Socialized housing tax

The 1987 Constitution explicitly espouses the view that the use of property bears a social function and that all economic agents shall contribute to the common good. The Supreme Court has already recognized this in the case of Social Justice Society (SJS), et al. v. Hon. Atienza, Jr.

Property has not only an individual function, insofar as it has to provide for the needs of the owner, but also a social function insofar as it has to provide for the needs of the other members of society. The principle is this:
Police power proceeds from the principle that every holder of property, however absolute and unqualified may be his title, holds it under the implied liability that his use of it shall not be injurious to the equal enjoyment of others having an equal right to the enjoyment of their property, nor injurious to the right of the community. Rights of property, like all other social and conventional rights, are subject to reasonable limitations in their enjoyment as shall prevent them from being injurious, and to such reasonable restraints and regulations established by law as the legislature, under the governing and controlling power vested in them by the constitution, may think necessary and expedient.
Police power, which flows from the recognition that salus populi est suprema lex (the welfare of the people is the supreme law), is the plenary power vested in the legislature to make statutes and ordinances to promote the health, morals, peace, education, good order or safety and general welfare of the people. Property rights of individuals may be subjected to restraints and burdens in order to fulfill the objectives of the government in the exercise of police power. In this jurisdiction, it is well-entrenched that taxation may be made the implement of the state’s police power.In the case of Ferrer v. Quezon City Mayor Baustita, petitioner questioned the validity of Ordinance No. SP-2095. Said ordinance imposes a Socialized Housing Tax (SHT) equivalent to 0.5% on the assessed value of land in excess of Php100,000.00. This special assessment is the same tax referred to in R.A. No. 7279 or the Urban Development and Housing Act (UDHA, approved on March 24, 1992). The SHT is one of the sources of funds for urban development and housing program. Section 43 of the law provides:
Sec. 43. Socialized Housing Tax. – Consistent with the constitutional principle that the ownership and enjoyment of property bear a social function and to raise funds for the Program, all local government units are hereby authorized to impose an additional one-half percent (0.5%) tax on the assessed value of all lands in urban areas in excess of Fifty thousand pesos (P50,000.00).
The rationale of the SHT is found in the preambular clauses of the subject ordinance, to wit:
WHEREAS, the imposition of additional tax is intended to provide the City Government with sufficient funds to initiate, implement and undertake Socialized Housing Projects and other related preliminary activities;

WHEREAS, the imposition of 0.5% tax will benefit the Socialized Housing Programs and Projects of the City Government, specifically the marginalized sector through the acquisition of properties for human settlements;

WHEREAS, the removal of the urban blight will definitely increase fair market value of properties in the city.
The above-quoted whereas clauses are consistent with the UDHA, which the Local Government Units (LGUs) are charged to implement in their respective localities in coordination with the Housing and Urban Development Coordinating Council, the national housing agencies, the Presidential Commission for the Urban Poor, the private sector, and other non-government organizations. It is the declared policy of the State to undertake a comprehensive and continuing urban development and housing program that shall, among others, uplift the conditions of the underprivileged and homeless citizens in urban areas and in resettlement areas, and provide for the rational use and development of urban land in order to bring about, among others, reduction in urban dysfunctions, particularly those that adversely affect public health, safety and ecology, and access to land and housing by the underprivileged and homeless citizens. Urban renewal and resettlement shall include the rehabilitation and development of blighted and slum areas and the resettlement of program beneficiaries in accordance with the provisions of the UDHA.

Under the UDHA, socialized housing shall be the primary strategy in providing shelter for the underprivileged and homeless. The LGU or the NHA, in cooperation with the private developers and concerned agencies, shall provide socialized housing or resettlement areas with basic services and facilities such as potable water, power and electricity, and an adequate power distribution system, sewerage facilities, and an efficient and adequate solid waste disposal system; and access to primary roads and transportation facilities. The provisions for health, education, communications, security, recreation, relief and welfare shall also be planned and be given priority for implementation by the LGU and concerned agencies in cooperation with the private sector and the beneficiaries themselves.

Moreover, within two years from the effectivity of the UDHA, the LGUs, in coordination with the NHA, are directed to implement the relocation and resettlement of persons living in danger areas such as esteros, railroad tracks, garbage dumps, riverbanks, shorelines, waterways, and other public places like sidewalks, roads, parks, and playgrounds In coordination with the NHA, the LGUs shall provide relocation or resettlement sites with basic services and facilities and access to employment and livelihood opportunities sufficient to meet the basic needs of the affected families.

Clearly, the SHT charged by the Quezon City Government is a tax which is within its power to impose. Aside from the specific authority vested by Section 43 of the UDHA, cities are allowed to exercise such other powers and discharge such other functions and responsibilities as are necessary, appropriate, or incidental to efficient and effective provision of the basic services and facilities which include, among others, programs and projects for low-cost housing and other mass dwellings.

The collections made accrue to its socialized housing programs and projects. The tax is not a pure exercise of taxing power or merely to raise revenue; it is levied with a regulatory purpose. The levy is primarily in the exercise of the police power for the general welfare of the entire city. It is greatly imbued with public interest. Removing slum areas in Quezon City is not only beneficial to the underprivileged and homeless constituents but advantageous to the real property owners as well. The situation will improve the value of the their property investments, fully enjoying the same in view of an orderly, secure, and safe community, and will enhance the quality of life of the poor, making them law-abiding constituents and better consumers of business products.

Though broad and far-reaching, police power is subordinate to constitutional limitations and is subject to the requirement that its exercise must be reasonable and for the public good. In the words of City of Manila v. Hon. Laguio, Jr.:
The police power granted to local government units must always be exercised with utmost observance of the rights of the people to due process and equal protection of the law. Such power cannot be exercised whimsically, arbitrarily or despotically as its exercise is subject to a qualification, limitation or restriction demanded by the respect and regard due to the prescription of the fundamental law, particularly those forming part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely affected only to the extent that may fairly be required by the legitimate demands of public interest or public welfare. Due process requires the intrinsic validity of the law in interfering with the rights of the person to his life, liberty and property.

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To successfully invoke the exercise of police power as the rationale for the enactment of the Ordinance, and to free it from the imputation of constitutional infirmity, not only must it appear that the interests of the public generally, as distinguished from those of a particular class, require an interference with private rights, but the means adopted must be reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. It must be evident that no other alternative for the accomplishment of the purpose less intrusive of private rights can work. A reasonable relation must exist between the purposes of the police measure and the means employed for its accomplishment, for even under the guise of protecting the public interest, personal rights and those pertaining to private property will not be permitted to be arbitrarily invaded.

Lacking a concurrence of these two requisites, the police measure shall be struck down as an arbitrary intrusion into private rights – a violation of the due process clause.
As with the State, LGUs may be considered as having properly exercised their police power only if there is a lawful subject and a lawful method or, to be precise, if the following requisites are met: (1) the interests of the public generally, as distinguished from those of a particular class, require its exercise and (2) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.

In Ferrer v. Quezon City Mayor Bautista, the petitioning taxpayer argues that the SHT is a penalty imposed on real property owners because it burdens them with expenses to provide funds for the housing of informal settlers, and that it is a class legislation since it favors the latter who occupy properties which is not their own and pay no taxes.

The Supreme Court disagreed with him.

Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed. The guarantee means that no person or class of persons shall be denied the same protection of laws which is enjoyed by other persons or other classes in like circumstances. Similar subjects should not be treated differently so as to give undue favor to some and unjustly discriminate against others. The law may, therefore, treat and regulate one class differently from another class provided there are real and substantial differences to distinguish one class from another.

An ordinance based on reasonable classification does not violate the constitutional guaranty of the equal protection of the law. The requirements for a valid and reasonable classification are: (1) it must rest on substantial distinctions; (2) it must be germane to the purpose of the law; (3) it must not be limited to existing conditions only; and (4) it must apply equally to all members of the same class.

For the purpose of undertaking a comprehensive and continuing urban development and housing program, the disparities between a real property owner and an informal settler as two distinct classes are too obvious and need not be discussed at length. The differentiation conforms to the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution. Notably, the public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one over another. It is inherent in the power to tax that a State is free to select the subjects of taxation. Inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation.

Further, the reasonableness of Ordinance No. SP-2095 cannot be disputed. It is not confiscatory or oppressive since the tax being imposed therein is below what the UDHA actually allows. As pointed out by respondents, while the law authorizes LGUs to collect SHT on lands with an assessed value of more than P50,000.00, the questioned ordinance only covers lands with an assessed value exceeding P100,000.00. Even better, on certain conditions, the ordinance grants a tax credit equivalent to the total amount of the special assessment paid beginning in the sixth (6th) year of its effectivity. Far from being obnoxious, the provisions of the subject ordinance are fair and just.



[2] 1987 CONSTITUTION, Art. XII, Sec. 6.

[3] Social Justice Society (SJS), et al. v. Hon. Atienza, Jr. 568 Phil. 658 (2008).

[4] Rep. of the Phils. v. Judge Caguioa, 562 Phil. 187 (2007) (withdrawal of the tax exemption on cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the freeports under R.A. No. 9334).

[5] Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corporation, 503 Phil. 485 (2005) (imposition of general safeguard measures).

[6] Republic of the Philippines v. COCOFED et al., 423 Phil. 735 (2001) (on the Coconut Consumer Stabilization Fund or coconut levy funds under P.D. No. 276).

[7] Caltex Philippines, Inc. v. Commission on Audit, G.R. No. 92585, May 8, 1992, 208 SCRA 726 (on the Oil Price Stabilization Fund under P.D. No. 1956, as amended).

[8] Gaston v. Republic Planters Bank, 242 Phil. 377 (1988) (stabilization fees to accrue to a Development and Stabilization Fund under P.D. No. 388).

[9] Philippine Airlines, Inc. v. Commissioner Edu, 247 Phil. 283 (1988) (motor vehicle registration fees under R.A. No. 4136).

[10] Tio v. Videogram Regulatory Board, 235 Phil. 198 (1987) (tax on sale, lease or disposition of videograms under P.D. No. 1987).

[11] Republic of the Philippines v. Bacolod-Murcia Milling Co., 124 Phil. 27 (1966) (special assessment for the Sugar Research and Stabilization Fund under R.A. No. 632).

[12] Lutz v. Araneta, 98 Phil. 148 (1955) (levy on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for a consideration in favor of the Sugar Adjustment and Stabilization Fund under Commonwealth Act 567).

[13] "Socialized housing" refers to housing programs and projects covering houses and lots or homelots only undertaken by the Government or the private sector for the underprivileged and homeless citizens which shall include sites and services development, long-term financing, liberalized terms on interest payments, and such other benefits in accordance with the provisions of R.A. No. 7279. (Sec. 3 [r]).

[14] LGC, Sec. 17 (b) (4), in relation to (b) (3) (viii).

[15] City of Manila v. Hon. Laguio, Jr., 495 Phil. 289, 307-308 (2005).

[16] White Light Corp., et al. v. City of Manila, supra note 71, at 467.