Case Summary (G.R. No. 147839)
Petitioner and Respondents
Petitioner: Film Development Council of the Philippines
Respondents: City of Cebu; SM Prime Holdings, Inc.; Colon Heritage Realty Corporation (operator of Oriente Group Theaters)
Key Dates
– 1993: City of Cebu enacts omnibus tax ordinance imposing 30% amusement tax on gross receipts.
– June 7, 2002: Congress enacts RA 9167 creating FDCP; Sections 13–14 grant tax incentives to producers of graded films.
– 2009: FDCP demands unpaid incentives from Cebu cinema operators; City of Cebu and Colon Heritage file suits.
– September 25, 2012 & October 24, 2012: RTC Branches 5 and 14 declare Sections 13–14 unconstitutional.
– June 16, 2015: Supreme Court decision affirming unconstitutionality with modifications.
Applicable Law
– 1987 Constitution, Article X, Section 5: local taxes “shall accrue exclusively to the local governments.”
– Local Government Code (RA 7160), Sections 130, 133, 140, 151: scope and limitations of LGU taxing powers.
– RA 9167, Sections 13–14: amusement tax incentive scheme for graded films; Section 23: separability clause.
Issue
Whether Sections 13 and 14 of RA 9167 validly limit LGU taxing authority or impermissibly divert local revenues in violation of the Constitution’s local autonomy guarantee.
Facts
Cebu City imposes a 30% amusement tax on gross receipts of theaters and cinemas. Under RA 9167, all amusement taxes on films graded AAA or ABA are to be withheld by theater operators and remitted to FDCP, which rewards 100% (AAA) or 65% (ABA) to producers; remaining 35% funds FDCP operations. Cebu City and Colon Heritage refused to remit these amounts, prompting declaratory relief actions.
Rulings of the Regional Trial Courts
Both RTC Branch 14 (City of Cebu v. FDCP) and Branch 5 (Colon Heritage v. FDCP) declared Sections 13 and 14 unconstitutional for violating Article X, Section 5 of the Constitution and exceeding Congress’s authority to limit LGU taxing power. RTC Branch 5 also invalidated the entire RA 9167 and ordered refunds.
Supreme Court’s Analysis – Local Fiscal Autonomy
The Court reaffirms that LGUs possess constitutionally-delegated taxing powers under Article X, Section 5, which must accrue exclusively to them. While Congress may enact statutory limitations via the Local Government Code, it cannot appropriate LGU tax revenues for other purposes absent express constitutional authority.
Supreme Court’s Analysis – Earmarking and Constitutional Violation
Sections 13–14 of RA 9167 amend Section 140 of the LGC to require that all amusement taxes on graded films, though still levied by LGUs, inure entirely to FDCP and film producers. This earmarking effectively confiscates LGU revenues, contravening the constitutional mandate that local taxes “accrue exclusively” to the taxing LGU and undermines their fiscal autonomy.
Supreme Court’s Analysis – Tax Exemption vs. Reward
The incentive under Section 13 is not a tax exemption—tax liabilities remain on theater/operators; FDCP merely redistributes collected taxes as rewards. Thus, the scheme is a confiscatory diversion of LGU revenue rather than a valid exemption.
Supreme Court’s Analysis – Separability Clause
RA 9167 contains a separability clause (Section 23). The Court declines to strike down the entire law, finding that invalidating Sections 13–14 does not render the remaining provisions inoperative or thwart legi
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Procedural Posture
- Two petitions for review on certiorari under Rule 45, seeking reversal of RTC Branch 5 (Cebu City) Decision of September 25, 2012 in Civil Case No. CEB-35601 (Colon Heritage Realty Corp. v. FDCP) and RTC Branch 14 Decision of October 24, 2012 in Civil Case No. CEB-35529 (City of Cebu v. FDCP).
- Both trial courts declared Sections 13 and 14 of R.A. 9167 unconstitutional as violative of Article X, Section 5 of the 1987 Constitution on local fiscal autonomy.
- FDCP, through the Office of the Solicitor General, elevated the consolidated cases to the Supreme Court (G.R. Nos. 203754 and 204418).
Facts
- In 1993, Cebu City imposed a 30% amusement tax on gross admission receipts by Ordinance No. LXIX, Chapter XI, Sections 42–43, pursuant to Section 140 of the Local Government Code (LGC) and Article X, Section 5 of the Constitution.
- In 2002, Congress enacted R.A. 9167 creating FDCP and, by Sections 13–14, entitled producers of Council-graded “AAA” films to 100% and “BA” films to 65% of amusement taxes otherwise collectible by Manila and other covered local governments.
- FDCP, in January 2009, demanded unpaid amusement-tax incentives (plus 5% monthly surcharge) from Cebu City cinema operators, including Colon Heritage Realty Corp., SM Prime Holdings Inc., and others, covering 2003–2008.
- Proprietors failed to remit; Cebu City filed for declaratory relief and injunctive relief on May 18, 2009 (CEB-35529), while Colon Heritage filed its own suit on May 25, 2009 (CEB-35601).
Issue
- Whether Sections 13 and 14 of R.A. 9167 unconstitutionally infringe local fiscal autonomy by diverting amusement-tax revenues from covered LGUs to FDCP and private film producers.
Relevant Constitutional and Statutory Provisions
- 1987 Constitution, Article X, Section 5: LGUs may create sources of revenue and levy taxes, fees, charges, “subject to such guidelines and limitations as Congress may provide,” and such revenues “shall accrue exclusively to the local governments.”
- LGC Section 140: Provinces (and by Section 151, cities) may levy up to 30% amusement tax on gross admission receipts, to be withheld by operators and remitted to the treasurer.
- LGC Section 133(d): Revenues collected under the LGC “shall inure solely to the benefit of, and be subject to the disposition by, the