Taxation is the Rule. Exemption is the Exception.

POLITICAL SUBDIVISIONS OR INTRUMENTALITIES

GR: The imposition of taxes

XCP: Exemption from Taxation

XCP to XCP: If the grantee of the exemption is a POLITICAL SUBDIVISION OR INSTRUMENTALITY, the rigid rule of construction does not apply 

RATIO

The practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations(Mactan Cebu International vs. Marcos)

INSTRUMENTALITY

An instrumentality is “any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.” (City of Lapu-Lapu vs. PEZA)

SECTION 133(O) OF THE LOCAL GOVERNMENT CODE


SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: 

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(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units. 

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax.

SECTION 234(A) OF THE LOCAL GOVERNMENT CODE

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax.— The following are exempted from payment of the real property tax: 

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;