Exemption from Taxation of Government Agencies and Instrumentalities

1. Manila International Airport Authority (MIAA) v. Court of Appeals [495 SCRA 591, 615]

The definition of “instrumentality” under Section 2(10) of the Introductory Provisions of the Administrative Code of 1987 uses the phrase “includes x x x government-owned or controlled corporations” which means that a government “instrumentality” may or may not be a “government-owned or controlled corporation.”

Obviously, the term government “instrumentality” is broader than the term “government-owned or controlled corporation.” Section 2(10) provides:

SEC. 2. General Terms Defined. — x x x

(10) Instrumentality refers to any agency of the national Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. (clearly exempt)

This term includes regulatory agencies, chartered institutions, and government-owned or controlled corporations.

The term “government-owned or controlled corporation” has a separate definition under Section 2(13) of the Introductory Provisions of the Administrative Code of 1987:

SEC. 2. General Terms Defined.- x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: (it depends: for proprietary function- subject to tax; for governmental exempt)

The fact that two terms have separate definitions means that while a government “instrumentality” may include a “government-owned or controlled corporation,” there may be a government “instrumentality” that will not qualify as a “government-owned or controlled corporation.”

An instrumentality of the National Government is  exempt from local taxation

Close scrutiny of the definition of “government-owned or controlled corporation” in Section 2(13) will show that MIAA would not fall under such a definition.

MIAA is a government “instrumentality” that does not qualify as a “government-owned or controlled corporation.


The Standard Oil Company of New York sold and delivered in the Philippines fuel oil and asphalt, to the Quartermaster Dept. of the US Army, for the use of the said Army. The CIR of the Philippine government-imposed taxes of about 1 1/2% of the value of the merchandise. At the same time, the Standard Oil Company delivered fuel oil in the Philippines for the use of the US Navy, which was likewise taxed by the CIR. The Standard Oil Company paid the taxes assessed under protest and sued to recover the corresponding refunds.

HELD: The assessment and collection by the Philippine Government of the tax on sales of merchandise made in the Philippines to the US Army and the US Navy is illegal.

Sales made in the Philippines to the US Army and the US Navy are made to instrumentalities of the US Government, and therefore, are not subject to tax by the Philippine Government.

3. Mactan cebu vs city of lapulapu

Held: (Pointed out by Prof)

The petitioner is an instrumentality of the government; thus, its properties actually, solely and exclusively used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they are situated, ARE NOT… SUBJECT TO REAL PROPERTY TAX and respondent City is not justified in collecting taxes from petitioner over said properties.

In 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan ruling.

The 2006 MIAA case… had, since the promulgation of the questioned Decision and Resolution, reached finality and had in fact been either affirmed or cited in numerous cases by the Court… the 2006 MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by a Division.

In the 2006 MIAA case, we held that MIAA’s airport lands and buildings are exempt from real estate tax imposed by local governments; that it is not a GOCC but an instrumentality of the national government, with its real properties being owned by the Republic of… the Philippines, and these are exempt from real estate tax.

The airport lands and buildings of MCIAA are properties of the public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines and are outside the commerce of… man… unless petitioner leases its real property to a taxable person, the specific property leased becomes subject to real property tax;… only those portions of petitioner’s properties which are leased to taxable persons like private parties are subject to… real property tax by the City of Lapu-Lapu.

MCAA is not a stock corporation- no share s of stocks and dividends


The question involved in this case is whether the water pipes, reservoir, intake and buildings used in the operation of its waterworks system in the province of  Laguna are subject to real estate tax.

HELD: It is submitted that the law — Sec. 3 of Republic Act 470 — exempting from taxation “property owned by the Republic of the Philippines, any province, city, municipality or municipal district . . .” makes no distinction between property held in a sovereign, government or political capacity and those possessed in a private, proprietary and patrimonial character.

And where the law does not distinguish, neither may we. x x x Moreover, taxes are financial burdens imposed for the purpose of raising revenues with which to defray the cost of the operation of the Government, and a tax on the property of the government, whether national or local, would merely have the effect of taking money from one pocket to put it in another pocket.  Hence, it would not serve, in the final analysis, the main purpose of taxation.


Is a public land reserved by the President for warehousing purposes in favor of a government-owned or -controlled corporation, as well as the warehouse subsequently erected thereon, exempt from real property tax?

RE: The land- YES

It may, therefore, be stated that tax exemption of “property owned by the Republic of the Philippines” refers to properties owned by the Government and by its agencies which do not have separate and distinct personalities (unincorporated entities).

In this case, what appears to have been ceded to NDC was merely the administration of the property while the government retains ownership of what has been declared for warehousing purposes. The land remains “absolute property of the government.

The government does not part with its title by reserving them (lands), but simply gives notice to all the world that it desires them for a certain purpose.”

As its title remains with the Republic, the reserved land is clearly covered by tax exemption.

 RE: The warehouse- NO

 As regards the warehouse constructed on a public reservation, a different rule should apply because “(t)he exemption of public property from taxation does not extend to improvements on the public land made by preemptioners, homesteaders and other claimants, or occupants, at their own expense, and these are taxable by the State x x x.”

Consequently, the warehouse constructed on the reserved land by NDC should properly be assessed real estate tax as such improvement does not appear to belong to the public.

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