Film

Development Council v. Colon Heritage Realty Corp. which may otherwise accrue to the cities and
municipalities in Metro Manila and highly urbanized
Facts: and independent component cities in the PH pursuant
● Respondent City of Cebu passed a tax ordinance to Section 140 of the RA 7160 during the period the
● Central to the case are Sections 42 and 43 graded film is exhibited, shall be deducted and withheld
○ Section 42. Rate of Tax - There shall be paid to the by the proprietors, operators, or lessees of theaters or
office of the city treasurer by proprietors, lessees, or cinemas and remitted within 30 days from the
operators of theaters, cinemas, concert halls, circuses, termination of the exhibition to the COuncil which shall
boxing stadia, and other places of amusement, an reward the corresponding amusement tax to the
amusement tax of 30% of the gross receipts from producers of the graded film within 15 days from
admission fees receipt; Proprietors, operators, and lessees of theaters
○ Section 43. Manner of Payment - In the case of or cinemas who fail to remit the amusement tax
theaters or cinemas , the tax shall first be deducted and proceeds within the prescribed period shall be liable to
withheld by their proprietors, lessees, or operators and a surcharge of 5% of the amount due for each month of
paid to the city treasurer, before the gross receipts are delinquency which shall be paid to the Council
divided between said proprietors, lessees, operators, ● In summary, the RA 9167 demanded that the amusement tax
and the distributors of cinematographic films of 30%, paid by proprietors, operators, or lessees of theaters
or cinemas, go to the Film Development Council rather than
● After a decade, Congress passed RA 9167, creating the Film the LGU. The FDC would then reward this amusement tax to
Development Council of the PH (FDCP), and providing tax the producers of the films.
treatment of certain grade “A” and “B” films.
○ Section 13. Amusement Tax Reward - A grade “A” or ● RA 9167 took effect and all cities and municipalities affected
“B” film shall entitle its producer to an incentive have complied, except Cebu City
equivalent to the amusement tax imposed and ● FDCP then demanded the amusement tax reward, with a
collected on the graded films by cities and surcharge of 5% for each delinquent month, due to the
municipalities in Metro Manila and other urbanized and producers of the graded films
independent component cities in the PH. The following ● The affected cinemas include respondent Colon Heritage
rates are: Realty Corp. and SM Prime Holdings, Inc., among others
■ For grade “A” films - 100% of the amusement ● FDCP gave these companies 10 days to pay the
tax collected on such film aforementioned amounts to them
■ For grade “B” films - 65% of the amusement
tax. The remaining 35% shall accrue to the
funds of the Council ● Because of the refusal of the companies to pay the said
○ Section 14. Amusement Tax Deduction and Remittance amounts to FDCP, and Cebu’s assertion of a claim on the
All revenue from the amusement tax on graded film amounts in question, the city filed before the RTC, together

 with SM Prime Holdings, seeking a declaration of RA 9167 FDCP, who distributes it as a reward to producers of graded
Sections 13 and 14 as unconstitutional. films
● Colon Heritage Realty Corp. also filed a case against FDCP ● Although RA 9167 does not remove the LGUs power to tax, it
before the RTC seeking the declaration of RA 9167 Sections deprives the city of the income they should have been
13 and 14 as unconstitutional. collecting
● Congress therefore clearly overstepped its legislative power by
Issue: enforcing RA 9167, depriving them of the income from
● WON RA 9167, Sections 13 and 14, are unconstitutional amusement tax which is violative of the fundamental law’s
Held: guarantee of local autonomy
● Yes, the RA is unconstitutional. The amounts paid by the companies for the years during its
Rationale: enactment, need not be returned by FDCP.
● The power of taxation belongs to every independent ● If they were required to return the collected funds, the FDCP
government. It is purely legislative and CANNOT be delegated and the producers of films would be in debt of billions of pesos
to the executive and judicial branches, that would impose a heavy, and crippling financial burden upon
● However, it can be delegated to the LGUs in respect with them who merely complied with the law in good faith.
matters of local concern ● Hence the The Doctrine of Operative Fact is proper for the
● Fiscal autonomy is defined as “The power of the LGUs to case at bar:
create their own sources of revenue in addition to their share ○ The Doctrine of Operative Fact
in the national taxes” ■ The doctrine nullifies the effects of an
● However, this law did not intend the delegation to be absolute unconstitutional law or an executive act by
and unconditional; the legislature must see to it that: recognizing that the existence of a statute, prior
1. The taxpayer will not be over-burdened or saddled with to the determination that it is unconstitutional, is
multiple and unreasonable impositions an operative fact.
2. Each LGU will have its fair share in available resources ■ In other words, prior to the law being declared
3. The resources of the national government will not be unconstitutional, it still remained valid
unduly distributed ■ It applies when a declaration of
4. Local taxation will be fair, uniform, and just unconstitutionality will impose an undue burden
on those who have relied on an invalid law
RA 9167 violates this fiscal autonomy, hence it is
unconstitutional.
● Cebu has the authority to implement the amusement tax of
30%, from gross receipts and admission fees, on cinemas

● For a decade, the city has been reaping this benefit

● However, through the RA 9167, Congress transferred this

income from the cities and municipalities, to the petitioner