).

366
366 SUPREME COURT REPORTS ANNOTATED
Philippine Amusement and Gaming Corporation (PAGCOR)
vs. Bureau of Internal Revenue
far as it subjects PAGCOR to 10% VAT is null and void for being contrary to the National
Internal Revenue Code of 1997, as amended by Republic Act No. 9337.
No costs.
SO ORDERED.
Corona (C.J.), Carpio, Carpio-Morales, Velasco, Jr.,
Leonardo-De Castro, Bersamin, Del Castillo, Abad, Villarama, Jr., Perez,
Mendoza and Sereno, JJ., concur.
Nachura and Brion, JJ., On Official Leave.
Petition partly granted.
Note.—The VAT is an indirect tax. As such, the amount of tax paid on the goods, properties
or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or
lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income tax, which
primarily taxes an individual’s ability to pay based on his income or net wealth, an indirect tax,
such as the VAT, is a tax on consumption of goods, services, or certain transactions involving
the same. (Contex Corporation vs. Commissioner of Internal Revenue, 433 SCRA 376 [2004])
——o0o——