April 5, 2002
Ponente: De Leon, Jr., J.
FACTS
Under PD 269, electric cooperatives enjoyed tax incentives. But the Local Government Code (LGC) took away said incentives and instead granted incentives to "cooperatives" in general under RA No. 6938.
The removal of their tax incentives prompted the Philippine Rural Electric Cooperatives Association, Inc., to file a petition to annul Sections 193 and 234 of the LGC for violating the equal protection clause of the Constitution and for impairing the obligation of contracts between the Philippine Government and the United States Government.
RULING
A classification, to be reasonable, must (1) rest on substantial distinctions; (2) be germane to the purposes of the law; (3) not be limited to existing conditions only; and (4) apply equally to all members of the same class.
In the present case, the Court held that there are substantial differences between electric cooperatives under PD 269 as opposed to cooperatives under RA 6983 to justify a different tax treatment between them.
