Beneficial User

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Local Governments have the power to impose real property taxes within their territorial jurisdiction. This is in fact one to the biggest sources of income of local governments aside from their share from the internal revenue collected by the national government. While other local governments are somewhat lax in their collection of real property taxes, some are quite assertive of their right to collect. While the Local Government Code allows the local governments to be somewhat aggressive in their collections, there are areas that are considered untouchables. The real properties of the Republic of the Philippines are generally exempt from the taxation. But even this rule has an exception one of which is when the beneficial use of the exempt property is granted to another entity not exempt from taxation. A good illustration on this matter is the case of City of Pasig vs. Republic of the Philippines.

City of Pasig vs. Republic of the Philippines

The City of Pasig through its treasurer sold at public auction certain properties within its territorial jurisdiction for the non-payment of real property tax which ballooned to more than 300 million pesos. The subject properties were owned by the Mid-Pasig Land Development Corporation (MPLDC) but were later surrendered to the Philippine Commission on Good Government (PCGG) after the “1986 EDSA Revolution”. The property is being occupied by several lessees but taxes have not been paid since 1979. Asserting that the subject properties are exempt from paying real property tax the PCGG refused to pay. The city treasurer then sold the lands at a public auction where the city was the lone bidder and caused the transfer of the titles in its favor. The PCGG filed a case before the Regional Trial Court seeking to annul the sale and transfer since based on its belief, the properties are exempt from taxation they being owned by the state. The RTC decided in favor of the PCGG and annulled the sale but on appeal the Court of Appeals (CA) reversed the RTC decision and the PCGG appealed to the Supreme Court.

The Properties are Not Exempt

It is not disputed that the subject properties are owned by the Republic of the Philippines. Generally, the properties of the State are exempt from taxation but the SC in its decision cited several cases where it was held that an otherwise exempt property may still be subjected to taxes. “Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the Philippines are exempt from real property tax “except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.” Thus, the portions of the properties not leased to taxable entities are exempt from real estate tax while the portions of the properties leased to taxable entities are subject to real estate tax. The law imposes the liability to pay real estate tax on the Republic of the Philippines for the portions of the properties leased to taxable entities. It is, of course, assumed that the Republic of the Philippines passes on the real estate tax as part of the rent to the lessees.” (G.R. 185023 August 24, 2011) The PCGG argued that the properties still cannot be levied because they are considered public dominion but the High Tribunal clarified that “…the parcels of land are not properties of public dominion because they are not “intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads.” Neither are they “intended for some public service or for the development of the national wealth.” It is on these that the issue on the taxability of the State has been once and for all settled. When the state allows the property to be used by another entity which is not exempt from taxation, then that portion of the property becomes taxable.

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