The Government is exempt from tax

The Government, through which sovereign powers are directly and immediately exercised, is exempt from taxation unless the law provides otherwise. However, as to government-owned-or-controlled corporations performing proprietary (not governmental) functions, they are generally subject to tax in the absence of tax exemption provisions in their charters or the law creating them.

Reasons for the exemption:

[1] To levy a tax upon public property would render necessary new taxes on other public property for the payment of the tax so laid and thus, the government would be taxing itself to raise money to pay over for itself. It is like pulling out money from one pocket and putting it in the other.

[2] This immunity also rests upon fundamental principles of government, being necessary in order that the functions of government shall not be unduly impeded. (1 Cooley 263)

[3] The practical effect of an exemption running to the benefit of the government is merely to reduce the amount of money that has to be handled by the government in the course of its operations: For these reasons, provisions granting exemptions to government agencies may be construed liberally in favor of non-tax liability of such agencies. (G.R. No. 88291)

When the Government chooses to tax itself, it is taxable. Nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax.(G.R. No. 120082) There is no constitutional prohibition against the government taxing itself. If the taxing authority is the local government unit (LGU), the Local Government Code (Republic Act No. 7160) expressly prohibits LGUs from levying taxes on the National Government, its agencies and instrumentalities and other LGUs.