Pagcor Vs Bir 2011

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs.
THE BUREAU OF INTERNAL REVENUE (BIR)

G.R. No. 172087, March 15, 2011
DOCTRINE: Exemption from corporate income tax and VAT via R.A. 9337
of Government-Owned and Controlled Corporations (GOCCs)
FACTS:
PAGCOR was created pursuant to P.D. No. 1067-A, simultaneous to its
creation, P.D. No. 1067-B was issued exempting PAGCOR from payment of
any type of tax, except of franchise tax of 5% of the gross revenue.
Thereafter, P.D. No. 1399 was issued expanding the scope of PAGCOR’s
exemption.
To consolidate the laws pertaining to the franchise and powers of
PAGCOR, P.D. No. 1869 was then issued. PAGCOR’s tax exemption was
removed after a few years through P.D. No. 1931, but it was then again
later restored by Letter of Instruction No. 1430. Years after, R.A. No. 8424,
otherwise known as the National Internal Revenue Code of 1997 took
effect. Sec. 27 of R.A. No. 8424 provides that government-owned and
controlled corporations (GOCCs) shall pay corporate income tax, except
PAGCOR, GSIS, SSS, PHIC, and PCSO.
With the enaction of R.A. No. 9337, certain sections of the said Code were
amended. The particular amendment that is at issue in this case is Sec. 1
of R.A. No. 9337, which amended Sec. 27 of R.A. No. 8424 by excluding
PAGCOR from the enumeration of GOCCs that are exempt from payment
of corporate income tax.
Various groups came to assail the validity and constitutionality of R.A. No.
9337, particularly:
Sec. 4, 5, and 6 were alleged to be violative of Sec. 28 (2), Art. VI of the
Constitution, which section vests in Congress the exclusive authority to fix
the rate of taxes, and a couple of other provisions from the Constitution
(*no longer included since it is irrelevant to the subject). The Court
dismissed all petitions and upheld the constitutionality of R.A. No. 9337.
BIR then issued Revenue Regulations (RR) No. 16-2005, specifically
identifying PAGCOR as one of the franchises subject to 10% VAT imposed
under Sec. 108 of the NIR code of 1997, as amended by R.A. No. 9337.
These instances prompted the present petition by PAGCOR.
ISSUE:
Whether or not PAGCOR is still exempt from corporate income tax and
VAT with the enactment of R.A. No. 9337.
RULING:
No. Under Sec. 1 of R.A. 9337, PAGCOR is no longer exempted from
corporate income tax as it has been effectively omitted from the list of
GOCCs that are exempt from it. Taxation is the rule and exemption is the
exception. The burden of proof rests upon the party claiming exemption to
prove that it is covered by the exemption so claimed. 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 Sec. 1 of R.A. No.
9337 amended Sec. 27 © of the NIR code of 1997 by omitting PAGCOR
from 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.
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 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:
(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.
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 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.
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. 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.

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PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs.

THE BUREAU OF INTERNAL REVENUE (BIR)

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