Taxation Law

Philippine Amusement and Gaming Corporation vs The Bureau of Internal Revenue

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G.R. No. 172087 – 660 Phil. 636 – 645 SCRA 338 – Taxation Law – Income Taxation – Corporate Taxpayers – PAGCOR is not exempt from income taxation

Political Law – Equal Protection Clause

The Philippine Amusement and Gaming Corporation (PAGCOR) was created by P.D. No. 1067-A in 1977. Obviously, it is a government owned and controlled corporation (GOCC).

In 1998, R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC) became effective. Section 27 thereof provides that GOCC’s are NOT EXEMPT from paying income taxation but it exempted the following GOCCs:


2. SSS




But in May 2005, R.A. 9337, a law amending certain provisions of R.A. 8424, was passed. Section 1 thereof excluded PAGCOR from the exempt GOCCs hence PAGCOR was subjected to pay income taxation. In September 2005, the Bureau of Internal Revenue issued the implementing rules and regulations (IRR) for R.A. 9337. In the said IRR, it identified PAGCOR as subject to a 10% value added tax (VAT) upon items covered by Section 108 of the NIRC (Sale of Services and Use or Lease of Properties).

PAGCOR questions the constitutionality of Section 1 of R.A. 9337 as well as the IRR. PAGCOR avers that the said provision violates the equal protection clause. PAGCOR argues that it is similarly situated with SSS, GSIS, PCSO, and PHILHEALTH, hence it should not be excluded from the exemption.

ISSUE: Whether or not PAGCOR should be subjected to income taxation.

HELD: Yes. Section 1 of R.A. 9337 is constitutional. It was the express intent of Congress to exclude PAGCOR from the exempt GOCCs hence PAGCOR is now subject to income taxation.

PAGCOR’s contention that the law violated the constitution is not tenable. The equal protection clause provides that all persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed.

The general rule is, ALL GOCC’s are subject to income taxation. However, certain classes of GOCC’s may be exempt from income taxation based on the following requisites for a valid classification under the principle of equal protection:

1) It must be based on substantial distinctions.

2) It must be germane to the purposes of the law.

3) It must not be limited to existing conditions only.

4) It must apply equally to all members of the class.

When the Supreme Court looked into the records of the deliberations of the lawmakers when R.A. 8424 was being drafted, the SC found out that PAGCOR’s exemption was not really based on substantial distinctions. In fact, the lawmakers merely exempted PAGCOR from income taxation upon the request of PAGCOR itself. This was changed however when R.A. 9337 was passed and now PAGCOR is already subject to income taxation.

Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had overstepped its authority. Nowhere in R.A. 9337 does it state that PAGCOR is subject to VAT. Therefore, that portion of the IRR issued by the BIR is void. In fact, Section 109 of R.A. 9337 expressly exempts PAGCOR from VAT. Further, PAGCOR’s charter exempts it from VAT.

To recapitulate, PAGCOR is subject to income taxation but not to VAT.

Read full text.

Read also the clarificatory Decision of the Supreme Court in G.R. No. 215427, 10 December 2014 (749 Phil. 1010)

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