[This item has two questions.] Philippine Medical Center (PMC) is a government hospital created by law to provide healthcare to the general public, especially the less fortunate. To enable PMC to perform its mandate, the national government provided the initial capital, land, buildings, and equipment to PMC. PMC’s charter also authorized it, acting through its Board of Trustees: to acquire property; to enter into contracts; to mortgage, encumber, lease, sell, convey, or dispose of its properties; and to do other acts necessary to accomplish its purposes and objectives. Among the properties of PMC are five lands and buildings located in Quezon City. The Quezon City assessor issued notices of assessment for real property taxes (RPT) against PMC’s properties that are being leased to private concessionaires. According to the city assessor, PMC’s properties leased to private entities are subject to RPT because these properties are not being exclusively used for charitable purposes. PMC, on the other hand, claims that, as a government instrumentality imbued with corporate powers, it is exempt from RPT.
Suggested answer only. Not an official answer and not legal advice.
PMC is correct that it is exempt from real property tax, and the assessment against it is void. Under Section 133(o) and Section 234(a) of the Local Government Code, government instrumentalities vested with corporate powers are exempt
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Quick check
Is PMC, a government instrumentality, liable for real property tax on hospital lands leased to private concessionaires?
PMC is exempt from real property tax, and tax liability for leased portions attaches solely to the private beneficial users.
Under Section 133(o) of the Local Government Code, what limitation is imposed on the taxing power of local government units?
Section 133(o) of the Local Government Code explicitly exempts government instrumentalities from local taxation.
Under Section 234(a) of the Local Government Code, when does government real property lose its tax exemption?
Government property loses its tax exemption under Section 234(a) when beneficial use is granted to a taxable person.
Who is liable to pay real property tax when a government instrumentality leases its land to a private commercial entity?
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What is the legal status of a real property tax assessment issued by a city against a government instrumentality owner?
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Learn more about these topics
1. Government Instrumentality Exemption
Under Section 133(o) of the Local Government Code, local government units cannot levy taxes, fees, or charges on the national government, its agencies, and instrumentalities. A government instrumentality vested with corporate powers, such as a specialized public hospital created by law, is exempt from local real property taxes. As established in jurisprudence, including Manila International Airport Authority versus Court of Appeals, real property owned by the Republic or its instrumentalities remains exempt from local taxation because taxing instrumentalities of the State would violate national policy and sovereignty.
2. Beneficial Use Doctrine
Under Section 234(a) of the Local Government Code, real property owned by the Republic or its political subdivisions is exempt from real property tax, except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. When government property is leased to private commercial entities, the property loses its tax exemption. However, under the beneficial use doctrine, tax liability attaches exclusively to the private lessee occupying or using the property, not to the government instrumentality that owns the fee simple title.
3. Local Taxing Limitations
While Article X, Section 5 of the 1987 Constitution grants local government units the power to create their own sources of revenue, this taxing power is subject to statutory guidelines and limitations issued by Congress. Local assessors cannot validly issue notices of assessment or collection against exempt government instrumentalities. Assessing real property taxes against the government owner instead of the private beneficial user renders the tax assessment void and unenforceable. Local taxing authorities must direct tax collection solely against the private concessionaires.