PHILRECA vs. DILG G.R. No. 143076, June 10, 2003

Fact: a class suit was filed by petitioners in their own behalf and in behalf of other electric cooperatives organized and existing under P.D. No. 269, as amended, and registered with the National Electrification Administration (NEA). Accordingly, petitioners enjoys Assistance; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation. Petitioners contend that they are exempt from payment of local taxes, including payment of real property tax. With the passage of the Local Government Code, however, they allege that their tax exemptions have been invalidly withdrawn. In particular, petitioners assail Sections 193 and 234 of the Local Government Code on the ground that the said provisions discriminate against them, in violation of the equal protection clause. Further, they submit that the said provisions are unconstitutional because they impair the obligation of contracts between the Philippine Government and the United States Government.

Issue: Whether the assailed provisions of the Local Government Code violates the rights of the Petitioners to the Equal Protection clause by unreasonable classifying them and withdrawing their Tax exemption

Held: There is No Violation of the Equal Protection Clause. The equal protection clause under the Constitution means that “no person or class of persons shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances.” Thus, the guaranty of the equal protection of the laws is not violated by a law based on reasonable classification. The court hold that there is reasonable classification under the Local Government Code to justify the different tax treatment between electric cooperatives covered by P.D. No. 269, as amended, and electric cooperatives under R.A. No. 6938.

First, substantial distinctions exist between cooperatives under P.D. No. 269, as amended, and cooperatives under R.A. No. 6938. These distinctions are manifest in at least two material respects which go into the nature of cooperatives envisioned by R.A. No. 6938 and which characteristics are not present in the type of cooperative associations created under P.D. No. 269, as amended.

1. Capital Contributions by Members
2. Extent of Government Control over Cooperatives

Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law. The Constitutional mandate that every local government unit shall enjoy local autonomy, does not mean that the exercise of power by local governments is beyond regulation by Congress. Thus, while each government unit is granted the power to create its own sources of revenue, Congress, in light of its broad power to tax, has the discretion to determine the extent of the taxing powers of local government units consistent with the policy of local autonomy.