Basco v.

PAGCOR

DOCTRINE: The purpose of Local Governments is two-fold; i.e local governments are agents of
the State in the exercise of government or public powers and are agents of the community and
people in the exercise of proprietary or private powers

FACTS:

1. Petitioners filed the instant petition seeking to annul the Philippine Amusement and
Gaming Corporation (PAGCOR) Charter - PD 1869, because it is allegedly contrary to
morals, public policy and order, and because:
a. It constitutes a waiver of a right prejudicial to a third person with a right recognized by
law. It waived the Manila City government's right to impose taxes and license fees,
which is recognized by law;
b. For the same reason stated in the immediately preceding paragraph, the law
has intruded into the local government's right to impose local taxes and license fees.
This, in contravention of the constitutionally enshrined principle of local autonomy;
c. It violates the equal protection clause of the constitution in that it legalizes PAGCOR -
conducted gambling, while most other forms of gambling are outlawed, together
with prostitution, drug trafficking and other vices;
d. It violates the avowed trend of the Cory government away from monopolistic and crony
economy, and toward free enterprise and privatization.
2. Petitioners also claim that PD 1869 for having a "gambling objective" and therefore is contrary
to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the
present Constitution.
3. The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue
of P.D. 1067-A and was granted a franchise under PD 1067-B to establish, operate and
maintain gambling casinos on land or water within the territorial jurisdiction of the
Philippines." Its operation was originally conducted in the well known floating casino "Philippine
Tourist." The operation was considered a success for it proved to be a potential source
of revenue to fund infrastructure and socio-economic projects, thus, P.D. 1399 was passed on
June 2, 1978 for PAGCOR to fully attain this objective.
4. Subsequently, PAGCOR was created under P.D. 1869 to enable the Government to
regulate and centralize all games of chance authorized by existing franchise or permitted by law.
5. To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines.
Under its Charter's repealing clause, all laws, decrees, executive orders, rules and
regulations, inconsistent therewith, are accordingly repealed, amended or modified.
6. It is reported that PAGCOR is the third largest source of government revenue, next
to the Bureau of Internal Revenue and the Bureau of Customs.

ISSUE: WoN PD 1869 is valid – YES, because it is a valid exercise of police power

RULING:
1. This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most
deliberate consideration by the Court, involving as it does the exercise of what has been
described as "the highest and most delicate function which belongs to the judicial
department of the government."
2. All presumptions are indulged in favor of constitutionality; one who attacks a statute alleging
unconstitutionality must prove its invalidity beyond a reasonable doubt. If any reasonable
basis may be conceived which supports the statute, it will be upheld and the challenger must
negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or
expediency of a statute and that a liberal interpretation of the constitution in favor of the
constitutionality of legislation should be adopted.
3. Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of
gambling does not mean that the Government cannot regulate it in the exercise of its police
power.
4. The concept of police power is well-established in this jurisdiction. It has been defined as the
"state authority to enact legislation that may interfere with personal liberty or property in order
to promote the general welfare."
5. As defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to
foster the common good. It is not capable of an exact definition but has been, purposely, veiled
in general terms to underscore its all-comprehensive embrace.
6. P.D. 1869 was enacted pursuant to the policy of the government to "regulateand centralize thru
an appropriate institution all games of chance authorized by existing franchise or permitted by
law. In regulating and centralizing gambling operations in one corporate entity, the PAGCOR,
was beneficial not just to the Government but to society in general. It is a reliable source of
much needed revenue for the cash strapped Government. It provided funds for social impact
projects and subjected gambling to "close scrutiny, regulation, supervision and control of
the Government."
7. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to
impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle
of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts
PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise,
as well as fees, charges or levies of whatever nature, whether National or Local."
8. Their contention stated hereinabove is without merit for the following reasons:
a. The City of Manila, being a mere Municipal corporation has no inherent right to impose
taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or
the municipality cannot assume it". Its "power to tax" therefore must always yield toa
legislative act which is superior having been passed upon by the state itself which has
he "inherent power to tax"
b. The Charter of the City of Manila is subject to control by Congress. It should be stressed
that "municipal corporations are mere creatures of Congress" which has the power to
"create and abolish municipal corporations" due to its "general legislative powers.”
Congress, therefore, has the power of control over Local governments. And if Congress
 can grant the City of Manila the power to tax certain matters, it can also provide for
exemptions or even take back the power.
c. The City of Manila's power to impose license fees on gambling, has long been revoked.
As early as 1975, the power of local governments to regulate gambling thru the grant of
"franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested
exclusively on the National Government
9. Local governments have no power to tax instrumentalities of the National Government. PAGCOR
is a government owned or controlled corporation with an original charter, PD 1869. All of its
shares of stocks are owned by the National Government. In addition to its corporate powers
(Sec. 3, Title II, PD 1869) it also exercises regulatory powers.
10. PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and actually is
exempt from local taxes. This doctrine emanates from the "supremacy" of the National
Government over local governments.
11. The power to tax as a "power to destroy" cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it.
a. Petitioners also argue that the Local Autonomy Clause of the Constitution will be
violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution
(on Local Autonomy) provides: "Sec. 5. Each local government unit shall have the power
to create its own source of revenue and to levy taxes, fees, and other charges subject to
such guidelines and limitation as the congress may provide, consistent with the basic
policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the
local government."
12. The power of local government to "impose taxes and fees" is always subject to "limitations"
which Congress may provide by law.
13. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art.
XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the
power of local governments to impose taxes and fees. It cannot therefore be violative but
rather is consistent with the principle of local autonomy.
14. Local Government has been described as a political subdivision of a nation or state which is
constituted by law and has substantial control of local affairs. In a unitary system of
government, such as the government under the Philippine Constitution, local governments can
only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in
imperio. Local government in such a system can only mean a measure of decentralization of the
function of government.
15. As to what state powers should be "decentralized" and what may be delegated to local
government units remains a matter of policy, which concerns wisdom. It is therefore a political
question.
16. What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a
State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local
governments.
 17. "As gambling is usually an offense against the State, legislative grant or express charter power is
generally necessary to empower the local corporation to deal with the subject. In the absence
of express grant of power to enact, ordinance provisions on this subject which are inconsistent
with the state laws are void."
18. Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution,
because "it legalized PAGCOR - conducted gambling, while most gambling are outlawed
together with prostitution, drug trafficking and other vices"
a. The "equal protection clause" does not prohibit the Legislature from establishing classes
of individuals or objects upon which different rules shall operate. The Constitution does
not require situations which are different in fact or opinion to be treated in lawas
though they were the same
b. Just how P.D. 1869 in legalizing gambling conducted by PAGCORis violative of the equal
protection is not clearly explained in the petition. The mere fact that some gambling
activities like cockfighting (P.D. 449) horse racing (R.A. 306 as amended by RA 983),
sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under
certain conditions, while others are prohibited, does not render the applicable laws, P.D.
1869 for one, unconstitutional

WHEREFORE, the petition is DISMISSED for lack of merit.