Title
National Food Authority, represented by Atty. Ma. Theresa S. Villafuerte, CPA, vs. City Government of Tagum, City Assessor and City Treasurer of Tagum
Case
G.R. No. 261472
Decision Date
May 21, 2024
NFA, a government instrumentality, is exempt from real property taxes under the Local Government Code; its tax exemptions under PD 1770 remain valid, ensuring its mandate for food security.
national food
authority
real property

Case Summary (G.R. No. 261472)

Factual Background

The National Food Authority traced its origin through various regulatory incarnations and charters culminating in its present status under Presidential Decree No. 1770 and later amendments and repeal of certain powers by Republic Act No. 11203. NFA owned lands, buildings and machineries in Barangay Magdum, Tagum City, covered by Transfer Certificate of Title Nos. T-59639 and T-59640 and Tax Declaration Nos. 01-0010-03091, 01-0010-03092, 01-0010-03093, 01-0010-03094, 01-0010-03095, 01-0010-03096, and 01-0010-00732. Relying on OGCC Opinions Nos. 098 and 228 (2007), NFA ceased payment of local real property taxes and formally requested tax exemption from Tagum City. On August 2, 2016, the City Treasurer of Tagum issued seven Notices of Delinquency demanding PHP 2,643,816.53 in real property taxes.

Trial Court Proceedings

NFA filed a Petition for Prohibition with application for Temporary Restraining Order and/or Writ of Preliminary Injunction in the Regional Trial Court of Tagum City, Special Civil Case No. 527, Branch 31, seeking to enjoin the collection of the taxes. The trial court dismissed the petition by Resolution dated November 15, 2016. The court relied on a BLGF Ruling/Indorsement dated June 12, 2008 holding that NFA was a government-owned or controlled corporation (GOCC) subject to local taxation and on precedent equating corporate characteristics with GOCC status; NFA’s motion for reconsideration was denied.

Proceedings and Ruling of the Court of Tax Appeals Second Division

NFA filed a Petition for Review with the Court of Tax Appeals, docketed as CTA AC No. 180, and obtained a suspension of collection. The Court of Tax Appeals Second Division, by Decision dated May 29, 2018, affirmed the Tagum City assessment and collection authority. The CTA Division held that: the Local Government Code vested provinces and cities with primary responsibility to administer the real property tax; NFA had acquiesced in paying real property taxes after the effectivity of the Local Government Code and therefore consented to withdrawal of exemptions; BLGF’s June 12, 2008 indorsement and the NFA’s charter and corporate governance references supported classification of NFA as a GOCC; and NFA performed proprietary and economically viable functions. NFA’s motion for reconsideration to the Division was denied by resolution dated August 23, 2018.

Ruling of the Court of Tax Appeals En Banc

On appeal, the Court of Tax Appeals En Banc dismissed NFA’s petition for certiorari in CTA EB No. 1930 by Decision dated June 30, 2020 on the ground that the Regional Trial Court lacked jurisdiction because NFA had failed to exhaust successive administrative remedies under Sections 226 and 252 of the Local Government Code, namely appeal to the Local Board of Assessment Appeals (LBAA) and payment under protest. The CTA En Banc characterized the issue as essentially an assessment question within the competence of the LBAA and the Central Board of Assessment Appeals; it denied reconsideration by Resolution dated November 4, 2021.

Issues Presented to the Supreme Court

The Supreme Court entertained the following principal issues: (1) whether the Regional Trial Court of Tagum City, Branch 31, had jurisdiction to entertain NFA’s petition for prohibition; (2) whether the requirement of “payment under protest” under Section 252 of the Local Government Code was an absolute prerequisite before invoking judicial remedies; (3) whether the NFA was a government instrumentality vested with corporate powers or instead a GOCC; and (4) whether NFA’s properties were exempt from real property taxation.

Parties’ Contentions before the Supreme Court

NFA maintained that the controversy posed a pure question of law regarding its legal character as a government instrumentality, exempt from local real property taxation; it argued that it was not a stock or non-stock corporation, that its capitalization and operations served national food security and buffer stock functions, and that OGCC opinions and the MIAA precedent supported its exemption. The City Government of Tagum, the City Assessor and City Treasurer contended that NFA was a GOCC subject to real property taxes, relying on the BLGF indorsement of June 12, 2008, statutory characterization under GOCC governance instruments, NFA’s corporate features such as authorized capital stock, and the proposition that OGCC opinions were persuasive but not binding. Respondents also urged exhaustion of administrative remedies under the Local Government Code.

Legal Basis and Reasoning of the Supreme Court

The Court began from first principles governing local taxing power and national supremacy. It emphasized that Article X, Section 5 of the 1987 Constitution grants taxing authority to local government units only subject to guidelines and limitations that Congress may provide, and that such authority must be exercised within constitutional bounds. The Court restated the settled rule that local taxation is strictly construed against the local government, and that exemptions in favor of the national government or its instrumentalities must be liberally construed because local taxation of national instrumentalities would result merely in a transfer of public funds from one government pocket to another and may frustrate national functions.

On jurisdiction and remedies, the Court applied the law distinguishing questions of law from questions of fact. It held that determination whether the assessor and treasurer had authority to assess and collect taxes from an entity is a question of law when the dispute turns on the entity’s legal character. The Court therefore concluded that NFA’s petition for prohibition raised a pure question of law and that administrative remedies before the LBAA and the payment-under-protest rule were inapplicable to a legal challenge to authority. The Court relied on precedents including MWSS v. CBAA, Ty v. Trampe, and NPC v. Navotas to hold that when the core issue is one of law, judicial relief by prohibition or certiorari is proper.

On the substantive classification of NFA, the Court applied the statutory and doctrinal framework. It interpreted Republic Act No. 10149 and the administrative precedents to adopt the twin test articulated in Philippine Heart Center v. Local Government of Quezon City: an agency is a government instrumentality vested with corporate powers if it (a) performs governmental functions and (b) enjoys operational autonomy. The Court found both elements present. It recounted NFA’s charter history under Presidential Decree No. 1770, its continuing mandate to maintain national rice buffer stock under Republic Act No. 11203, its governmental role in securing food supply and disaster relief, and its corporate powers granted by prior presidential decrees. The Court further determined that NFA possessed operational autonomy pursuant to its charter and governing council structure under Executive Order No. 62.

The Court addressed the contention that NFA was a GOCC. It analyzed corporate law definitions and NFA’s charteral features. Although NFA’s charter contemplated an authorized capital stock, the Court observed that NFA did not function as an ordinary stock corporation: its capital shares were wholly subscribed and paid by the national government; it had no shareholders exercising voting rights; it lacked authority to declare or distribute dividends; and its surpluses and funding were controlled by the President and subject to appropriation and Treasury availability. The Court concluded NFA was not a GOCC organized as a stock or non-stock corporation as defined under the Administrative Code and the Revised Corporation Code.

Finally, the Court turned to tax exemption. It held that as a government instrumentality NFA fell within the scope of Section 133(o) and Section 234(a) of the

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