G.R. No.

L-41631 December 17, 1976
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G.
GARGANTIEL, as Secretary to the Mayor; THE MARKET
ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners,
vs.
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of
First Instance of Manila, Branch XXX and the FEDERATION OF MANILA
MARKET VENDORS, INC., respondents.
Santiago F. Alidio and Restituto R. Villanueva for petitioners.
Antonio H. Abad, Jr. for private respondent.
Federico A. Blay for petitioner for intervention.
Resolving the accompanying prayer for the issuance of a writ of preliminary
injunction, respondent Judge issued an order on March 11, 1975, denying the plea for
failure of the respondent Federation of Manila Market Vendors, Inc. to exhaust the
administrative remedies outlined in the Local Tax Code.
After due hearing on the merits, respondent Judge rendered its decision on August
29, 1975, declaring the nullity of Ordinance No. 7522 of the City of Manila on the
primary ground of non-compliance with the requirement of publication under the
Revised City Charter. Respondent Judge ruled:
There is, therefore, no question that the ordinance in question was
not published at all in two daily newspapers of general circulation
in the City of Manila before its enactment. Neither was it published
in the same manner after approval, although it was posted in the
legislative hall and in all city public markets and city public
libraries. There being no compliance with the mandatory
requirement of publication before and after approval, the ordinance
in question is invalid and, therefore, null and void.

MARTIN, J.:
The chief question to be decided in this case is what law shall govern the publication
of a tax ordinance enacted by the Municipal Board of Manila, the Revised City
Charter (R.A. 409, as amended), which requires publication of the ordinance before
its enactment and after its approval, or the Local Tax Code (P.D. No. 231), which
only demands publication after approval.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN
ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND
PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING
PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The
petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15,
1974.
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc.
commenced Civil Case 96787 before the Court of First Instance of Manila presided
over by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522
for the reason that (a) the publication requirement under the Revised Charter of the
City of Manila has not been complied with; (b) the Market Committee was not given
any participation in the enactment of the ordinance, as envisioned by Republic Act
6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated;
and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972
prescribing the collection of fees and charges on livestock and animal products.
Petitioners moved for reconsideration of the adverse decision, stressing that (a) only
a post-publication is required by the Local Tax Code; and (b) private respondent
failed to exhaust all administrative remedies before instituting an action in court.
On September 26, 1975, respondent Judge denied the motion.
Forthwith, petitioners brought the matter to Us through the present petition for
review on certiorari.
We find the petition impressed with merits.
1. The nexus of the present controversy is the apparent conflict between the Revised
Charter of the City of Manila and the Local Tax Code on the manner of publishing a
tax ordinance enacted by the Municipal Board of Manila. For, while Section 17 of
the Revised Charter provides:
Each proposed ordinance shall be published in two daily
newspapers of general circulation in the city, and shall not be
discussed or enacted by the Board until after the third day
following such publication. * * * Each approved ordinance * * *
shall be published in two daily newspapers of general circulation in
the city, within ten days after its approval; and shall take effect and
be in force on and after the twentieth day following its publication,
if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs:
Within ten days after their approval, certified true copies of all
provincial, city, municipal and barrio ordinances levying or
imposing taxes, fees or other charges shall be published for three
consecutive days in a newspaper or publication widely circulated
within the jurisdiction of the local government, or posted in the
local legislative hall or premises and in two other conspicuous
places within the territorial jurisdiction of the local government. In
either case, copies of all provincial, city, municipal and barrio
ordinances shall be furnished the treasurers of the respective
component and mother units of a local government for
dissemination.
In other words, while the Revised Charter of the City of Manila requires
publication before the enactment of the ordinance and after the approval thereof in
two daily newspapers of general circulation in the city, the Local Tax Code only
prescribes for publication after the approval of "ordinances levying or imposing
taxes, fees or other charges" either in a newspaper or publication widely circulated
within the jurisdiction of the local government or by posting the ordinance in the
local legislative hall or premises and in two other conspicuous places within the
territorial jurisdiction of the local government. Petitioners' compliance with the Local
Tax Code rather than with the Revised Charter of the City spawned this litigation.
There is no question that the Revised Charter of the City of Manila is a special
act since it relates only to the City of Manila, whereas the Local Tax Code is a
general law because it applies universally to all local governments. Blackstone
defines general law as a universal rule affecting the entire community and special
law as one relating to particular persons or things of a class. 1 And the rule
commonly said is that a prior special law is not ordinarily repealed by a subsequent
general law. The fact that one is special and the other general creates a presumption
that the special is to be considered as remaining an exception of the general, one as a
general law of the land, the other as the law of a particular case. 2 However, the rule
readily yields to a situation where the special statute refers to a subject in general,
which the general statute treats in particular. The exactly is the circumstance
obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila
speaks of "ordinance" in general, i.e., irrespective of the nature and scope
thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying or
imposing taxes, fees or other charges" in particular. In regard, therefore, to
ordinances in general, the Revised Charter of the City of Manila is doubtless
dominant, but, that dominant force loses its continuity when it approaches the realm
of "ordinances levying or imposing taxes, fees or other charges" in particular. There,
the Local Tax Code controls. Here, as always, a general provision must give way to a
particular provision. 3 Special provision governs. 4 This is especially true where the
law containing the particular provision was enacted later than the one containing the
general provision. The City Charter of Manila was promulgated on June 18, 1949 as
against the Local Tax Code which was decreed on June 1, 1973. The law-making
power cannot be said to have intended the establishment of conflicting and hostile
systems upon the same subject, or to leave in force provisions of a prior law by
which the new will of the legislating power may be thwarted and overthrown. Such a
result would render legislation a useless and Idle ceremony, and subject the law to
the reproach of uncertainty and unintelligibility. 5
The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City
of Manila for damages arising from the injuries he suffered when he fell inside an
uncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City of
Manila denied liability on the basis of the City Charter (R.A. 409) exempting the
City of Manila from any liability for damages or injury to persons or property arising
from the failure of the city officers to enforce the provisions of the charter or any
other law or ordinance, or from negligence of the City Mayor, Municipal Board, or
other officers while enforcing or attempting to enforce the provisions of the charter
or of any other law or ordinance. Upon the other hand, Article 2189 of the Civil Code
makes cities liable for damages for the death of, or injury suffered by any persons by
reason of the defective condition of roads, streets, bridges, public buildings, and
other public works under their control or supervision. On review, the Court held the
Civil Code controlling. It is true that, insofar as its territorial application is
concerned, the Revised City Charter is a special law and the subject matter of the two
laws, the Revised City Charter establishes a general rule of liability arising from
negligence in general, regardless of the object thereof, whereas the Civil Code
constitutes a particular prescription for liability due to defective streets in particular.
In the same manner, the Revised Charter of the City prescribes a rule for the
publication of "ordinance" in general, while the Local Tax Code establishes a rule for
the publication of "ordinance levying or imposing taxes fees or other charges in
particular.
In fact, there is no rule which prohibits the repeal even by implication of a special or
specific act by a general or broad one. 7 A charter provision may be impliedly
modified or superseded by a later statute, and where a statute is controlling, it must
be read into the charter notwithstanding any particular charter provision. 8 A
subsequent general law similarly applicable to all cities prevails over any conflicting
charter provision, for the reason that a charter must not be inconsistent with the
general laws and public policy of the state. 9 A chartered city is not an independent
sovereignty. The state remains supreme in all matters not purely local. Otherwise
stated, a charter must yield to the constitution and general laws of the state, it is to
have read into it that general law which governs the municipal corporation and which
the corporation cannot set aside but to which it must yield. When a city adopts a
charter, it in effect adopts as part of its charter general law of such character. 10
2. The principle of exhaustion of administrative remedies is strongly asserted by
petitioners as having been violated by private respondent in bringing a direct suit in
court. This is because Section 47 of the Local Tax Code provides that any question or
issue raised against the legality of any tax ordinance, or portion thereof, shall be
referred for opinion to the city fiscal in the case of tax ordinance of a city. The
opinion of the city fiscal is appealable to the Secretary of Justice, whose decision
shall be final and executory unless contested before a competent court within thirty
(30) days. But, the petition below plainly shows that the controversy between the
parties is deeply rooted in a pure question of law: whether it is the Revised Charter of
the City of Manila or the Local Tax Code that should govern the publication of the
tax ordinance. In other words, the dispute is sharply focused on the applicability of
the Revised City Charter or the Local Tax Code on the point at issue, and not on the
legality of the imposition of the tax. Exhaustion of administrative remedies before
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the
question litigated upon is purely a legal one, the rule does not apply. 11 The principle
may also be disregarded when it does not provide a plain, speedy and adequate
remedy. It may and should be relaxed when its application may cause great and
irreparable damage. 12
3. It is maintained by private respondent that the subject ordinance is not a "tax
ordinance," because the imposition of rentals, permit fees, tolls and other fees is not
strictly a taxing power but a revenue-raising function, so that the procedure for
publication under the Local Tax Code finds no application. The pretense bears its
own marks of fallacy. Precisely, the raising of revenues is the principal object of
taxation. Under Section 5, Article XI of the New Constitution, "Each local
government unit shall have the power to create its own sources of revenue and to
levy taxes, subject to such provisions as may be provided by law." 13 And one of
those sources of revenue is what the Local Tax Code points to in particular: "Local
governments may collect fees or rentals for the occupancy or use of public markets
and premises * * *." 14 They can provide for and regulate market stands, stalls and
privileges, and, also, the sale, lease or occupancy thereof. They can license, or permit
the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15
It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7,
dated September 30, 1972, insofar as it affects livestock and animal products,
because the said decree prescribes the collection of other fees and charges thereon
"with the exception of ante-mortem and post-mortem inspection fees, as well as the
delivery, stockyard and slaughter fees as may be authorized by the Secretary of
Agriculture and Natural Resources." 16Clearly, even the exception clause of the
decree itself permits the collection of the proper fees for livestock. And the Local Tax
Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may
collect fees for the slaughter of animals and the use of corrals * * * "
4. The non-participation of the Market Committee in the enactment of Ordinance No.
7522 supposedly in accordance with Republic Act No. 6039, an amendment to the
City Charter of Manila, providing that "the market committee shall formulate,
recommend and adopt, subject to the ratification of the municipal board, and
approval of the mayor, policies and rules or regulation repealing or maneding
existing provisions of the market code" does not infect the ordinance with any germ
of invalidity. 17 The function of the committee is purely recommendatory as the
underscored phrase suggests, its recommendation is without binding effect on the
Municipal Board and the City Mayor. Its prior acquiescence of an intended or
proposed city ordinance is not a condition sine qua non before the Municipal Board
could enact such ordinance. The native power of the Municipal Board to legislate
remains undisturbed even in the slightest degree. It can move in its own initiative and
the Market Committee cannot demur. At most, the Market Committee may serve as a
legislative aide of the Municipal Board in the enactment of city ordinances affecting
the city markets or, in plain words, in the gathering of the necessary data, studies and
the collection of consensus for the proposal of ordinances regarding city markets.
Much less could it be said that Republic Act 6039 intended to delegate to the Market
Committee the adoption of regulatory measures for the operation and administration
of the city markets. Potestas delegata non delegare potest.
5. Private respondent bewails that the market stall fees imposed in the disputed
ordinance are diverted to the exclusive private use of the Asiatic Integrated
Corporation since the collection of said fees had been let by the City of Manila to the
said corporation in a "Management and Operating Contract." The assumption is of
course saddled on erroneous premise. The fees collected do not go direct to the
private coffers of the corporation. Ordinance No. 7522 was not made for the
corporation but for the purpose of raising revenues for the city. That is the object it
serves. The entrusting of the collection of the fees does not destroy the public
purpose of the ordinance. So long as the purpose is public, it does not matter whether
the agency through which the money is dispensed is public or private. The right to
tax depends upon the ultimate use, purpose and object for which the fund is raised. It
is not dependent on the nature or character of the person or corporation whose
intermediate agency is to be used in applying it. The people may be taxed for a
public purpose, although it be under the direction of an individual or private
corporation. 18
Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft
and Corrupt Practices Act because the increased rates of market stall fees as levied
by the ordinance will necessarily inure to the unwarranted benefit and advantage of
the corporation. 19 We are concerned only with the issue whether the ordinance in
question is intra vires. Once determined in the affirmative, the measure may not be
invalidated because of consequences that may arise from its enforcement. 20
ACCORDINGLY, the decision of the court below is hereby reversed and set aside.
Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to
have been validly enacted. No. costs.
SO ORDERED.
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA;
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL
REVENUE GUILLERMO PARAYNO, JR., Respondent.
x-------------------------x
G.R. No. 168207
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E.
ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S.
MADRIGAL, AND SERGIO R. OSMEÑA III, Petitioners,
vs.
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA,
SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR.,
COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, Respondent.
x-------------------------x
G.R. No. 168461
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its
President, ROSARIO ANTONIO; PETRON DEALERS’ ASSOCIATION
represented by its President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX
DEALERS’ OF THE PHILIPPINES represented by its President, MERCEDITAS A.
GARCIA; ROSARIO ANTONIO doing business under the name and style of "ANB
NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business
under the name and style of "SHELL GATE – N. DOMINGO"; BETHZAIDA TAN
doing business under the name and style of "ADVANCE SHELL STATION";
REYNALDO P. MONTOYA doing business under the name and style of "NEW
LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the
name and style of "RED FIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E.
MARBIBI doing business under the name and style of "R&R PETRON STATION";
PETER M. UNGSON doing business under the name and style of "CLASSIC STAR
GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business
under the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN
CESAR P. POSADAS doing business under the name and style of "STARCARGA
ENTERPRISES"; ADORACION MAÑEBO doing business under the name and
style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business
under the name and style of "LEONA’S GASOLINE STATION and SERVICE
CENTER"; CARMELITA BALDONADO doing business under the name and style
of "FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing
business under the name and style of "LORPED SERVICE CENTER"; RHEAMAR
A. RAMOS doing business under the name and style of "RJRAM PTT GAS
STATION"; MA. ISABEL VIOLAGO doing business under the name and style of
"VIOLAGO-PTT SERVICE CENTER"; MOTORISTS’ HEART CORPORATION
represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS’ HARVARD CORPORATION represented by its Vice-President for
Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HERITAGE
CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its
Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL
doing business under the name and style of "ROMMAN GASOLINE STATION";
ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE
SERVICE STATION", Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of the Department of
Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner
of Internal Revenue, Respondent.
x-------------------------x
G.R. No. 168463
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL
JOEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-
CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN
EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G.
NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO,
TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q.
AGBAYANI and TEODORO A. CASIÑO, Petitioners,
vs.
CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO
L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as Executive Secretary,Respondent.
x-------------------------x
G.R. No. 168730
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
vs.
HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON.
MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE
MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of Internal
Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC
Commissioner of the Bureau of Customs, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be
borne by everyone, and the more man enjoys the advantages of society, the more he
ought to hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for
education, increased emoluments for health workers, and wider coverage for full
value-added tax benefits … these are the reasons why Republic Act No. 9337 (R.A.
No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its
extensive constitutional power of review, cannot probe. The petitioners in these
cases, however, question not only the wisdom of the law, but also perceived
constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law.
Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos.
3555 and 3705, and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House
Committee on Ways and Means approved the bill, in substitution of House Bill No.
1468, which Representative (Rep.) Eric D. Singson introduced on August 8, 2004.
The President certified the bill on January 7, 2005 for immediate enactment. On
January 27, 2005, the House of Representatives approved the bill on second and third
reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced
by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V.
Paras. Its "mother bill" is House Bill No. 3555. The House Committee on Ways and
Means approved the bill on February 2, 2005. The President also certified it as urgent
on February 8, 2005. The House of Representatives approved the bill on second and
third reading on February 28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No.
19504 on March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873,
taking into consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto
sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both
sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan.
The President certified the bill on March 11, 2005, and was approved by the Senate
on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of
Representatives for a committee conference on the disagreeing provisions of the
proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill
No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after having met and
discussed in full free and conference," recommended the approval of its report,
which the Senate did on May 10, 2005, and with the House of Representatives
agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version
was transmitted to the President, who signed the same into law on May 24, 2005.
Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the
Court issued a temporary restraining order, effective immediately and continuing
until further orders, enjoining respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the
Court speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for
its issuance of the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me
just tell you a little background. You know when the law took effect on July 1, 2005,
the Court issued a TRO at about 5 o’clock in the afternoon. But before that, there
was a lot of complaints aired on television and on radio. Some people in a gas station
were complaining that the gas prices went up by 10%. Some people were
complaining that their electric bill will go up by 10%. Other times people riding in
domestic air carrier were complaining that the prices that they’ll have to pay would
have to go up by 10%. While all that was being aired, per your presentation and per
our own understanding of the law, that’s not true. It’s not true that the e-vat law
necessarily increased prices by 10% uniformly isn’t it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that
granted the Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : That’s correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . .
interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be
the elimination of the Excise Tax and the import duties. That is why, it is not correct
to say that the VAT as to petroleum dealers increased prices by 10%.
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail
price by 10% to cover the E-Vat tax. If you consider the excise tax and the import
duties, the Net Tax would probably be in the neighborhood of 7%? We are not going
into exact figures I am just trying to deliver a point that different industries, different
products, different services are hit differently. So it’s not correct to say that all prices
must go up by 10%.
ATTY. BANIQUED : You’re right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel,
are at present imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales
Tax was also removed as a mitigating measure. So, therefore, there is no justification
to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on
that first day, were being increased arbitrarily by 10%. And that’s one reason among
many others this Court had to issue TRO because of the confusion in the
implementation. That’s why we added as an issue in this case, even if it’s tangentially
taken up by the pleadings of the parties, the confusion in the implementation of the
E-vat. Our people were subjected to the mercy of that confusion of an across the
board increase of 10%, which you yourself now admit and I think even the
Government will admit is incorrect. In some cases, it should be 3% only, in some
cases it should be 6% depending on these mitigating measures and the location and
situation of each product, of each service, of each company, isn’t it?
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO
pending the clarification of all these and we wish the government will take time to
clarify all these by means of a more detailed implementing rules, in case the law is
upheld by this Court. . . .6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al.,
filed a petition for prohibition on May 27, 2005. They question the constitutionality
of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use
or lease of properties. These questioned provisions contain a
uniform proviso authorizing the President, upon recommendation of the Secretary of
Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the
following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 ½%).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition
for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A.
No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase
the VAT rate to 12%, on the ground that it amounts to an undue delegation of
legislative power, petitioners also contend that the increase in the VAT rate to 12%
contingent on any of the two conditions being satisfied violates the due process
clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair
and additional tax burden on the people, in that: (1) the 12% increase is ambiguous
because it does not state if the rate would be returned to the original 10% if the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the
people are unsure of the applicable VAT rate from year to year; and (3) the increase
in the VAT rate, which is supposed to be an incentive to the President to raise the
VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based
on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the
President by the Bicameral Conference Committee is a violation of the "no-
amendment rule" upon last reading of a bill laid down in Article VI, Section 26(2) of
the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association
of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No.
9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax
on depreciable goods shall be amortized over a 60-month period, if the acquisition,
excluding the VAT components, exceeds One Million Pesos (₱1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the
amount of input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or
any of its political subdivisions, instrumentalities or agencies, including GOCCs, to
deduct a 5% final withholding tax on gross payments of goods and services, which
are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108
(sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary,
oppressive, excessive, and confiscatory.
Petitioners’ argument is premised on the constitutional right of non-deprivation of
life, liberty or property without due process of law under Article III, Section 1 of the
Constitution. According to petitioners, the contested sections impose limitations on
the amount of input tax that may be claimed. Petitioners also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited
without due process of law. Petitioners further contend that like any other property or
property right, the input tax credit may be transferred or disposed of, and that by
limiting the same, the government gets to tax a profit or value-added even if there is
no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of
equal protection of the law under Article III, Section 1 of the Constitution, as the
limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or
(2) invests in capital equipment; or (3) has several transactions with the government,
is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of
Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses
with higher input tax to output tax ratio that will suffer the consequences thereof for
it wipes out whatever meager margins the petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G.
Escudero filed this petition for certiorari on June 30, 2005. They question the
constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative
power, in violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting
the no pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705;
and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116,
117, 119, 121, 125,7 148, 151, 236, 237 and 288, which were present in Senate Bill
No. 1950, violates Article VI, Section 24(1) of the Constitution, which provides that
all appropriation, revenue or tariff bills shall originate exclusively in the House of
Representatives
G.R. No. 168730
On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and
prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground
that the limitation on the creditable input tax in effect allows VAT-registered
establishments to retain a portion of the taxes they collect, thus violating the
principle that tax collection and revenue should be solely allocated for public
purposes and expenditures. Petitioner Garcia further claims that allowing these
 establishments to pass on the tax to the consumers is inequitable, in violation of
Article VI, Section 28(1) of the Constitution.
RESPONDENTS’ COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents.
Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e.,
legality of the bicameral proceedings, exclusive origination of revenue measures and
the power of the Senate concomitant thereto, have already been settled. With regard
to the issue of undue delegation of legislative power to the President, respondents
contend that the law is complete and leaves no discretion to the President but to
increase the rate to 12% once any of the two conditions provided therein arise.
Respondents also refute petitioners’ argument that the increase to 12%, as well as the
70% limitation on the creditable input tax, the 60-month amortization on the
purchase or importation of capital goods exceeding ₱1,000,000.00, and the 5% final
withholding tax by government agencies, is arbitrary, oppressive, and confiscatory,
and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s
fiscal reform agenda. A reform in the value-added system of taxation is the core
revenue measure that will tilt the balance towards a sustainable macroeconomic
environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
108 of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of
value-added tax (VAT), as the confusion and inevitably, litigation, breeds from a
fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter,
exchange or lease of goods or properties and services.8 Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to the
buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is
intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the burden to someone
else.11 Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.12
In the Philippines, the value-added system of sales taxation has long been in
existence, albeit in a different mode. Prior to 1978, the system was a single-stage tax
computed under the "cost deduction method" and was payable only by the original
sellers. The single-stage system was subsequently modified, and a mixture of the
"cost deduction method" and "tax credit method" was used to determine the value-
added tax payable.13 Under the "tax credit method," an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
inputs and imports.14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No.
273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0%
or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No.
8241 or the Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of
1997,18 and finally, the presently beleaguered R.A. No. 9337, also referred to by
respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral
Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of
R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate
bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be
credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding
other kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference
Committee.
It should be borne in mind that the power of internal regulation and discipline are
intrinsic in any legislative body for, as unerringly elucidated by Justice Story, "[i]f
the power did not exist, it would be utterly impracticable to transact the
business of the nation, either at all, or at least with decency, deliberation, and
order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each
House may determine the rules of its proceedings." Pursuant to this inherent
constitutional power to promulgate and implement its own rules of procedure, the
respective rules of each house of Congress provided for the creation of a Bicameral
Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives
provides as follows:
Sec. 88. Conference Committee. – In the event that the House does not agree with the
Senate on the amendment to any bill or joint resolution, the differences may be
settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as
possible, adhere to and support the House Bill. If the differences with the Senate are
so substantial that they materially impair the House Bill, the panel shall report such
fact to the House for the latter’s appropriate action.
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject
measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee
Report prior to the voting thereon. The House shall vote on the Conference
Committee Report in the same manner and procedure as it votes on a bill on third
and final reading.
Rule XII, Section 35 of the Rules of the Senate states:
Sec. 35. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint resolution, the differences shall
be settled by a conference committee of both Houses which shall meet within ten
(10) days after their composition. The President shall designate the members of the
Senate Panel in the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit
statement of the changes in, or amendments to the subject measure, and shall be
signed by a majority of the members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a
reconciled version thereof with the explanatory statement of the conference
committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem,
not addressed by any constitutional provision, where the two houses of Congress find
themselves in disagreement over changes or amendments introduced by the other
house in a legislative bill. Given that one of the most basic powers of the legislative
branch is to formulate and implement its own rules of proceedings and to discipline
its members, may the Court then delve into the details of how Congress complies
with its internal rules or how it conducts its business of passing legislation? Note that
in the present petitions, the issue is not whether provisions of the rules of both houses
creating the bicameral conference committee are unconstitutional, but whether the
bicameral conference committee has strictly complied with the rules of both
houses, thereby remaining within the jurisdiction conferred upon it by
Congress.
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill
doctrine," thus, declining therein petitioners’ plea for the Court to go behind the
enrolled copy of the bill. Assailed in said case was Congress’s creation of two sets of
bicameral conference committees, the lack of records of said committees’
proceedings, the alleged violation of said committees of the rules of both houses, and
the disappearance or deletion of one of the provisions in the compromise bill
submitted by the bicameral conference committee. It was argued that such
irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election
Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House
and the Senate President and the certification of the Secretaries of both Houses of
Congress that it was passed are conclusive of its due enactment. A review of cases
reveals the Court’s consistent adherence to the rule. The Court finds no reason to
deviate from the salutary rule in this case where the irregularities alleged by the
petitioners mostly involved the internal rules of Congress, e.g., creation of the
2nd or 3rd Bicameral Conference Committee by the House. This Court is not the
proper forum for the enforcement of these internal rules of Congress, whether
House or Senate. Parliamentary rules are merely procedural and with their
observance the courts have no concern. Whatever doubts there may be as to the
formal validity of Rep. Act No. 9006 must be resolved in its favor.The Court
reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to
the courts the power to inquire into allegations that, in enacting a law, a House
of Congress failed to comply with its own rules, in the absence of showing that
there was a violation of a constitutional provision or the rights of private
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared
that ‘the rules adopted by deliberative bodies are subject to revocation, modification
or waiver at the pleasure of the body adopting them.’ And it has been said that
"Parliamentary rules are merely procedural, and with their observance, the
courts have no concern. They may be waived or disregarded by the legislative
body." Consequently, "mere failure to conform to parliamentary usage will not
invalidate the action (taken by a deliberative body) when the requisite number
of members have agreed to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners
allege irregularities committed by the conference committee in introducing changes
or deleting provisions in the House and Senate bills. Akin to the Fariñas case,22 the
present petitions also raise an issue regarding the actions taken by the conference
committee on matters regarding Congress’ compliance with its own internal rules. As
stated earlier, one of the most basic and inherent power of the legislature is the power
to formulate rules for its proceedings and the discipline of its members. Congress is
the best judge of how it should conduct its own business expeditiously and in the
most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference
committee if it believes that said members violated any of its rules of proceedings.
Even the expanded jurisdiction of this Court cannot apply to questions regarding
only the internal operation of Congress, thus, the Court is wont to deny a review of
the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs.
Secretary of Finance,23 the Court already made the pronouncement that "[i]f a
change is desired in the practice [of the Bicameral Conference Committee] it
must be sought in Congress since this question is not covered by any
constitutional provision but is only an internal rule of each house." 24 To date,
Congress has not seen it fit to make such changes adverted to by the Court. It seems,
therefore, that Congress finds the practices of the bicameral conference committee to
be very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant
irregularities tainted the proceedings of the bicameral
conference committees, the Court deems it necessary to dwell
on the issue. The Court observes that there was a necessity for
a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and
Senate Bill No. 1950 on the other, reveals that there were
indeed disagreements. As pointed out in the petitions, said
disagreements were as follows:
House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
 With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT Provides for 12% VAT in
on every sale of goods general on sales of goods or of 10% VAT on sale of
or properties (amending properties and reduced
Sec. 106 of NIRC); rates for sale of certain
12% VAT on locally manufactured goods
importation of goods and petroleum products and
(amending Sec. 107 of raw materials to be used in
NIRC); and 12% VAT the manufacture thereof
on sale of services and (amending Sec. 106 of
use or lease of NIRC); 12% VAT on
properties (amending importation of goods and
Sec. 108 of NIRC) reduced rates for certain
imported products
including petroleum
products (amending Sec.
107 of NIRC); and 12%
VAT on sale of services and
use or lease of properties
and a reduced rate for
certain services including
power generation
(amending Sec. 108 of
NIRC)
With regard to the "no pass-on" provision
No similar provision Provides that the VAT
imposed on power
generation and on the sale
of petroleum products shall
be absorbed by generation
companies or sellers,
respectively, and shall not
be passed on to consumers
With regard to 70% limit on input tax credit
Provides that the input No similar provision
tax credit for capital
goods on which a VAT
has been paid shall be
Provides for a single rate
goods or properties
(amending Sec. 106 of
NIRC), 10% VAT on sale
of services including sale
of electricity by
generation companies,
transmission and
distribution companies,
and use or lease of
properties (amending
Sec. 108 of NIRC)
Provides that the VAT
imposed on sales of
electricity by generation
companies and services
of transmission
companies and
distribution companies,
as well as those of
franchise grantees of
electric utilities shall not
apply to residential
end-users. VAT shall be
absorbed by generation,
transmission, and
distribution companies.
Provides that the input
tax credit for capital
goods on which a VAT
has been paid shall be
equally distributed over equally distributed over
5 years or the 5 years or the
depreciable life of such depreciable life of such
capital goods; the input capital goods; the input
tax credit for goods and tax credit for goods and
services other than services other than
capital goods shall not capital goods shall not
exceed 5% of the total exceed 90% of the
amount of such goods output VAT.
and services; and for
persons engaged in
retail trading of goods,
the allowable input tax
credit shall not exceed
11% of the total amount
of goods purchased.
With regard to amendments to be made to NIRC provisions rega
No similar provision No similar provision
The disagreements between the provisions in the House bills and the Senate bill were
with regard to (1) what rate of VAT is to be imposed; (2) whether only the VAT
imposed on electricity generation, transmission and distribution companies should
not be passed on to consumers, as proposed in the Senate bill, or both the VAT
imposed on electricity generation, transmission and distribution companies and the
VAT imposed on sale of petroleum products should not be passed on to consumers,
as proposed in the House bill; (3) in what manner input tax credits should be limited;
(4) and whether the NIRC provisions on corporate income taxes, percentage,
franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the
House and Senate bills, the Bicameral Conference Committee was mandated by the
rules of both houses of Congress to act on the same by settling said differences
and/or disagreements. The Bicameral Conference Committee acted on the
disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear
from the Conference Committee Report that the Bicameral Conference Committee
tried to bridge the gap in the difference between the 10% VAT rate proposed by the
Senate, and the various rates with 12% as the highest VAT rate proposed by the
House, by striking a compromise whereby the present 10% VAT rate would be
retained until certain conditions arise, i.e., the value-added tax collection as a
percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or
National Government deficit as a percentage of GDP of the previous year exceeds
1½%, when the President, upon recommendation of the Secretary of Finance shall
raise the rate of VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity
generation, transmission and distribution companies should not be passed on to
consumers or whether both the VAT imposed on electricity generation, transmission
and distribution companies and the VAT imposed on sale of petroleum products may
be passed on to consumers, the Bicameral Conference Committee chose to settle
such disagreement by altogether deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or
not, the Bicameral Conference Committee decided to adopt the position of the House
by putting a limitation on the amount of input tax that may be credited against the
output tax, although it crafted its own language as to the amount of the limitation on
input tax credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. – . . .
...
Provided, The input tax on goods purchased or imported in a calendar month for use
in trade or business for which deduction for depreciation is allowed under this Code,
shall be spread evenly over the month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost for such goods, excluding the
VAT component thereof, exceeds one million Pesos (₱1,000,000.00): PROVIDED,
however, that if the estimated useful life of the capital good is less than five (5)
years, as used for depreciation purposes, then the input VAT shall be spread over
such shorter period: . . .
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the
input tax exceeds the output tax, the excess shall be carried over to the succeeding
quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any
input tax attributable to zero-rated sales by a VAT-registered person may at his option
be refunded or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate
income tax, franchise, percentage and excise taxes, the conference committee
decided to include such amendments and basically adopted the provisions found in
Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate
Rules, the Bicameral Conference Committee is mandated to settle the differences
between the disagreeing provisions in the House bill and the Senate bill. The term
"settle" is synonymous to "reconcile" and "harmonize." 25 To reconcile or harmonize
disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the
specific provisions of either the House bill or Senate bill, (b) decide that neither
provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise
between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee
on disagreeing provisions were meant only to reconcile and harmonize the
disagreeing provisions for it did not inject any idea or intent that is wholly foreign to
the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10%
VAT wanted by the Senate is retained until such time that certain conditions arise
when the 12% VAT wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT proposed by the two
houses of Congress. Nevertheless, such compromise is still totally within the subject
of what rate of VAT should be imposed on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings
of the Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto,
Chairman of the Senate Panel, explained the reason for deleting the no pass-
on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were
thinking that no sector should be a beneficiary of legislative grace, neither should
any sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And
let’s keep it plain and simple. Let’s not confuse the bill and put a no pass-on
provision. Two-thirds of the world have a VAT system and in this two-thirds of the
globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of
the Senate is basically simple, let’s keep the VAT simple. 26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision
"never really enjoyed the support of either House."27
With regard to the amount of input tax to be credited against output tax, the
Bicameral Conference Committee came to a compromise on the percentage rate of
the limitation or cap on such input tax credit, but again, the change introduced by the
Bicameral Conference Committee was totally within the intent of both houses to put
a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the
House of Representatives, one of the major objectives was to "plug a glaring
loophole in the tax policy and administration by creating vital restrictions on the
claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the
claiming of tax credit, we are capping a major leakage that has placed our collection
efforts at an apparent disadvantage."28
As to the amendments to NIRC provisions on taxes other than the value-added tax
proposed in Senate Bill No. 1950, since said provisions were among those referred to
it, the conference committee had to act on the same and it basically adopted the
version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference
Committee were germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse
of discretion amounting to lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs.
Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the long-
standing legislative practice of giving said conference committee ample latitude for
compromising differences between the Senate and the House. Thus, in
the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an
entirely new provision that is not found either in the House bill or in the Senate bill.
If the committee can propose an amendment consisting of one or two provisions,
there is no reason why it cannot propose several provisions, collectively considered
as an "amendment in the nature of a substitute," so long as such amendment is
germane to the subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become valid as an act of
the legislative department. The charge that in this case the Conference Committee
acted as a third legislative chamber is thus without any basis.31 (Emphasis
supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on
the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings
on separate days, and printed copies thereof in its final form have been distributed to
its Members three days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and nays entered in the
Journal.
Petitioners’ argument that the practice where a bicameral conference committee is
allowed to add or delete provisions in the House bill and the Senate bill after these
had passed three readings is in effect a circumvention of the "no amendment rule"
(Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate
from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committee’s Report in these cases must
have undergone three readings in each of the two houses. If that be the case, there
would be no end to negotiation since each house may seek modification of the
compromise bill. . . .
Art. VI. § 26 (2) must, therefore, be construed as referring only to bills
introduced for the first time in either house of Congress, not to the conference
committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the
procedure to be followed by each house of Congress with regard to bills initiated
in each of said respective houses, before said bill is transmitted to the other
house for its concurrence or amendment. Verily, to construe said provision in a
way as to proscribe any further changes to a bill after one house has voted on it
would lead to absurdity as this would mean that the other house of Congress would
be deprived of its constitutional power to amend or introduce changes to said bill.
Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the
introduction by the Bicameral Conference Committee of amendments and
modifications to disagreeing provisions in bills that have been acted upon by both
houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on
Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC
provisions on corporate income taxes and percentage, excise taxes. Petitioners refer
to the following provisions, to wit:
Section 27 Rates of Income Tax on Domestic Corporation
28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
34(B)(1) Inter-corporate Dividends
116 Tax on Persons Exempt from VAT
117 Percentage Tax on domestic carriers and keepers of Garage
119 Tax on franchises
121 Tax on banks and Non-Bank Financial Intermediaries
148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements
237 Issuance of receipts or sales or commercial invoices
288 Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all
originate from the House. They aver that House Bill No. 3555 proposed amendments
only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill
No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of
the NIRC; thus, the other sections of the NIRC which the Senate amended but which
amendments were not found in the House bills are not intended to be amended by the
House of Representatives. Hence, they argue that since the proposed amendments did
not originate from the House, such amendments are a violation of Article VI, Section
24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate exclusively in
the House of Representatives but the Senate may propose or concur with
amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and
3705 that initiated the move for amending provisions of the NIRC dealing mainly
with the value-added tax. Upon transmittal of said House bills to the Senate, the
Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC
provisions on the value-added tax but also amendments to NIRC provisions on other
kinds of taxes. Is the introduction by the Senate of provisions not dealing directly
with the value- added tax, which is the only kind of tax being amended in the House
bills, still within the purview of the constitutional provision authorizing the Senate to
propose or concur with amendments to a revenue bill that originated from the
House?
The foregoing question had been squarely answered in the Tolentino case, wherein
the Court held, thus:
. . . To begin with, it is not the law – but the revenue bill – which is required by the
Constitution to "originate exclusively" in the House of Representatives. It is
important to emphasize this, because a bill originating in the House may undergo
such extensive changes in the Senate that the result may be a rewriting of the whole. .
. . At this point, what is important to note is that, as a result of the Senate action, a
distinct bill may be produced. To insist that a revenue statute – and not only the
bill which initiated the legislative process culminating in the enactment of the
law – must substantially be the same as the House bill would be to deny the
Senate’s power not only to "concur with amendments" but also to "propose
amendments." It would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the Senate.
…
…Given, then, the power of the Senate to propose amendments, the Senate can
propose its own version even with respect to bills which are required by the
Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue,
tariff or tax bills, bills authorizing an increase of the public debt, private bills and
bills of local application must come from the House of Representatives on the theory
that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other
hand, the senators, who are elected at large, are expected to approach the same
problems from the national perspective. Both views are thereby made to bear on
the enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending corporate income taxes, percentage,
excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not
contain any prohibition or limitation on the extent of the amendments that may be
introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that
had not been touched in the House bills are still in furtherance of the intent of the
House in initiating the subject revenue bills. The Explanatory Note of House Bill No.
1468, the very first House bill introduced on the floor, which was later substituted by
House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting
task of solving the country’s serious financial problems. To do this, government
expenditures must be strictly monitored and controlled and revenues must be
significantly increased. This may be easier said than done, but our fiscal authorities
are still optimistic the government will be operating on a balanced budget by the year
2009. In fact, several measures that will result to significant expenditure savings
have been identified by the administration. It is supported with a credible package
of revenue measures that include measures to improve tax administration and
control the leakages in revenues from income taxes and the value-added tax
(VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared
that:
In the budget message of our President in the year 2005, she reiterated that we all
acknowledged that on top of our agenda must be the restoration of the health of our
fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually
achieve a balanced budget by the year 2009, we need to seize windows of
opportunities which might seem poignant in the beginning, but in the long run
prove effective and beneficial to the overall status of our economy. One such
opportunity is a review of existing tax rates, evaluating the relevance given our
present conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government
to supplement our country’s serious financial problems, and improve tax
administration and control of the leakages in revenues from income taxes and value-
added taxes. As these house bills were transmitted to the Senate, the latter,
approaching the measures from the point of national perspective, can introduce
amendments within the purposes of those bills. It can provide for ways that would
soften the impact of the VAT measure on the consumer, i.e., by distributing the
burden across all sectors instead of putting it entirely on the shoulders of the
consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on
income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3
billion in additional revenues annually even while by mitigating prices of power,
services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount
is from the VAT on twelve goods and services. The rest of the tab – ₱10.5 billion-
will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and
the consumer. Why should the latter bear all the pain? Why should the fiscal
salvation be only on the burden of the consumer?
The corporate world’s equity is in form of the increase in the corporate income tax
from 32 to 35 percent, but up to 2008 only. This will raise ₱10.5 billion a year. After
that, the rate will slide back, not to its old rate of 32 percent, but two notches lower,
to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this
emergency provision that will be in effect for 1,200 days, while we put our fiscal
house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the
length of their sacrifice brief. We would like to assure them that not because there is
a light at the end of the tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big
business will be there to share the burden.35
As the Court has said, the Senate can propose amendments and in fact, the
amendments made on provisions in the tax on income of corporations are germane to
the purpose of the house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes
germane to the reforms to the VAT system, as these sections would cushion the
effects of VAT on consumers. Considering that certain goods and services which
were subject to percentage tax and excise tax would no longer be VAT-exempt, the
consumer would be burdened more as they would be paying the VAT in addition to
these taxes. Thus, there is a need to amend these sections to soften the impact of
VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise
tax on bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for
a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not
to destroy the VAT chain, we will however bring down the excise tax on socially
sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left
hand what was taken from the right. Rather, these sprang from our concern of
softening the impact of VAT, so that the people can cushion the blow of higher prices
they will have to pay as a result of VAT.36
The other sections amended by the Senate pertained to matters of tax administration
which are necessary for the implementation of the changes in the VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter
and purposes of the house bills, which is to supplement our country’s fiscal deficit,
among others. Thus, the Senate acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108
of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article VI, Section 28(2)
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et
al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the NIRC giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a certain condition is met,
constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read
as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, a value-added tax equivalent to ten
percent (10%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: provided, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following conditions has
been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 ½%).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 107. Value-Added Tax on Importation of Goods. –
(A) In General. – There shall be levied, assessed and collected on every importation
of goods a value-added tax equivalent to ten percent (10%) based on the total value
used by the Bureau of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus excise taxes, if
any: provided, further, that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%) after any of the following conditions has been
satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 ½%).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –
(A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-
added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
exchange of services: provided, that the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%), after any of the following conditions has
been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1 ½%). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase
the VAT rate is a virtual abdication by Congress of its exclusive power to tax because
such delegation is not within the purview of Section 28 (2), Article VI of the
Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and
may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the national development program of
the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services, which cannot be included
within the purview of tariffs under the exempted delegation as the latter refers to
customs duties, tolls or tribute payable upon merchandise to the government and
usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the
President the legislative power to tax is contrary to republicanism. They insist that
accountability, responsibility and transparency should dictate the actions of Congress
and they should not pass to the President the decision to impose taxes. They also
argue that the law also effectively nullified the President’s power of control, which
includes the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the President upon
the recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause,
influence or create the conditions provided by the law to bring about either or both
the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation
that the imposition of the 12% rate would be subject to the whim of the Secretary of
Finance, an unelected bureaucrat, contrary to the principle of no taxation without
representation. They submit that the Secretary of Finance is not mandated to give a
favorable recommendation and he may not even give his recommendation.
Moreover, they allege that no guiding standards are provided in the law on what
basis and as to how he will make his recommendation. They claim, nonetheless, that
any recommendation of the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter, such that, ultimately, it is
the President who decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its
own constitutionally allocated sphere. 37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of
powers, as expressed in the Latin maxim: potestas delegata non
delegari potest which means "what has been delegated, cannot be delegated."38 This
doctrine is based on the ethical principle that such as delegated power constitutes not
only a right but a duty to be performed by the delegate through the instrumentality of
his own judgment and not through the intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides
that "the Legislative power shall be vested in the Congress of the Philippines which
shall consist of a Senate and a House of Representatives." The powers which
Congress is prohibited from delegating are those which are strictly, or inherently and
exclusively, legislative. Purely legislative power, which can never be delegated, has
been described as the authority to make a complete law – complete as to the time
when it shall take effect and as to whom it shall be applicable – and to
determine the expediency of its enactment.40 Thus, the rule is that in order that a
court may be justified in holding a statute unconstitutional as a delegation of
legislative power, it must appear that the power involved is purely legislative in
nature – that is, one appertaining exclusively to the legislative department. It is the
nature of the power, and not the liability of its use or the manner of its exercise,
which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to
the following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of
the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article
VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation
itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein
the policy to be executed, carried out, or implemented by the delegate; 41 and (b) fixes
a standard — the limits of which are sufficiently determinate and determinable — to
which the delegate must conform in the performance of his functions.42 A sufficient
standard is one which defines legislative policy, marks its limits, maps out its
boundaries and specifies the public agency to apply it. It indicates the circumstances
under which the legislative command is to be effected. 43 Both tests are intended to
prevent a total transference of legislative authority to the delegate, who is not
allowed to step into the shoes of the legislature and exercise a power essentially
legislative.44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on
the concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or
not, it is usual to inquire whether the statute was complete in all its terms and
provisions when it left the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature.
...
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to
make the law, which necessarily involves a discretion as to what it shall be, and
conferring an authority or discretion as to its execution, to be exercised under
and in pursuance of the law. The first cannot be done; to the latter no valid
objection can be made.’
...
It is contended, however, that a legislative act may be made to the effect as law after
it leaves the hands of the legislature. It is true that laws may be made effective on
certain contingencies, as by proclamation of the executive or the adoption by the
people of a particular community. In Wayman vs. Southard, the Supreme Court of the
United States ruled that the legislature may delegate a power not legislative which it
may itself rightfully exercise. The power to ascertain facts is such a power which
may be delegated. There is nothing essentially legislative in ascertaining the
existence of facts or conditions as the basis of the taking into effect of a law.
That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to relax the rule
prohibiting delegation of legislative authority on account of the complexity arising
from social and economic forces at work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on Constitutional Limitations finds
restatement in Prof. Willoughby's treatise on the Constitution of the United States in
the following language — speaking of declaration of legislative power to
administrative agencies: The principle which permits the legislature to provide
that the administrative agent may determine when the circumstances are such
as require the application of a law is defended upon the ground that at the time
this authority is granted, the rule of public policy, which is the essence of the
legislative act, is determined by the legislature. In other words, the legislature,
as it is its duty to do, determines that, under given circumstances, certain
executive or administrative action is to be taken, and that, under other
circumstances, different or no action at all is to be taken. What is thus left to the
administrative official is not the legislative determination of what public policy
demands, but simply the ascertainment of what the facts of the case require to
be done according to the terms of the law by which he is governed. The
efficiency of an Act as a declaration of legislative will must, of course, come
from Congress, but the ascertainment of the contingency upon which the Act
shall take effect may be left to such agencies as it may designate. The legislature,
then, may provide that a law shall take effect upon the happening of future
specified contingencies leaving to some other person or body the power to
determine when the specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to
alter and repeal them; the test is the completeness of the statute in all its terms and
provisions when it leaves the hands of the legislature. To determine whether or not
there is an undue delegation of legislative power, the inquiry must be directed to the
scope and definiteness of the measure enacted. The legislative does not abdicate its
functions when it describes what job must be done, who is to do it, and what is
the scope of his authority. For a complex economy, that may be the only way in
which the legislative process can go forward. A distinction has rightfully been
made between delegation of power to make the laws which necessarily involves
a discretion as to what it shall be, which constitutionally may not be done, and
delegation of authority or discretion as to its execution to be exercised under
and in pursuance of the law, to which no valid objection can be made. The
Constitution is thus not to be regarded as denying the legislature the necessary
resources of flexibility and practicability. (Emphasis supplied).48
Clearly, the legislature may delegate to executive officers or bodies the power to
determine certain facts or conditions, or the happening of contingencies, on which
the operation of a statute is, by its terms, made to depend, but the legislature must
prescribe sufficient standards, policies or limitations on their authority.49 While the
power to tax cannot be delegated to executive agencies, details as to the enforcement
and administration of an exercise of such power may be left to them, including the
power to determine the existence of facts on which its operation depends. 50
The rationale for this is that the preliminary ascertainment of facts as basis for the
enactment of legislation is not of itself a legislative function, but is simply ancillary
to legislation. Thus, the duty of correlating information and making
recommendations is the kind of subsidiary activity which the legislature may
perform through its members, or which it may delegate to others to perform.
Intelligent legislation on the complicated problems of modern society is impossible
in the absence of accurate information on the part of the legislators, and any
reasonable method of securing such information is proper. 51 The Constitution as a
continuously operative charter of government does not require that Congress find for
itself
every fact upon which it desires to base legislative action or that it make for itself
detailed determinations which it has declared to be prerequisite to application of
legislative policy to particular facts and circumstances impossible for Congress itself
properly to investigate.52
In the present case, the challenged section of R.A. No. 9337 is the
common proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 ½%).
The case before the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and administration of
the increase rate under the law is contingent. The legislature has made the operation
of the 12% rate effective January 1, 2006, contingent upon a specified fact or
condition. It leaves the entire operation or non-operation of the 12% rate upon factual
matters outside of the control of the executive.
No discretion would be exercised by the President. Highlighting the absence of
discretion is the fact that the word shall is used in the common proviso. The use of
the word shall connotes a mandatory order. Its use in a statute denotes an imperative
obligation and is inconsistent with the idea of discretion.53 Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have no
choice but to see to it that the mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate
upon the existence of any of the conditions specified by Congress. This is a duty
which cannot be evaded by the President. Inasmuch as the law specifically uses the
word shall, the exercise of discretion by the President does not come into play. It is a
clear directive to impose the 12% VAT rate when the specified conditions are present.
The time of taking into effect of the 12% VAT rate is based on the happening of a
certain specified contingency, or upon the ascertainment of certain facts or conditions
by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party
List, et al. that the law effectively nullified the President’s power of control over the
Secretary of Finance by mandating the fixing of the tax rate by the President upon
the recommendation of the Secretary of Finance. The Court cannot also subscribe to
the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the
phrase "upon the recommendation of the Secretary of Finance." Neither does the
Court find persuasive the submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it
simply means that as head of the Department of Finance he is the assistant and agent
of the Chief Executive. The multifarious executive and administrative functions of
the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance,
performed and promulgated in the regular course of business, are, unless disapproved
or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds
office in an advisory capacity, and, in the language of Thomas Jefferson, "should be
of the President's bosom confidence" and, in the language of Attorney-General
Cushing, is "subject to the direction of the President."55
In the present case, in making his recommendation to the President on the existence
of either of the two conditions, the Secretary of Finance is not acting as the alter ego
of the President or even her subordinate. In such instance, he is not subject to the
power of control and direction of the President. He is acting as the agent of the
legislative department, to determine and declare the event upon which its expressed
will is to take effect.56 The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all
the facilities to gather data and information and has a much broader perspective to
properly evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is
present. His personality in such instance is in reality but a projection of that of
Congress. Thus, being the agent of Congress and not of the President, the President
cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance
and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the
existence of a fact, namely, whether by December 31, 2005, the value-added tax
collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1½%). If
either of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President. Then the 12% VAT rate
must be imposed by the President effective January 1, 2006. There is no undue
delegation of legislative power but only of the discretion as to the execution of a
law. This is constitutionally permissible.57 Congress does not abdicate its functions
or unduly delegate power when it describes what job must be done, who must do it,
and what is the scope of his authority; in our complex economy that is frequently the
only way in which the legislative process can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating
to the President the legislative power to tax is contrary to the principle of
republicanism, the same deserves scant consideration. Congress did not delegate the
power to tax but the mere implementation of the law. The intent and will to increase
the VAT rate to 12% came from Congress and the task of the President is to simply
execute the legislative policy. That Congress chose to do so in such a manner is not
within the province of the Court to inquire into, its task being to interpret the law. 59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to
cause, influence or create the conditions to bring about either or both the conditions
precedent does not deserve any merit as this argument is highly speculative. The
Court does not rule on allegations which are manifestly conjectural, as these may not
exist at all. The Court deals with facts, not fancies; on realities, not appearances.
When the Court acts on appearances instead of realities, justice and law will be
short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an
unfair and additional tax burden on the people. Petitioners also argue that the 12%
increase, dependent on any of the 2 conditions set forth in the contested provisions, is
ambiguous because it does not state if the VAT rate would be returned to the original
10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair
and unreasonable, as the people are unsure of the applicable VAT rate from year to
year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the
two conditions set forth therein are satisfied, the President shall increase the VAT rate
to 12%. The provisions of the law are clear. It does not provide for a return to the
10% rate nor does it empower the President to so revert if, after the rate is increased
to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or
that the national government deficit as a percentage of GDP of the previous year
does not exceed 1½%.
Therefore, no statutory construction or interpretation is needed. Neither can
conditions or limitations be introduced where none is provided for. Rewriting the law
is a forbidden ground that only Congress may tread upon.60
Thus, in the absence of any provision providing for a return to the 10% rate, which in
this case the Court finds none, petitioners’ argument is, at best, purely speculative.
There is no basis for petitioners’ fear of a fluctuating VAT rate because the law itself
does not provide that the rate should go back to 10% if the conditions provided in
Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the
law is clear and unambiguous, so that there is no occasion for the court's seeking the
legislative intent, the law must be taken as it is, devoid of judicial addition or
subtraction.61
Petitioners also contend that the increase in the VAT rate, which was allegedly an
incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of
the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not
the only condition. There is another condition, i.e., the national government deficit as
a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning.
If VAT/GDP is less than 2.8%, it means that government has weak or no capability of
implementing the VAT or that VAT is not effective in the function of the tax
collection. Therefore, there is no value to increase it to 12% because such action will
also be ineffectual.
2. Nat’l Gov’t Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the
fiscal condition of government has reached a relatively sound position or is towards
the direction of a balanced budget position. Therefore, there is no need to increase
the VAT rate since the fiscal house is in a relatively healthy position. Otherwise
stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT
rate.62
That the first condition amounts to an incentive to the President to increase the VAT
collection does not render it unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to raise revenue. In
fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was
originally stated by Adam Smith in his Canons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the
pockets of the people as little as possible over and above what it brings into the
public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government
expenditures and their variations.64
The dire need for revenue cannot be ignored. Our country is in a quagmire of
financial woe. During the Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the country’s gloomy state of economic affairs,
thus:
First, let me explain the position that the Philippines finds itself in right now. We are
in a position where 90 percent of our revenue is used for debt service. So, for every
peso of revenue that we currently raise, 90 goes to debt service. That’s interest plus
amortization of our debt. So clearly, this is not a sustainable situation. That’s the first
fact.
The second fact is that our debt to GDP level is way out of line compared to other
peer countries that borrow money from that international financial markets. Our debt
to GDP is approximately equal to our GDP. Again, that shows you that this is not a
sustainable situation.
The third thing that I’d like to point out is the environment that we are presently
operating in is not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, we’ve been lucky because we were operating in a period of
basically global growth and low interest rates. The past few months, we have seen an
inching up, in fact, a rapid increase in the interest rates in the leading economies of
the world. And, therefore, our ability to borrow at reasonable prices is going to be
challenged. In fact, ultimately, the question is our ability to access the financial
markets.
When the President made her speech in July last year, the environment was not as
bad as it is now, at least based on the forecast of most financial institutions. So, we
were assuming that raising 80 billion would put us in a position where we can then
convince them to improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just within this room,
we tried to access the market for a billion dollars because for this year alone, the
Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed
1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying
to access last week and the market was not as favorable and up to now we have not
accessed and we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need
to front-end our deficit reduction. Because it is deficit that is causing the increase of
the debt and we are in what we call a debt spiral. The more debt you have, the more
deficit you have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way, I think, we can get
out of this debt spiral is really have a front-end adjustment in our revenue base. 65
The image portrayed is chilling. Congress passed the law hoping for rescue from an
inevitable catastrophe. Whether the law is indeed sufficient to answer the state’s
economic dilemma is not for the Court to judge. In the Fariñas case, the Court
refused to consider the various arguments raised therein that dwelt on the wisdom of
Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the
exclusive dominion of the political branches of the government. It is not for this
Court to look into the wisdom or propriety of legislative determination. Indeed,
whether an enactment is wise or unwise, whether it is based on sound economic
theory, whether it is the best means to achieve the desired results, whether, in short,
the legislative discretion within its prescribed limits should be exercised in a
particular manner are matters for the judgment of the legislature, and the serious
conflict of opinions does not suffice to bring them within the range of judicial
cognizance.66
In the same vein, the Court in this case will not dawdle on the purpose of Congress
or the executive policy, given that it is not for the judiciary to "pass upon questions
of wisdom, justice or expediency of legislation."67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,
violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of
R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No.
9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and
confiscatory. Their argument is premised on the constitutional right against
deprivation of life, liberty of property without due process of law, as embodied in
Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of
equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is a need for
proof of such persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against the output tax. It
states, in part: "[P]rovided, that the input tax inclusive of the input VAT carried over
from the previous quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: …"
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-
added tax due from or paid by a VAT-registered person on the importation of goods
or local purchase of good and services, including lease or use of property, in the
course of trade or business, from a VAT-registered person, and Output Tax is the
value-added tax due on the sale or lease of taxable goods or properties or services by
any person registered or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of
input tax that may be claimed. In effect, a portion of the input tax that has already
been paid cannot now be credited against the output tax.
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of
the output tax, and therefore, the input tax in excess of 70% remains uncredited.
However, to the extent that the input tax is less than 70% of the output tax, then
100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a business’s books of
accounts and remains creditable in the succeeding quarter/s. This is explicitly
allowed by Section 110(B), which provides that "if the input tax exceeds the output
tax, the excess shall be carried over to the succeeding quarter or quarters." In
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of
a tax credit certificate or refund for any unused input taxes, to the extent that such
input taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum,
as petitioners exaggeratedly contend. Their analysis of the effect of the 70%
limitation is incomplete and one-sided. It ends at the net effect that there will be
unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the
fact that such unapplied/unutilized input tax may be credited in the subsequent
periods as allowed by the carry-over provision of Section 110(B) or that it may later
on be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners’ argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the
operation of the 70% limitation on the input tax. According to petitioner, the
limitation on the creditable input tax in effect allows VAT-registered establishments
to retain a portion of the taxes they collect, which violates the principle that tax
collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the
seller, when he buys goods. Output tax meanwhile is the tax due to the person when
he sells goods. In computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal
to the input taxes that he paid and passed on by the suppliers, then no payment is
required;
Second, when the output taxes exceed the input taxes, the person shall be liable for
the excess, which has to be paid to the Bureau of Internal Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to
the succeeding quarter or quarters. Should the input taxes result from zero-rated or
effectively zero-rated transactions, any excess over the output taxes shall instead be
refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayer’s option.70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax.
Thus, a person can credit his input tax only up to the extent of 70% of the output tax.
In layman’s term, the value-added taxes that a person/taxpayer paid and passed on to
him by a seller can only be credited up to 70% of the value-added taxes that is due to
him on a taxable transaction. There is no retention of any tax collection because the
person/taxpayer has already previously paid the input tax to a seller, and the seller
will subsequently remit such input tax to the BIR. The party directly liable for the
payment of the tax is the seller.71 What only needs to be done is for the
person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against
his output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input
tax partakes the nature of a property that may not be confiscated, appropriated, or
limited without due process of law.
The input tax is not a property or a property right within the constitutional purview
of the due process clause. A VAT-registered person’s entitlement to the creditable
input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind
for persons have no vested rights in statutory privileges. The state may change or
take away rights, which were created by the law of the state, although it may not take
away property, which was vested by virtue of such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of
the cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O.
No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of
the input tax paid on purchase or importation of goods and services by VAT-
registered persons against the output tax was introduced. 73 This was adopted by the
Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No.
8424).75 The right to credit input tax as against the output tax is clearly a privilege
created by law, a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8
of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides:
SEC. 110. Tax Credits. –
(A) Creditable Input Tax. – …
Provided, That the input tax on goods purchased or imported in a calendar month for
use in trade or business for which deduction for depreciation is allowed under this
Code, shall be spread evenly over the month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost for such goods, excluding the
VAT component thereof, exceeds One million pesos (₱1,000,000.00): Provided,
however, That if the estimated useful life of the capital goods is less than five (5)
years, as used for depreciation purposes, then the input VAT shall be spread over
such a shorter period: Provided, finally, That in the case of purchase of services,
lease or use of properties, the input tax shall be creditable to the purchaser, lessee or
license upon payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the
creditable input tax on purchase or importation of capital goods with acquisition cost
of ₱1 Million pesos, exclusive of the VAT component. Such spread out only poses a
delay in the crediting of the input tax. Petitioners’ argument is without basis because
the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable
input tax in this case amounts to a 4-year interest-free loan to the government. 76 In
the same breath, Congress also justified its move by saying that the provision was
designed to raise an annual revenue of 22.6 billion.77 The legislature also dispelled
the fear that the provision will fend off foreign investments, saying that foreign
investors have other tax incentives provided by law, and citing the case of China,
where despite a 17.5% non-creditable VAT, foreign investments were not
deterred.78 Again, for whatever is the purpose of the 60-month amortization, this
involves executive economic policy and legislative wisdom in which the Court
cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the
government for taxable transactions, Section 12 of R.A. No. 9337, which amended
Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Value-added Tax. – The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That the payment
for lease or use of properties or property rights to nonresident owners shall be subject
to ten percent (10%) withholding tax at the time of payment. For purposes of this
Section, the payor or person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a
more simplified VAT withholding system. The government in this case is constituted
as a withholding agent with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added
taxes to be withheld -- 3% on gross payments for purchases of goods; 6% on gross
payments for services supplied by contractors other than by public works
contractors; 8.5% on gross payments for services supplied by public work
contractors; or 10% on payment for the lease or use of properties or property rights
to nonresident owners. Under the present Section 114(C), these different rates, except
for the 10% on lease or property rights payment to nonresidents, were deleted, and a
uniform rate of 5% is applied.
The Court observes, however, that the law the used the word final. In tax
usage, final, as opposed to creditable, means full. Thus, it is provided in Section
114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform
Act of 1997), the concept of final withholding tax on income was explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. – Under the final withholding tax system the amount of
income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in case
of his failure to withhold the tax or in case of underwithholding, the deficiency tax
shall be collected from the payor/withholding agent. …
(B) Creditable Withholding Tax. – Under the creditable withholding tax system,
taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income. … Taxes withheld on income
payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of
these regulations) and compensation income (referred to in Sec. 2.78 also of these
regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the
government are subject to a 5% rate, which constitutes as full payment of the tax
payable on the transaction. This represents the net VAT payable of the seller. The
other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu
of the actual input VAT directly or attributable to the taxable transaction.79
The Court need not explore the rationale behind the provision. It is clear that
Congress intended to treat differently taxable transactions with the
government.80 This is supported by the fact that under the old provision, the 5% tax
withheld by the government remains creditable against the tax liability of the seller
or contractor, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(C) Withholding of Creditable Value-added Tax. – The Government or any of its
political subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct
and withhold the value-added tax due at the rate of three percent (3%) of the gross
payment for the purchase of goods and six percent (6%) on gross receipts for
services rendered by contractors on every sale or installment payment which shall
be creditable against the value-added tax liability of the seller or contractor:
Provided, however, That in the case of government public works contractors, the
withholding rate shall be eight and one-half percent (8.5%): Provided, further, That
the payment for lease or use of properties or property rights to nonresident owners
shall be subject to ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be considered as the
withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10)
days following the end of the month the withholding was made. (Emphasis supplied)
As amended, the use of the word final and the deletion of the
word creditable exhibits Congress’s intention to treat transactions with the
government differently. Since it has not been shown that the class subject to the 5%
final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones
subjected to the 5% final withholding tax. It applies to all those who deal with the
government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners
believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should the actual input tax exceed
5% of gross payments, the excess may form part of the cost. Equally, should the
actual input tax be less than 5%, the difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the creditable input tax, the
government gets to tax a profit or value-added even if there is no profit or value-
added.
Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The
Court will not engage in a legal joust where premises are what ifs, arguments,
theoretical and facts, uncertain. Any disquisition by the Court on this point will only
be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying
nothing."
What’s more, petitioners’ contention assumes the proposition that there is no profit or
value-added. It need not take an astute businessman to know that it is a matter of
exception that a business will sell goods or services without profit or value-added. It
cannot be overstressed that a business is created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of
persons shall be deprived of the same protection of laws which is enjoyed by other
persons or other classes in the same place and in like circumstances." 83
The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject of
taxation, the kind of property, the rates to be levied, or the amounts to be raised, the
methods of assessment, valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power
absent a clear showing of unreasonableness, discrimination, or arbitrariness. 84
Petitioners point out that the limitation on the creditable input tax if the entity has a
high ratio of input tax, or invests in capital equipment, or has several transactions
with the government, is not based on real and substantial differences to meet a valid
classification.
The argument is pedantic, if not outright baseless. The law does not make any
classification in the subject of taxation, the kind of property, the rates to be levied or
the amounts to be raised, the methods of assessment, valuation and collection.
Petitioners’ alleged distinctions are based on variables that bear different
consequences. While the implementation of the law may yield varying end results
depending on one’s profit margin and value-added, the Court cannot go beyond what
the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on
all persons or things without distinction. This might in fact sometimes result in
unequal protection. What the clause requires is equality among equals as determined
according to a valid classification. By classification is meant the grouping of persons
or things similar to each other in certain particulars and different from all others in
these same particulars.85
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038
by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005,
and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to
amend the 70% limitation by increasing the same to 90%. This, according to
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory.
On this score, suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis for its
unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. Different articles may be taxed at different
amounts provided that the rate is uniform on the same class everywhere with all
people at all times.86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or
12%) on sale of goods and properties, importation of goods, and sale of services and
use or lease of properties. These same sections also provide for a 0% rate on certain
sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will
bear the 70% limitation on the creditable input tax, 5-year amortization of input tax
paid on purchase of capital goods or the 5% final withholding tax by the government.
It must be stressed that the rule of uniform taxation does not deprive Congress of the
power to classify subjects of taxation, and only demands uniformity within the
particular class.87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with
gross annual sales or receipts not exceeding ₱1,500,000.00.88Also, basic marine and
agricultural food products in their original state are still not subject to the tax,89 thus
ensuring that prices at the grassroots level will remain accessible. As was stated
in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding ₱200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
margins, and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails, the law, under
Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or receipts not exceeding ₱1.5
Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the
imposition of the tax on those previously exempt. Excise taxes on petroleum
products91 and natural gas92 were reduced. Percentage tax on domestic carriers was
removed.93 Power producers are now exempt from paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in
order to distribute the burden of taxation. Domestic, foreign, and non-resident
corporations are now subject to a 35% income tax rate, from a previous
32%.95 Intercorporate dividends of non-resident foreign corporations are still subject
to 15% final withholding tax but the tax credit allowed on the corporation’s domicile
was increased to 20%.96 The Philippine Amusement and Gaming Corporation
(PAGCOR) is not exempt from income taxes anymore.97 Even the sale by an artist of
his works or services performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which
would otherwise rest largely on the consumers. It cannot therefore be gainsaid that
R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything
but regressive. It is the smaller business with higher input tax-output tax ratio that
will suffer the consequences.
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This
principle was also lifted from Adam Smith’s Canons of Taxation, and it states:
I. The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective abilities; that is,
in proportion to the revenue which they respectively enjoy under the protection of
the state.
Taxation is progressive when its rate goes up depending on the resources of the
person affected.98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive.
The principle of progressive taxation has no relation with the VAT system inasmuch
as the VAT paid by the consumer or business for every goods bought or services
enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small.
The disparity lies in the income earned by a person or profit margin marked by a
business, such that the higher the income or profit margin, the smaller the portion of
the income or profit that is eaten by VAT. A converso, the lower the income or profit
margin, the bigger the part that the VAT eats away. At the end of the day, it is really
the lower income group or businesses with low-profit margins that is always hardest
hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect
taxes, like the VAT. What it simply provides is that Congress shall "evolve a
progressive system of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like
the VAT, are regressive. What it simply provides is that Congress shall ‘evolve a
progressive system of taxation.’ The constitutional provision has been interpreted to
mean simply that ‘direct taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF
THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not
to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which
perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, §17 (1) of the 1973 Constitution from which the present
Art. VI, §28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive
effects of this imposition by providing for zero rating of certain transactions (R.A.
No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other
transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just
an enema, a first-aid measure to resuscitate an economy in distress. The Court is
neither blind nor is it turning a deaf ear on the plight of the masses. But it does not
have the panacea for the malady that the law seeks to remedy. As in other cases, the
Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy,
and that the judiciary should stand ready to afford relief. There are undoubtedly
many wrongs the judicature may not correct, for instance, those involving political
questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository
of remedies for all political or social ills; We should not forget that the Constitution
has judiciously allocated the powers of government to three distinct and separate
compartments; and that judicial interpretation has tended to the preservation of the
independence of the three, and a zealous regard of the prerogatives of each, knowing
full well that one is not the guardian of the others and that, for official wrong-doing,
each may be brought to account, either by impeachment, trial or by the ballot box.100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true
now. All things considered, there is no raison d'être for the unconstitutionality of
R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in
G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED.
There being no constitutional impediment to the full enforcement and
implementation of R.A. No. 9337, the temporary restraining order issued by the
Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
G.R. No. L-31156 February 27, 1976
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-
appellant,
vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET
AL., defendant appellees.
Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol
and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes
for appellees.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil
Case No. 3294, which was certified to Us by the Court of Appeals on October 6,
1969, as involving only pure questions of law, challenging the power of taxation
delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264,
as amended, June 19, 1959).
On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the
Philippines, Inc., commenced a complaint with preliminary injunction before the
Court of First Instance of Leyte for that court to declare Section 2 of Republic Act
No. 2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an
undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27,
series of 1962, of the municipality of Tanauan, Leyte, null and void.
On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions
of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed therein are practically the same,
and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan,
Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in
said municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27, series of 1962.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September
25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the
purpose of computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a monthly report, of
the total number of bottles produced and corked during the month. 3
On the other hand, Municipal Ordinance No. 27, which was approved on October 28,
1962, levies and collects "on soft drinks produced or manufactured within the
territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each
gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, fun company, partnership, corporation or plant producing
soft drinks shall submit to the Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured during the month. 5
The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
production tax.'
On October 7, 1963, the Court of First Instance of Leyte rendered judgment
"dismissing the complaint and upholding the constitutionality of [Section 2, Republic
Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering
the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the
costs."
From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court
of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the
Judiciary Act of 1948, as amended.
There are three capital questions raised in this appeal:
 1. — Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive?
2. — Do Ordinances Nos. 23 and 27 constitute double taxation and
impose percentage or specific taxes?
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
1. The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without being
expressly conferred by the people. 6 It is a power that is purely legislative and which
the central legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory of separation of
powers. The exception, however, lies in the case of municipal corporations, to which,
said theory does not apply. Legislative powers may be delegated to local
governments in respect of matters of local concern. 7 This is sanctioned by
immemorial practice. 8 By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries with it the power
to confer on such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to create their
own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law." Withal, it cannot be
said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of
the legislative power to enact and vest in local governments the power of local
taxation.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-
appellant's pretense, would not suffice to invalidate the said law as confiscatory and
oppressive. In delegating the authority, the State is not limited 6 the exact measure of
that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such
measure of power to impose and collect taxes as the legislature may deem expedient.
Thus, municipalities may be permitted to tax subjects which for reasons of public
policy the State has not deemed wise to tax for more general purposes. 10 This is not
to say though that the constitutional injunction against deprivation of property
without due process of law may be passed over under the guise of the taxing power,
except when the taking of the property is in the lawful exercise of the taxing power,
as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is
observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds
of taxes notice and opportunity for hearing are provided. 11 Due process is usually
violated where the tax imposed is for a private as distinguished from a public
purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation;
and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a
tax does not violate the due process clause, as applied to a particular taxpayer,
although the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the
amount of tax to be raised should be determined by judicial inquiry, and a notice and
hearing as to the amount of the tax and the manner in which it shall be apportioned
are generally not necessary to due process of law. 12
There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the
delegating authority specifies the limitations and enumerates the taxes over which
local taxation may not be exercised. 13 The reason is that the State has exclusively
reserved the same for its own prerogative. Moreover, double taxation, in general, is
not forbidden by our fundamental law, since We have not adopted as part thereof the
injunction against double taxation found in the Constitution of the United States and
some states of the Union.14 Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the
same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed
by the State and the other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double
taxation, because these two ordinances cover the same subject matter and impose
practically the same tax rate. The thesis proceeds from its assumption that both
ordinances are valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962, levies or collects
from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo
for .every bottle corked, irrespective of the volume contents of the bottle used. When
it was discovered that the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate, the Municipality of Tanauan
enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one
centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
difference between the two ordinances clearly lies in the tax rate of the soft drinks
produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in
Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.)
of volume capacity. The intention of the Municipal Council of Tanauan in enacting
Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only
seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts
confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6
compel compliance by the plaintiff-appellant of the provisions of said Ordinance No.
27, series of 1962. The aforementioned admission shows that only Ordinance No. 27,
series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal,
counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No.
27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local
governments under Section 2, Republic Act No. 2264, is broad enough as to extend
to almost "everything, accepting those which are mentioned therein." As long as the
text levied under the authority of a city or municipal ordinance is not within the
exceptions and limitations in the law, the same comes within the ambit of the general
rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in
cabisus non excepti 19 The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other taxes in
any form based thereon nor impose taxes on articles subject to specific tax except
gasoline, under the provisions of the National Internal Revenue Code." For purposes
of this particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer imposes a sales
tax and is null and void for being outside the power of the municipality to
enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128
fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured
under Ordinance No. 27 does not partake of the nature of a percentage tax on sales,
or other taxes in any form based thereon. The tax is levied on the produce (whether
sold or not) and not on the sales. The volume capacity of the taxpayer's production of
soft drinks is considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the amount of the
tax.21
mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the
resolution of the validity of Ordinance No. 27. Municipalities are empowered to
impose, not only municipal license taxes upon persons engaged in any business or
occupation but also to levy for public purposes, just and uniform taxes. The
ordinance in question (Ordinance No. 27) comes within the second power of a
municipality.
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,
otherwise known as the Local Autonomy Act, as amended, is hereby upheld and
Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962,
re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and
legal effect. Costs against petitioner-appellant.
SO ORDERED.
Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz Palma,
Aquino and Concepcion, Jr., JJ., concur.

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed
on specified articles, such as distilled spirits, wines, fermented liquors, products of Separate Opinions
tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and
other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of
those specified.
FERNANDO, J., concurring:

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity
The opinion of the Court penned by Justice Martin is impressed with a scholarly and
on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per
comprehensive character. Insofar as it shows adherence to tried and tested concepts
case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would
of the law of municipal taxation, I am only in agreement. If I limit myself to
not support the claim that the tax is oppressive, unjust and confiscatory. Municipal
concurrence in the result, it is primarily because with the article on Local Autonomy
corporations are allowed much discretion in determining the reates of imposable
found in the present Constitution, I feel a sense of reluctance in restating doctrines
taxes. 25 This is in line with the constutional policy of according the widest possible
that arose from a different basic premise as to the scope of such power in accordance
autonomy to local governments in matters of local taxation, an aspect that is given
with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount
unable to share fully what for me are the nuances and implications that could arise
is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as
from the approach taken by my brethren. Likewise as to the constitutional aspect of
unreasonable. 27 Reluctance should not deter compliance with an ordinance such as
the thorny question of double taxation, I would limit myself to what has been set
Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were
forth in City of Baguio v. De Leon.1
to be realized. 28
1. The present Constitution is quite explicit as to the power of taxation vested in local
Finally, the municipal license tax of P1,000.00 per corking machine with five but not
and municipal corporations. It is therein specifically provided: "Each local
more than ten crowners or P2,000.00 with ten but not more than twenty crowners
government unit shall have the power to create its own sources of revenue and to
imposed on manufacturers, producers, importers and dealers of soft drinks and/or
levy taxes subject to such limitations as may be provided by law. 2 That was not the
case under the 1935 Charter. The only limitation then on the authority, plenary in
character of the national government, was that while the President of the Philippines
was vested with the power of control over all executive departments, bureaus, or
offices, he could only . It exercise general supervision over all local governments as
may be provided by law ... 3As far as legislative power over local government was
concerned, no restriction whatsoever was placed on the Congress of the Philippines.
It would appear therefore that the extent of the taxing power was solely for the
legislative body to decide. It is true that in 1939, there was a statute that enlarged the
scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was
further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of
1964, five years after its enactment of the Local Autonomy Act, this Court, through
Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal
corporations, unlike sovereign states, after clothed with no power of taxation; that its
charter or a statute must clearly show an intent to confer that power or the municipal
corporation cannot assume and exercise it, and that any such power granted must be
construed strictly, any doubt or ambiguity arising from the terms of the grant to be
resolved against the municipality."7
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of
Pagbilao,8 "is an attribute of sovereignty which municipal corporations do not
enjoy." 9 That case left no doubt either as to weakness of a claim "based merely by
inferences, implications and deductions, [as they have no place in the interpretation
of the power to tax of a municipal corporation." 10 As the conclusion reached by the
Court finds support in such grant of the municipal taxing power, I concur in the
result. 2. As to any possible infirmity based on an alleged double taxation, I would
prefer to rely on the doctrine announced by this Court in City of Baguio v. De
Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice
Holmes made clear in this language: 'The objection to the taxation as double may be
laid down on one side. ... The 14th Amendment [the due process clause) no more
forbids double taxation than it does doubling the amount of a tax, short of
(confiscation or proceedings unconstitutional on other grouse With that decision
rendered at a time when American sovereignty in the Philippines was recognized, it
possesses more than just a persuasive effect. To some, it delivered the coup justice to
the bogey of double taxation as a constitutional bar to the exercise of the taxing
power. It would seem though that in the United States, as with us, its ghost, as noted
by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we
quoted with approval this excerpt from a leading American decision: 'Where, as here,
Congress has clearly expressed its intention, the statute must be sustained even
though double taxation results. 12
So I would view the issues in this suit and accordingly concur in the result.
G.R. No. 88291 June 8, 1993
ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary,
Office of the President, HON. VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum
Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.
NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this
matter of indirect tax exemption of the private respondent National Power
Corporation (NPC) is brought to this Court a second time. Unfazed by the Decision
We promulgated on May 31, 19911 petitioner Ernesto Maceda asks this Court to
reconsider said Decision. Lest We be criticized for denying due process to the
petitioner. We have decided to take a second look at the issues. In the process, a
hearing was held on July 9, 1992 where all parties presented their respective
arguments. Etched in this Court's mind are the paradoxical claims by both petitioner
and private respondents that their respective positions are for the benefit of the
Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to its tax
exemption provisions, at the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the
National Power Corporation, a public corporation, mainly to develop hydraulic
power from all water sources in the Philippines.2 The sum of P250,000.00 was
appropriated out of the funds in the Philippine Treasury for the purpose of organizing
the NPC and conducting its preliminary work.3 The main source of funds for the
NPC was the flotation of bonds in the capital markets4 and these bonds
. . . issued under the authority of this Act shall be exempt from the
payment of all taxes by the Commonwealth of the Philippines, or
by any authority, branch, division or political subdivision thereof
and subject to the provisions of the Act of Congress, approved
March 24, 1934, otherwise known as the Tydings McDuffle Law,
which facts shall be stated upon the face of said bonds. . . . .5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds
needed for the initial operations of the NPC and reiterating the provision of the
flotation of bonds as soon as the first construction of any hydraulic power project
was to be decided by the NPC Board.6 The provision on tax exemption in relation to
the issuance of the NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the
payment of the bond's principal and interest in "gold coins" but adding that payment
could be made in United States dollars.7 The provision on tax exemption in relation
to the issuance of the NPC bonds was neither amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the
Philippines to guarantee, absolutely and unconditionally, as primary obligor, the
payment of any and all NPC loans.8 He was also authorized to contract on behalf of
the NPC with the International Bank for Reconstruction and Development (IBRD)
for NPC loans for the accomplishment of NPC's corporate objectives9 and for the
reconstruction and development of the economy of the country. 10 It was expressly
stated that:
Any such loan or loans shall be exempt from taxes, duties, fees,
imposts, charges, contributions and restrictions of the Republic of
the Philippines, its provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the
first time, to incur other types of indebtedness, aside from indebtedness incurred by
flotation of bonds. 12 As to the pertinent tax exemption provision, the law stated as
follows:
To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside
from the IBRD, the President of the Philippines was authorized to negotiate, contract
and guarantee loans with the Export-Import Bank of of Washigton, D.C., U.S.A., or
any other international financial institution. 14 The tax provision for repayment of
these loans, as stated in R.A. No. 357, was not amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax
exemption for real estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power
Corporation shall be exempt from all taxes, except real property
tax, and from all duties, fees, imposts, charges, and restrictions of
the Republic of the Philippines, its provinces, cities, and
municipalities.15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to
be funded by the increased indebtedness 16 should bear the National Economic
Council's stamp of approval. The tax exemption provision related to the payment of
this total indebtedness was not amended nor deleted.
On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign
loans NPC was authorized to incur to US$100,000,000.00 from the
US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax provision related to the
repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to
December 31, 2000. 18 All laws or provisions of laws and executive orders contrary
to said R.A. No. 2058 were expressly repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public
corporation into a stock corporation with an authorized capital stock of
P100,000,000.00 divided into 1,000.000 shares having a par value of P100.00 each,
with said capital stock wholly subscribed to by the Government. 20 No tax exemption
was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned
authorized capital stock to P250,000,000.00 with the increase to be wholly
subscribed by the Government. 21 No tax provision was incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased
again to P300,000,000.00, the increase to be wholly subscribed by the Government.
No tax provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC,
C.A. No. 120, as amended. Declared as primary objectives of the nation were:
Declaration of Policy. — Congress hereby declares that (1) the
comprehensive development, utilization and conservation of
Philippine water resources for all beneficial uses, including power
generation, and (2) the total electrification of the Philippines
through the development of power from all sources to meet the
needs of industrial development and dispersal and the needs of
rural electrification are primary objectives of the nation which shall
be pursued coordinately and supported by all instrumentalities and
agencies of the government, including the financial institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8
(a) (Authority to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur
Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as
follows:
The bonds issued under the authority of this subsection shall be
exempt from the payment of all taxes by the Republic of the
Philippines, or by any authority, branch, division or political
subdivision thereof which facts shall be stated upon the face of said
bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section
8(b), states as follows:
The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
equipment, materials and supplies by the Corporation, paid from
the proceeds of any loan, credit or indebtedeness incurred under
this Act, shall also be exempt from all taxes, fees, imposts, other
charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political
subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395,
which declares the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns
from its capital investment, as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act,
the Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges
costs and service fees in any court or administrative proceedings in
which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, and municipalities and other
government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales
tax, and wharfage fees on import of foreign goods required for its
operations and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its
provinces, cities, municipalities and other government agencies
and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of
electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued
declaring that the electrification of the entire country was one of
the primary concerns of the country. And in connection with this, it
was specifically stated that:
The setting up of transmission line grids and the construction of
associated generation facilities in Luzon, Mindanao and major
islands of the country, including the Visayas, shall be the
responsibility of the National Power Corporation (NPC) as the
authorized implementing agency of the State. 27
xxx xxx xxx
It is the ultimate objective of the State for the NPC to own and
operate as a single integrated system all generating facilities
supplying electric power to the entire area embraced by any grid
set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to
enable it to fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock
was raised to P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a
maximum of P3,000,000,000.00 at any one time, 30 and the NPC was authorized to
borrow a total of US$1,000,000,000.00 31 in foreign loans.
The relevant tax exemption provision for these foreign loans states as follows:
The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
equipment, materials, supplies and services, by the Corporation,
paid from the proceeds of any loan, credit or indebtedness incurred
 under this Act, shall also be exempt from all direct and indirect
taxes, fees, imposts, other charges and restrictions, including
import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 32(Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges
and restrictions to the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and
instrumentalities including the taxes, duties, fees, imposts and
other charges provided for under the Tariff and Customs Code of
the Philippines, Republic Act Numbered Nineteen Hundred Thirty-
Seven, as amended, and as further amended by Presidential Decree
No. 34 dated October 27, 1972, and Presidential Decree No. 69,
dated November 24, 1972, and costs and service fees in any court
or administrative proceedings in which it may be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies
and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization and sale of
electric power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the
NPC's sale of electricity to its different customers. 34 No tax exemption provision was
amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be
appropriated annually to cover the unpaid subscription of the Government in the
NPC authorized capital stock, which amount would be taken from taxes accruing to
the General Funds of the Government, proceeds from loans, issuance of bonds,
treasury bills or notes to be issued by the Secretary of Finance for this particular
purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation and
transmission facilities which includes nuclear power generation,
the present capitalization of National Power Corporation (NPC)
and the ceilings for domestic and foreign borrowings are deemed
insufficient; 36
xxx xxx xxx
(I)n the application of the tax exemption provisions of the Revised
Charter, the non-profit character of NPC has not been fully utilized
because of restrictive interpretation of the taxing agencies of the
government on said provisions; 37
xxx xxx xxx
(I)n order to effect the accelerated expansion program and attain
the declared objective of total electrification of the country, further
amendments of certain sections of Republic Act No. 6395, as
amended by Presidential Decrees Nos. 380, 395 and 758, have
become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic
indebtedness ceiling was increased to P12,000,000,000.00, 40 the total foreign loan
ceiling was raised to US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was
amended to read as follows:
The Corporation shall be non-profit and shall devote all its returns
from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay to its
indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act,
the Corporation, including its subsidiaries, is hereby declared
exempt from the payment of all forms of taxes, duties, fees,
imposts as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos.
882, 1177, 1931 and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of
NPC with regard to imports as follows:
WHEREAS, importations by certain government agencies,
including government-owned or controlled corporation, are exempt
from the payment of customs duties and compensating tax; and
WHEREAS, in order to reduce foreign exchange spending and to
protect domestic industries, it is necessary to restrict and regulate
such tax-free importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of
the Philippines, by virtue of the powers vested in me by the
Constitution, and do hereby decree and order the following:
Sec. 1. All importations of any government agency, including
government-owned or controlled corporations which are exempt
from the payment of customs duties and internal revenue taxes,
shall be subject to the prior approval of an Inter-Agency
Committee which shall insure compliance with the following
conditions:
(a) That no such article of local manufacture are available in
sufficient quantity and comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed
and will be used exclusively by the grantee of the exemption for its
operations and projects or in the conduct of its functions; and
(c) The shipping documents covering the importation are in the
name of the grantee to whom the goods shall be delivered directly
by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control
the tax-free importation of government agencies in accordance
with the conditions set forth in Section 1 hereof and the regulations
to be promulgated to implement the provisions of this Decree.
Provided, however, That any government agency or government-
owned or controlled corporation, or any local manufacturer or
business firm adversely affected by any decision or ruling of the
Inter-Agency Committee may file an appeal with the Office of the
President within ten days from the date of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all
similar provisions of all general and special laws and decrees are
hereby amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a
National Budget that is an instrument of national development,
reflective of national objectives, strategies and plans. The budget
shall be supportive of and consistent with the socio-economic
development plan and shall be oriented towards the achievement of
explicit objectives and expected results, to ensure that funds are
utilized and operations are conducted effectively, economically and
efficiently. The national budget shall be formulated within a
context of a regionalized government structure and of the totality
of revenues and other receipts, expenditures and borrowings of all
levels of government-owned or controlled corporations. The
budget shall likewise be prepared within the context of the national
long-term plan and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations,
shall pay income taxes, customs duties and other taxes and fees are imposed under
revenues laws: provided, that organizations otherwise exempted by law from the
payment of such taxes/duties may ask for a subsidy from the General Fund in the
exact amount of taxes/duties due: provided, further, that a procedure shall be
established by the Secretary of Finance and the Commissioner of the Budget,
whereby such subsidies shall automatically be considered as both revenue and
expenditure of the General Fund. 44
The law also declared that —
[A]ll laws, decrees, executive orders, rules and regulations or parts
thereof which are inconsistent with the provisions of the Decree
are hereby repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found
itself in after the Aquino assassination, P.D. No. 1931 was issued to reiterate that:
 WHEREAS, Presidential Decree No. 1177 has already expressly
repealed the grant of tax privileges to any government-owned or
controlled corporation and all other units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all
other units of government enjoying tax privileges to share in the
requirements of development, fiscal or otherwise, by paying the
duties, taxes and other charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes,
fees, imposts and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of
Finance, upon the recommendation of the Fiscal Incentives Review
Board created under Presidential Decree No. 776, is hereby
empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above, any applicable tax and duty, taking
into account, among others, any or all of the following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue
generation effort;
3) The nature of the activity in which the corporation is engaged in;
or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as
all other laws, decrees, executive orders, administrative orders,
rules, regulations or parts thereof which are inconsistent with this
Decree are hereby repealed, amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct
presidential restoration or grant of tax exemption to other government and private
entities without benefit of review by the Fiscal Incentives Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on
June 11, 1984 and October 14, 1984, respectively, withdrew the tax
and duty exemption privileges, including the preferential tax
treatment, of government and private entities with certain
exceptions, in order that the requirements of national economic
development, in terms of fiscals and other resources, may be met
more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption privileges
were restored by the Fiscal Incentives Review Board (FIRB), a
number of affected entities, government and private, had their tax
and duty exemption privileges restored or granted by Presidential
action without benefit or review by the Fiscal Incentives Review
Board (FIRB);
xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private entities may be better
provided where necessary by explicit subsidy and budgetary
support rather than tax and duty exemption privileges if only to
improve the fiscal monitoring aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government
and private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the
Government of the Republic of the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
 (i) the Board of Investment pursuant to
Presidential Decree No. 1789, as amended;
(ii) the Export Processing Zone Authority,
pursuant to Presidential Decree No. 66 as
amended;
(iii) the Philippine Veterans Investment
Development Corporation Industrial Authority
pursuant to Presidential Decree No. 538, was
amended.
d) those enjoyed by the copper mining industry pursuant to the
provisions of Letter of Instructions No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as
amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the
recommendation of the Fiscal Incentives Review
Board.
Sec. 2. The Fiscal Incentives Review Board created under
Presidential Decree No. 776, as amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in
whole or in part;
b) revise the scope and coverage of tax and/or duty exemption that
may be restored;
c) impose conditions for the restoration of tax and/or duty
exemption;
d) prescribe the date of period of effectivity of the restoration of
tax and/or duty exemption;
e) formulate and submit to the President for approval, a complete
system for the grant of subsidies to deserving beneficiaries, in lieu
of or in combination with the restoration of tax and duty
exemptions or preferential treatment in taxation, indicating the
source of funding therefor, eligible beneficiaries and the terms and
conditions for the grant thereof taking into consideration the
international commitment of the Philippines and the necessary
precautions such that the grant of subsidies does not become the
basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal
Incentives Review Board shall take into account any or all of the
following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation
effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or parts
thereof inconsistent with this Executive Order are hereby repealed
or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules
and regulations, to be issued by the Ministry of Finance. 49 Said rules and regulations
were promulgated and published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after
promulgation 50 in the Official Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all would-be
lawyers, learn in their TAXATION I course, which fro convenient reference, is as
follows:
Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden:
a. Direct Tax — the where the person supposed to pay the tax
really pays it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer
taxes (estate tax, donor's tax), residence tax, immigration tax
b. Indirect Tax — that where the tax is imposed upon
goods BEFORE reaching the consumer who ultimately pays for it,
not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax,
percentage taxes, (VAT) and the tariff and customs indirect taxes
(import duties, special import tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can
be reduced to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as
the phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No.
6395, as amended by P.D. No. 380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's
intention that the NPC was to be completely tax exempt from all forms of taxes —
direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to
finance its operations upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any
loans obtained were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds — aside
issuance of bonds — it was again specifically exempted from all types of taxes "to
facilitate payment of its indebtedness." Even when the ceilings for domestic and
foreign borrowings were periodically increased, the tax exemption privileges of the
NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by
Rep. Act No. 987, as above stated. The exemption was, however, restored by R.A.
No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax
exemptions allowed NPC. Its section 13(d) is the starting point of this bone of
contention among the parties. For easy reference, it is reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and
instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of
electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now
reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies
and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization and sale of
electric power. (Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very
simple paragraph as follows:
 The Corporation shall be non-profit and shall devote all its returns
from its capital investment as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act,
the Corporation, including its subsidiaries, is hereby declared
exempt from the payment of ALL FORMS OF taxes, duties, fees,
imposts as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380
and 938 were issued by one man, acting as such the Executive and
Legislative. 53
xxx xxx xxx
[S]ince both presidential decrees were made by the same person, it
would have been very easy for him to retain the same or similar
language used in P.D. No. 380 P.D. No. 938 if his intention were to
preserve the indirect tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no
matter what his fault were. It should be noted that section 13, R.A. No. 6395,
provided for tax exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and
projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF
TAXES, ETC.,", included 13(a) under the "as well as" clause and added PNOC
subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the
order of enactment or issuance as narrated above in part I hereof. President Marcos
must have considered all the NPC statutes from C.A. No. 120 up to its latest
amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up 55 with a
very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938.
One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic
indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time.
The NPC must be and has to be exempt from all forms of taxes if this goal is to be
achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be
remembered that to pay the government share in its capital stock P.D. No. 758 was
issued mandating that P200 Million would be appropriated annually to cover the said
unpaid subscription of the Government in NPC's authorized capital stock. And
significantly one of the sources of this annual appropriation of P200 million is TAX
MONEY accruing to the General Fund of the Government. It does not stand to
reason then that former President Marcos would order P200 Million to be taken
partially or totally from tax money to be used to pay the Government subscription in
the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the
other.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c)
and (d) into the phrase "All FORMS OF" is supported by the fact that he did not do
the same for the tax exemption provision for the foreign loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as
follows:
The loans, credits and indebtedness contracted under this
subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
equipment, materials and supplies by the Corporation, paid from
the proceeds of any loan, credit or indebtedness incurred under this
Act, shall also be exempt from all taxes, fees, imposts, other
charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political
subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and
the payment of the principal, interest and other charges thereon, as
well as the importation of machinery, equipment, materials,
supplies and services, by the Corporation, paid from the proceeds
of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all direct and indirect taxes, fees, imposts,
 other charges and restrictions, including import
restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in
Section 8 (b), R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the
subject matter of this particular Section 8 (b) had to do only with loans and
machinery imported, paid for from the proceeds of these foreign loans, THERE WAS
NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption
stood as is — with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege
extended to "taxes, fees, imposts, other charges . . . to be imposed" in the future —
surely, an indication that the lawmakers wanted the NPC to be exempt from ALL
FORMS of taxes — direct and indirect.
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for
both direct and indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government decided to
rationalize government receipts and expenditures by formulating and implementing a
National Budget. 60 The NPC, being a government owned and controlled corporation
had to be shed off its tax exemption status privileges under P.D. No. 1177. It was,
however, allowed to ask for a subsidy from the General Fund in the exact amount of
taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation
privileges. It allowed, however, NPC to appeal said repeal with the Office of the
President and to avail of tax-free importation privileges under its Section 1, subject
to the prior approval of an Inter-Agency Committed created by virtue of said P.D.
No. 882. It is presumed that the NPC, being the special creation of the State, was
allowed to continue its tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the matter of
the abolition of NPC's tax exemption privileges by P.D. No. 1177 61 only in his
Common Reply/Comment to private Respondents' "Opposition" and "Comment" to
Motion for Reconsideration, four (4) months AFTER the motion for Reconsideration
had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss
this tax exemption withdrawal as explained by then Secretary of Justice Vicente
Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate
Blue Ribbon Committee Report No. 474, the basis of the petition at bar, fails to yield
any mention of said P.D. No. 1177's effect on NPC's tax exemption
privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the court declares that the
matter of P.D. No. 1177 abolishing NPC's tax exemption privileges was not
seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the
NPC tax exemption privileges as this statute has been reiterated twice in P.D. No.
1931. The express repeal of tax privileges of any government-owned or controlled
corporation (GOCC). NPC included, was reiterated in the fourth whereas clause of
P.D. No. 1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177,
being inconsistent with Section 2, P.D. No. 1931, was deemed repealed as the Fiscal
Incentives Revenue Board was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy
contemplated in Section 23, P.D. No. 1177. Considering, however, that under Section
16 of P.D. No. 1177, NPC had to submit to the Office of the President its request for
the P200 million mandated by P.D. No. 758 to be appropriated annually by the
Government to cover its unpaid subscription to the NPC authorized capital stock and
that under Section 22, of the same P.D. No. NPC had to likewise submit to the Office
of the President its internal operating budget for review due to capital inputs of the
government (P.D. No. 758) and to the national government's guarantee of the
domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by
P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's
that suddenly found themselves having to pay taxes. It will be noted that Section 23,
P.D. No. 1177, mandated that the Secretary of Finance and the Commissioner of the
Budget had to establish the necessary procedure to accomplish the tax payment/tax
subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any
tax as it got from the General Fund the amounts necessary to pay different revenue
collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the
NPC lost all its duty and tax exemptions, whether direct or indirect.
And so there was nothing to be withdrawn or to be restored under
P.D. No. 1931, issued on June 11, 1984. This is evident from
sections 1 and 2 of said P.D. No. 1931, which reads:
"Section 1. The provisions of special or general
law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes,
fees, imports and other charges heretofore
granted in favor of government-owned or
 controlled corporations including their
subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or
the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review
Board created under P.D. No. 776, is hereby
empowered to restore partially or totally, the
exemptions withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change
NPC's status. Since it had already lost all its tax exemptions
privilege with the issuance of P.D. No. 1177 seven (7) years earlier
or on July 30, 1977, there were no tax exemptions to be withdrawn
by section 1 which could later be restored by the Minister of
Finance upon the recommendation of the FIRB under Section 2 of
P.D. No. 1931. Consequently, FIRB resolutions No. 10-85, and 1-
86, were all illegally and validly issued since FIRB acted beyond
their statutory authority by creating and not merely restoring the
tax exempt status of NPC. The same is true for FIRB Res. No. 17-
87 which restored NPC's tax exemption under E.O. No. 93 which
likewise abolished all duties and tax exemptions but allowed the
President upon recommendation of the FIRB to restore those
abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or
substantially the same terms the provisions of the act or acts so
revised and consolidated, the revision and consolidation shall be
taken to be a continuation of the former act or acts, although the
former act or acts may be expressly repealed by the revised and
consolidated act; and all rights
and liabilities under the former act or acts are preserved and may
be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first
half of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all
GOCC's said Section 1, P.D. No. 1931 was deemed to be a continuation of the first
half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No.
177, on the subsidy scheme for former tax exempt GOCCs had been expressly
repealed by Section 2 with its institution of the FIRB recommendation of partial/total
restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the
same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC
could no longer obtain a subsidy for the taxes it had to pay. It could, however, under
P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it
did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as
approved by the Minister of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and
1-86 were both legally and validly issued by the FIRB pursuant to P.D. No. 1931.
FIRB did not created NPC's tax exemption status but merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under
the now rather infamous Amendment No. 6 70 as there was no showing that President
Marcos' encroachment on legislative prerogatives was justified under the then
prevailing condition that he could legislate "only if the Batasang Pambansa 'failed or
was unable to act inadequately on any matter that in his judgment required
immediate action' to meet the 'exigency'. 71
Actually under said Amendment No. 6, then President Marcos could issue decrees
not only when the Interim Batasang Pambansa failed or was unable to act adequately
on any matter for any reason that in his (Marcos') judgment required immediate
action, but also when there existed a grave emergency or a threat or thereof. It must
be remembered that said Presidential Decree was issued only around nine (9) months
after the Philippines unilaterally declared a moratorium on its foreign debt
payments 72 as a result of the economic crisis triggered by loss of confidence in the
government brought about by the Aquino assassination. The Philippines was then
trying to reschedule its debt payments. 73 One of the big borrowers was the
NPC 74 which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant
on its back. 75 From all indications, it must have been this grave emergency of a debt
rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment
6 power. 76
The rule, therefore, that under the 1973 Constitution "no law granting a tax
exemption shall be passed without the concurrence of a majority of all the members
of the Batasang Pambansa" 77 does not apply as said P.D. No. 1931 was not passed by
the Interim Batasang Pambansa but by then President Marcos under His Amendment
No. 6 power.
P.D. No. 1931 was, therefore, validly issued by then President Marcos under his
Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this
time, President Aquino. Its section 2 allowed the NPC to apply for the restoration of
its tax exemption privileges. The same was granted under FIRB Resolution No. 17-
87 78 dated June 24, 1987 which restored NPC's tax exemption privileges effective,
starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).
FIRB Resolution No. 17-87 was approved by the President on October 5,
1987. 79 There is no indication, however, from the records of the case whether or not
similar approvals were given by then President Marcos for FIRB Resolutions Nos.
10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice"
might have occurred when the Minister of Finance approved his own
recommendation as Chairman of the Fiscal Incentives Review Board as what
happened in Zambales Chromate vs. Court of Appeals 80 when the Secretary of
Agriculture and Natural Resources approved a decision earlier rendered by him when
he was the Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential
Executive Assistant Clave affirmed, on appeal to Malacañang, his own decision as
Chairman of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about "due
process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved
by the Minister of Finance when the same were recommended by him in his capacity
as Chairman of the Fiscal Incentives Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining
groups and scientist-doctors, respectively. Thus, there was a need for procedural due
process to be followed.
In the case of the tax exemption restoration of NPC, there is no other comparable
entity — not even a single public or private corporation — whose rights would be
violated if NPC's tax exemption privileges were to be restored. While there might
have been a MERALCO before Martial Law, it is of public knowledge that the
MERALCO generating plants were sold to the NPC in line with the State policy that
NPC was to be the State implementing arm for the electrification of the entire
country. Besides, MERALCO was limited to Manila and its environs. And as of
1984, there was no more MERALCO — as a producer of electricity — which could
have objected to the restoration of NPC's tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges
for the first time. It was just asking that its tax exemption privileges be restored. It is
for these reasons that, at least in NPC's case, the recommendation and approval of
NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done
by the same person acting in his dual capacities as Chairman of the Fiscal Incentives
Review Board and Minister of Finance, respectively, do not violate procedural due
process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President
Aquino on October 5, 1987, the view has been expressed that President Aquino, at
least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB,
which was allegedly not a delegate of the legislature, the power delegated to her
thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both
Executive and Legislative powers. Thus, there was no power delegated to her, rather
it was she who was delegating her power. She delegated it to the FIRB, which, for
purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not
sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the
policy to be carried out 85 and it fixed the standard to which the delegate had to
conform in the performance of his functions, 86 both qualities having been enunciated
by this Court in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges
restored from June 11, 1984 up to the present.
VII
The next question that projects itself is — who pays the tax?
The answer to the question could be gleamed from the manner by which the
Commissaries of the Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and
their defendants but groceries and other goods free of all taxes and duties if bought
from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable
specific, ad valorem and other taxes on the goods earmarked for AFP Commissaries
as an added cost of operation and distribute it over the total units of goods sold as it
would any other cost. Thus, even the ordinary supermarket buyer probably pays for
the specific, ad valorem and other taxes which theses suppliers do not charge the
AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies
have to absorb the taxes they add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of
Justice renders an opinion, 90wherein he stated and We quote:
xxx xxx xxx
 Republic Act No. 358 exempts the National Power Corporation
from "all taxes, duties, fees, imposts, charges, and restrictions of
the Republic of the Philippines and its provinces, cities, and
municipalities." This exemption is broad enough to include all
taxes, whether direct or indirect, which the National Power
Corporation may be required to pay, such as the specific tax on
petroleum products. That it is indirect or is of no amount [should
be of no moment], for it is the corporation that ultimately pays
it. The view which refuses to accord the exemption because the tax
is first paid by the seller disregards realities and gives more
importance to form than to substance. Equity and law always exalt
substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so
grudgingly as knowledge that many impositions taxpayers have to
pay are in the nature of indirect taxes. To limit the exemption
granted the National Power Corporation to direct taxes
notwithstanding the general and broad language of the statue will
be to thwrat the legislative intention in giving exemption from all
forms of taxes and impositions without distinguishing between
those that are direct and those that are not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies
which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker
fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of
such taxation is expected to be passed on through the channels of commerce to the
user or consumer of the goods sold. Because, however, the NPC has been exempted
from both direct and indirect taxation, the NPC must beheld exempted from
absorbing the economic burden of indirect taxation. This means, on the one hand,
that the oil companies which wish to sell to NPC absorb all or part of the economic
burden of the taxes previously paid to BIR, which could they shift to NPC if NPC
did not enjoy exemption from indirect taxes. This means also, on the other hand, that
the NPC may refuse to pay the part of the "normal" purchase price of bunker fuel oil
which represents all or part of the taxes previously paid by the oil companies to BIR.
If NPC nonetheless purchases such oil from the oil companies — because to do so
may be more convenient and ultimately less costly for NPC than NPC itself
importing and hauling and storing the oil from overseas — NPC is entitled to be
reimbursed by the BIR for that part of the buying price of NPC which verifiably
represents the tax already paid by the oil company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these
indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued
on June 16, 1987 by virtue of which the ad valorem tax rate on bunker fuel oil was
reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED BY
REVISING THE EXCISE TAX RATES OF CERTAIN
PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal
Revenue Code, as amended, is hereby amended to read as follows:
Par. (b) — For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel
oils having more or less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our
Lord, nineteen hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry
about who is going to bear the economic burden of the ad valorem taxes. What this
Court will now dispose of are petitioner's complaints that some indirect tax money
has been illegally refunded by the Bureau of Internal Revenue to the NPC and that
more claims for refunds by the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in
favor of the NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously
paid specific and ad valorem taxes during the period from October 31, 1984 to April
27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the PNC
did not have indirect tax exemptions with the enactment of P.D. No. 938. As We have
already ruled otherwise, the only questions left are whether NPC Is entitled to a tax
refund for the tax component of the price of the bunker fuel oil purchased from
Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded
the amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs — NPC included, it was only on May 8, 1985 when
the BIR issues its letter authority to the NPC authorizing it to withdraw tax-free
bunker fuel oil from the oil companies pursuant to FIRB Resolution No. 10-
85. 92 Since the tax exemption restoration was retroactive to June 11, 1984 there was
a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already paid the
BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the
period above indicated and had billed NPC correspondingly. 93 It should be noted that
the NPC, in its letter-claim dated September 11, 1985 to the Commissioner of the
Bureau of Internal Revenue DID NOT CATEGORICALLY AND
UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker
fuel oil price it purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is section 230
of the National Internal Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. — No
suit or proceeding shall be maintained in any court for the recovery
of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any Manner wrongfully
collected. until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment; Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such
payment appears clearly, to have been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the
Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax
exemption.
Petitioner, however, asks Us to restrain the Commissioner from acting favorably on
NPC's claim for P410.580,000.00 which represents specific and ad valorem taxes
paid by the oil companies to the BIR from June 11, 1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached thereto does not
reveal when the alleged claim for a P410,580,000.00 tax refund was filed. It is only
stated In paragraph No. 2 of the Deed of Assignment 97executed by and between NPC
and Caltex (Phils.) Inc., as follows:
That the ASSIGNOR(NPC) has a pending tax credit claim with the
Bureau of Internal Revenue amounting to P442,887,716.16.
P58.020,110.79 of which is due to Assignor's oil purchases from
the Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot
restrain the BIR from refunding said amount because of Our ruling that NPC has
both direct and indirect tax exemption privileges. Neither can We order the BIR to
refund said amount to NPC as there is no pending petition for review on certiorari of
a suit for its collection before Us. At any rate, at this point in time, NPC can no
longer file any suit to collect said amount EVEN IF lt has previously filed a claim
with the BIR because it is time-barred under Section 230 of the National Internal
Revenue Code of 1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the tax or
penalty REGARDLESS of any supervening cause that may arise
after payment. . . . (Emphasis supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that
payment by NPC for the amount of P410,580,000.00 had been made on said date. it
is clear that more than two (2) years had already elapsed from said date. At the same
time, We should note that there is no legal obstacle to the BIR granting, even without
a suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim
had been made seasonably, and assuming the amounts covered had actually been
paid previously by the oil companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of
petitioner is hereby DENIED for lack of merit and the decision of this Court
promulgated on May 31, 1991 is hereby AFFIRMED.
SO ORDERED.
G.R. No. 120082 September 11, 1996
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the
Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented
by its Mayor HON. TOMAS R. OSMEÑA, and EUSTAQUIO B.
CESA, respondents.
DAVIDE, JR., J.:
For review under Rule 45 of the Rules of Court on a pure question of law
are the decision of 22 March 19951of the Regional Trial Court (RTC) of
Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil
Case No. CEB-16900 entitled "Mactan Cebu International Airport Authority
vs. City of Cebu", and its order of 4, May 19952 denying the motion to
reconsider the decision.
We resolved to give due course to this petition for its raises issues dwelling
on the scope of the taxing power of local government-owned and controlled
corporations.
The uncontradicted factual antecedents are summarized in the instant
petition as follows:
Petitioner Mactan Cebu International Airport Authority (MCIAA)
was created by virtue of Republic Act No. 6958, mandated to
"principally undertake the economical, efficient and effective
control, management and supervision of the Mactan International
Airport in the Province of Cebu and the Lahug Airport in Cebu
City, . . . and such other Airports as may be established in the
Province of Cebu . . . (Sec. 3, RA 6958). It is also mandated to:
a) encourage, promote and
develop international and
domestic air traffic in the
Central Visayas and Mindanao
regions as a means of making
the regions centers of
international trade and tourism,
and accelerating the
development of the means of
transportation and
communication in the country;
and
b) upgrade the services and
facilities of the airports and to
formulate internationally
acceptable standards of airport
accommodation and service.
Since the time of its creation, petitioner MCIAA enjoyed the
privilege of exemption from payment of realty taxes in accordance
with Section 14 of its Charter.
Sec. 14. Tax Exemptions. — The authority shall
be exempt from realty taxes imposed by the
National Government or any of its political
subdivisions, agencies and instrumentalities . . .
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-
Charge, Office of the Treasurer of the City of Cebu, demanded
payment for realty taxes on several parcels of land belonging to the
petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474,
109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and
991-A), located at Barrio Apas and Barrio Kasambagan, Lahug,
Cebu City, in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and
unjustified, claiming in its favor the aforecited Section 14 of RA
6958 which exempt it from payment of realty taxes. It was also
asserted that it is an instrumentality of the government performing
governmental functions, citing section 133 of the Local
Government Code of 1991 which puts limitations on the taxing
powers of local government units:
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 barangay shall not extend to
the levy of the following:
a) . . .
xxx xxx xxx
 o) Taxes, fees or charges of
any kind on the National
Government, its agencies and
instrumentalities, and local
government units. (Emphasis
supplied)
Respondent City refused to cancel and set aside petitioner's realty
tax account, insisting that the MCIAA is a government-controlled
corporation whose tax exemption privilege has been withdrawn by
virtue of Sections 193 and 234 of the Local Governmental Code
that took effect on January 1, 1992:
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons whether natural or
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA
No. 6938, non-stock, and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.
(Emphasis supplied)
xxx xxx xxx
Sec. 234. Exemptions from Real Property taxes. — . . .
(a) . . .
xxx xxx xxx
(c) . . .
Except as provided herein, any exemption from
payment of real property tax previously granted
to, or presently enjoyed by all persons, whether
natural or juridical, including government-owned
or controlled corporations are hereby withdrawn
upon the effectivity of this Code.
As the City of Cebu was about to issue a warrant of levy against
the properties of petitioner, the latter was compelled to pay its tax
account "under protest" and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu, Branch
20, on December 29, 1994. MCIAA basically contended that the
taxing powers of local government units do not extend to the levy
of taxes or fees of any kind on an instrumentality of the national
government. Petitioner insisted that while it is indeed a
government-owned corporation, it nonetheless stands on the same
footing as an agency or instrumentality of the national government.
Petitioner insisted that while it is indeed a government-owned
corporation, it nonetheless stands on the same footing as an agency
or instrumentality of the national government by the very nature of
its powers and functions.
Respondent City, however, asserted that MACIAA is not an
instrumentality of the government but merely a government-owned
corporation performing proprietary functions As such, all
exemptions previously granted to it were deemed withdrawn by
operation of law, as provided under Sections 193 and 234 of the
Local Government Code when it took effect on January 1, 1992.3
The petition for declaratory relief was docketed as Civil Case No. CEB-
16900.
In its decision of 22 March 1995,4 the trial court dismissed the petition in
light of its findings, to wit:
A close reading of the New Local Government Code of 1991 or
RA 7160 provides the express cancellation and withdrawal of
exemption of taxes by government owned and controlled
corporation per Sections after the effectivity of said Code on
January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]
Petitioners claimed that its real properties assessed by respondent
City Government of Cebu are exempted from paying realty taxes
in view of the exemption granted under RA 6958 to pay the same
(citing Section 14 of RA 6958).
However, RA 7160 expressly provides that "All general and special
laws, acts, city charters, decress [sic], executive orders,
proclamations and administrative regulations, or part or parts
thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly." ([f], Section
534, RA 7160).
With that repealing clause in RA 7160, it is safe to infer and state
that the tax exemption provided for in RA 6958 creating petitioner
had been expressly repealed by the provisions of the New Local
Government Code of 1991.
 So that petitioner in this case has to pay the assessed realty tax of
its properties effective after January 1, 1992 until the present.
This Court's ruling finds expression to give impetus and meaning
to the overall objectives of the New Local Government Code of
1991, RA 7160. "It is hereby declared the policy of the State that
the territorial and political subdivisions of the State shall enjoy
genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make
them more effective partners in the attainment of national goals.
Towards this end, the State shall provide for a more responsive and
accountable local government structure instituted through a system
of decentralization whereby local government units shall be given
more powers, authority, responsibilities, and resources. The
process of decentralization shall proceed from the national
government to the local government units. . . .5
Its motion for reconsideration having been denied by the trial court in its 4
May 1995 order, the petitioner filed the instant petition based on the
following assignment of errors:
I RESPONDENT JUDGE ERRED IN FAILING
TO RULE THAT THE PETITIONER IS
VESTED WITH GOVERNMENT POWERS
AND FUNCTIONS WHICH PLACE IT IN THE
SAME CATEGORY AS AN
INSTRUMENTALITY OR AGENCY OF THE
GOVERNMENT.
II RESPONDENT JUDGE ERRED IN RULING
THAT PETITIONER IS LIABLE TO PAY
REAL PROPERTY TAXES TO THE CITY OF
CEBU.
Anent the first assigned error, the petitioner asserts that although it is a
government-owned or controlled corporation it is mandated to perform
functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental
functions primarily to promote certain aspects of the economic life of the
people.6 Considering its task "not merely to efficiently operate and manage
the Mactan-Cebu International Airport, but more importantly, to carry out
the Government policies of promoting and developing the Central Visayas
and Mindanao regions as centers of international trade and tourism, and
accelerating the development of the means of transportation and
communication in the country,"7and that it is an attached agency of the
Department of Transportation and Communication (DOTC),8 the petitioner
"may stand in [sic] the same footing as an agency or instrumentality of the
national government." Hence, its tax exemption privilege under Section 14
of its Charter "cannot be considered withdrawn with the passage of the
Local Government Code of 1991 (hereinafter LGC) because Section 133
thereof specifically states that the taxing powers of local government units
shall not extend to the levy of taxes of fees or charges of any kind on the
national government its agencies and instrumentalities."
As to the second assigned error, the petitioner contends that being an
instrumentality of the National Government, respondent City of Cebu has
no power nor authority to impose realty taxes upon it in accordance with the
aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine
Amusement and Gaming Corporation;9
Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or
controlled corporation with an original character, PD 1869. All its
shares of stock are owned by the National Government. . . .
PAGCOR has a dual role, to operate and regulate gambling
casinos. The latter joke 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. Otherwise, its operation might
be burdened, impeded or subjected to control by a mere Local
government.
The states have no power by taxation or otherwise, to retard,
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution the
powers vested in the federal government. (McCulloch v. Maryland,
4 Wheat 316, 4 L Ed. 579).
This doctrine emanates from the "supremacy" of the National
Government over local government.
Justice Holmes, speaking for the Supreme Court, make references
to the entire absence of power on the part of the States to touch, in
that way (taxation) at least, the instrumentalities of the United
States (Johnson v. Maryland, 254 US 51) and it can be agreed that
no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating
its federal responsibilities, or even to seriously burden it in the
 accomplishment of them. (Antieau Modern Constitutional Law,
Vol. 2, p. 140)
Otherwise mere creature of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a toll
for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax
which was called by Justice Marshall as the "power to destroy"
(McCulloch v. Maryland, supra) cannot be allowed to defeat an
instrumentality or creation of the very entity which has the inherent
power to wield it. (Emphasis supplied)
It then concludes that the respondent Judge "cannot therefore correctly say
that the questioned provisions of the Code do not contain any distinction
between a governmental function as against one performing merely
proprietary ones such that the exemption privilege withdrawn under the said
Code would apply to allgovernment corporations." For it is clear from
Section 133, in relation to Section 234, of the LGC that the legislature
meant to exclude instrumentalities of the national government from the
taxing power of the local government units.
In its comment respondent City of Cebu alleges that as local a government
unit and a political subdivision, it has the power to impose, levy, assess, and
collect taxes within its jurisdiction. Such power is guaranteed by the
Constitution10 and enhanced further by the LGC. While it may be true that
under its Charter the petitioner was exempt from the payment of realty
taxes,11 this exemption was withdrawn by Section 234 of the LGC. In
response to the petitioner's claim that such exemption was not repealed
because being an instrumentality of the National Government, Section 133
of the LGC prohibits local government units from imposing taxes, fees, or
charges of any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and Section 234
thereof does not distinguish between government-owned corporation, and
Section 234 thereof does not distinguish between government-owned
corporation, and Section 234 thereof does not distinguish between
government-owned or controlled corporations performing governmental and
purely proprietary functions. Respondent city of Cebu urges this the Manila
International Airport Authority is a governmental-owned corporation, 12 and
to reject the application of Basco because it was "promulgated . . . before
the enactment and the singing into law of R.A. No. 7160," and was not,
therefore, decided "in the light of the spirit and intention of the framers of
the said law.
As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed by the people
through their Constitutions.13 Our Constitution, for instance, provides that
the rule of taxation shall be uniform and equitable and Congress shall
evolve a progressive system of taxation.14 So potent indeed is the power that
it was once opined that "the power to tax involves the power to
destroy."15 Verily, taxation is a destructive power which interferes with the
personal and property for the support of the government. Accordingly, tax
statutes must be construed strictly against the government and liberally in
favor of the taxpayer.16 But since taxes are what we pay for civilized
society,17 or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus
construed strictissimi juris against the taxpayers and liberally in favor of the
taxing authority.18 A claim of exemption from tax payment must be clearly
shown and based on language in the law too plain to be mistaken.19 Elsewise
stated, taxation is the rule, exemption therefrom is the
exception.20 However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction does not apply
because 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.21
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer
merely by virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution.22 Under the
latter, the exercise of the power may be subject to such guidelines and
limitations as the Congress may provide which, however, must be consistent
with the basic policy of local autonomy.
There can be no question that under Section 14 of R.A. No. 6958 the
petitioner is exempt from the payment of realty taxes imposed by the
National Government or any of its political subdivisions, agencies, and
instrumentalities. Nevertheless, since taxation is the rule and exemption
therefrom the exception, the exemption may thus be withdrawn at the
pleasure of the taxing authority. The only exception to this rule is where the
exemption was granted to private parties based on material consideration of
a mutual nature, which then becomes contractual and is thus covered by the
non-impairment clause of the Constitution.23
The LGC, enacted pursuant to Section 3, Article X of the constitution
provides for the exercise by local government units of their power to tax,
the scope thereof or its limitations, and the exemption from taxation.
Section 133 of the LGC prescribes the common limitations on the taxing
powers of local government units as follows:
Sec. 133. Common Limitations on the Taxing Power 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:
(a) Income tax, except when levied on banks and
other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, "inheritance, gifts, legacies
and other acquisitions mortis causa, except as
otherwise provided herein
(d) Customs duties, registration fees of vessels
and wharfage on wharves, tonnage dues, and all
other kinds of customs fees charges and dues
except wharfage on wharves constructed and
maintained by the local government unit
concerned:
(e) Taxes, fees and charges and other imposition
upon goods carried into or out of, or passing
through, the territorial jurisdictions of local
government units in the guise or charges for
wharfages, tolls for bridges or otherwise, or other
taxes, fees or charges in any form whatsoever
upon such goods or merchandise;
(f) Taxes fees or charges on agricultural and
aquatic products when sold by marginal farmers
or fishermen;
(g) Taxes on business enterprise certified to be
the Board of Investment as pioneer or non-
pioneer for a period of six (6) and four (4) years,
respectively from the date of registration;
(h) Excise taxes on articles enumerated under the
National Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;
(i) Percentage or value added tax (VAT) on sales,
barters or exchanges or similar transactions on
goods or services except as otherwise provided
herein;
(j) Taxes on the gross receipts of transportation
contractor and person engage in the
transportation of passengers of freight by hire
and common carriers by air, land, or water,
except as provided in this code;
(k) Taxes on premiums paid by ways reinsurance
or retrocession;
(l) Taxes, fees, or charges for the registration of
motor vehicles and for the issuance of all kinds
of licenses or permits for the driving of thereof,
except, tricycles;
(m) Taxes, fees, or other charges on Philippine
product actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and
Barangay Business Enterprise and Cooperatives
duly registered under R.A. No. 6810 and
Republic Act Numbered Sixty nine hundred
thirty-eight (R.A. No. 6938) otherwise known as
the "Cooperative Code of the Philippines; and
(o) TAXES, FEES, OR CHARGES OF ANY
KIND ON THE NATIONAL GOVERNMENT,
ITS AGENCIES AND INSTRUMENTALITIES,
AND LOCAL GOVERNMENT UNITS. (emphasis
supplied)
Needless to say the last item (item o) is pertinent in this case. The "taxes,
fees or charges" referred to are "of any kind", hence they include all of
these, unless otherwise provided by the LGC. The term "taxes" is well
understood so as to need no further elaboration, especially in the light of the
above enumeration. The term "fees" means charges fixed by law or
Ordinance for the regulation or inspection of business activity,24 while
"charges" are pecuniary liabilities such as rents or fees against person or
property.25
Among the "taxes" enumerated in the LGC is real property tax, which is
governed by Section 232. It reads as follows:
Sec. 232. Power to Levy Real Property Tax. — A province or city
or a municipality within the Metropolitan Manila Area may levy on
an annual ad valorem tax on real property such as land, building,
machinery and other improvements not hereafter specifically
exempted.
Section 234 of LGC provides for the exemptions from payment of real
property taxes and withdraws previous exemptions therefrom granted to
natural and juridical persons, including government owned and controlled
corporations, except as provided therein. It 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 had been
granted, for reconsideration or otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages
or convents appurtenants thereto, mosques
nonprofits or religious cemeteries and all lands,
building and improvements actually, directly, and
exclusively used for religious charitable or
educational purposes;
(c) All machineries and equipment that are
actually, directly and exclusively used by local
water districts and government-owned or
controlled corporations engaged in the supply
and distribution of water and/or generation and
transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No.
6938; and;
(e) Machinery and equipment used for pollution
control and environmental protection.
Except as provided herein, any exemptions from
payment of real property tax previously granted
to or presently enjoyed by, all persons whether
natural or juridical, including all government
owned or controlled corporations are hereby
withdrawn upon the effectivity of his Code.
These exemptions are based on the ownership, character, and use of the
property. Thus;
(a) Ownership Exemptions. Exemptions from
real property taxes on the basis of ownership are
real properties owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a municipality, (v) a
barangay, and (vi) registered cooperatives.
(b) Character Exemptions. Exempted from real
property taxes on the basis of their character are:
(i) charitable institutions, (ii) houses and temples
of prayer like churches, parsonages or convents
appurtenant thereto, mosques, and (iii) non profit
or religious cemeteries.
(c) Usage exemptions. Exempted from real
property taxes on the basis of the actual, direct
and exclusive use to which they are devoted are:
(i) all lands buildings and improvements which
are actually, directed and exclusively used for
religious, charitable or educational purpose; (ii)
all machineries and equipment actually, directly
and exclusively used or by local water districts or
by government-owned or controlled corporations
engaged in the supply and distribution of water
and/or generation and transmission of electric
power; and (iii) all machinery and equipment
used for pollution control and environmental
protection.
To help provide a healthy environment in the midst of the
modernization of the country, all machinery and equipment for
pollution control and environmental protection may not be taxed
by local governments.
2. Other Exemptions Withdrawn. All other
exemptions previously granted to natural or
 juridical persons including government-owned or
controlled corporations are withdrawn upon the
effectivity of the Code.26
Section 193 of the LGC is the general provision on withdrawal of tax
exemption privileges. It provides:
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless
otherwise provided in this code, tax exemptions or incentives
granted to or presently enjoyed by all persons, whether natural or
juridical, including government-owned, or controlled corporations,
except local water districts, cooperatives duly registered under
R.A. 6938, non stock and non profit hospitals and educational
constitutions, are hereby withdrawn upon the effectivity of this
Code.
On the other hand, the LGC authorizes local government units to grant tax
exemption privileges. Thus, Section 192 thereof provides:
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local
government units may, through ordinances duly approved, grant
tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary.
The foregoing sections of the LGC speaks of: (a) the limitations on the
taxing powers of local government units and the exceptions to such
limitations; and (b) the rule on tax exemptions and the exceptions thereto.
The use of exceptions of provisos in these section, as shown by the
following clauses:
(1) "unless otherwise provided herein" in the
opening paragraph of Section 133;
(2) "Unless otherwise provided in this Code" in
section 193;
(3) "not hereafter specifically exempted" in
Section 232; and
(4) "Except as provided herein" in the last
paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the
aforementioned clause in section 133 seems to be inaccurately worded.
Instead of the clause "unless otherwise provided herein," with the "herein"
to mean, of course, the section, it should have used the clause "unless
otherwise provided in this Code." The former results in absurdity since the
section itself enumerates what are beyond the taxing powers of local
government units and, where exceptions were intended, the exceptions were
explicitly indicated in the text. For instance, in item (a) which excepts the
income taxes "when livied on banks and other financial institutions", item
(d) which excepts "wharfage on wharves constructed and maintained by the
local government until concerned"; and item (1) which excepts taxes, fees,
and charges for the registration and issuance of license or permits for the
driving of "tricycles". It may also be observed that within the body itself of
the section, there are exceptions which can be found only in other parts of
the LGC, but the section interchangeably uses therein the clause "except as
otherwise provided herein" as in items (c) and (i), or the clause "except as
otherwise provided herein" as in items (c) and (i), or the clause "excepts as
provided in this Code" in item (j). These clauses would be obviously
unnecessary or mere surplus-ages if the opening clause of the section were"
"Unless otherwise provided in this Code" instead of "Unless otherwise
provided herein". In any event, even if the latter is used, since under Section
232 local government units have the power to levy real property tax, except
those exempted therefrom under Section 234, then Section 232 must be
deemed to qualify Section 133.
Thus, reading together Section 133, 232 and 234 of the LGC, we conclude
that as a general rule, as laid down in Section 133 the taxing powers of local
government units cannot extend to the levy of inter alia, "taxes, fees, and
charges of any kind of the National Government, its agencies and
instrumentalties, and local government units"; however, pursuant to Section
232, provinces, cities, municipalities in the Metropolitan Manila Area may
impose the real property tax except on, inter alia, "real property owned by
the Republic of the Philippines or any of its political subdivisions except
when the beneficial used thereof has been granted, for consideration or
otherwise, to a taxable person", as provided in item (a) of the first paragraph
of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons, including government-owned and controlled
corporations, Section 193 of the LGC prescribes the general rule, viz., they
are withdrawn upon the effectivity of the LGC, except upon the effectivity
of the LGC, except those granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non stock and non-profit hospitals and
educational institutions, and unless otherwise provided in the LGC. The
latter proviso could refer to Section 234, which enumerates the properties
exempt from real property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption in so far as the real property taxes
are concerned by limiting the retention only to those enumerated there-in;
all others not included in the enumeration lost the privilege upon the
effectivity of the LGC. Moreover, even as the real property is owned by the
Republic of the Philippines, or any of its political subdivisions covered by
item (a) of the first paragraph of Section 234, the exemption is withdrawn if
the beneficial use of such property has been granted to taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally withdrew, upon the
effectivity of the LGC, exemptions from real property taxes granted to
natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is,
undoubtedly, a government-owned corporation, it necessarily follows that
its exemption from such tax granted it in Section 14 of its charter, R.A. No.
6958, has been withdrawn. Any claim to the contrary can only be justified if
the petitioner can seek refuge under any of the exceptions provided in
Section 234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Section 232 and 234.
In short, the petitioner can no longer invoke the general rule in Section 133
that the taxing powers of the local government units cannot extend to the
levy of:
(o) taxes, fees, or charges of any kind on the
National Government, its agencies, or
instrumentalities, and local government units.
I must show that the parcels of land in question, which are real property, are
any one of those enumerated in Section 234, either by virtue of ownership,
character, or use of the property. Most likely, it could only be the first, but
not under any explicit provision of the said section, for one exists. In light
of the petitioner's theory that it is an "instrumentality of the Government", it
could only be within be first item of the first paragraph of the section by
expanding the scope of the terms Republic of the Philippines" to embrace . .
. . . . "instrumentalities" and "agencies" or expediency we quote:
(a) real property owned by the Republic of the
Philippines, or any 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.
This view does not persuade us. In the first place, the petitioner's claim that
it is an instrumentality of the Government is based on Section 133(o), which
expressly mentions the word "instrumentalities"; and in the second place it
fails to consider the fact that the legislature used the phrase "National
Government, its agencies and instrumentalities" "in Section 133(o),but only
the phrase "Republic of the Philippines or any of its political subdivision "in
Section 234(a).
The terms "Republic of the Philippines" and "National Government" are not
interchangeable. The former is boarder and synonymous with "Government
of the Republic of the Philippines" which the Administrative Code of the
1987 defines as the "corporate governmental entity though which the
functions of the government are exercised through at the Philippines,
including, saves as the contrary appears from the context, the various arms
through which political authority is made effective in the Philippines,
whether pertaining to the autonomous reason, the provincial, city, municipal
or barangay subdivision or other forms of local government."27 These
autonomous regions, provincial, city, municipal or barangay subdivisions"
are the political subdivision.28
On the other hand, "National Government" refers "to the entire machinery
of the central government, as distinguished from the different forms of local
Governments."29 The National Government then is composed of the three
great departments the executive, the legislative and the judicial. 30
An "agency" of the Government refers to "any of the various units of the
Government, including a department, bureau, office instrumentality, or
government-owned or controlled corporation, or a local government or a
distinct unit therein;"31 while an "instrumentality" refers to "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. This term includes
regulatory agencies, chartered institutions and government-owned and
controlled corporations".32
If Section 234(a) intended to extend the exception therein to the withdrawal
of the exemption from payment of real property taxes under the last
sentence of the said section to the agencies and instrumentalities of the
National Government mentioned in Section 133(o), then it should have
restated the wording of the latter. Yet, it did not Moreover, that Congress did
not wish to expand the scope of the exemption in Section 234(a) to include
real property owned by other instrumentalities or agencies of the
government including government-owned and controlled corporations is
further borne out by the fact that the source of this exemption is Section
40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code,
which reads:
 Sec 40. Exemption from Real Property Tax. — The exemption
shall be as follows:
(a) Real property owned by the
Republic of the Philippines or
any of its political subdivisions
and any government-owned or
controlled corporations so
exempt by is
charter: Provided, however,
that this exemption shall not
apply to real property of the
above mentioned entities the
beneficial use of which has
been granted, for consideration
or otherwise, to a taxable
person.
Note that as a reproduced in Section 234(a), the phrase "and any
government-owned or controlled corporation so exempt by its charter" was
excluded. The justification for this restricted exemption in Section 234(a)
seems obvious: to limit further tax exemption privileges, specially in light
of the general provision on withdrawal of exemption from payment of real
property taxes in the last paragraph of property taxes in the last paragraph of
Section 234. These policy considerations are consistent with the State policy
to ensure autonomy to local governments33 and the objective of the LGC
that they enjoy genuine and meaningful local autonomy to enable them to
attain their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals.34 The power to tax is
the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. It may also
be relevant to recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned and controlled
corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises, and there was a need for this entities to share
in the requirements of the development, fiscal or otherwise, by paying the
taxes and other charges due from them.35
The crucial issues then to be addressed are: (a) whether the parcels of land
in question belong to the Republic of the Philippines whose beneficial use
has been granted to the petitioner, and (b) whether the petitioner is a
"taxable person".
Section 15 of the petitioner's Charter provides:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. —
All existing public airport facilities, runways, lands, buildings and
other properties, movable or immovable, belonging to or presently
administered by the airports, and all assets, powers, rights, interests
and privileges relating on airport works, or air operations,
including all equipment which are necessary for the operations of
air navigation, acrodrome control towers, crash, fire, and rescue
facilities are hereby transferred to the Authority: Provided
however, that the operations control of all equipment necessary for
the operation of radio aids to air navigation, airways
communication, the approach control office, and the area control
center shall be retained by the Air Transportation Office. No
equipment, however, shall be removed by the Air Transportation
Office from Mactan without the concurrence of the authority. The
authority may assist in the maintenance of the Air Transportation
Office equipment.
The "airports" referred to are the "Lahug Air Port" in Cebu City and the
"Mactan International AirPort in the Province of Cebu",36 which belonged to
the Republic of the Philippines, then under the Air Transportation Office
(ATO).37
It may be reasonable to assume that the term "lands" refer to "lands" in
Cebu City then administered by the Lahug Air Port and includes the parcels
of land the respondent City of Cebu seeks to levy on for real property taxes.
This section involves a "transfer" of the "lands" among other things, to the
petitioner and not just the transfer of the beneficial use thereof, with the
ownership being retained by the Republic of the Philippines.
This "transfer" is actually an absolute conveyance of the ownership thereof
because the petitioner's authorized capital stock consists of, inter alia "the
value of such real estate owned and/or administered by the
airports."38 Hence, the petitioner is now the owner of the land in question
and the exception in Section 234(c) of the LGC is inapplicable.
Moreover, the petitioner cannot claim that it was never a "taxable person"
under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive
proof of the legislative intent to make it a taxable person subject to all taxes,
except real property tax.
Finally, even if the petitioner was originally not a taxable person for
purposes of real property tax, in light of the forgoing disquisitions, it had
 already become even if it be conceded to be an "agency" or
"instrumentality" of the Government, a taxable person for such purpose in
view of the withdrawal in the last paragraph of Section 234 of exemptions
from the payment of real property taxes, which, as earlier adverted to,
applies to the petitioner.
Accordingly, the position taken by the petitioner is untenable. Reliance
on Basco vs. Philippine Amusement and Gaming Corporation39 is
unavailing since it was decided before the effectivity of the LGC. Besides,
nothing can prevent Congress from decreeing that even instrumentalities or
agencies of the government performing governmental functions may be
subject to tax. Where it is done precisely to fulfill a constitutional mandate
and national policy, no one can doubt its wisdom.
WHEREFORE, the instant petition is DENIED. The challenged decision
and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No.
CEB-16900 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 11572 September 22, 1916
FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, plaintiffs-appellants,
vs.
VENANCIO CONCEPCION, as Acting Collector of Internal
Revenue, defendant-appellee.
Aitken and De Selms for appellants.
Attorney-General Avanceña for appellee.
TRENT, J.:
Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914,
imposed an annual tax of P4 per square meter upon "electric signs, billboards, and
spaces used for posting or displaying temporary signs, and all signs displayed on
premises not occupied by buildings." This section was subsequently amended by Act
No. 2432, effective January 1, 1915, by reducing the tax on such signs, billboards,
etc., to P2 per square meter or fraction thereof. Section 26 of Act No. 2432 was in
turn amended by Act No. 2445, but this amendment does not in any way affect the
questions involved in the case under consideration. The taxes imposed by Act No.
2432, as amended, were ratified by the Congress of the United States on March 4,
1915. The ratifying clause reads as follows:
The internal-revenue taxes imposed by the Philippine Legislature under the
law enacted by that body on December twenty-third, nineteen hundred and
fourteen (Act No. 2432), as amended by the law enacted by it on January
sixteenth, nineteen hundred and fifteen (Act No. 2445), are hereby legalized
and ratified, and the collection of all such taxes heretofore or hereafter is
hereby legalized, ratified and confirmed as fully to all intents and purposes
as if the same had by prior Act of Congress been specifically authorized and
directed.
Francis A. Churchill and Stewart Tait, copartners doing business under the firm name
and style of the Mercantile Advertising Agency, owners of a sign or billboard
containing an area of 52 square meters constructed on private property in the city of
Manila and exposed to public view, were taxes thereon P104. The tax was paid under
protest and the plaintiffs having exhausted all their administrative remedies instituted
the present action under section 140 of Act No. 2339 against the Collector of Internal
Revenue to recover back the amount thus paid. From a judgment dismissing the
complaint upon the merits, with costs, the plaintiffs appealed.
It is now urged that the trial court erred:
(1) In not holding that the tax as imposed by virtue of Act No. 2339, as
amended by Act No. 2432, as amended by Act No. 2445, constitutes
deprivation of property without compensation or due process of law,
because it is confiscatory and unjustly discriminatory and (2) in not holding
that the said tax is void for lack of uniformity, because it is not graded
according to value; because the classification on which it is based on any
reasonable ground; and furthermore, because it constitutes double taxation.
We will first inquire whether the tax in question is confiscatory as to the business of
the plaintiff Upon this point the lower court, in accepting the testimony of the
plaintiff, Churchill, to the effect that "the billboard in question cost P300 to
construct, that its annual gross earning power is P268, and that the annual tax is
P104," found "that for a five years' period the gross income from the billboard would
be P1,340, and that the expenditures for original construction and taxes would
amount to P820, leaving a balance of P520," held that "unless the tax equals or
exceeds the gross income, the court would hardly be justified in declaring the tax
confiscatory." These findings of fact and conclusions of law are attacked upon the
ground that the court failed to take into-consideration the pertinent facts that the
annual depreciation of the billboard is 20 per cent; that at the end of five years the
capital of P300 would be completely lost; that the plaintiffs are entitled to receive a
reasonable rate of interest on this capital; and that there should be charged against the
billboard its proportion of the overhead charges such as labor, management,
maintenance, rental of office premises, rental or purchase of ground space for board, It was agreed that Tait, the other plaintiff, would testify to the same effect. The
repair, paints, oils, etc., resulting in an actual loss per year on the business, instead of parties, plaintiffs and defendant, further agreed "that a number of persons have
an apparent profit of P520 for five years, or P44 for one year. If these contentions voluntarily and without protest paid the taxes imposed by section 100 of Act No.
rested upon a sound basis it might be said that the tax is, in a sense, confiscatory; but 2339, as amended by Act No. 2432, and in turn amended by Act No. 2445."
they do not, as we will attempt to show from the evidence of record.
It will thus be seen that the contention that the rates charged for advertising cannot be
The plaintiff Churchill testified in part as follows: raised is purely hypothetical, based entirely upon the opinion of the plaintiffs,
unsupported by actual test, and that the plaintiffs themselves admit that a number of
Q. In your opinion, Mr. Churchill, state what you would think of the other persons have voluntarily and without protest paid the tax herein complained of.
rates that are charged by you for advertising purposes in connection with Under these circumstances, can it be held as a matter of fact that the tax is
this board; could they be raised? — confiscatory or that, as a matter of law, the tax is unconstitutional? Is the exercise of
the taxing power of the Legislature dependent upon and restricted by the opinion of
A. No. two interested witnesses? There can be but one answer to these questions, especially
in view of the fact that others are paying the tax and presumably making a reasonable
profit from their business.
Q. Why? —
In Chicago and Grand Trunk Railway Co. vs. Wellman (143 U. S., 339), a question
A. The business wouldn't allow it; the business wouldn't afford it; similar to the one now under consideration was raised and decided by the Supreme
and otherwise it would mean bankruptcy to try to increase it. Court of the United States. The principal contention made in that case was that an
Act of the Legislature of Michigan fixing the amount per mile to be charged by
Q. Who couldn't afford it? Explain it fully Mr. Churchill? — railways for the transportation of a passenger was unconstitutional, on the ground
that the rate so fixed was confiscatory. It was agreed in the pleadings that the total
A. The merchants couldn't afford to pay more. On cross-examination: earnings and income of the company from all sources for a given year were less than
the expenses for the same period. In addition to this agreed statement of facts, two
Q. It is a fact, it is not, Mr. Churchill, that since the passage of Act witnesses were called, one the traffic manager and the other the treasurer of the
No. 2339 you have never made any attempt to raise the advertising rates? — company. Their testimony was to the effect that in view of the competition prevailing
at Chicago for through business, it was impossible to increase the freight rates then
charged by the company because it would throw the volume of business into the
A. It would be impossible to raise them.
hands of competing roads. In overruling the contention of the company that the act in
question was unconstitutional on the ground that the rate fixed thereby was
Q. My question is: You have never made any attempt to raise them? confiscatory, the court said:
—
Surely, before the courts are called upon to adjudge an act of the legislature
A. We have talked it over with the merchants and talked over the fixing the maximum passenger rates for railroad companies to be
price on the event of a tax being put at a reasonable amount, about putting unconstitutional, on the ground that its enforcement would prevent the
up some increase. stockholders from receiving any dividends on their investments, or the
bondholders any interest on their loans, they should be fully advised as to
Q. But you have never made an actual attempt to increase your rates? what is done with the receipts and earnings of the company; for if so
— advised, it might clearly appear that a prudent and honest management
would, within the rates prescribed, secure to the bondholders their interest,
A. I would consider that an actual attempt. and to the stockholders reasonable dividends. While the protection of vested
rights of property is a supreme duty of the courts, it has not come to this,
Q. You have never fixed the rate higher than it is now? — that the legislative power rests subservient to the discretion of any railroad
corporation which may, by exorbitant and unreasonable salaries, or in some
other improper way, transfer its earnings into what it is pleased to call
A. No; no.
`operating expenses.'
It is further alleged that the tax in question is unconstitutional because "the law
herein complained of was enacted for the sole purpose of destroying billboards and
advertising business depending on the use of signs or billboards." If it be conceded
that the Legislature has the power to impose a tax upon signs, signboards, and
billboards, then "the judicial cannot prescribed to the legislative department of the
Government limitation upon the exercise of its acknowledge powers." (Veazie Bank
vs. Fenno, 8 Wall., 533, 548.) That the Philippine Legislature has the power to
impose such taxes, we think there can be no serious doubt, because "the power to
impose taxes is one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions whatever, except such
as rest in the discretion of the authority which exercises it. It reaches to every trade
or occupation; to every object of industry, use, or enjoyment; to every species of
possession; and it imposes a burden which, in case of failure to discharge it, may be
followed by seizure and sale or confiscation of property. No attribute of sovereignty
is more pervading, and at no point does the power of the government affect more
constantly and intimately all the relations of life than through the exactions made
under it." (Cooley's Constitutional Limitations, 6th Edition, p. 587.)
In McCray vs. U.S. (195 U.S., 27), the court, in ruling adversely to the contention
that a federal tax on oleomargarine artificially colored was void because the real
purpose of Congress was not to raise revenue but to tax out of existence a substance
not harmful of itself and one which might be lawfully manufactured and sold, said:
Whilst, as a result of our written constitution, it is axiomatic that the judicial
department of the government is charged with the solemn duty of enforcing
the Constitution, and therefore, in cases property presented, of determining
whether a given manifestation of authority has exceeded the power
conferred by that instrument, no instance is afforded from the foundation of
the government where an act which was within a power conferred, was
declared to be repugnant to the Constitution, because it appeared to the
judicial mind that the particular exertion of constitutional power was either
unwise or unjust. To announce such a principle would amount to declaring
that, in our constitutional system, the judiciary was not only charged with
the duty of upholding the Constitution, but also with the responsibility of
correcting every possible abuse arising from the exercise by the other
departments of their conceded authority. So to hold would be to overthrow
the entire distinction between the legislative, judicial, and executive
departments of the government, upon which our system is founded, and
would be a mere act of judicial usurpation.
If a case were presented where the abuse of the taxing power of the local legislature
was to extreme as to make it plain to the judicial mind that the power had been
exercised for the sole purpose of destroying rights which could not be rightfully
destroyed consistently with the principles of freedom and justice upon which the
Philippine Government rests, then it would be the duty of the courts to say that such
an arbitrary act was not merely an abuse of the power, but was the exercise of an
authority not conferred. (McCray vs. U.S., supra.) But the instant case is not one of
that character, for the reason that the tax herein complained of falls far short of being
confiscatory. Consequently, it cannot be held that the Legislature has gone beyond
the power conferred upon it by the Philippine Bill in so far as the amount of the tax is
concerned.
Is the tax void for lack of uniformity or because it is not graded according to value or
constitutes double taxation, or because the classification upon which it is based is
mere arbitrary selection and not based on any reasonable grounds? The only
limitation, in so far as these questions are concerned, placed upon the Philippine
Legislature in the exercise of its taxing power is that found in section 5 of the
Philippine Bill, wherein it is declared "that the rule of taxation in said Islands shall
be uniform."
Uniformity in taxation — says Black on Constitutional Law, page 292 —
means that all taxable articles or kinds of property, of the same class, shall
be taxed at the same rate. It does not mean that lands, chattels, securities,
incomes, occupations, franchises, privileges, necessities, and luxuries, shall
all be assessed at the same rate. Different articles may be taxed at different
amounts, provided the rate is uniform on the same class everywhere, with
all people, and at all times.
A tax is uniform when it operates with the same force and effect in every place where
the subject of it is found (State Railroad Tax Cases, 92 U.S., 575.) The words
"uniform throughout the United States," as required of a tax by the Constitution, do
not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is
therefore the only uniformity which is prescribed by the Constitution. (Patton vs.
Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is uniform, within the constitutional
requirement, when it operates with the same force and effect in every place where the
subject of it is found. (Edye vs. Robertson, 112 U.S., 580; 28 L. Ed., 798.)
"Uniformity," as applied to the constitutional provision that all taxes shall be
uniform, means that all property belonging to the same class shall be taxed alike.
(Adams vs. Mississippi State Bank, 23 South, 395, citing Mississippi Mills vs Cook,
56 Miss., 40.) The statute under consideration imposes a tax of P2 per square meter
or fraction thereof upon every electric sign, bill-board, etc., wherever found in the
Philippine Islands. Or in other words, "the rule of taxation" upon such signs is
uniform throughout the Islands. The rule, which we have just quoted from the
Philippine Bill, does not require taxes to be graded according to the value of the
subject or subjects upon which they are imposed, especially those levied as privilege
or occupation taxes. We can hardly see wherein the tax in question constitutes double
taxation. The fact that the land upon which the billboards are located is taxed at so
much per unit and the billboards at so much per square meter does not constitute
"double taxation." Double taxation, within the true meaning of that expression, does
not necessarily affect its validity. (1 Cooley on Taxation, 3d ed., 389.) And again, it is
not for the judiciary to say that the classification upon which the tax is based "is
mere arbitrary selection and not based upon any reasonable grounds." The
Legislature selected signs and billboards as a subject for taxation and it must be
presumed that it, in so doing, acted with a full knowledge of the situation.
For the foregoing reasons, the judgment appealed from is affirmed, with costs against
the appellants. So ordered.
G.R. No. L-1104 May 31, 1949
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,
vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD
OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of the City of
Manila, defendants-appellees.
Francisco Zulueta and Poblador Jr. for appellants.
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees.
Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and
Manuel D. Baldeo as amicus curiae.
PERFECTO, J.:
Twelve corporation engaged in motion picture business have initiated these
proceeding through a complaint dated May 5, 1946, to impugn the validity of
Ordinance No. 2958 of the City of Manila which was enacted by the municipalBoard
of said city on April 25 1946 approved by the Mayor on April 27, 1946 and took
effect on May 1, 1946 said ordinance reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF
EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS,
THEATERS VAUDEVILLE COMPANIES THEATRICAL
SHOWS AND BOXING EXHIBITION AND PROVIDING FOR
OTHER PURPOSES.
SEC. 1. In addition to the fees paid by cinematographers,
theaters, vaudeville companies, theatrical shows and
boxing exhibitions, as provided for in sections 633 and
778 of Ordinance No. 1600, known as the Revised
Ordinance of the City of Manila, as amended, there shall
be collected from the place of amusement which are
specifically mentioned above the following fees on the
price of every admission ticket sold by such enterprises:
a. For every ticket sold the price of which is from P0.25 to P0.99
b. For every ticket sold the price of which is from P1 to P1.99
c. For every ticket sold the price of which is from P2 to P2.99
d. for every ticket sold the price of which is from P3 to P4.99
e. or every ticket sold the price of which is from P5 to P5.99
f. For every ticket sold the price of which is from P0 to P14.99
g. For ticket sold thee price of which is from P15 or more
SEC. 2 It shall be the duty of every proprietor lessee, promoter, or
operatorof such cinematographs, theater, vaudeville companies, theatrical
show and boxing exhibition to provide himself with tickets which shall be
serially numbered, indication therein the name of amusement place and the
fee charge for admission. Before such ticket are sold he same shall be
presented to the office of the city Treasurer for registration. Tickets once
issued and presented at the gate of entrance shall be cut by the gatekeeper
into halves, the first half to be returned to the customer and the other half to
be retained by the gate keeper.
It shall also be the duty of said proprietor lessee promoter or operator to
deliver to the Office of the City Treasurer the fees corresponding to the
number of ticket old by him within two days after the performances or
exhibition has taken place.
SEC. 3. The fees herein prescribed shall not be paid where the admission
fees or charge are collection for and in behalf of any charitable education or
religion institution or association.
All place of amusement which are operate by U.S. Army and Navy with
fund belonging to the U.S. Government are hereby exempted from fees
herein imposed.
SEC. 4. Any person violation any of the provision of this ordinance shall
upon conviction thereof be punished by a fine of not more than P200 or by
imprisonment for not more than six months or by both such fine and
imprisonment in the discretion of the court. If the violation is committed by
the club firm or corporation the manager the managing director or person
charged with the management of the business of such club firm or
corporation shall be criminally responsible therefor.
SEC. 5. This Ordinance shall take effect on the May 1, 1946.
Plaintiffs, operator of theaters in Manila And distributor of local or imported films
allege that they are interested in the provision of section 1,2 and 4 of said ordinance
which they impugn as null and void upon the following grounds: (a) For violation
the Constitution more particular the provision regarding the uniformity and equality
of taxation and thee equal protection of the laws; (b) because the Municipal Board of
Manila exceeded and over-stepped the power granted it the Charter of the City of
Manila; (c) because it contravenes violates and is inconsistent with, existing
nationallegislation more particularly revenue and tax laws and (d) because it is
unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and
violation our basic and recognizes principles of taxation and licensing laws.
Defendants allege as affirmative defenses the following: (a) That the ordinance was
passed by the Municipal Board of Manila by virtue of its express legislative power to
tax fix the license fee and regulate the business of theaters, cinematographs and
further to fix the location of and to tax, fix the license fee for and regulate the
business of theatrical performances public exhibition circus and other performances
and places of amusement; (b) that the graduated tax required by said ordinance being
applied to all cinematographs, theaters, vaudeville companies theatricalshow and
boxing exhibitions similarly situated and as a class without distinction or exception
the same does not violate the prohibition against uniformity and equality of taxation;
(c) that the graduated tax onadmission tickets to theaters and other places of
amusement imposed by the National Internal Revenue Code (Commonwealth Act
No. 466) is collected by and for the purposes of the National Government, whereas,
Ordinance No.2958 imposes and requires the collection of a similar tax by and for
the purposes of the Government of the City of Manila, and there is no case of double
taxation, (d) that said ordinance having been enacted under the express power of the
Municipal Board to tax for revenue as distinguishedfrom its power to license for
purely police purposes, the fact that the amount collected thereunder are higher than
what are needed for police regulation and supervision does not render said ordinance
unfair unjust capricious unreasonable and oppressive; (e) that consideration the
nature of the business of the plaintiffs and the enormous volume of business they
handle the graduated tax fixed by the ordinance is not unreasonable.
Defendants allege also that since May 1, 1946, when the ordinance in question took
effect plaintiffs have been charging the theater-going public increased prices for
admission to the cinematographs owned and operated to the graduated tax imposed
by said ordinance and as a result while refusing to pay said tax but at the same time
collecting an amount equal to said tax plaintiffs have taken undue advantage of said
ordinance to realized more profits.
On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila
rendered a decision upholding the validity of Ordinance No. 2958.
Plaintiffs appellants assign in the their brief three errors committed by the trial court.
We will consider them separately.
Appellants contend that the lower court erred in holding that under section 2444 (m)
of the Revised administrative Code the Municipal Board of the City ofManila had
the power to enact Ordinance No. 2958.
Section 2444 (m) of the Revised Administrative code reads as follows:
To tax fix the license fee and regulate the business of hotels restaurants
refreshment places, cafes, lodging houses, boarding houses livery garages
warehouses, pawnshops theaters, cinematographs; and further to fix the
location of and to tax fix the license fee for and regulate the businessof
lively stables, the license fee for and regulate the business of livery stable,
boarding stables, embalmers, public billiard table public pool tables,
bowling alleys, dance halls, public dancing halls, cabarets, circusand other
similar parades, public vehicles, race tracks, horse races,Junk dealers,
theatrical performances, public exhibitions, circus andother performances
and places of amusements, match factories, blacksmith shops, foundries,
steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder,
tar, pitch, resin, coal, oil, gasoline,benzene, turpentine, 'hemp, cotton,
nitroglycerin, petroleum or any Ofthe products thereof and of all other
highly combustible or explosivematerials and other establishment likely to
endanger the public safety or give rise to conflagration or explosion and
subject to the provision of ordinance issue by the (Philippines Health
Service) Bureau of Health in accordance with law tanneries, renders tallow
chandlers bone factories and soap factories.
Appellants line of argument runs as follows:
By virtue of the specific power granted in the above quoted provision of the Revised
Administration Code Ordinance No. 2958 was enacted.
On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466,
known as the National Internal Revenue Code section 18, 260 and 261 of which read
as follows:
SEC. 18. Sources of revenue. — The following taxes fees and charges are
deemed to be national internal revenue taxes:
(a) Income tax;
(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and charges, namely, taxes on banks
and insurance companies franchise taxes on amusements charges
 on forest product fees for sealing weights and measures firearms
license fees radio registration fees and water rentals.
SEC. 260. Amusement taxes. — There shall be collected from the proprietor,
lessee, or operation of theater cinematographs, concert halls, circuses,
boxing exhibition and other places of amusement the following taxes:
(a) When the amount paid for admission exceeds twenty-nine centavos, two
centavos on each admission;
(b) When the amount paid for admission exceeds twenty-nine but does not
exceed thirty-nine centavos, three centavos on each admission;
(c) When the amount paid for admission exceeds thirty-nine centavos but
does not exceed forty-nine centavos four centavos on each admission.
(d) When the amount paid for admission exceeds forty-nine centavos but
does not exceed fifty-nine centavos five admission.
(e) When the amount paid for admission exceeds fifty-nine centavos but
does not exceed sixty-nine centavos six centavos on each admission.
(f) When the amount paid for admission exceeds sixty-nine centavos but
does not exceed seventy nine centavos seven centavos on each admission.
(g) When the amount paid for admission exceeds seventy nine centavos but
does not exceed eighty-nine centavos eight centavos on each admission;
(h) When the amount paid for admission exceeds eighty-nine centavos but
does not exceed ninty-nine centavos, nine centavos on each admission;
(i) When the amount paid for admission exceeds ninety-nine centavos, ten
centavos on each admission.
In the case of theaters or cinematographs, the taxes herein prescribed shall
first be decuted and withheld by the proprietros, lessees, or operators of
such theaters or cinematogrphs and paid to the Collector of Internal
Revenue before the gross receipts are divided between the proprietros,
lessees, or operators of the theaters of cinematographs and the distributors
of the cinematographic films.
In the case of cockpits, race tracks, and cabarets, there shall be collected
from the proprietor, lessee, or operator a tax equivalent to ten per centum of
the gross receipts, irrespective of whether or not any amount is charged or
paid for admission: Provided, however, That in the case of race tracks, this
tax is in addition to the privilege tax prescribed in seciton 193. for the
purpose of the amusement tax, the term "gross receipts" embraces all the
receipts of the proprietor, lessee, or operator of the amusement place,
excluding the receipts derived by him from the sale of liquors, beverages, or
other articles subject to specific tax, or from any business subject to tax
under this Code. (This section was amended by section 8, Republic Act No.
39, effective October 1, 1946. We are quoting the original provision to show
the status of the law when the Ordinance was passed.)
SEC. 261. Exemption. — The tax herein imposed shall not be paid where
the admission fee or charges are collected by or for and in behalf of any
religious, charitable, scientific, or educational institution or association, and
where no part of the net proceeds of such admission fees or charges inures
to the benefit of any private stockholder or individual.
Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the
seven schedules and other details of said ordinance are, in every respect, identical
with the amusement tax provided by section 260 of Commonwealth Act No. 466.
But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code
confers upon the City of Manila the power to impose a tax on business but not on
amusement and, consequently, Ordinance No. 2958 was enacted beyond the charter
powers of the City of Manila.
The whole argument of plaintiffs hinges, therefore, on the assumption that the power
granted to the City of Manila by section 2444(m) of the Revised Administrative
Code is limited to the authority to impose a tax on business, with exclusion of the
power to impose a tax amusement; but, the assumption is based on an arbitrary
labeling of the kind of tax authorized by said section 2444(m). The distinction made
by plaintiffs as to the power to tax on business and the power to tax on amusement
has no ground under the provisions of section 2444(m) of the Revised Administrative
Code. The tax therein authorized cannot be defined as tax on business and cannot be
restricted within a smaller scope than what is authorized by the words used, to the
extent of excluding what plaintiffs describe as tax on amusement.
The very fact that section 2444 (m) of the Revised Administrative Code includes
theaters, cinematographs, public billiard tables, public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circuses and other similar places, race
tracks, horse races, theatrical performances, public exhibition, circus and other
performances and places of amusements, will show conclusively that the power to
tax amusement is expressly included within the power granted by section 2444(m) of
the Revised Administrative Code.
Plaintiffs-appellants contend that the lower court erred in not holding that section
2444 (m) of the Revised Administrative Code was repealed or the power therein
contained was withdrawn by the National Assembly by the enactment of
Commonwealth Act No. 466 known as the National Internal Revenue Code.
In support of this contention, plaintiffs aver that the Charter of the City of Manila,
containing section 2444(m) of the Revised Administrative Code, was enacted on
December 8, 1929. On April 25, 1940, the National Assembly enacted
Commonwealth Act No. 466, including provisions on amusement tax, covering the
whole field on taxation and provided for more than what the ordinance in question
has provided. As a result, there are two taxing powers seeking to occupy exactly the
same field of legislation, and so the apparent conflict must be resolved with the
conclusion that, with the enactment of Commonwealth Act No. 466, as later
amended by Republic Act No. 39, section 2444(m) of the Revised Administrative
Code has been impliedly repealed and the power therein delegated to the City of
Manila withdrawn.
We see absolutely no force in plaintiffs' contention. The conflict pointed out by them
is imaginary. Both provisions of law may stand together and be enforced at the same
time without any incompatibility among themselves.
Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No.
2958 violated the principle of equality and uniformity of taxation enjoined by the
Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of the philippines).
To support this contenttion, appellantts point out to the fact that the ordinance in
question does not tax "many more kinds of amusements" than those therein specified,
such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places of
amusement." the argument has absolutely no merit. The fact that some places of
amusement are not taxed while others, such as cinematographs, theaters, vaudeville
companies, theatrical shows, and boxing exhibitions and other kinds of amusements
or places of amusement are taxed, is no argument at all against the equality and
uniformity of the tax imposition. Equality and uniformity of the tax imposition.
Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation; and
the appellants cannot point out what places of amusement taxed by the ordinance do
not constitute a class by themselves and which can be confused with those not
included in the ordinance.
The judgment of the trial court is affirmed with costs against appellants.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity. The assailed provision further amends Section
21 of the National Internal Revenue Code of 1977, which provides for rates of tax on
citizens or residents on (a) taxable compensation income, (b) taxable net income, (c)
royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any
other monetary benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in the net profits of
taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that
by virtue thereof, "he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-
visthose which are imposed upon fixed income or salaried individual taxpayers. 4 He
characterizes the above sction as arbitrary amounting to class legislation, oppressive
and capricious in character 5 For petitioner, therefore, there is a transgression of both
the equal protection and due process clauses 6 of the Constitution as well as of the
rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an
answer within 10 days from notice. Such an answer, after two extensions were
granted the Office of the Solicitor General, was filed on May 28, 1982. 8The facts as
alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for them]
being those stated [in their] Special and Affirmative Defenses." 9 The answer then
affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax.
The authorities and cases cited while correctly quoted or paraghraph do not support
petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The
reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas
which used to be left to private enterprise and initiative and which the government
was called upon to enter optionally, and only 'because it was better equipped to
administer for the public welfare than is any private individual or group of
individuals,' continue to lose their well-defined boundaries and to be absorbed within
activities that the government must undertake in its sovereign capacity if it is to meet
the increasing social challenges of the times." 11 Hence the need for more revenues.
The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds. To
praphrase a recent decision, taxes being the lifeblood of the government, their
prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of
sovereignty. It is the strongest of all the powers of of government." 13 It is, of course,
to be admitted that for all its plenitude 'the power to tax is not unconfined. There are
restrictions. The Constitution sets forth such limits . Adversely affecting as it does
properly rights, both the due process and equal protection clauses inay properly be
invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall
that "the power to tax involves the power to destroy." 14 In a separate opinion
in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate
remark characterized it as "a flourish of rhetoric [attributable to] the intellectual
fashion of the times following] a free use of absolutes." 16 This is merely to
emphasize that it is riot and there cannot be such a constitutional mandate. Justice
Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The
power to tax is not the power to destroy while this Court sits." 17 So it is in the
Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law
overrides any legislative or executive, act that runs counter to it. In any case
therefore where it can be demonstrated that the challenged statutory provision — as
petitioner here alleges — fails to abide by its command, then this Court must so
declare and adjudge it null. The injury thus is centered on the question of whether the
imposition of a higher tax rate on taxable net income derived from business or
profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A
mere allegation, as here. does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a
provision as void or its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that were the due process and equal protection clauses are
invoked, considering that they arc not fixed rules but rather broad standards, there is
a need for of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause may be invoked where a taxing statute
is so arbitrary that it finds no support in the Constitution. An obvious example is
where it can be shown to amount to the confiscation of property. That would be a
clear abuse of power. It then becomes the duty of this Court to say that such an
arbitrary act amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held that where the
assailed tax measure is beyond the jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject
to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is
a denial of this constitutional mandate whether the assailed act is in the exercise of
the lice power or the power of eminent domain is to demonstrated that the
governmental act assailed, far from being inspired by the attainment of the common
weal was prompted by the spirit of hostility, or at the very least, discrimination that
finds no support in reason. It suffices then that the laws operate equally and
uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall be given to every
person under circumtances which if not Identical are analogous. If law be looked
upon in terms of burden or charges, those that fall within a class should be treated in
the same fashion, whatever restrictions cast on some in the group equally binding on
the rest." 20 That same formulation applies as well to taxation measures. The equal
protection clause is, of course, inspired by the noble concept of approximating the
Ideal of the laws benefits being available to all and the affairs of men being governed
by that serene and impartial uniformity, which is of the very essence of the Idea of
law. There is, however, wisdom, as well as realism in these words of Justice
Frankfurter: "The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of
the laws,' and laws are not abstract propositions. They do not relate to abstract units
A, B and C, but are expressions of policy arising out of specific difficulties, address
to the attainment of specific ends by the use of specific remedies. The Constitution
does not require things which are different in fact or opinion to be treated in law as
though they were the same." 21 Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter of fact, in a leading
case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to
hold "at any rate, it is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that 'inequalities which result
from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the
Constitution: "The rule of taxation shag be uniform and equitable." 24 This
requirement is met according to Justice Laurel in Philippine Trust Company v.
Yatco,25 decided in 1940, when the tax "operates with the same force and effect in
every place where the subject may be found. " 26 He likewise added: "The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable." 27 The problem of classification did not present itself in that case.
It did not arise until nine years later, when the Supreme Court held: "Equality and
uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by
Justice Tuason, where "the differentiation" complained of "conforms to the practical
dictates of justice and equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." 29 There is quite a similarity then to the standard of
equal protection for all that is required is that the tax "applies equally to all persons,
firms and corporations placed in similar situation."30
8. Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by eliminating all deductible items
and at the same time reducing the applicable tax rate. Taxpayers may be classified
into different categories. To repeat, it. is enough that the classification must rest upon
substantial distinctions that make real differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of generalized
rules removing all deductible items for all taxpayers within the class and fixing a set
of reduced tax rates to be applied to all of them. Taxpayers who are recipients of
compensation income are set apart as a class. As there is practically no overhead
expense, these taxpayers are e not entitled to make deductions for income tax
purposes because they are in the same situation more or less. On the other hand, in
the case of professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It would not
be just then to disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross income.
There is ample justification then for the Batasang Pambansa to adopt the gross
system of income taxation to compensation income, while continuing the system of
net income taxation as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit,
considering the (1) lack of factual foundation to show the arbitrary character of the
assailed provision; 31 (2) the force of controlling doctrines on due process, equal
protection, and uniformity in taxation and (3) the reasonableness of the distinction
between compensation and taxable net income of professionals and businessman
certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
G.R. No. 163583 April 15, 2009
BRITISH AMERICAN TOBACCO, Petitioner,
vs.
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department
of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as
Commissioner of the Bureau of Internal Revenue, Respondents.
Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp.,
MIGHTY CORPOR.A.TION, and JT InTERNATIONAL, S.A., Respondents-in-
Intervention.
RESOLUTION
YNARES-SANTIAGO, J.:
On August 20, 2008, the Court rendered a Decision partially granting the petition in
this case, viz:
WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the
Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is
AFFIRMED with MODIFICATION. As modified, this Court declares that:
(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is
CONSTITUTIONAL; and that
(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as
amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)
(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b)
of Revenue Memorandum Order No. 6-2003, insofar as pertinent to
cigarettes packed by machine, are INVALID insofar as they grant the BIR
the power to reclassify or update the classification of new brands every two
years or earlier.
SO ORDERED.
In its Motion for Reconsideration, petitioner insists that the assailed provisions (1)
violate the equal protection and uniformity of taxation clauses of the Constitution,
(2) contravene Section 19,1 Article XII of the Constitution on unfair competition, and
(3) infringe the constitutional provisions on regressive and inequitable taxation.
Petitioner further argues that assuming the assailed provisions are constitutional,
petitioner is entitled to a downward reclassification of Lucky Strike from the
premium-priced to the high-priced tax bracket.
The Court is not persuaded.
The assailed law does not violate the equal protection and uniformity of taxation
clauses.
Petitioner argues that the classification freeze provision violates the equal protection
and uniformity of taxation clauses because Annex "D" brands are taxed based on
their 1996 net retail prices while new brands are taxed based on their present day net
retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc City,2 petitioner asserts
that the assailed provisions accord a special or privileged status to Annex "D" brands
while at the same time discriminate against other brands.
These contentions are without merit and a rehash of petitioner’s previous arguments
before this Court. As held in the assailed Decision, the instant case neither involves a
suspect classification nor impinges on a fundamental right. Consequently, the
rational basis test was properly applied to gauge the constitutionality of the assailed
law in the face of an equal protection challenge. It has been held that "in the areas of
social and economic policy, a statutory classification that neither proceeds along
suspect lines nor infringes constitutional rights must be upheld against equal
protection challenge if there is any reasonably conceivable state of facts that could
provide a rational basis for the classification."3 Under the rational basis test, it is
sufficient that the legislative classification is rationally related to achieving some
legitimate State interest. As the Court ruled in the assailed Decision, viz:
A legislative classification that is reasonable does not offend the constitutional
guaranty of the equal protection of the laws. The classification is considered valid
and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane
to the purpose of the law; (3) it applies, all things being equal, to both present and
future conditions; and (4) it applies equally to all those belonging to the same class.
The first, third and fourth requisites are satisfied. The classification freeze provision
was inserted in the law for reasons of practicality and expediency. That is, since a
new brand was not yet in existence at the time of the passage of RA 8240, then
Congress needed a uniform mechanism to fix the tax bracket of a new brand. The
current net retail price, similar to what was used to classify the brands under Annex
"D" as of October 1, 1996, was thus the logical and practical choice. Further, with
the amendments introduced by RA 9334, the freezing of the tax classifications now
expressly applies not just to Annex "D" brands but to newer brands introduced after
the effectivity of RA 8240 on January 1, 1997 and any new brand that will be
introduced in the future. (However, as will be discussed later, the intent to apply the
freezing mechanism to newer brands was already in place even prior to the
amendments introduced by RA 9334 to RA 8240.) This does not explain, however,
why the classification is "frozen" after its determination based on current net retail
price and how this is germane to the purpose of the assailed law. An examination of
the legislative history of RA 8240 provides interesting answers to this question.
xxxx
From the foregoing, it is quite evident that the classification freeze provision could
hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to
unduly favor older brands over newer brands. Congress was unequivocal in its
unwillingness to delegate the power to periodically adjust the excise tax rate and tax
brackets as well as to periodically resurvey and reclassify the cigarette brands based
on the increase in the consumer price index to the DOF and the BIR. Congress
doubted the constitutionality of such delegation of power, and likewise, considered
the ethical implications thereof. Curiously, the classification freeze provision was put
in place of the periodic adjustment and reclassification provision because of the
belief that the latter would foster an anti-competitive atmosphere in the market. Yet,
as it is, this same criticism is being foisted by petitioner upon the classification freeze
provision.
To our mind, the classification freeze provision was in the main the result of
Congress’s earnest efforts to improve the efficiency and effectivity of the tax
administration over sin products while trying to balance the same with other State
interests. In particular, the questioned provision addressed Congress’s administrative
concerns regarding delegating too much authority to the DOF and BIR as this will
open the tax system to potential areas for abuse and corruption. Congress may have
reasonably conceived that a tax system which would give the least amount of
discretion to the tax implementers would address the problems of tax avoidance and
tax evasion.
To elaborate a little, Congress could have reasonably foreseen that, under the DOF
proposal and the Senate Version, the periodic reclassification of brands would tempt
the cigarette manufacturers to manipulate their price levels or bribe the tax
implementers in order to allow their brands to be classified at a lower tax bracket
even if their net retail prices have already migrated to a higher tax bracket after the
adjustment of the tax brackets to the increase in the consumer price index.
Presumably, this could be done when a resurvey and reclassification is forthcoming.
As briefly touched upon in the Congressional deliberations, the difference of the
excise tax rate between the medium-priced and the high-priced tax brackets under
RA 8240, prior to its amendment, was P3.36. For a moderately popular brand which
sells around 100 million packs per year, this easily translates to P336,000,000. The
incentive for tax avoidance, if not outright tax evasion, would clearly be present.
Then again, the tax implementers may use the power to periodically adjust the tax
rate and reclassify the brands as a tool to unduly oppress the taxpayer in order for the
government to achieve its revenue targets for a given year.
Thus, Congress sought to, among others, simplify the whole tax system for sin
products to remove these potential areas of abuse and corruption from both the side
of the taxpayer and the government. Without doubt, the classification freeze
provision was an integral part of this overall plan. This is in line with one of the
avowed objectives of the assailed law "to simplify the tax administration and
compliance with the tax laws that are about to unfold in order to minimize losses
arising from inefficiencies and tax avoidance scheme, if not outright tax evasion."
RA 9334 did not alter this classification freeze provision of RA 8240. On the
contrary, Congress affirmed this freezing mechanism by clarifying the wording of the
law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show,
that the administrative concerns in tax administration, which moved Congress to
enact the classification freeze provision in RA 8240, were merely continued by RA
9334. Indeed, administrative concerns may provide a legitimate, rational basis for
legislative classification. In the case at bar, these administrative concerns in the
measurement and collection of excise taxes on sin products are readily apparent as
afore-discussed.
Aside from the major concern regarding the elimination of potential areas for abuse
and corruption from the tax administration of sin products, the legislative
deliberations also show that the classification freeze provision was intended to
generate buoyant and stable revenues for government. With the frozen tax
classifications, the revenue inflow would remain stable and the government would be
able to predict with a greater degree of certainty the amount of taxes that a cigarette
manufacturer would pay given the trend in its sales volume over time. The reason for
this is that the previously classified cigarette brands would be prevented from
moving either upward or downward their tax brackets despite the changes in their net
retail prices in the future and, as a result, the amount of taxes due from them would
remain predictable. The classification freeze provision would, thus, aid in the
revenue planning of the government.
All in all, the classification freeze provision addressed Congress’s administrative
concerns in the simplification of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection, buoyant and stable revenue
generation, and ease of projection of revenues. Consequently, there can be no denial
of the equal protection of the laws since the rational-basis test is amply satisfied.
Moreover, petitioner’s contention that the assailed provisions violate the uniformity
of taxation clause is similarly unavailing. In Churchill v. Concepcion, 4 we explained
that a tax "is uniform when it operates with the same force and effect in every place
where the subject of it is found."5 It does not signify an intrinsic but simply a
geographical uniformity.6 A levy of tax is not unconstitutional because it is not
intrinsically equal and uniform in its operation.7 The uniformity rule does not
prohibit classification for purposes of taxation.8 As ruled in Tan v. Del Rosario, Jr.:9
Uniformity of taxation, like the kindred concept of equal protection, merely requires
that all subjects or objects of taxation, similarly situated, are to be treated alike both
in privileges and liabilities (citations omitted). Uniformity does not forfend
classification as long as: (1) the standards that are used therefor are substantial and
not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3)
the law applies, all things being equal, to both present and future conditions, and (4)
the classification applies equally well to all those belonging to the same class
(citations omitted).10
In the instant case, there is no question that the classification freeze provision meets
the geographical uniformity requirement because the assailed law applies to all
cigarette brands in the Philippines. And, for reasons already adverted to in our
August 20, 2008 Decision, the above four-fold test has been met in the present case.
Petitioner’s reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted
municipal ordinance specifically named and taxed only the Ormoc Sugar Company,
and excluded any subsequently established sugar central from its coverage. Thus, the
ordinance was found unconstitutional on equal protection grounds because its terms
do not apply to future conditions as well. This is not the case here. The classification
freeze provision uniformly applies to all cigarette brands whether existing or to be
introduced in the market at some future time. It does not purport to exempt any brand
from its operation nor single out a brand for the purpose of imposition of excise
taxes.
At any rate, petitioner’s real disagreement lies with the legitimate State interests.
Although it concedes that the Court utilized the rationality test and that the
classification freeze provision was necessitated by several legitimate State interests,
however, it refuses to accept the justifications given by Congress for the
classification freeze provision. As we elucidated in our August 20, 2008 Decision,
this line of argumentation revolves around the wisdom and expediency of the
assailed law which we cannot inquire into, much less overrule. Equal protection is
not a license for courts to judge the wisdom, fairness, or logic of legislative
choices.11 We reiterate, therefore, that petitioner’s remedy is with Congress and not
this Court.
The assailed provisions do not violate the constitutional prohibition on unfair
competition.
Petitioner asserts that the Court erroneously applied the rational basis test allegedly
because this test does not apply in a constitutional challenge based on a violation of
Section 19, Article XII of the Constitution on unfair competition. Citing Tatad v.
Secretary of the Department of Energy,12 it argues that the classification freeze
provision gives the brands under Annex "D" a decisive edge because it constitutes a
substantial barrier to the entry of prospective players; that the Annex "D" provision is
no different from the 4% tariff differential which we invalidated in Tatad; that some
of the new brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and
Canon, which were introduced into the market after the effectivity of the assailed law
on January 1, 1997, were "killed" by Annex "D" brands because the former brands
were reclassified by the BIR to higher tax brackets; that the finding that price is not
the only factor in the market as there are other factors like consumer preference,
active ingredients, etc. is contrary to the evidence presented and the deliberations in
Congress; that the classification freeze provision will encourage predatory pricing in
contravention of the constitutional prohibition on unfair competition; and that the
cumulative effect of the operation of the classification freeze provision is to
perpetuate the oligopoly of intervenors Philip Morris and Fortune Tobacco in
contravention of the constitutional edict for the State to regulate or prohibit
monopolies, and to disallow combinations in restraint of trade and unfair
competition.
The argument lacks merit. While previously arguing that the rational basis test was
not satisfied, petitioner now asserts that this test does not apply in this case and that
the proper matrix to evaluate the constitutionality of the assailed law is the
prohibition on unfair competition under Section 19, Article XII of the Constitution. It
should be noted that during the trial below, petitioner did not invoke said
constitutional provision as it relied solely on the alleged violation of the equal
protection and uniformity of taxation clauses. Well-settled is the rule that points of
law, theories, issues and arguments not adequately brought to the attention of the
lower court will not be ordinarily considered by a reviewing court as they cannot be
raised for the first time on appeal.13 At any rate, even if we were to relax this rule, as
previously stated, the evidence presented before the trial court is insufficient to
establish the alleged violation of the constitutional proscription against unfair
competition.
Indeed, in Tatad we ruled that a law which imposes substantial barriers to the entry
and exit of new players in our downstream oil industry may be struck down for being
violative of Section 19, Article XII of the Constitution.14However, we went on to say
in that case that "if they are insignificant impediments, they need not be stricken
down."15 As we stated in our August 20, 2008 Decision, petitioner failed to
convincingly prove that there is a substantial barrier to the entry of new brands in the
cigarette market due to the classification freeze provision. We further observed that
several new brands were introduced in the market after the assailed law went into
effect thus negating petitioner’s sweeping claim that the classification freeze
provision is an insurmountable barrier to the entry of new brands. We also noted that
price is not the only factor affecting competition in the market for there are other
factors such as taste, brand loyalty, etc.
We see no reason to depart from these findings for the following reasons:
First, petitioner did not lay down the factual foundations, as supported by verifiable
documentary proof, which would establish, among others, the cigarette brands in
competition with each other; the current net retail prices of Annex "D" brands, as
determined through a market survey, to provide a sufficient point of comparison with
those covered by the BIR’s market survey of new brands; and the causal connection
with as well as the extent of the impact on the competition in the cigarette market of
the classification freeze provision. Other than petitioner’s self-serving allegations
and testimonial evidence, no adequate documentary evidence was presented to
substantiate its claims. Absent ample documentary proof, we cannot accept
petitioner’s claim that the classification freeze provision is an insurmountable barrier
to the entry of new players.
Second, we cannot lend credence to petitioner’s claim that it cannot produce
cigarettes that can compete with Marlboro and Philip Morris in the high-priced tax
bracket. Except for its self-serving testimonial evidence, no sufficient documentary
evidence was presented to substantiate this claim. The current net retail price, which
is the basis for determining the tax bracket of a cigarette brand, more or less consists
of the costs of raw materials, labor, advertising and profit margin. To a large extent,
these factors are controllable by the manufacturer, as such, the decision to enter
which tax bracket will depend on the pricing strategy adopted by the individual
manufacturer. The same holds true for its claims that other new brands, like Astro,
Memphis, Capri, L&M, Bowling Green, Forbes, and Canon, were "killed" by Annex
"D" brands due to the effects of the operation of the classification freeze provision
over time. The evidence that petitioner presented before the trial court failed to
substantiate the basis for these claims.
Essentially, petitioner would want us to accept its conclusions of law without first
laying down the factual foundations of its arguments. This Court, which is not a trier
of facts, cannot take judicial notice of the factual premises of these arguments as
petitioner now seems to suggest. The evidence should have been presented before the
trial court to allow it to examine and determine for itself whether such factual
premises, as supported by sufficient documentary evidence, provide reasonable basis
for petitioner’s conclusion that there arose an unconstitutional unfair competition due
to the operation of the classification freeze provision. Petitioner should be reminded
that it appealed this case from the adverse ruling of the trial court directly to this
Court on pure questions of law instead of resorting to the Court of Appeals.
Third, Tatad is not applicable to the instant case. In Tatad, we found that the 4% tariff
differential between imported crude oil and imported refined petroleum products
erects a high barrier to the entry of new players because (1) it imposes an undue
burden on new players to spend billions of pesos to build refineries in order to
compete with the old players, and (2) new players, who opt not to build refineries,
suffer from the huge disadvantage of increasing their product cost by 4%.16 The tariff
was imposed on the raw materials uniformly used by the players in the oil industry.
Thus, the adverse effect on competition arising from this discriminatory treatment
was readily apparent. In contrast, the excise tax under the assailed law is imposed
based on the current net retail price of a cigarette brand. As previously explained, the
current net retail price is determined by the pricing strategy of the manufacturer. This
Court cannot simply speculate that the reason why a new brand cannot enter a
specific tax bracket and compete with the brands therein was because of the
classification freeze provision, rather than the manufacturer’s own pricing decision
or some other factor solely attributable to the manufacturer. Again, the burden of
proof in this regard is on petitioner which it failed to muster.
Fourth, the finding in our August 20, 2008 Decision that price is not the only factor
which affects consumer behavior in the cigarette market is based on petitioner’s own
evidence. On cross-examination, petitioner’s witness admitted that notwithstanding
the change in price, a cigarette smoker may prefer the old brand because of its
addictive formulation.17 As a result, even if we were to assume that the classification
freeze provision distorts the pricing scheme of the market players, it is not clear
whether a substantial barrier to the entry of new players would thereby be created
because of these other factors affecting consumer behavior.
Last, the claim that the assailed provisions encourage predatory pricing was never
raised nor substantiated before the trial court. It is merely an afterthought and cannot
be given weight.
In sum, the totality of the evidence presented by petitioner before the trial court
failed to convincingly establish the alleged violation of the constitutional prohibition
on unfair competition. It is a basic postulate that the one who challenges the
constitutionality of a law carries the heavy burden of proof for laws enjoy a strong
presumption of constitutionality as it is an act of a co-equal branch of government.
Petitioner failed to carry this burden.
The assailed law does not transgress the constitutional provisions on regressive and
inequitable taxation.
Petitioner argues that the classification freeze provision is a form of regressive and
inequitable tax system which is proscribed under Article VI, Section 28(1)18 of the
Constitution. It claims that people in equal positions should be treated alike. The use
of different tax bases for brands under Annex "D" vis-à-vis new brands is
discriminatory, and thus, iniquitous. Petitioner further posits that the classification
freeze provision is regressive in character. It asserts that the harmonization of
revenue flow projections and ease of tax administration cannot override this
constitutional command.
We note that the points raised by petitioner with respect to alleged inequitable
taxation perpetuated by the classification freeze provision are a mere reformulation
of its equal protection challenge. As stated earlier, the assailed provisions do not
infringe the equal protection clause because the four-fold test is satisfied. In
particular, the classification freeze provision has been found to rationally further
legitimate State interests consistent with rationality review. Petitioner’s repackaged
argument has, therefore, no merit.
Anent the issue of regressivity, it may be conceded that the assailed law imposes an
excise tax on cigarettes which is a form of indirect tax, and thus, regressive in
character. While there was an attempt to make the imposition of the excise tax more
equitable by creating a four-tiered taxation system where higher priced cigarettes are
taxed at a higher rate, still, every consumer, whether rich or poor, of a cigarette brand
within a specific tax bracket pays the same tax rate. To this extent, the tax does not
take into account the person’s ability to pay. Nevertheless, this does not mean that the
assailed law may be declared unconstitutional for being regressive in character
because the Constitution does not prohibit the imposition of indirect taxes but merely
provides that Congress shall evolve a progressive system of taxation. As we
explained in Tolentino v. Secretary of Finance:191avvphi1.zw+
[R]egressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation."
This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of social,
economic and political inequalities [Art. XIII, Section 1] or for the promotion of the
right to "quality education" [Art. XIV, Section 1]. These provisions are put in the
Constitution as moral incentives to legislation, not as judicially enforceable rights. 20
Petitioner is not entitled to a downward reclassification of Lucky Strike.
Petitioner alleges that assuming the assailed law is constitutional, its Lucky Strike
brand should be reclassified from the premium-priced to the high-priced tax bracket.
Relying on BIR Ruling No. 018-2001 dated May 10, 2001, it claims that it timely
sought redress from the BIR to have the market survey conducted within three
months from product launch, as provided for under Section 4(B)21 of Revenue
Regulations No. 1-97, in order to determine the actual current net retail price of
Lucky Strike, and thus, fix its tax classification. Further, the upward reclassification
of Lucky Strike amounts to deprivation of property right without due process of law.
The conduct of the market survey after two years from product launch constitutes
gross neglect on the part of the BIR. Consequently, for failure of the BIR to conduct
a timely market survey, Lucky Strike’s classification based on its suggested gross
retail price should be deemed its official tax classification. Finally, petitioner asserts
that had the market survey been timely conducted sometime in 2001, the current net
retail price of Lucky Strike would have been found to be under the high-priced tax
bracket.
These contentions are untenable and misleading.
First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose of fixing
Lucky Strike’s initial tax classification based on its suggested gross retail price
relative to its planned introduction of Lucky Strike in the market sometime in 2001
and not for the conduct of the market survey within three months from product
launch. In fact, the said Ruling contained an express reservation that the tax
classification of Lucky Strike set therein "is without prejudice, however, to the
subsequent conduct of a survey x x x in order to determine if the actual gross retail
price thereof is consistent with [petitioner’s] suggested gross retail price." 22 In short,
petitioner acknowledged that the initial tax classification of Lucky Strike may be
modified depending on the outcome of the survey which will determine the actual
current net retail price of Lucky Strike in the market.
Second, there was no upward reclassification of Lucky Strike because it was taxed
based on its suggested gross retail price from the time of its introduction in the
market in 2001 until the BIR market survey in 2003. We reiterate that Lucky Strikes’ G.R. No. 81820 June 30, 1988
actual current net retail price was surveyed for the first time in 2003 and was found
to be from ₱10.34 to ₱11.53 per pack, which is within the premium-priced tax KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated
bracket. There was, thus, no prohibited upward reclassification of Lucky Strike by labor federations and alliances, petitioners,
the BIR based on its current net retail price. vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE
Third, the failure of the BIR to conduct the market survey within the three-month COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OF
period under the revenue regulations then in force can in no way make the initial tax BUDGET, respondents.
classification of Lucky Strike based on its suggested gross retail price permanent.
Otherwise, this would contravene the clear mandate of the law which provides that G.R. No. 81921 June 30, 1988
the basis for the tax classification of a new brand shall be the current net retail price
and not the suggested gross retail price. It is a basic principle of law that the State INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE
cannot be estopped by the mistakes of its agents. PHILIPPINES and JESUS B. BANAL, petitioners,
vs.
Last, the issue of timeliness of the market survey was never raised before the trial The HON. COMMISSIONER, BUREAU OF INTERNAL
court because petitioner’s theory of the case was wholly anchored on the alleged REVENUE, respondent.
unconstitutionality of the classification freeze provision. As a consequence, no
documentary evidence as to the actual net retail price of Lucky Strike in 2001, based G.R. No. 82152 June 30, 1988
on a market survey at least comparable to the one mandated by law, was presented
before the trial court. Evidently, it cannot be assumed that had the BIR conducted the
market survey within three months from its product launch sometime in 2001, Lucky RICARDO C. VALMONTE, petitioner,
Strike would have been found to fall under the high-priced tax bracket and not the vs.
premium-priced tax bracket. To so hold would run roughshod over the State’s right to THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE,
due process. Verily, petitioner prosecuted its case before the trial court solely on the COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF
theory that the assailed law is unconstitutional instead of merely challenging the BUDGET, respondent.
timeliness of the market survey. The rule is that a party is bound by the theory he
adopts and by the cause of action he stands on. He cannot be permitted after having Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
lost thereon to repudiate his theory and cause of action, and thereafter, adopt another
and seek to re-litigate the matter anew either in the same forum or on Jaime C. Opinion for individual petitioners in G.R. No. 81311.
appeal.23 Having pursued one theory and lost thereon, petitioner may no longer
pursue another inconsistent theory without thereby trifling with court processes and Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners in
burdening the courts with endless litigation. G.R. No 81820.

WHEREFORE, the motion for reconsideration is DENIED. Union of Lawyers and Advocates for Peoples Right collaborating counsel for
petitioners in G.R. No 81820.
SO ORDERED.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.
G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG

PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. PADILLA, J.:
QUADRA, and MARIO C. VILLANUEVA, petitioners,
vs.
These four (4) petitions, which have been consolidated because of the similarity of
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.
the main issues involved therein, seek to nullify Executive Order No. 273 (EO 273,
for short), issued by the President of the Philippines on 25 July 1987, to take effect
on 1 January 1988, and which amended certain sections of the National Internal
Revenue Code and adopted the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not alledgedly within the powers of the
President; that the VAT is oppressive, discriminatory, regressive, and violates the due
process and equal protection clauses and other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that the
petitioners have failed to show justification for the exercise of its judicial powers,
viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial,
of the party raising the constitutional questions; (3) the constitutional question should
be raised at the earliest opportunity; and (4) the question of constitutionality is
directly and necessarily involved in a justiciable controversy and its resolution is
essential to the protection of the rights of the parties. According to the Solicitor
General, only the third requisite — that the constitutional question should be raised
at the earliest opportunity — has been complied with. He also questions the legal
standing of the petitioners who, he contends, are merely asking for an advisory
opinion from the Court, there being no justiciable controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality standing, or interest
are, however, in the main procedural matters. Considering the importance to the
public of the cases at bar, and in keeping with the Court's duty, under the 1987
Constitution, to determine wether or not the other branches of government have kept
themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed aside technicalities of
procedure and has taken cognizance of these petitions.
But, before resolving the issues raised, a brief look into the tax law in question is in
order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the
value, added by every seller, with aggregate gross annual sales of articles and/or
services, exceeding P200,00.00, to his purchase of goods and services, unless
exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods
or gross receipts realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on
manufacturers and producers, advance sales tax, and compensating tax on
importations. The framers of EO 273 that it is principally aimed to rationalize the
system of taxing goods and services; simplify tax administration; and make the tax
system more equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO
273 was issued. As pointed out by the Solicitor General, the Philippine sales tax
system, prior to the issuance of EO 273, was essentially a single stage value added
tax system computed under the "cost subtraction method" or "cost deduction
method" and was imposed only on original sale, barter or exchange of articles by
manufacturers, producers, or importers. Subsequent sales of such articles were not
subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a
3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance
of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales
taxes were imposed not only on the second sale, but on every subsequent sale, as
well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or
exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the
President had no authority to issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a Provisional
Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1
of the Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new
Constitution, the President shall continue to exercise legislative
powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new
Constitution for the Republic of the Philippines which was ratified in a plebiscite
conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter
referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the
President is vested with legislative powers until a legislature under a new
Constitution is convened. The first Congress, created and elected under the 1987
Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25
July 1987, two (2) days before Congress convened on 27 July 1987, was within the
President's constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30
June 1987 (not 27 July 1987). He contends that the word "convene" is synonymous
with "the date when the elected members of Congress assumed office."
The contention is without merit. The word "convene" which has been interpreted to
mean "to call together, cause to assemble, or convoke," 1 is clearly different from
assumption of office by the individual members of Congress or their taking the oath
of office. As an example, we call to mind the interim National Assembly created
under the 1973 Constitution, which had not been "convened" but some members of
the body, more particularly the delegates to the 1971 Constitutional Convention who
had opted to serve therein by voting affirmatively for the approval of said
Constitution, had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the definition of the
word "convene" a bit too far. It would also defeat the purpose of the framers of the
1987 Constitutional and render meaningless some other provisions of said
Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress
to convene once every year on the fourth Monday of July for its regular session
would be a contrariety, since Congress would already be deemed to be in session
after the individual members have taken their oath of office. A portion of the
provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of
enacting a law calling for a special election to elect a President and Vice-President in
case a vacancy occurs in said offices, would also be a surplusage. The portion of Art.
VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to
decide a conflict between the President and the Cabinet as to whether or not the
President and the Cabinet as to whether or not the President can re-assume the
powers and duties of his office, would also be redundant. The same is true with the
portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four
(24) hours following the declaration of martial law or the suspension of the privilage
of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power
to legislate. If the framers of said Constitution had intended to terminate the exercise
of legislative powers by the President at the beginning of the term of office of the
members of Congress, they should have so stated (but did not) in clear and
unequivocal terms. The Court has not power to re-write the Constitution and give it a
meaning different from that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the
President in grave abuse of discretion amounting to lack or excess of jurisdiction.
"Grave abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction (Abad
Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other
words, where the power is exercised in an arbitrary or despotic
manner by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty or to a
virtual refusal to perform the duty enjoined or to act at all in
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz.
62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically
or in an arbitrary or despotic manner by reason of passion or personal hostility. It
appears that a comprehensive study of the VAT had been extensively discussed by
this framers and other government agencies involved in its implementation, even
under the past administration. As the Solicitor General correctly sated. "The signing
of E.O. 273 was merely the last stage in the exercise of her legislative powers. The
legislative process started long before the signing when the data were gathered,
proposals were weighed and the final wordings of the measure were drafted, revised
and finalized. Certainly, it cannot be said that the President made a jump, so to speak,
on the Congress, two days before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and
regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987
Constitution, which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and
circumstances to warrant their conclusions. They have failed to adequately show that
the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon
newspaper articles which are actually hearsay and have evidentiary value. To justify
the nullification of a law. there must be a clear and unequivocal breach of the
Constitution, not a doubtful and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
uniform. The court, in City of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice
Laurel, speaking for the Court, stated: "A tax is considered uniform
when it operates with the same force and effect in every place
where the subject may be found."
There was no occasion in that case to consider the possible effect
on such a constitutional requirement where there is a classification.
The opportunity came in Eastern Theatrical Co. v. Alfonso (83
Phil. 852, 862). Thus: "Equality and uniformity in taxation means
that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of
taxation; . . ." About two years later, Justice Tuason, speaking for
this Court in Manila Race Horses Trainers Assn. v. de la Fuente (88
Phil. 60, 65) incorporated the above excerpt in his opinion and
continued; "Taking everything into account, the differentiation
against which the plaintiffs complain conforms to the practical
 dictates of justice and equity and is not discriminatory within the
meaning of the Constitution."
To satisfy this requirement then, all that is needed as held in
another case decided two years later, (Uy Matias v. City of Cebu,
93 Phil. 300) is that the statute or ordinance in question "applies
equally to all persons, firms and corporations placed in similar
situation." This Court is on record as accepting the view in a
leading American case (Carmichael v. Southern Coal and Coke
Co., 301 US 495) that "inequalities which result from a singling
out of one particular class for taxation or exemption infringe no
constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to
the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engage in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
spared as they are from the incidence of the VAT, are expected to be relatively lower
and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated
Customs Brokers Association of the Philippines that EO 273, more particularly the
new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates
against customs brokers. The contested provision states:
Sec. 103. Exempt transactions. — The following shall be exempt
from the value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling
(except customs brokers) subject to the occupation tax under the
Local Tax Code, and professional services performed by registered
general professional partnerships;
The phrase "except customs brokers" is not meant to discriminate against customs
brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of
the Code, which makes the services of customs brokers subject to the payment of the
VAT and to distinguish customs brokers from other professionals who are subject to
the payment of an occupation tax under the Local Tax Code. Pertinent provisions of
Sec. 102 read:
Sec. 102. Value-added tax on sale of services. — There shall be
levied, assessed and collected, a value-added tax equivalent to 10%
percent of gross receipts derived by any person engaged in the sale
of services. The phrase sale of services" means the performance of
all kinds of services for others for a fee, remuneration or
consideration, including those performed or rendered by
construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of personal
property; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods
for others; and similar services regardless of whether or not the
performance thereof call for the exercise or use of the physical or
mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r),
a potential conflict between the two sections, (Secs. 102 and 103), insofar as customs
brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals who
are subject to occupation tax under the Local Tax Code is based upon material
differences, in that the activities of customs brokers (like those of stock, real estate
and immigration brokers) partake more of a business, rather than a profession and
were thus subjected to the percentage tax under Sec. 174 of the National Internal
Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage
tax and replaced it with the VAT. If the petitioner Association did not protest the
classification of customs brokers then, the Court sees no reason why it should protest
now.
The Court takes note that EO 273 has been in effect for more than five (5) months
now, so that the fears expressed by the petitioners that the adoption of the VAT will
trigger skyrocketing of prices of basic commodities and services, as well as mass
actions and demonstrations against the VAT should by now be evident. The fact that
nothing of the sort has happened shows that the fears and apprehensions of the
petitioners appear to be more imagined than real. It would seem that the VAT is not
as bad as we are made to believe.
In any event, if petitioners seriously believe that the adoption and continued
application of the VAT are prejudicial to the general welfare or the interests of the
majority of the people, they should seek recourse and relief from the political
branches of the government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of the President as to the
wisdom, justice and advisability of the adoption of the VAT. The Court can only look
into and determine whether or not EO 273 was enacted and made effective as law, in
the manner required by, and consistent with, the Constitution, and to make sure that
it was not issued in grave abuse of discretion amounting to lack or excess of
jurisdiction; and, in this regard, the Court finds no reason to impede its application or
continued implementation.
WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.
SO ORDERED.
G.R. No. L-60126 September 25, 1985
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
Quasha, De Guzman Makalintal & Barot for petitioner.
AQUINO, J.:
This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for
income tax amounting to P75,149.73 for the more than seven-month period of the
year 1969 in addition to franchise tax.
The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under
which its payment of 3% tax on its gross earnings from the sale of electric current is
"in lieu of all taxes and assessments of whatever authority upon privileges, earnings,
income, franchise, and poles, wires, transformers, and insulators of the grantee, from
which taxes and assessments the grantee is hereby expressly exempted" (Sec. 3).
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by
making liable for income tax all corporate taxpayers not specifically exempt under
paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the
"provisions of existing special or general laws to the contrary". Thus, franchise
companies were subjected to income tax in addition to franchise tax.
However, in petitioner's case, its franchise was amended by Republic Act No. 6020,
effective August 4, 1969, by authorizing the petitioner to furnish electricity to the
municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de
Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the
tax exemption in its original charter or neutralized the modification made by
Republic Act No. 5431 more than a year before.
By reason of the amendment to section 24 of the Tax Code, the Commissioner of
Internal Revenue in a demand letter dated February 15, 1973 required the petitioner
to pay deficiency income taxes for 1968-to 1971. The petitioner contested the
assessments. The Commissioner cancelled the assessments for 1970 and 1971 but
insisted on those for 1968 and 1969.
The petitioner filed a petition for review with the Tax Court, which on February 26,
1982 held the petitioner liable only for the income tax for the period from January 1
to August 3, 1969 or before the passage of Republic Act No. 6020 which reiterated its
tax exemption. The petitioner appealed to this Court.
It contends that the Tax Court erred (1) in not holding that the franchise tax paid by
the petitioner is a commutative tax which already includes the income tax; (2) in
holding that Republic Act No. 5431 as amended, altered or repealed petitioner's
franchise; (3) in holding that petitioner's franchise is a contract which can be
impaired by an implied repeal and (4) in not holding that section 24(d) of the Tax
Code should be construed strictly against the Government.
We hold that Congress could impair petitioner's legislative franchise by making it
liable for income tax from which heretofore it was exempted by virtue of the
exemption provided for in section 3 of its franchise.
The Constitution provides that a franchise is subject to amendment, alteration or
repeal by the Congress when the public interest so requires (Sec. 8, Art. XIV, 1935
Constitution; Sec. 5, Art. XIV, 1973 Constitution),
Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject
to the provisions of the Constitution and to the terms and conditions established in
Act No. 3636 whose section 12 provides that the franchise is subject to amendment,
alteration or repeal by Congress.
Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to
income tax all corporate taxpayers not expressly exempted therein and in section 27
of the Code, had the effect of withdrawing petitioner's exemption from income tax.
The Tax Court acted correctly in holding that the exemption was restored by the
subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted
the said tax exemption. Hence, the petitioner is liable only for the income tax for the
period from January 1 to August 3, 1969 when its tax exemption was modified by
Republic Act No. 5431.
It is relevant to note that franchise companies, like the Philippine Long Distance
Telephone Company, have been paying income tax in addition to the franchise tax.
However, it cannot be denied that the said 1969 assessment appears to be highly
controversial. The Commissioner at the outset was not certain as to petitioner's
income tax liability. It had reason not to pay income tax because of the tax exemption
in its franchise.
For this reason, it should be liable only for tax proper and should not be held liable
for the surcharge and interest. (Advertising Associates, Inc. vs. Commissioner of
Internal Revenue and Court of Tax Appeals, G. R. No. 59758, December 26,
1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue,
125 Phil. 1024; C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L-
28383, June 22, 1976, 71 SCRA 511.)
WHEREFORE, the judgment of the Tax Court is affirmed with the modification that
the petitioner is liable only for the tax proper and that it should not pay the
delinquency penalties. No costs.
SO ORDERED.
G.R. No. L-22814 August 28, 1968
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-
appellant,
vs.
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD,
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF
BUTUAN, defendants-appellees.
Sabido, Sabido and Associates for plaintiff-appellant.
The City Attorney of Butuan City for defendants-appellees.
CONCEPCION, C.J.:
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan,
dismissing plaintiff's complaint, with costs.
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation
with offices and principal place of business in Quezon City. The defendants are the
City of Butuan, its City Mayor, the members of its municipal board and its City
Treasurer. Plaintiff — seeks to recover the sums paid by it to the City of Butuan —
hereinafter referred to as the City and collected by the latter, pursuant to its
Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both
series of 1960, which plaintiff assails as null and void, and to prevent the
enforcement thereof. Both parties submitted the case for decision in the lower court
upon a stipulation to the effect:
1. That plaintiff's warehouse in the City of Butuan serves as a storage for its
products the "Pepsi-Cola" soft drinks for sale to customers in the City of
Butuan and all the municipalities in the Province of Agusan. These "Pepsi-
Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan
City warehouse of plaintiff for distribution and sale in the City of Butuan
and all municipalities of Agusan. .
2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110
which was subsequently amended by Ordinance No. 122 and effective
November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and
Ordinance No. 122 are incorporated herein as Exhibits "A" and "B",
respectively.
3. That Ordinance No. 110 as amended, imposes a tax on any person,
association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the
plaintiff paid under protest the amount of P4,926.63 from August 16 to
December 31, 1960 and the amount of P9,250.40 from January 1 to July 30,
1961.
4. That the plaintiff filed the foregoing complaint for the recovery of the
total amount of P14,177.03 paid under protest and those that if may later on
pay until the termination of this case on the ground that Ordinance No. 110
as amended of the City of Butuan is illegal, that the tax imposed is
excessive and that it is unconstitutional.
5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of
Butuan City, has prepared a form to be accomplished by the plaintiff for the
computation of the tax. A copy of the form is enclosed herewith as Exhibit
"C".
6. That the Profit and Loss Statement of the plaintiff for the period from
January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is
incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and
Loss Statement, the defendants claim that the plaintiff is not entitled to a
depreciation of P3,052.63 but only P1,202.55 in which case the profit of
plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs
only on the claim of depreciation which the company claims to be
P3,052.62. This is in accordance with the findings of the representative of
the undersigned City Attorney who verified the records of the plaintiff.
7. That beginning November 21, 1960, the price of Pepsi-Cola per case of
24 bottles was increased to P1.92 which price is uniform throughout the
Philippines. Said increase was made due to the increase in the production
cost of its manufacture.
 8. That the parties reserve the right to submit arguments on the
constitutionality and illegality of Ordinance No. 110, as amended of the
City of Butuan in their respective memoranda.
xxx xxx x x x1äwphï1.ñët
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors",
within the purview thereof. Section 2 provides for the payment by "any agent and/or
consignee" of any dealer "engaged in selling liquors, imported or local, in the City,"
of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles
of the soft drinks and carbonated beverages therein named, and "all other soft drinks
or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or
agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid
at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based
and computed from the cargo manifest or bill of lading or any other record showing
the number of cases of soft drinks, liquors or all other soft drinks or carbonated
drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be
added for failure to pay the taxes within the period prescribed and the penalties
imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2
and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of
lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale
in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or
carbonated drinks "received outside" but "sold within" the City. Section 10 of the
ordinance provides that the revenue derived therefrom "shall be alloted as follows:
40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School
Fund."
Plaintiff maintains that the disputed ordinance is null and void because: (1) it
partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is
excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and
(5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted,
is an unconstitutional delegation of legislative powers.
The second and last objections are manifestly devoid of merit. Indeed —
independently of whether or not the tax in question, when considered in relation to
the sales tax prescribed by Acts of Congress, amounts to double taxation, on which
we need not and do not express any opinion - double taxation, in general, is not
forbidden by our fundamental law. We have not adopted, as part thereof, the
injunction against double taxation found in the Constitution of the United States and
of some States of the Union.1 Then, again, the general principle against delegation of
legislative powers, in consequence of the theory of separation of powers2 is subject to
one well-established exception, namely: legislative powers may be delegated to local
governments — to which said theory does not apply3 — in respect of matters of local
concern.
The third objection is, likewise, untenable. The tax of "P0.10 per case of 24
bottles," of soft drinks or carbonated drinks — in the production and sale of which
plaintiff is engaged — or less than P0.0042 per bottle, is manifestly too small to be
excessive, oppressive, or confiscatory.
The first and the fourth objections merit, however, serious consideration. In this
connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No.
110, as originally approved, was imposed upon dealers "engaged in selling" soft
drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a
tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is,
however, imposed only upon "any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling ... soft drinks or carbonated
drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No.
122:
... — Definition of the Term Consignee or Agent. — For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to
whom is consigned or shipped no less than 1,000 cases of hard liquors or
soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or carbonated drinks,
are not subject to the tax, unless they are agents and/or consignees of another
dealer, who, in the very nature of things, must be one engaged in business outside the
City. Besides, the tax would not be applicable to such agent and/or consignee, if less
than 1,000 cases of soft drinks are consigned or shipped to him every month. When
we consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" — not sold — but
"received" by the taxpayer, the intention to limit the application of the ordinance to
soft drinks and carbonated drinks brought into the City from outside thereof becomes
apparent. Viewed from this angle, the tax partakes of the nature of an import duty,
which is beyond defendant's authority to impose by express provision of law.4
Even however, if the burden in question were regarded as a tax on the sale of said
beverages, it would still be invalid, as discriminatory, and hence, violative of the
uniformity required by the Constitution and the law therefor, since only sales by
"agents or consignees" of outside dealers would be subject to the tax. Sales by local
dealers, not acting for or on behalf of other merchants, regardless of the volume of
their sales, and even if the same exceeded those made by said agents or consignees of
producers or merchants established outside the City of Butuan, would
be exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority
to classify the objects of taxation.5 The classification made in the exercise of this
authority, to be valid, must, however, be reasonable6 and this requirement is not
deemed satisfied unless: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or ordinance; (3)
the classification applies, not only to present conditions, but, also, to future
conditions substantially identical to those of the present; and (4) the classification
applies equally all those who belong to the same class.7
These conditions are not fully met by the ordinance in question.8 Indeed, if its
purpose were merely to levy a burden upon the sale of soft drinks or carbonated
beverages, there is no reason why sales thereof by sealers other than agents or
consignees of producers or merchants established outside the City of Butuan should
be exempt from the tax.
WHEREFORE, the decision appealed from is hereby reversed, and another one shall
be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and
sentencing the City of Butuan to refund to plaintiff herein the amounts collected from
and paid under protest by the latter, with interest thereon at the legal rate from the
date of the promulgation of this decision, in addition to the costs, and defendants
herein are, accordingly, restrained and prohibited permanently from enforcing said
Ordinance, as amended. It is so ordered.
G.R. No. L-9637 April 30, 1957
AMERICAN BIBLE SOCIETY, plaintiff-appellant,
vs.
CITY OF MANILA, defendant-appellee.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Nañawa for appellee.
FELIX, J.:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary
corporation duly registered and doing business in the Philippines through its
Philippine agency established in Manila in November, 1898, with its principal office
at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation
with powers that are to be exercised in conformity with the provisions of Republic
Act No. 409, known as the Revised Charter of the City of Manila.
In the course of its ministry, plaintiff's Philippine agency has been distributing and
selling bibles and/or gospel portions thereof (except during the Japanese occupation)
throughout the Philippines and translating the same into several Philippine dialects.
On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff
that it was conducting the business of general merchandise since November, 1945,
without providing itself with the necessary Mayor's permit and municipal license, in
violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and
3364, and required plaintiff to secure, within three days, the corresponding permit
and license fees, together with compromise covering the period from the 4th quarter
of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).
Plaintiff protested against this requirement, but the City Treasurer demanded that
plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken
in court regarding the same (Annex B). To avoid the closing of its business as well as
further fines and penalties in the premises on October 24, 1953, plaintiff paid to the
defendant under protest the said permit and license fees in the aforementioned
amount, giving at the same time notice to the City Treasurer that suit would be taken
in court to question the legality of the ordinances under which, the said fees were
being collected (Annex C), which was done on the same date by filing the complaint
that gave rise to this action. In its complaint plaintiff prays that judgment be rendered
declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos.
2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered
to refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal
interest thereon, and the costs, plaintiff further praying for such other relief and
remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were
enacted by the Municipal Board of the City of Manila by virtue of the power granted
to it by section 2444, subsection (m-2) of the Revised Administrative Code,
superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409,
known as the Revised Charter of the City of Manila, and praying that the complaint
be dismissed, with costs against plaintiff. This answer was replied by the plaintiff
reiterating the unconstitutionality of the often-repeated ordinances.
Before trial the parties submitted the following stipulation of facts:
COME NOW the parties in the above-entitled case, thru their undersigned
attorneys and respectfully submit the following stipulation of facts:
1. That the plaintiff sold for the use of the purchasers at
its principal office at 636 Isaac Peral, Manila, Bibles, New
Testaments, bible portions and bible concordance in
English and other foreign languages imported by it from
the United States as well as Bibles, New Testaments and
bible portions in the local dialects imported and/or
purchased locally; that from the fourth quarter of 1945 to
the first quarter of 1953 inclusive the sales made by the
plaintiff were as follows:
Quarter Amount of Sales 4th quarter 1950 45,287.92

4th quarter 1945 P1,244.21 1st quarter 1951 37,841.21

1st quarter 1946 2,206.85 2nd quarter 1951 29,103.98

2nd quarter 1946 1,950.38 3rd quarter 1951 20,181.10

3rd quarter 1946 2,235.99 4th quarter 1951 22,968.91

4th quarter 1946 3,256.04 1st quarter 1952 23,002.65

1st quarter 1947 13,241.07 2nd quarter 1952 17,626.96

2nd quarter 1947 15,774.55 3rd quarter 1952 17,921.01

3rd quarter 1947 14,654.13 4th quarter 1952 24,180.72

4th quarter 1947 12,590.94 1st quarter 1953 29,516.21

1st quarter 1948 11,143.90

2. That the parties hereby reserve the right to present evidence of other facts
not herein stipulated.
2nd quarter 1948 14,715.26
WHEREFORE, it is respectfully prayed that this case be set for hearing so
3rd quarter 1948 38,333.83 that the parties may present further evidence on their behalf. (Record on
Appeal, pp. 15-16).
4th quarter 1948 16,179.90
When the case was set for hearing, plaintiff proved, among other things, that it has
1st quarter 1949 23,975.10 been in existence in the Philippines since 1899, and that its parent society is in New
York, United States of America; that its, contiguous real properties located at Isaac
2nd quarter 1949 17,802.08 Peral are exempt from real estate taxes; and that it was never required to pay any
municipal license fee or tax before the war, nor does the American Bible Society in
3rd quarter 1949 16,640.79 the United States pay any license fee or sales tax for the sale of bible therein.
Plaintiff further tried to establish that it never made any profit from the sale of its
bibles, which are disposed of for as low as one third of the cost, and that in order to
4th quarter 1949 15,961.38
maintain its operating cost it obtains substantial remittances from its New York office
and voluntary contributions and gifts from certain churches, both in the United States
1st quarter 1950 18,562.46 and in the Philippines, which are interested in its missionary work. Regarding
plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the
2nd quarter 1950 21,816.32 admissions of plaintiff-appellant's lone witness who testified on cross-examination
that bibles bearing the price of 70 cents each from plaintiff-appellant's New York
3rd quarter 1950 25,004.55 office are sold here by plaintiff-appellant at P1.30 each; those bearing the price of
$4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here
at P15 each; and those bearing the price of $11 each are sold here at P22 each,
clearly show that plaintiff's contention that it never makes any profit from the sale of
its bible, is evidently untenable.
After hearing the Court rendered judgment, the last part of which is as follows:
As may be seen from the repealed section (m-2) of the Revised
Administrative Code and the repealing portions (o) of section 18 of
Republic Act No. 409, although they seemingly differ in the way the
legislative intent is expressed, yet their meaning is practically the same for
the purpose of taxing the merchandise mentioned in said legal provisions,
and that the taxes to be levied by said ordinances is in the nature of
percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and
Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No.
3364).
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the
opinion and so holds that this case should be dismissed, as it is hereby
dismissed, for lack of merits, with costs against the plaintiff.
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals
which certified the case to Us for the reason that the errors assigned to the lower
Court involved only questions of law.
Appellant contends that the lower Court erred:
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended,
are not unconstitutional;
2. In holding that subsection m-2 of Section 2444 of the Revised
Administrative Code under which Ordinances Nos. 2592 and 3000 were
promulgated, was not repealed by Section 18 of Republic Act No. 409;
3. In not holding that an ordinance providing for taxes based on gross sales
or receipts, in order to be valid under the new Charter of the City of Manila,
must first be approved by the President of the Philippines; and
4. In holding that, as the sales made by the plaintiff-appellant have assumed
commercial proportions, it cannot escape from the operation of said
municipal ordinances under the cloak of religious privilege.
The issues. — As may be seen from the proceeding statement of the case, the issues
involved in the present controversy may be reduced to the following: (1) whether or
not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and
3364, are constitutional and valid; and (2) whether the provisions of said ordinances
are applicable or not to the case at bar.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the
Philippines, provides that:
(7) No law shall be made respecting an establishment of religion, or
prohibiting the free exercise thereof, and the free exercise and enjoyment of
religious profession and worship, without discrimination or preference, shall
forever be allowed. No religion test shall be required for the exercise of
civil or political rights.
Predicated on this constitutional mandate, plaintiff-appellant contends that
Ordinances Nos. 2529 and 3000, as respectively amended, are unconstitutional and
illegal in so far as its society is concerned, because they provide for religious
censorship and restrain the free exercise and enjoyment of its religious profession, to
wit: the distribution and sale of bibles and other religious literature to the people of
the Philippines.
Before entering into a discussion of the constitutional aspect of the case, We shall
first consider the provisions of the questioned ordinances in relation to their
application to the sale of bibles, etc. by appellant. The records, show that by letter of
May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's
permit in connection with the society's alleged business of distributing and selling
bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this
litigation, plus the sum of P35 for compromise on account of plaintiff's failure to
secure the permit required by Ordinance No. 3000 of the City of Manila, as
amended. This Ordinance is of general application and not particularly directed
against institutions like the plaintiff, and it does not contain any provisions whatever
prescribing religious censorship nor restraining the free exercise and enjoyment of
any religious profession. Section 1 of Ordinance No. 3000 reads as follows:
SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or
entity to conduct or engage in any of the businesses, trades, or
occupations enumerated in Section 3 of this Ordinance or other businesses,
trades, or occupations for which a permit is required for the proper
supervision and enforcement of existing laws and ordinances governing the
sanitation, security, and welfare of the public and the health of the
employees engaged in the business specified in said section 3
hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR
FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE
CITY TREASURER.
The business, trade or occupation of the plaintiff involved in this case is not
particularly mentioned in Section 3 of the Ordinance, and the record does not show
that a permit is required therefor under existing laws and ordinances for the proper
supervision and enforcement of their provisions governing the sanitation, security
and welfare of the public and the health of the employees engaged in the business of
the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which
reads as follows:
79. All other businesses, trades or occupations not
mentioned in this Ordinance, except those upon which the
City is not empowered to license or to tax P5.00
Therefore, the necessity of the permit is made to depend upon the power of the City
to license or tax said business, trade or occupation.
As to the license fees that the Treasurer of the City of Manila required the society to
pay from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45,
including the sum of P50 as compromise, Ordinance No. 2529, as amended by
Ordinances Nos. 2779, 2821 and 3028 prescribes the following:
SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised
Ordinances of the City of Manila, as amended, there shall be paid to the
City Treasurer for engaging in any of the businesses or occupations below
enumerated, quarterly, license fees based on gross sales or receipts realized
during the preceding quarter in accordance with the rates herein prescribed:
PROVIDED, HOWEVER, That a person engaged in any businesses or
occupation for the first time shall pay the initial license fee based on the
probable gross sales or receipts for the first quarter beginning from the date
of the opening of the business as indicated herein for the corresponding
business or occupation.
xxx xxx xxx
GROUP 2. — Retail dealers in new (not yet used) merchandise, which
dealers are not yet subject to the payment of any municipal tax, such as
(1) retail dealers in general merchandise; (2) retail dealers exclusively
engaged in the sale of . . . books, including stationery.
xxx xxx xxx
As may be seen, the license fees required to be paid quarterly in Section 1 of said
Ordinance No. 2529, as amended, are not imposed directly upon any religious
institution but upon those engaged in any of the business or occupations therein
enumerated, such as retail "dealers in general merchandise" which, it is alleged,
cover the business or occupation of selling bibles, books, etc.
Chapter 60 of the Revised Administrative Code which includes section 2444,
subsection (m-2) of said legal body, as amended by Act No. 3659, approved on
December 8, 1929, empowers the Municipal Board of the City of Manila:
(M-2) To tax and fix the license fee on (a) dealers in new automobiles or
accessories or both, and (b) retail dealers in new (not yet used) merchandise,
which dealers are not yet subject to the payment of any municipal tax.
For the purpose of taxation, these retail dealers shall be classified as (1)
retail dealers in general merchandise, and (2) retail dealers exclusively
engaged in the sale of (a) textiles . . . (e) books, including stationery, paper
and office supplies, . . .: PROVIDED, HOWEVER, That the combined total
tax of any debtor or manufacturer, or both, enumerated under these
subsections (m-1) and (m-2), whether dealing in one or all of the articles
mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED
PESOS PER ANNUM.
and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as
amended, were enacted in virtue of the power that said Act No. 3669 conferred upon
the City of Manila. Appellant, however, contends that said ordinances are longer in
force and effect as the law under which they were promulgated has been expressly
repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as
the Revised Manila Charter.
Passing upon this point the lower Court categorically stated that Republic Act No.
409 expressly repealed the provisions of Chapter 60 of the Revised Administrative
Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former
Manila Charter and section 18 (o) of the new seemingly differ in the way the
legislative intent was expressed, yet their meaning is practically the same for the
purpose of taxing the merchandise mentioned in both legal provisions and,
consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as
still in full force and effect uninterruptedly up to the present.
Often the legislature, instead of simply amending the pre-existing statute,
will repeal the old statute in its entirety and by the same enactment re-enact
all or certain portions of the preexisting law. Of course, the problem created
by this sort of legislative action involves mainly the effect of the repeal
upon rights and liabilities which accrued under the original statute. Are
those rights and liabilities destroyed or preserved? The authorities are
divided as to the effect of simultaneous repeals and re-enactments. Some
adhere to the view that the rights and liabilities accrued under the repealed
act are destroyed, since the statutes from which they sprang are actually
terminated, even though for only a very short period of time. Others, and
they seem to be in the majority, refuse to accept this view of the situation,
and consequently maintain that all rights an liabilities which have accrued
 under the original statute are preserved and may be enforced, since the re-
enactment neutralizes the repeal, therefore, continuing the law in force
without interruption. (Crawford-Statutory Construction, Sec. 322).
Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a
new and wider concept of taxation and is different from the provisions of Section
2444(m-2) that the former cannot be considered as a substantial re-enactment of the
provisions of the latter. We have quoted above the provisions of section 2444(m-2) of
the Revised Administrative Code and We shall now copy hereunder the provisions of
Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:
(o) To tax and fix the license fee on dealers in general merchandise,
including importers and indentors, except those dealers who may be
expressly subject to the payment of some other municipal tax under the
provisions of this section.
Dealers in general merchandise shall be classified as (a) wholesale dealers
and (b) retail dealers. For purposes of the tax on retail dealers, general
merchandise shall be classified into four main classes: namely (1) luxury
articles, (2) semi-luxury articles, (3) essential commodities, and (4)
miscellaneous articles. A separate license shall be prescribed for each class
but where commodities of different classes are sold in the same
establishment, it shall not be compulsory for the owner to secure more than
one license if he pays the higher or highest rate of tax prescribed by
ordinance. Wholesale dealers shall pay the license tax as such, as may be
provided by ordinance.
For purposes of this section, the term "General merchandise" shall include
poultry and livestock, agricultural products, fish and other allied products.
The only essential difference that We find between these two provisions that may
have any bearing on the case at bar, is that, while subsection (m-2) prescribes that the
combined total tax of any dealer or manufacturer, or both, enumerated under
subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned
therein, shall not be in excess of P500 per annum, the corresponding section 18,
subsection (o) of Republic Act No. 409, does not contain any limitation as to the
amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in
accordance with the weight of the authorities above referred to that maintain that "all
rights and liabilities which have accrued under the original statute are preserved and
may be enforced, since the reenactment neutralizes the repeal, therefore continuing
the law in force without interruption", We hold that the questioned ordinances of the
City of Manila are still in force and effect.
Plaintiff, however, argues that the questioned ordinances, to be valid, must first be
approved by the President of the Philippines as per section 18, subsection (ii) of
Republic Act No. 409, which reads as follows:
(ii) To tax, license and regulate any business, trade or occupation being
conducted within the City of Manila, not otherwise enumerated in the
preceding subsections, including percentage taxes based on gross sales or
receipts, subject to the approval of the PRESIDENT, except amusement
taxes.
but this requirement of the President's approval was not contained in section 2444 of
the former Charter of the City of Manila under which Ordinance No. 2529 was
promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers
in general merchandise" is expressly enumerated in subsection (o), section 18 of
Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said
business does not have to be approved by the President to be effective, as it is not
among those referred to in said subsection (ii). Moreover, the questioned ordinances
are still in force, having been promulgated by the Municipal Board of the City of
Manila under the authority granted to it by law.
The question that now remains to be determined is whether said ordinances are
inapplicable, invalid or unconstitutional if applied to the alleged business of
distribution and sale of bibles to the people of the Philippines by a religious
corporation like the American Bible Society, plaintiff herein.
With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and
3028, appellant contends that it is unconstitutional and illegal because it restrains the
free exercise and enjoyment of the religious profession and worship of appellant.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted,
guarantees the freedom of religious profession and worship. "Religion has been
spoken of as a profession of faith to an active power that binds and elevates man to
its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his
relations to His Creator and to the obligations they impose of reverence to His being
and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The
constitutional guaranty of the free exercise and enjoyment of religious profession and
worship carries with it the right to disseminate religious information. Any restraints
of such right can only be justified like other restraints of freedom of expression on
the grounds that there is a clear and present danger of any substantive evil which the
State has the right to prevent". (Tañada and Fernando on the Constitution of the
Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved
is imposed upon appellant for its distribution and sale of bibles and other religious
literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance
requiring that a license be obtained before a person could canvass or solicit
orders for goods, paintings, pictures, wares or merchandise cannot be made
to apply to members of Jehovah's Witnesses who went about from door to
door distributing literature and soliciting people to "purchase" certain
religious books and pamphlets, all published by the Watch Tower Bible &
Tract Society. The "price" of the books was twenty-five cents each, the
"price" of the pamphlets five cents each. It was shown that in making the
solicitations there was a request for additional "contribution" of twenty-five
cents each for the books and five cents each for the pamphlets. Lesser sum
were accepted, however, and books were even donated in case interested
persons were without funds.
On the above facts the Supreme Court held that it could not be said that
petitioners were engaged in commercial rather than a religious venture.
Their activities could not be described as embraced in the occupation of
selling books and pamphlets. Then the Court continued:
"We do not mean to say that religious groups and the press are free from all
financial burdens of government. See Grosjean vs. American Press Co., 297
U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something
quite different, for example, from a tax on the income of one who engages
in religious activities or a tax on property used or employed in connection
with activities. It is one thing to impose a tax on the income or property of a
preacher. It is quite another to exact a tax from him for the privilege of
delivering a sermon. The tax imposed by the City of Jeannette is a flat
license tax, payment of which is a condition of the exercise of these
constitutional privileges. The power to tax the exercise of a privilege is the
power to control or suppress its enjoyment. . . . Those who can tax the
exercise of this religious practice can make its exercise so costly as to
deprive it of the resources necessary for its maintenance. Those who can tax
the privilege of engaging in this form of missionary evangelism can close
all its doors to all those who do not have a full purse. Spreading religious
beliefs in this ancient and honorable manner would thus be denied the
needy. . . .
It is contended however that the fact that the license tax can suppress or
control this activity is unimportant if it does not do so. But that is to
disregard the nature of this tax. It is a license tax — a flat tax imposed on
the exercise of a privilege granted by the Bill of Rights . . . The power to
impose a license tax on the exercise of these freedom is indeed as potent as
the power of censorship which this Court has repeatedly struck down. . . . It
is not a nominal fee imposed as a regulatory measure to defray the expenses
of policing the activities in question. It is in no way apportioned. It is flat
license tax levied and collected as a condition to the pursuit of activities
whose enjoyment is guaranteed by the constitutional liberties of press and
religion and inevitably tends to suppress their exercise. That is almost
uniformly recognized as the inherent vice and evil of this flat license tax."
Nor could dissemination of religious information be conditioned upon the
approval of an official or manager even if the town were owned by a
corporation as held in the case of Marsh vs. State of Alabama (326 U.S.
501), or by the United States itself as held in the case of Tucker vs. Texas
(326 U.S. 517). In the former case the Supreme Court expressed the opinion
that the right to enjoy freedom of the press and religion occupies a preferred
position as against the constitutional right of property owners.
"When we balance the constitutional rights of owners of property against
those of the people to enjoy freedom of press and religion, as we must here,
we remain mindful of the fact that the latter occupy a preferred position. . . .
In our view the circumstance that the property rights to the premises where
the deprivation of property here involved, took place, were held by others
than the public, is not sufficient to justify the State's permitting a
corporation to govern a community of citizens so as to restrict their
fundamental liberties and the enforcement of such restraint by the
application of a State statute." (Tañada and Fernando on the Constitution of
the Philippines, Vol. 1, 4th ed., p. 304-306).
Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The
following organizations shall not be taxed under this Title in respect to
income received by them as such —
(e) Corporations or associations organized and operated exclusively
for religious, charitable, . . . or educational purposes, . . .: Provided,
however, That the income of whatever kind and character from any of its
properties, real or personal, or from any activity conducted for profit,
regardless of the disposition made of such income, shall be liable to the tax
imposed under this Code;
Appellant's counsel claims that the Collector of Internal Revenue has exempted the
plaintiff from this tax and says that such exemption clearly indicates that the act of
distributing and selling bibles, etc. is purely religious and does not fall under the
above legal provisions.
It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same
but this cannot mean that appellant was engaged in the business or occupation of
selling said "merchandise" for profit. For this reason We believe that the provisions
of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant,
for in doing so it would impair its free exercise and enjoyment of its religious
profession and worship as well as its rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the obtention the
Mayor's permit before any person can engage in any of the businesses, trades or
occupations enumerated therein, We do not find that it imposes any charge upon the
enjoyment of a right granted by the Constitution, nor tax the exercise of religious
practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point was
elucidated as follows:
An ordinance by the City of Griffin, declaring that the practice of
distributing either by hand or otherwise, circulars, handbooks, advertising,
or literature of any kind, whether said articles are being delivered free, or
whether same are being sold within the city limits of the City of Griffin,
without first obtaining written permission from the city manager of the City
of Griffin, shall be deemed a nuisance and punishable as an offense against
the City of Griffin, does not deprive defendant of his constitutional right of
the free exercise and enjoyment of religious profession and worship, even
though it prohibits him from introducing and carrying out a scheme or
purpose which he sees fit to claim as a part of his religious system.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered
unconstitutional, even if applied to plaintiff Society. But as Ordinance No. 2529 of
the City of Manila, as amended, is not applicable to plaintiff-appellant and
defendant-appellee is powerless to license or tax the business of plaintiff Society
involved herein for, as stated before, it would impair plaintiff's right to the free
exercise and enjoyment of its religious profession and worship, as well as its rights
of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended
is also inapplicable to said business, trade or occupation of the plaintiff.
Wherefore, and on the strength of the foregoing considerations, We hereby reverse
the decision appealed from, sentencing defendant return to plaintiff the sum of
P5,891.45 unduly collected from it. Without pronouncement as to costs. It is so
ordered.
G.R. No. 115455 August 25, 1994
ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 115525 August 25, 1994
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE
OCAMPO, as Secretary of Finance; LIWAYWAY VINZONS-CHATO, as
Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 August 25, 1994
RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND
BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 August 25, 1994
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.;
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE
L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal
Revenue; HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive
Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary
of Finance, respondents.
G.R. No. 115754 August 25, 1994
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 August 25, 1994
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME
CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM
TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN,
FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO,
JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS
FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., PHILIPPINE
BIBLE SOCIETY, INC., and WIGBERTO TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER
OF CUSTOMS, respondents.
G.R. No. 115852 August 25, 1994
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115873 August 25, 1994
COOPERATIVE UNION OF THE PHILIPPINES, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal
Revenue, HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive
Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary
of Finance, respondents.
G.R. No. 115931 August 25, 1994
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and
ASSOCIATION OF PHILIPPINE BOOK-SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON.
LIWAYWAY V. CHATO, as the Commissioner of Internal Revenue and HON.
GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of
Customs, respondents.
Arturo M. Tolentino for and in his behalf.
Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No. 115525.
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco.
Villaranza and Cruz for petitioners in G.R. No. 115544.
Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754.
Salonga, Hernandez & Allado for Freedon From Debts Coalition, Inc. & Phil. Bible
Society.
Estelito P. Mendoza for petitioner in G.R. No. 115852.
Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in
G.R. No. 115873.
R.B. Rodriguez & Associates for petitioners in G.R. No. 115931.
Reve A.V. Saguisag for MABINI.
MENDOZA, J.:
The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. It is equivalent to 10% of
the gross selling price or gross value in money of goods or properties sold, bartered
or exchanged or of the gross receipts from the sale or exchange of services. Republic
Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code.
These are various suits for certiorari and prohibition, challenging the
constitutionality of Republic Act No. 7716 on various grounds summarized in the
resolution of July 6, 1994 of this Court, as follows:
I. Procedural Issues:
A. Does Republic Act No. 7716 violate Art. VI, § 24 of the
Constitution?
B. Does it violate Art. VI, § 26(2) of the Constitution?
C. What is the extent of the power of the Bicameral Conference
Committee?
II. Substantive Issues:
A. Does the law violate the following provisions in the Bill of
Rights (Art. III)?
1. §1
2. § 4
 3. § 5
4. § 10
B. Does the law violate the following other provisions of the
Constitution?
1. Art. VI, § 28(1)
2. Art. VI, § 28(3)
These questions will be dealt in the order they are stated above. As will presently be
explained not all of these questions are judicially cognizable, because not all
provisions of the Constitution are self executing and, therefore, judicially
enforceable. The other departments of the government are equally charged with the
enforcement of the Constitution, especially the provisions relating to them.
I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act No. 7716, or the
Expanded Value-Added Tax Law, Congress violated the Constitution because,
although H. No. 11197 had originated in the House of Representatives, it was not
passed by the Senate but was simply consolidated with the Senate version (S. No.
1630) in the Conference Committee to produce the bill which the President signed
into law. The following provisions of the Constitution are cited in support of the
proposition that because Republic Act No. 7716 was passed in this manner, it did not
originate in the House of Representatives and it has not thereby become a law:
Art. VI, § 24: All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application,
and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with
amendments.
Id., § 26(2): No bill passed by either House shall become a law
unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President
certifies to the necessity of its immediate enactment to meet a
public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be
taken immediately thereafter, and the yeas and nays entered in the
Journal.
It appears that on various dates between July 22, 1992 and August 31, 1993, several
bills 1 were introduced in the House of Representatives seeking to amend certain
provisions of the National Internal Revenue Code relative to the value-added tax or
VAT. These bills were referred to the House Ways and Means Committee which
recommended for approval a substitute measure, H. No. 11197, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110
OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237
AND 238 OF TITLE IX, AND REPEALING SECTIONS 113
AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED
The bill (H. No. 11197) was considered on second reading starting November 6,
1993 and, on November 17, 1993, it was approved by the House of Representatives
after third and final reading.
It was sent to the Senate on November 23, 1993 and later referred by that body to its
Committee on Ways and Means.
On February 7, 1994, the Senate Committee submitted its report recommending
approval of S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF
TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE
IX, AND REPEALING SECTIONS 113, 114 and 116 OF TITLE
V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of Senate Bill No.
1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It
finished debates on the bill and approved it on second reading on March 24, 1994.
On the same day, it approved the bill on third reading by the affirmative votes of 13
of its members, with one abstention.
H. No. 11197 and its Senate version (S. No. 1630) were then referred to a conference
committee which, after meeting four times (April 13, 19, 21 and 25, 1994),
recommended that "House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the bill as reconciled and
approved by the conferees."
The Conference Committee bill, entitled "AN ACT RESTRUCTURING THE
VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND
ENHANCING ITS ADMINISTRATION AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES," was thereafter approved by the House of Representatives on April 27,
1994 and by the Senate on May 2, 1994. The enrolled bill was then presented to the
President of the Philippines who, on May 5, 1994, signed it. It became Republic Act
No. 7716. On May 12, 1994, Republic Act No. 7716 was published in two
newspapers of general circulation and, on May 28, 1994, it took effect, although its
implementation was suspended until June 30, 1994 to allow time for the registration
of business entities. It would have been enforced on July 1, 1994 but its enforcement
was stopped because the Court, by the vote of 11 to 4 of its members, granted a
temporary restraining order on June 30, 1994.
First. Petitioners' contention is that Republic Act No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, §24 of the
Constitution, because it is in fact the result of the consolidation of two distinct bills,
H. No. 11197 and S. No. 1630. In this connection, petitioners point out that although
Art. VI, SS 24 was adopted from the American Federal Constitution, 2 it is notable in
two respects: the verb "shall originate" is qualified in the Philippine Constitution by
the word "exclusively" and the phrase "as on other bills" in the American version is
omitted. This means, according to them, that to be considered as having originated in
the House, Republic Act No. 7716 must retain the essence of H. No. 11197.
This argument will not bear analysis. To begin with, it is not the law — but the
revenue bill — which is required by the Constitution to "originate exclusively" in the
House of Representatives. It is important to emphasize this, because a bill originating
in the House may undergo such extensive changes in the Senate that the result may
be a rewriting of the whole. The possibility of a third version by the conference
committee will be discussed later. At this point, what is important to note is that, as a
result of the Senate action, a distinct bill may be produced. To insist that a revenue
statute — and not only the bill which initiated the legislative process culminating in
the enactment of the law — must substantially be the same as the House bill would
be to deny the Senate's power not only to "concur with amendments" but also to
"propose amendments." It would be to violate the coequality of legislative power of
the two houses of Congress and in fact make the House superior to the Senate.
The contention that the constitutional design is to limit the Senate's power in respect
of revenue bills in order to compensate for the grant to the Senate of the treaty-
ratifying power 3 and thereby equalize its powers and those of the House overlooks
the fact that the powers being compared are different. We are dealing here with the
legislative power which under the Constitution is vested not in any particular
chamber but in the Congress of the Philippines, consisting of "a Senate and a House
of Representatives." 4 The exercise of the treaty-ratifying power is not the exercise of
legislative power. It is the exercise of a check on the executive power. There is,
therefore, no justification for comparing the legislative powers of the House and of
the Senate on the basis of the possession of such nonlegislative power by the Senate.
The possession of a similar power by the U.S. Senate 5 has never been thought of as
giving it more legislative powers than the House of Representatives.
In the United States, the validity of a provision (§ 37) imposing an ad valorem tax
based on the weight of vessels, which the U.S. Senate had inserted in the Tariff Act
of 1909, was upheld against the claim that the provision was a revenue bill which
originated in the Senate in contravention of Art. I, § 7 of the U.S. Constitution. 6 Nor
is the power to amend limited to adding a provision or two in a revenue bill
emanating from the House. The U.S. Senate has gone so far as changing the whole of
bills following the enacting clause and substituting its own versions. In 1883, for
example, it struck out everything after the enacting clause of a tariff bill and wrote in
its place its own measure, and the House subsequently accepted the amendment. The
U.S. Senate likewise added 847 amendments to what later became the Payne-Aldrich
Tariff Act of 1909; it dictated the schedules of the Tariff Act of 1921; it rewrote an
extensive tax revision bill in the same year and recast most of the tariff bill of
1922. 7 Given, then, the power of the Senate to propose amendments, the Senate can
propose its own version even with respect to bills which are required by the
Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was passed not in substitution of H. No.
11197 but of another Senate bill (S. No. 1129) earlier filed and that what the Senate
did was merely to "take [H. No. 11197] into consideration" in enacting S. No. 1630.
There is really no difference between the Senate preserving H. No. 11197 up to the
enacting clause and then writing its own version following the enacting clause
(which, it would seem, petitioners admit is an amendment by substitution), and, on
the other hand, separately presenting a bill of its own on the same subject matter. In
either case the result are two bills on the same subject.
Indeed, what the Constitution simply means is that the initiative for filing revenue,
tariff, or tax bills, bills authorizing an increase of the public debt, private bills and
bills of local application must come from the House of Representatives on the theory
that, elected as they are from the districts, the members of the House can be expected
to be more sensitive to the local needs and problems. On the other hand, the senators,
who are elected at large, are expected to approach the same problems from the
national perspective. Both views are thereby made to bear on the enactment of such
laws.
Nor does the Constitution prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, so long as action by the Senate
as a body is withheld pending receipt of the House bill. The Court cannot, therefore,
understand the alarm expressed over the fact that on March 1, 1993, eight months
before the House passed H. No. 11197, S. No. 1129 had been filed in the Senate.
After all it does not appear that the Senate ever considered it. It was only after the
Senate had received H. No. 11197 on November 23, 1993 that the process of
legislation in respect of it began with the referral to the Senate Committee on Ways
and Means of H. No. 11197 and the submission by the Committee on February 7,
1994 of S. No. 1630. For that matter, if the question were simply the priority in the
time of filing of bills, the fact is that it was in the House that a bill (H. No. 253) to
amend the VAT law was first filed on July 22, 1992. Several other bills had been filed
in the House before S. No. 1129 was filed in the Senate, and H. No. 11197 was only
a substitute of those earlier bills.
Second. Enough has been said to show that it was within the power of the Senate to
propose S. No. 1630. We now pass to the next argument of petitioners that S. No.
1630 did not pass three readings on separate days as required by the
Constitution 8 because the second and third readings were done on the same day,
March 24, 1994. But this was because on February 24, 1994 9 and again on March
22, 1994, 10 the President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing but also that of
reading the bill on separate days. The phrase "except when the President certifies to
the necessity of its immediate enactment, etc." in Art. VI, § 26(2) qualifies the two
stated conditions before a bill can become a law: (i) the bill has passed three readings
on separate days and (ii) it has been printed in its final form and distributed three
days before it is finally approved.
In other words, the "unless" clause must be read in relation to the "except" clause,
because the two are really coordinate clauses of the same sentence. To construe the
"except" clause as simply dispensing with the second requirement in the "unless"
clause (i.e., printing and distribution three days before final approval) would not only
violate the rules of grammar. It would also negate the very premise of the "except"
clause: the necessity of securing the immediate enactment of a bill which is certified
in order to meet a public calamity or emergency. For if it is only the printing that is
dispensed with by presidential certification, the time saved would be so negligible as
to be of any use in insuring immediate enactment. It may well be doubted whether
doing away with the necessity of printing and distributing copies of the bill three
days before the third reading would insure speedy enactment of a law in the face of
an emergency requiring the calling of a special election for President and Vice-
President. Under the Constitution such a law is required to be made within seven
days of the convening of Congress in emergency session. 11
That upon the certification of a bill by the President the requirement of three readings
on separate days and of printing and distribution can be dispensed with is supported
by the weight of legislative practice. For example, the bill defining
the certiorari jurisdiction of this Court which, in consolidation with the Senate
version, became Republic Act No. 5440, was passed on second and third readings in
the House of Representatives on the same day (May 14, 1968) after the bill had been
certified by the President as urgent. 12
There is, therefore, no merit in the contention that presidential certification dispenses
only with the requirement for the printing of the bill and its distribution three days
before its passage but not with the requirement of three readings on separate days,
also.
It is nonetheless urged that the certification of the bill in this case was invalid
because there was no emergency, the condition stated in the certification of a
"growing budget deficit" not being an unusual condition in this country.
It is noteworthy that no member of the Senate saw fit to controvert the reality of the
factual basis of the certification. To the contrary, by passing S. No. 1630 on second
and third readings on March 24, 1994, the Senate accepted the President's
certification. Should such certification be now reviewed by this Court, especially
when no evidence has been shown that, because S. No. 1630 was taken up on second
and third readings on the same day, the members of the Senate were deprived of the
time needed for the study of a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of habeas corpus or
declaration of martial law under Art. VII, § 18, or the existence of a national
emergency justifying the delegation of extraordinary powers to the President under
Art. VI, § 23(2), is subject to judicial review because basic rights of individuals may
be at hazard. But the factual basis of presidential certification of bills, which involves
doing away with procedural requirements designed to insure that bills are duly
considered by members of Congress, certainly should elicit a different standard of
review.
Petitioners also invite attention to the fact that the President certified S. No. 1630 and
not H. No. 11197. That is because S. No. 1630 was what the Senate was considering.
When the matter was before the House, the President likewise certified H. No. 9210
the pending in the House.
Third. Finally it is contended that the bill which became Republic Act No. 7716 is
the bill which the Conference Committee prepared by consolidating H. No. 11197
and S. No. 1630. It is claimed that the Conference Committee report included
provisions not found in either the House bill or the Senate bill and that these
provisions were "surreptitiously" inserted by the Conference Committee. Much is
made of the fact that in the last two days of its session on April 21 and 25, 1994 the
Committee met behind closed doors. We are not told, however, whether the
provisions were not the result of the give and take that often mark the proceedings of
conference committees.
Nor is there anything unusual or extraordinary about the fact that the Conference
Committee met in executive sessions. Often the only way to reach agreement on
conflicting provisions is to meet behind closed doors, with only the conferees
present. Otherwise, no compromise is likely to be made. The Court is not about to
take the suggestion of a cabal or sinister motive attributed to the conferees on the
basis solely of their "secret meetings" on April 21 and 25, 1994, nor read anything
into the incomplete remarks of the members, marked in the transcript of stenographic
notes by ellipses. The incomplete sentences are probably due to the stenographer's
own limitations or to the incoherence that sometimes characterize conversations.
William Safire noted some such lapses in recorded talks even by recent past
Presidents of the United States.
In any event, in the United States conference committees had been customarily held
in executive sessions with only the conferees and their staffs in attendance. 13 Only in
November 1975 was a new rule adopted requiring open sessions. Even then a
majority of either chamber's conferees may vote in public to close the meetings. 14
As to the possibility of an entirely new bill emerging out of a Conference Committee,
it has been explained:
Under congressional rules of procedure, conference committees are
not expected to make any material change in the measure at issue,
either by deleting provisions to which both houses have already
agreed or by inserting new provisions. But this is a difficult
provision to enforce. Note the problem when one house amends a
proposal originating in either house by striking out everything
following the enacting clause and substituting provisions which
make it an entirely new bill. The versions are now altogether
different, permitting a conference committee to draft essentially a
new bill. . . . 15
The result is a third version, which is considered an "amendment in the nature of a
substitute," the only requirement for which being that the third version be germane to
the subject of the House and Senate bills. 16
Indeed, this Court recently held that it is within the power of a conference committee
to include in its report an entirely new provision that is not found either in the House
bill or in the Senate bill. 17 If the committee can propose an amendment consisting of
one or two provisions, there is no reason why it cannot propose several provisions,
collectively considered as an "amendment in the nature of a substitute," so long as
such amendment is germane to the subject of the bills before the committee. After
all, its report was not final but needed the approval of both houses of Congress to
become valid as an act of the legislative department. The charge that in this case the
Conference Committee acted as a third legislative chamber is thus without any
basis. 18
Nonetheless, it is argued that under the respective Rules of the Senate and the House
of Representatives a conference committee can only act on the differing provisions
of a Senate bill and a House bill, and that contrary to these Rules the Conference
Committee inserted provisions not found in the bills submitted to it. The following
provisions are cited in support of this contention:
Rules of the Senate
Rule XII:
§ 26. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint
resolution, the differences shall be settled by a conference
committee of both Houses which shall meet within ten days after
their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 3 of Rule
III.
Each Conference Committee Report shall contain a detailed and
sufficiently explicit statement of the changes in or amendments to
the subject measure, and shall be signed by the conferees.
The consideration of such report shall not be in order unless the
report has been filed with the Secretary of the Senate and copies
thereof have been distributed to the Members.
(Emphasis added)
Rules of the House of Representatives
Rule XIV:
§ 85. Conference Committee Reports. — In the event that the
House does not agree with the Senate on the amendments to any
bill or joint resolution, the differences may be settled by conference
committees of both Chambers.
The consideration of conference committee reports shall always be
in order, except when the journal is being read, while the roll is
being called or the House is dividing on any question. Each of the
pages of such reports shall be signed by the conferees. Each report
 shall contain a detailed, sufficiently explicit statement of the
changes in or amendments to the subject measure.
The consideration of such report shall not be in order unless copies
thereof are distributed to the Members: Provided, That in the last
fifteen days of each session period it shall be deemed sufficient
that three copies of the report, signed as above provided, are
deposited in the office of the Secretary General.
(Emphasis added)
To be sure, nothing in the Rules limits a conference committee to a consideration of
conflicting provisions. But Rule XLIV, § 112 of the Rules of the Senate is cited to the
effect that "If there is no Rule applicable to a specific case the precedents of the
Legislative Department of the Philippines shall be resorted to, and as a supplement of
these, the Rules contained in Jefferson's Manual." The following is then quoted from
the Jefferson's Manual:
The managers of a conference must confine themselves to the
differences committed to them. . . and may not include subjects not
within disagreements, even though germane to a question in issue.
Note that, according to Rule XLIX, § 112, in case there is no specific rule applicable,
resort must be to the legislative practice. The Jefferson's Manual is resorted to only
as supplement. It is common place in Congress that conference committee reports
include new matters which, though germane, have not been committed to the
committee. This practice was admitted by Senator Raul S. Roco, petitioner in G.R.
No. 115543, during the oral argument in these cases. Whatever, then, may be
provided in the Jefferson's Manual must be considered to have been modified by the
legislative practice. If a change is desired in the practice it must be sought in
Congress since this question is not covered by any constitutional provision but is
only an internal rule of each house. Thus, Art. VI, § 16(3) of the Constitution
provides that "Each House may determine the rules of its proceedings. . . ."
This observation applies to the other contention that the Rules of the two chambers
were likewise disregarded in the preparation of the Conference Committee Report
because the Report did not contain a "detailed and sufficiently explicit statement of
changes in, or amendments to, the subject measure." The Report used brackets and
capital letters to indicate the changes. This is a standard practice in bill-drafting. We
cannot say that in using these marks and symbols the Committee violated the Rules
of the Senate and the House. Moreover, this Court is not the proper forum for the
enforcement of these internal Rules. To the contrary, as we have already ruled,
"parliamentary rules are merely procedural and with their observance the courts have
no concern." 19 Our concern is with the procedural requirements of the Constitution
for the enactment of laws. As far as these requirements are concerned, we are
satisfied that they have been faithfully observed in these cases.
Nor is there any reason for requiring that the Committee's Report in these cases must
have undergone three readings in each of the two houses. If that be the case, there
would be no end to negotiation since each house may seek modifications of the
compromise bill. The nature of the bill, therefore, requires that it be acted upon by
each house on a "take it or leave it" basis, with the only alternative that if it is not
approved by both houses, another conference committee must be appointed. But then
again the result would still be a compromise measure that may not be wholly
satisfying to both houses.
Art. VI, § 26(2) must, therefore, be construed as referring only to bills introduced for
the first time in either house of Congress, not to the conference committee report. For
if the purpose of requiring three readings is to give members of Congress time to
study bills, it cannot be gainsaid that H. No. 11197 was passed in the House after
three readings; that in the Senate it was considered on first reading and then referred
to a committee of that body; that although the Senate committee did not report out
the House bill, it submitted a version (S. No. 1630) which it had prepared by "taking
into consideration" the House bill; that for its part the Conference Committee
consolidated the two bills and prepared a compromise version; that the Conference
Committee Report was thereafter approved by the House and the Senate, presumably
after appropriate study by their members. We cannot say that, as a matter of fact, the
members of Congress were not fully informed of the provisions of the bill. The
allegation that the Conference Committee usurped the legislative power of Congress
is, in our view, without warrant in fact and in law.
Fourth. Whatever doubts there may be as to the formal validity of Republic Act No.
7716 must be resolved in its favor. Our cases 20 manifest firm adherence to the rule
that an enrolled copy of a bill is conclusive not only of its provisions but also of its
due enactment. Not even claims that a proposed constitutional amendment was
invalid because the requisite votes for its approval had not been obtained 21 or that
certain provisions of a statute had been "smuggled" in the printing of the bill 22 have
moved or persuaded us to look behind the proceedings of a coequal branch of the
government. There is no reason now to depart from this rule.
No claim is here made that the "enrolled bill" rule is absolute. In fact in one
case 23 we "went behind" an enrolled bill and consulted the Journal to determine
whether certain provisions of a statute had been approved by the Senate in view of
the fact that the President of the Senate himself, who had signed the enrolled bill,
admitted a mistake and withdrew his signature, so that in effect there was no longer
an enrolled bill to consider.
But where allegations that the constitutional procedures for the passage of bills have
not been observed have no more basis than another allegation that the Conference
Committee "surreptitiously" inserted provisions into a bill which it had prepared, we
should decline the invitation to go behind the enrolled copy of the bill. To disregard
the "enrolled bill" rule in such cases would be to disregard the respect due the other
two departments of our government.
Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made
by the Philippine Airlines, Inc., petitioner in G.R. No. 11582, namely, that it violates
Art. VI, § 26(1) which provides that "Every bill passed by Congress shall embrace
only one subject which shall be expressed in the title thereof." It is contended that
neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of PAL
transactions from the payment of the VAT and that this was made only in the
Conference Committee bill which became Republic Act No. 7716 without reflecting
this fact in its title.
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE- ADDED TAX (VAT)
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT
PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
Among the provisions of the NIRC amended is § 103, which originally read:
§ 103. Exempt transactions. — The following shall be exempt
from the value-added tax:
....
(q) Transactions which are exempt under special laws or
international agreements to which the Philippines is a signatory.
Among the transactions exempted from the VAT were those of PAL
because it was exempted under its franchise (P.D. No. 1590) from
the payment of all "other taxes . . . now or in the near future," in
consideration of the payment by it either of the corporate income
tax or a franchise tax of 2%.
As a result of its amendment by Republic Act No. 7716, § 103 of the NIRC now
provides:
§ 103. Exempt transactions. — The following shall be exempt
from the value-added tax:
....
(q) Transactions which are exempt under special laws, except those
granted under Presidential Decree Nos. 66, 529, 972, 1491,
1590. . . .
The effect of the amendment is to remove the exemption granted to PAL, as far as
the VAT is concerned.
The question is whether this amendment of § 103 of the NIRC is fairly embraced in
the title of Republic Act No. 7716, although no mention is made therein of P.D. No.
1590 as among those which the statute amends. We think it is, since the title states
that the purpose of the statute is to expand the VAT system, and one way of doing
this is to widen its base by withdrawing some of the exemptions granted before. To
insist that P.D. No. 1590 be mentioned in the title of the law, in addition to § 103 of
the NIRC, in which it is specifically referred to, would be to insist that the title of a
bill should be a complete index of its content.
The constitutional requirement that every bill passed by Congress shall embrace only
one subject which shall be expressed in its title is intended to prevent surprise upon
the members of Congress and to inform the people of pending legislation so that, if
they wish to, they can be heard regarding it. If, in the case at bar, petitioner did not
know before that its exemption had been withdrawn, it is not because of any defect in
the title but perhaps for the same reason other statutes, although published, pass
unnoticed until some event somehow calls attention to their existence. Indeed, the
title of Republic Act No. 7716 is not any more general than the title of PAL's own
franchise under P.D. No. 1590, and yet no mention is made of its tax exemption. The
title of P.D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE
AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN
AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND
BETWEEN THE PHILIPPINES AND OTHER COUNTRIES.
The trend in our cases is to construe the constitutional requirement in such a manner
that courts do not unduly interfere with the enactment of necessary legislation and to
consider it sufficient if the title expresses the general subject of the statute and all its
provisions are germane to the general subject thus expressed. 24
It is further contended that amendment of petitioner's franchise may only be made by
special law, in view of § 24 of P.D. No. 1590 which provides:
This franchise, as amended, or any section or provision hereof may
only be modified, amended, or repealed expressly by a special law
 or decree that shall specifically modify, amend, or repeal this
franchise or any section or provision thereof.
This provision is evidently intended to prevent the amendment of the franchise by
mere implication resulting from the enactment of a later inconsistent statute, in
consideration of the fact that a franchise is a contract which can be altered only by
consent of the parties. Thus in Manila Railroad Co. v.
Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for the
payment of tax on certain goods and articles imported into the Philippines, did not
amend the franchise of plaintiff, which exempted it from all taxes except those
mentioned in its franchise. It was held that a special law cannot be amended by a
general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's
franchise (P.D. No. 1590) by specifically excepting from the grant of exemptions
from the VAT PAL's exemption under P.D. No. 1590. This is within the power of
Congress to do under Art. XII, § 11 of the Constitution, which provides that the grant
of a franchise for the operation of a public utility is subject to amendment, alteration
or repeal by Congress when the common good so requires.
II. SUBSTANTIVE ISSUES
A. Claims of Press Freedom,
Freedom of Thought and
Religious Freedom
The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit
organization of newspaper publishers established for the improvement of journalism
in the Philippines. On the other hand, petitioner in G.R. No. 115781, the Philippine
Bible Society (PBS), is a nonprofit organization engaged in the printing and
distribution of bibles and other religious articles. Both petitioners claim violations of
their rights under § § 4 and 5 of the Bill of Rights as a result of the enactment of the
VAT Law.
The PPI questions the law insofar as it has withdrawn the exemption previously
granted to the press under § 103 (f) of the NIRC. Although the exemption was
subsequently restored by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of the possibility that the
exemption may still be removed by mere revocation of the regulation of the
Secretary of Finance. On the other hand, the PBS goes so far as to question the
Secretary's power to grant exemption for two reasons: (1) The Secretary of Finance
has no power to grant tax exemption because this is vested in Congress and requires
for its exercise the vote of a majority of all its members 26 and (2) the Secretary's duty
is to execute the law.
§ 103 of the NIRC contains a list of transactions exempted from VAT. Among the
transactions previously granted exemption were:
(f) Printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is
devoted principally to the publication of advertisements.
Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the result that print
media became subject to the VAT with respect to all aspects of their operations.
Later, however, based on a memorandum of the Secretary of Justice, respondent
Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994,
exempting the "circulation income of print media pursuant to § 4 Article III of the
1987 Philippine Constitution guaranteeing against abridgment of freedom of the
press, among others." The exemption of "circulation income" has left income from
advertisements still subject to the VAT.
It is unnecessary to pass upon the contention that the exemption granted is beyond
the authority of the Secretary of Finance to give, in view of PPI's contention that
even with the exemption of the circulation revenue of print media there is still an
unconstitutional abridgment of press freedom because of the imposition of the VAT
on the gross receipts of newspapers from advertisements and on their acquisition of
paper, ink and services for publication. Even on the assumption that no exemption
has effectively been granted to print media transactions, we find no violation of press
freedom in these cases.
To be sure, we are not dealing here with a statute that on its face operates in the area
of press freedom. The PPI's claim is simply that, as applied to newspapers, the law
abridges press freedom. Even with due recognition of its high estate and its
importance in a democratic society, however, the press is not immune from general
regulation by the State. It has been held:
The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to invade
the rights and liberties of others. He must answer for libel. He may
be punished for contempt of court. . . . Like others, he must pay
equitable and nondiscriminatory taxes on his business. . . . 27
The PPI does not dispute this point, either.
What it contends is that by withdrawing the exemption previously granted to print
media transactions involving printing, publication, importation or sale of
newspapers, Republic Act No. 7716 has singled out the press for discriminatory
treatment and that within the class of mass media the law discriminates against print
media by giving broadcast media favored treatment. We have carefully examined this
argument, but we are unable to find a differential treatment of the press by the law,
much less any censorial motivation for its enactment. If the press is now required to
pay a value-added tax on its transactions, it is not because it is being singled out,
much less targeted, for special treatment but only because of the removal of the
exemption previously granted to it by law. The withdrawal of exemption is all that is
involved in these cases. Other transactions, likewise previously granted exemption,
have been delisted as part of the scheme to expand the base and the scope of the VAT
system. The law would perhaps be open to the charge of discriminatory treatment if
the only privilege withdrawn had been that granted to the press. But that is not the
case.
The situation in the case at bar is indeed a far cry from those cited by the PPI in
support of its claim that Republic Act No. 7716 subjects the press to discriminatory
taxation. In the cases cited, the discriminatory purpose was clear either from the
background of the law or from its operation. For example, in Grosjean v. American
Press Co., 28 the law imposed a license tax equivalent to 2% of the gross receipts
derived from advertisements only on newspapers which had a circulation of more
than 20,000 copies per week. Because the tax was not based on the volume of
advertisement alone but was measured by the extent of its circulation as well, the law
applied only to the thirteen large newspapers in Louisiana, leaving untaxed four
papers with circulation of only slightly less than 20,000 copies a week and 120
weekly newspapers which were in serious competition with the thirteen newspapers
in question. It was well known that the thirteen newspapers had been critical of
Senator Huey Long, and the Long-dominated legislature of Louisiana respondent by
taxing what Long described as the "lying newspapers" by imposing on them "a tax
on lying." The effect of the tax was to curtail both their revenue and their circulation.
As the U.S. Supreme Court noted, the tax was "a deliberate and calculated device in
the guise of a tax to limit the circulation of information to which the public is entitled
in virtue of the constitutional guaranties." 29 The case is a classic illustration of the
warning that the power to tax is the power to destroy.
In the other case 30 invoked by the PPI, the press was also found to have been singled
out because everything was exempt from the "use tax" on ink and paper, except the
press. Minnesota imposed a tax on the sales of goods in that state. To protect the
sales tax, it enacted a complementary tax on the privilege of "using, storing or
consuming in that state tangible personal property" by eliminating the residents'
incentive to get goods from outside states where the sales tax might be lower.
The Minnesota Star Tribune was exempted from both taxes from 1967 to 1971. In
1971, however, the state legislature amended the tax scheme by imposing the "use
tax" on the cost of paper and ink used for publication. The law was held to have
singled out the press because (1) there was no reason for imposing the "use tax" since
the press was exempt from the sales tax and (2) the "use tax" was laid on an
"intermediate transaction rather than the ultimate retail sale." Minnesota had a heavy
burden of justifying the differential treatment and it failed to do so. In addition, the
U.S. Supreme Court found the law to be discriminatory because the legislature, by
again amending the law so as to exempt the first $100,000 of paper and ink used,
further narrowed the coverage of the tax so that "only a handful of publishers pay
any tax at all and even fewer pay any significant amount of tax." 31 The
discriminatory purpose was thus very clear.
More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law
which taxed general interest magazines but not newspapers and religious,
professional, trade and sports journals was discriminatory because while the tax did
not single out the press as a whole, it targeted a small group within the press. What is
more, by differentiating on the basis of contents (i.e., between general interest and
special interests such as religion or sports) the law became "entirely incompatible
with the First Amendment's guarantee of freedom of the press."
These cases come down to this: that unless justified, the differential treatment of the
press creates risks of suppression of expression. In contrast, in the cases at bar, the
statute applies to a wide range of goods and services. The argument that, by
imposing the VAT only on print media whose gross sales exceeds P480,000 but not
more than P750,000, the law discriminates 33 is without merit since it has not been
shown that as a result the class subject to tax has been unreasonably narrowed. The
fact is that this limitation does not apply to the press along but to all sales. Nor is
impermissible motive shown by the fact that print media and broadcast media are
treated differently. The press is taxed on its transactions involving printing and
publication, which are different from the transactions of broadcast media. There is
thus a reasonable basis for the classification.
The cases canvassed, it must be stressed, eschew any suggestion that "owners of
newspapers are immune from any forms of ordinary taxation." The license tax in
the Grosjean case was declared invalid because it was "one single in kind, with a
long history of hostile misuse against the freedom of the
press." 34 On the other hand, Minneapolis Star acknowledged that "The First
Amendment does not prohibit all regulation of the press [and that] the States and the
Federal Government can subject newspapers to generally applicable economic
regulations without creating constitutional problems." 35
What has been said above also disposes of the allegations of the PBS that the
removal of the exemption of printing, publication or importation of books and
religious articles, as well as their printing and publication, likewise violates freedom
of thought and of conscience. For as the U.S. Supreme Court unanimously held
in Jimmy Swaggart Ministries v. Board of Equalization, 36 the Free Exercise of
Religion Clause does not prohibit imposing a generally applicable sales and use tax
on the sale of religious materials by a religious organization.
This brings us to the question whether the registration provision of the
law, 37 although of general applicability, nonetheless is invalid when applied to the
press because it lays a prior restraint on its essential freedom. The case of American
Bible Society v. City of Manila 38 is cited by both the PBS and the PPI in support of
their contention that the law imposes censorship. There, this Court held that an
ordinance of the City of Manila, which imposed a license fee on those engaged in the
business of general merchandise, could not be applied to the appellant's sale of bibles
and other religious literature. This Court relied on Murdock v. Pennsylvania, 39 in
which it was held that, as a license fee is fixed in amount and unrelated to the
receipts of the taxpayer, the license fee, when applied to a religious sect, was actually
being imposed as a condition for the exercise of the sect's right under the
Constitution. For that reason, it was held, the license fee "restrains in advance those
constitutional liberties of press and religion and inevitably tends to suppress their
exercise." 40
But, in this case, the fee in § 107, although a fixed amount (P1,000), is not imposed
for the exercise of a privilege but only for the purpose of defraying part of the cost of
registration. The registration requirement is a central feature of the VAT system. It is
designed to provide a record of tax credits because any person who is subject to the
payment of the VAT pays an input tax, even as he collects an output tax on sales
made or services rendered. The registration fee is thus a mere administrative fee, one
not imposed on the exercise of a privilege, much less a constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the
ground that it offends the free speech, press and freedom of religion guarantees of the
Constitution to be without merit. For the same reasons, we find the claim of the
Philippine Educational Publishers Association (PEPA) in G.R. No. 115931 that the
increase in the price of books and other educational materials as a result of the VAT
would violate the constitutional mandate to the government to give priority to
education, science and technology (Art. II, § 17) to be untenable.
B. Claims of Regressivity,
Denial of Due Process, Equal
Protection, and Impairment
of Contracts
There is basis for passing upon claims that on its face the statute violates the
guarantees of freedom of speech, press and religion. The possible "chilling effect"
which it may have on the essential freedom of the mind and conscience and the need
to assure that the channels of communication are open and operating importunately
demand the exercise of this Court's power of review.
There is, however, no justification for passing upon the claims that the law also
violates the rule that taxation must be progressive and that it denies petitioners' right
to due process and that equal protection of the laws. The reason for this different
treatment has been cogently stated by an eminent authority on constitutional law
thus: "[W]hen freedom of the mind is imperiled by law, it is freedom that commands
a momentum of respect; when property is imperiled it is the lawmakers' judgment
that commands respect. This dual standard may not precisely reverse the
presumption of constitutionality in civil liberties cases, but obviously it does set up a
hierarchy of values within the due process clause." 41
Indeed, the absence of threat of immediate harm makes the need for judicial
intervention less evident and underscores the essential nature of petitioners' attack on
the law on the grounds of regressivity, denial of due process and equal protection and
impairment of contracts as a mere academic discussion of the merits of the law. For
the fact is that there have even been no notices of assessments issued to petitioners
and no determinations at the administrative levels of their claims so as to illuminate
the actual operation of the law and enable us to reach sound judgment regarding so
fundamental questions as those raised in these suits.
Thus, the broad argument against the VAT is that it is regressive and that it violates
the requirement that "The rule of taxation shall be uniform and equitable [and]
Congress shall evolve a progressive system of taxation." 42 Petitioners in G.R. No.
115781 quote from a paper, entitled "VAT Policy Issues: Structure, Regressivity,
Inflation and Exports" by Alan A. Tait of the International Monetary Fund, that "VAT
payment by low-income households will be a higher proportion of their incomes (and
expenditures) than payments by higher-income households. That is, the VAT will be
regressive." Petitioners contend that as a result of the uniform 10% VAT, the tax on
consumption goods of those who are in the higher-income bracket, which before
were taxed at a rate higher than 10%, has been reduced, while basic commodities,
which before were taxed at rates ranging from 3% to 5%, are now taxed at a higher
rate.
Just as vigorously as it is asserted that the law is regressive, the opposite claim is
pressed by respondents that in fact it distributes the tax burden to as many goods and
services as possible particularly to those which are within the reach of higher-income
groups, even as the law exempts basic goods and services. It is thus equitable. The
goods and properties subject to the VAT are those used or consumed by higher-
income groups. These include real properties held primarily for sale to customers or
held for lease in the ordinary course of business, the right or privilege to use
industrial, commercial or scientific equipment, hotels, restaurants and similar places,
tourist buses, and the like. On the other hand, small business establishments, with
annual gross sales of less than P500,000, are exempted. This, according to
respondents, removes from the coverage of the law some 30,000 business
establishments. On the other hand, an occasional paper 43 of the Center for Research
and Communication cities a NEDA study that the VAT has minimal impact on
inflation and income distribution and that while additional expenditure for the lowest
income class is only P301 or 1.49% a year, that for a family earning P500,000 a year
or more is P8,340 or 2.2%.
Lacking empirical data on which to base any conclusion regarding these arguments,
any discussion whether the VAT is regressive in the sense that it will hit the "poor"
and middle-income group in society harder than it will the "rich," as the Cooperative
Union of the Philippines (CUP) claims in G.R. No. 115873, is largely an academic
exercise. On the other hand, the CUP's contention that Congress' withdrawal of
exemption of producers cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric cooperatives, not only goes
against the constitutional policy to promote cooperatives as instruments of social
justice (Art. XII, § 15) but also denies such cooperatives the equal protection of the
law is actually a policy argument. The legislature is not required to adhere to a policy
of "all or none" in choosing the subject of taxation. 44
Nor is the contention of the Chamber of Real Estate and Builders Association
(CREBA), petitioner in G.R. 115754, that the VAT will reduce the mark up of its
members by as much as 85% to 90% any more concrete. It is a mere allegation. On
the other hand, the claim of the Philippine Press Institute, petitioner in G.R. No.
115544, that the VAT will drive some of its members out of circulation because their
profits from advertisements will not be enough to pay for their tax liability, while
purporting to be based on the financial statements of the newspapers in question, still
falls short of the establishment of facts by evidence so necessary for adjudicating the
question whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation."
This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of social,
economic and political inequalities (Art. XIII, § 1), or for the promotion of the right
to "quality education" (Art. XIV, § 1). These provisions are put in the Constitution as
moral incentives to legislation, not as judicially enforceable rights.
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the questions
now raised against the VAT. There similar arguments made against the original VAT
Law (Executive Order No. 273) were held to be hypothetical, with no more basis
than newspaper articles which this Court found to be "hearsay and [without]
evidentiary value." As Republic Act No. 7716 merely expands the base of the VAT
system and its coverage as provided in the original VAT Law, further debate on the
desirability and wisdom of the law should have shifted to Congress.
Only slightly less abstract but nonetheless hypothetical is the contention of CREBA
that the imposition of the VAT on the sales and leases of real estate by virtue of
contracts entered into prior to the effectivity of the law would violate the
constitutional provision that "No law impairing the obligation of contracts shall be
passed." It is enough to say that the parties to a contract cannot, through the exercise
of prophetic discernment, fetter the exercise of the taxing power of the State. For not
only are existing laws read into contracts in order to fix obligations as between
parties, but the reservation of essential attributes of sovereign power is also read into
contracts as a basic postulate of the legal order. The policy of protecting contracts
against impairment presupposes the maintenance of a government which retains
adequate authority to secure the peace and good order of society. 46
In truth, the Contract Clause has never been thought as a limitation on the exercise of
the State's power of taxation save only where a tax exemption has been granted for a
valid consideration. 47 Such is not the case of PAL in G.R. No. 115852, and we do not
understand it to make this claim. Rather, its position, as discussed above, is that the
removal of its tax exemption cannot be made by a general, but only by a specific,
law.
The substantive issues raised in some of the cases are presented in abstract,
hypothetical form because of the lack of a concrete record. We accept that this Court
does not only adjudicate private cases; that public actions by "non-Hohfeldian" 48 or
ideological plaintiffs are now cognizable provided they meet the standing
requirement of the Constitution; that under Art. VIII, § 1, ¶ 2 the Court has a "special
function" of vindicating constitutional rights. Nonetheless the feeling cannot be
escaped that we do not have before us in these cases a fully developed factual record
that alone can impart to our adjudication the impact of actuality 49 to insure that
decision-making is informed and well grounded. Needless to say, we do not have
power to render advisory opinions or even jurisdiction over petitions for declaratory
judgment. In effect we are being asked to do what the Conference Committee is
precisely accused of having done in these cases — to sit as a third legislative
chamber to review legislation.
We are told, however, that the power of judicial review is not so much power as it is
duty imposed on this Court by the Constitution and that we would be remiss in the
performance of that duty if we decline to look behind the barriers set by the principle
of separation of powers. Art. VIII, § 1, ¶ 2 is cited in support of this view:
Judicial power includes the duty of the courts of justice to settle
actual controversies involving rights which are legally demandable
and enforceable, and to determine whether or not there has been a
grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the
Government.
To view the judicial power of review as a duty is nothing new. Chief Justice Marshall
said so in 1803, to justify the assertion of this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial department
to say what the law is. Those who apply the rule to particular cases
must of necessity expound and interpret that rule. If two laws
 conflict with each other, the courts must decide on the operation of
each. 50
Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission:
And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of the
legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims of
authority under the Constitution and to establish for the parties in
an actual controversy the rights which that instrument secures and
guarantees to them. 51
This conception of the judicial power has been affirmed in several
cases 52 of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to justify this Court's
intervention in what is essentially a case that at best is not ripe for adjudication. That
duty must still be performed in the context of a concrete case or controversy, as Art.
VIII, § 5(2) clearly defines our jurisdiction in terms of "cases," and nothing but
"cases." That the other departments of the government may have committed a grave
abuse of discretion is not an independent ground for exercising our power. Disregard
of the essential limits imposed by the case and controversy requirement can in the
long run only result in undermining our authority as a court of law. For, as judges,
what we are called upon to render is judgment according to law, not according to
what may appear to be the opinion of the day.
_______________________________
In the preceeding pages we have endeavored to discuss, within limits, the validity of
Republic Act No. 7716 in its formal and substantive aspects as this has been raised in
the various cases before us. To sum up, we hold:
(1) That the procedural requirements of the Constitution have been complied with by
Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of
statutes — beyond those prescribed by the Constitution — have been observed is
precluded by the principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor
interfere with the free exercise of religion, nor deny to any of the parties the right to
an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the law
is regressive, oppressive and confiscatory and that it violates vested rights protected
under the Contract Clause are prematurely raised and do not justify the grant of
prospective relief by writ of prohibition.
WHEREFORE, the petitions in these cases are DISMISSED.
G.R. No. L-19371 February 28, 1966
HOSPITAL DE SAN JUAN DE DIOS, INC., plaintiff-appellant,
vs.
PASAY CITY, PABLO CUNETA, R. N. ASCAÑO and G. C.
FUENTES, defendants-appellees.
Teodoro Padilla for the plaintiff-appellant.
R. N. Ascaño and G. C. Fuentes for the defendants-appellees.
DIZON, J.:
Appeal taken by the Hospital de San Juan de Dios, Inc. from the decision of the
Court of First Instance of Rizal in Civil Case No. 1775-P dismissing its complaint
against the City of Pasay - hereinafter referred to as the City - Pablo Cuneta, R. N.
Ascano and Ceferino Fuentes, in their capacities as Mayor, City Engineer and City
Treasurer, respectively, of said city.
It is admitted that on July 24, 1954 and May 27, 1957, appellant paid, under protest,
to the City the amounts of P829.60 and P879.90, respectively, representing electrical
inspection fees allegedly due it from appellant under Section 5, Ordinance No. 7,
series of 1945, as amended by Ordinance No. 22, series of 1947 and further amended
by Ordinance No. 54, series of 1955, which reads as follows:
That the City Electrician shall inspect all electric wires, poles, and other
apparatus whether electric crude oil, charcoal or gasoline installed or used
for generating, containing, conducting or measuring electricity or telephone
service, issue to the owner or user thereof a statement of the result of such
inspection. . . . However, residential houses with outlets not exceeding eight
(8) in number shall be exempted from the payment of the corresponding
inspection fees. For the purpose of this ordinance, any accessoria,
irrespective of the number of doors or rooms it contains, is considered one
building. Churches and such other religious institutions and buildings
housing charitable organizations, are likewise subject to annual inspection
but exempted from the payment of inspection fees.
Although appellant claimed that, as a charitable institution, it was exempt from the
payment of the inspection fees provided for in the above-quoted section, it found
itself compelled to pay the amounts mentioned heretofore by reason of the refusal of
appellees Pablo Cuneta, as Mayor, and R. N. Ascaño, as City Engineer, to issue a
building permit to make additional constructions applied for by appellant until after
the full payment of the electrical inspection fees assessed against it by appellee
Ascaño. As a result, appellant commenced the present action in the Court of First
Instance of Rizal (Civil Case No. 1775-P) to recover from appellees the above-
mentioned amounts it had paid as electrical inspection fees as well as the sum of
P500.00 as attorney's fees and the costs of suit.
After due trial the court rendered the appealed judgment.
The issue determinative of the present appeal is whether or not appellant is a
charitable institution and, as such exempt, under the provisions of the last sentence of
Section 5 of the ordinance in question, from the payment of the inspection fees
provided for therein.
The trial court, while admitting that appellant was organized for charitable purposes,
held that it "is not actually being managed and operated as a charitable institution but
one for profit" and, as such, "is not entitled to the relief sought in the present action."
This, We believe, is not correct.
It not being disputed that appellant was organized as a charitable institution, the
presumption is that it is operating as such, the burden of proof being on appellees to
show that it is operating otherwise. The record does not show that they have
satisfactorily discharged this burden.1äwphï1.ñët
But the lower court, disregarding the presumption mentioned above, claims that
"plaintiff failed to prove that it is actually engaged in charitable work" and that "No
evidence whatsoever was presented to show how it doles out charity, etc." This is
also erroneous. Aside from the appellant's Articles of Incorporation showing that it
had no capital stock and that no part of its net income, if any, could inure to the
benefit of any private individual, there is Exhibit D, a ruling of June 20, 1957 of the
Workmen's Compensation Commissioner and the Undersecretary of Labor to the
effect that appellant is a charitable institution exempt from the scope of the
Workmen's Compensation Act; a written statement of appellant's cashier that the
latter maintains two free wards of sixty beds each; an admission by appellees to the
effect that, in addition to the free wards just mentioned, appellant also maintains six
free beds in the Pediatrics Section (transcript of June 16, 1960, pp. 2-4).
It is not therefore correct to say that there is no evidence whatsoever showing how
appellant doles out charity.
Moreover, the question of whether or not appellant and other institutions similarly
situated and operated are charitable institutions has been decided both here and in the
United States. The American rule is summarized in 51 American Jurisprudence, p.
607, as follows:
636. Effect of Receipt of Pay from Patients.
The general rule that a charitable institution does not lose its charitable
character and its consequent exemption from taxation merely because
recipients of its benefits who are able to pay are required to do so, where
funds derived in this manner are devoted to the charitable purposes of the
institution, applies to hospitals. A hospital owned and conducted by a
charitable organization, devoted for the most part to the gratuitous care of
charity patients, is exempt from taxation as a building used for "purposes
purely charitable", notwithstanding it receives and cares for pay patients,
where any profit thus derived is applied to the purposes of the institution.
An institution established, maintained, and operated for the purpose of
taking care of the sick, without any profit or view to profit, but at a loss,
which is made up by benevolent contributions, the benefits of which are
open to the public generally, is a purely public charity within the meaning of
a statute exempting the property of institutions of purely public charity from
taxation; the fact that patients who are able to pay are charged for services
rendered, according to their ability, being of no importance upon the
question of the character of the institution.
On the other hand, in Jesus Sacred Heart College vs. Collector, etc., G.R. No. L-
6807, May 20, 1954, We overruled the contention of the Collector of Internal
Revenue to the effect that the fact that the appellant herein had a profit or net income
was sufficient to show that it was an institution "for profit and gain" and therefore no
longer exempt from income tax as follows:
To hold that an educational institution is subject to income tax wherever it is
so administered as to reasonably assure that it will not incur a deficit, is to
nullify and defeat the aforementioned exemption. Indeed, the effect, in
general, of the interpretation advocated by appellant would be to deny the
exemption whenever there is a net income, contrary to the tenor of said
Section 27 (e) which positively exempts from taxation those corporations
which, otherwise, would be subject thereto, because of the existence of said
net income.
Explaining our view that the making of profit does not destroy the tax exemption of a
charitable, benevolent or educational institution, We said:
Needless to say, every responsible organization must be so run as to at least,
insure its existence, by operating within the limits of its own resources,
 especially its regular income. In other words, it should always strive,
whenever possible, to have a surplus. Upon the other hand, appellant's
pretense, would limit the benefits of the exemption, under said Section 27
(e), to institutions which do not hope, or propose, to have such surplus.
Under this view, the exemption would apply only to schools which are on
the verge of bankruptcy, for—unlike the United States, where a substantial
number of institutions of learning are dependent upon voluntary
contributions and still enjoy economic stability, such as Harvard, the trust
fund of which has been steadily increasing with the years—there are, and
there have always been very few educational enterprises in the Philippines
which are supported by donations, and those organizations usually have a
very precarious existence. The final result of appellant's contention, if
adopted, would be to discourage the establishment of colleges in the
Philippines, which is precisely the opposite of the objective consistently
sought by our laws.
In U.S.T. Hospital Employees Association vs. Sto. Tomas University Hospital, G.R.
No. L-6988 (May 24, 1952), it was argued that the fact that the aforesaid hospital
charged fees for 140 paying beds made it lose its character of a charitable institution.
We likewise rejected this view because the paying beds aforesaid were maintained to
partly finance the expenses of the free wards maintained by the hospital. We express
the same view in Collector of Internal Revenue vs. St. Paul's Hospital in Iloilo, G.R.
No. L-12127 (May 25, 1959) where We said the following:
In this connection, it should be noted that respondent therein is a
corporation organized for "charitable, educational and religious purposes";
that no part of its net income inures to the benefit of any private individual;
that it is exempt from paying income tax; that it operates a hospital in which
MEDICAL assistance is given to destitute persons free of charge; that it
maintains a pharmacy department within the premises of said hospital, to
supply drugs and medicines only to charity and paying patients confined
therein; and that only the paying patients are required to pay the medicines
supplied to them, for which they are charged the cost of the medicines, plus
an additional 10% thereof, to partly offset the cost of medicines supplied
free of charge to charity patients. Under these facts, we are of the opinion,
and so hold, that the Hospital may not be regarded as engaged in "business"
by reason of said sale of medicines to its paying patients.
xxx xxx xxx
In line with the foregoing, in U.S.T. Hospital Employees Association vs. Santo Tomas
University Hospital (G.R. No. L-6988, decided May 24, 1954), we held that the
U.S.T. Hospital was not established for profit-making purposes, despite the fact that
it had 140 paying beds, because the same were maintained only to "partly finance the
expenses of the free wards", containing 203 beds for charity patients. Although said
case involved the interpretation of Republic Act No. 772, it is patent from our
decision therein that said institution was not considered engaged in "business."
It is trite to say that a tax on the limited revenue of charitable institutions of
this kind tends to hamper its operation, and accordingly, to discourage the
establishment and maintenance thereof. In the absence of a clear legal
provision thereon, we must not so construe our laws as to lead to such
result. In other words, the second, third and fourth assignments of error are
untenable.
In San Juan de Dios Hospital (the same party appellant herein) vs. Metropolitan
Water District, 54 Phil. 174, this Court considered said hospital as a charitable
institution in spite of the fact that it maintained paying beds. From the decision in
said case, We quote the following:
A hospital (referring to the San Juan de Dios Hospital) is generally
considered to be a charitable institution. It is good public policy to
encourage works of charity. What Carriedo did in his will was to make a
beneficient grant not to a hospital thought of as a building, but to a hospital
thought of as an institution. The free water was for the good of the hospital
in this large sense. Should the hospital be enlarged or rebuilt, the water
concession would continue just the same. But a hospital cannot function
without personnel. And such personnel must have a place to live, which is
the reason why a home devoted exclusively to the needs of the nurses was
founded. Free water for a nurses home as an adjunct to a hospital is as
beneficial to the charitable purposes of the hospital as is free water for the
hospital proper.
Finally, in Manila Sanitarium and Hospital vs. Gabuco, G.R. No. L-14331, January
31, 1963, We held that the mere charging of medical and hospital fees from those
who could afford to pay, did not make the institution one established for profit or
gain.
Upon all the foregoing, the appealed decision is reversed, and another is hereby
rendered ordering appellees to pay appellant the amount of P1,709.50, with interest
at the legal rate from the date of the filing of complaint in this case. With costs.
G.R. No. 144104 June 29, 2004
LUNG CENTER OF THE PHILIPPINES, petitioner,
vs.
QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City
Assessor of Quezon City, respondents.
 DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, as
amended, of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R.
SP No. 57014 which affirmed the decision of the Central Board of Assessment
Appeals holding that the lot owned by the petitioner and its hospital building
constructed thereon are subject to assessment for purposes of real property tax.
The Antecedents
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity
established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the
registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-
B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central
District, Quezon City. The lot has an area of 121,463 square meters and is covered by
Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon
City. Erected in the middle of the aforesaid lot is a hospital known as the Lung
Center of the Philippines. A big space at the ground floor is being leased to private
parties, for canteen and small store spaces, and to medical or professional
practitioners who use the same as their private clinics for their patients whom they
charge for their professional services. Almost one-half of the entire area on the left
side of the building along Quezon Avenue is vacant and idle, while a big portion on
the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for
commercial purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.
The petitioner accepts paying and non-paying patients. It also renders medical
services to out-patients, both paying and non-paying. Aside from its income from
paying patients, the petitioner receives annual subsidies from the government.
On June 7, 1993, both the land and the hospital building of the petitioner were
assessed for real property taxes in the amount of ₱4,554,860 by the City Assessor of
Quezon City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C-
021-01231 (15-2518-A) were issued for the land and the hospital building,
respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption5 from
real property taxes with the City Assessor, predicated on its claim that it is a
charitable institution. The petitioner’s request was denied, and a petition was,
thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC-
LBAA, for brevity) for the reversal of the resolution of the City Assessor. The
petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the
property is exempt from real property taxes. It averred that a minimum of 60% of its
hospital beds are exclusively used for charity patients and that the major thrust of its
hospital operation is to serve charity patients. The petitioner contends that it is a
charitable institution and, as such, is exempt from real property taxes. The QC-
LBAA rendered judgment dismissing the petition and holding the petitioner liable for
real property taxes.6
The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of
Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the
petitioner was not a charitable institution and that its real properties were not
actually, directly and exclusively used for charitable purposes; hence, it was not
entitled to real property tax exemption under the constitution and the law. The
petitioner sought relief from the Court of Appeals, which rendered judgment
affirming the decision of the CBAA.8
Undaunted, the petitioner filed its petition in this Court contending that:
A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS
NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND
THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF
ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND
EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY
TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION
MAY NEVERTHELESS BE EXTENDED UPON PROPER
APPLICATION.
The petitioner avers that it is a charitable institution within the context of Section
28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable
institution is not altered by the fact that it admits paying patients and renders medical
services to them, leases portions of the land to private parties, and rents out portions
of the hospital to private medical practitioners from which it derives income to be
used for operational expenses. The petitioner points out that for the years 1995 to
1999, 100% of its out-patients were charity patients and of the hospital’s 282-bed
capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the
fact that it receives subsidies from the government attests to its character as a
charitable institution. It contends that the "exclusivity" required in the Constitution
does not necessarily mean "solely." Hence, even if a portion of its real estate is leased
out to private individuals from whom it derives income, it does not lose its character
as a charitable institution, and its exemption from the payment of real estate taxes on
its real property. The petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its
pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it
from the payment of real estate taxes, it is not precluded from seeking tax exemption
under the 1987 Constitution.
In their comment on the petition, the respondents aver that the petitioner is not a
charitable entity. The petitioner’s real property is not exempt from the payment of
real estate taxes under P.D. No. 1823 and even under the 1987 Constitution because
it failed to prove that it is a charitable institution and that the said property is actually,
directly and exclusively used for charitable purposes. The respondents noted that in a
newspaper report, it appears that graft charges were filed with the Sandiganbayan
against the director of the petitioner, its administrative officer, and Zenaida Rivera,
the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease
contract over 7,663.13 square meters of the property in 1990 for only ₱20,000 a
month, when the monthly rental should be ₱357,000 a month as determined by the
Commission on Audit; and that instead of complying with the directive of the COA
for the cancellation of the contract for being grossly prejudicial to the government,
the petitioner renewed the same on March 13, 1995 for a monthly rental of only
₱24,000. They assert that the petitioner uses the subsidies granted by the government
for charity patients and uses the rest of its income from the property for the benefit of
paying patients, among other purposes. They aver that the petitioner failed to adduce
substantial evidence that 100% of its out-patients and 170 beds in the hospital are
reserved for indigent patients. The respondents further assert, thus:
13. That the claims/allegations of the Petitioner LCP do not speak well of its
record of service. That before a patient is admitted for treatment in the
Center, first impression is that it is pay-patient and required to pay a certain
amount as deposit. That even if a patient is living below the poverty line, he
is charged with high hospital bills. And, without these bills being first
settled, the poor patient cannot be allowed to leave the hospital or be
discharged without first paying the hospital bills or issue a promissory note
guaranteed and indorsed by an influential agency or person known only to
the Center; that even the remains of deceased poor patients suffered the
same fate. Moreover, before a patient is admitted for treatment as free or
charity patient, one must undergo a series of interviews and must submit all
the requirements needed by the Center, usually accompanied by
endorsement by an influential agency or person known only to the Center.
These facts were heard and admitted by the Petitioner LCP during the
hearings before the Honorable QC-BAA and Honorable CBAA. These are
the reasons of indigent patients, instead of seeking treatment with the
Center, they prefer to be treated at the Quezon Institute. Can such practice
by the Center be called charitable?10
The Issues
The issues for resolution are the following: (a) whether the petitioner is a charitable
institution within the context of Presidential Decree No. 1823 and the 1973 and 1987
Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real
properties of the petitioner are exempt from real property taxes.
The Court’s Ruling
The petition is partially granted.
On the first issue, we hold that the petitioner is a charitable institution within the
context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a
charitable institution/entity or not, the elements which should be considered include
the statute creating the enterprise, its corporate purposes, its constitution and by-
laws, the methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the beneficiaries, and the use
and occupation of the properties.11
In the legal sense, a charity may be fully defined as a gift, to be applied consistently
with existing laws, for the benefit of an indefinite number of persons, either by
bringing their minds and hearts under the influence of education or religion, by
assisting them to establish themselves in life or otherwise lessening the burden of
government.12 It may be applied to almost anything that tend to promote the well-
doing and well-being of social man. It embraces the improvement and promotion of
the happiness of man.13 The word "charitable" is not restricted to relief of the poor or
sick.14 The test of a charity and a charitable organization are in law the same. The test
whether an enterprise is charitable or not is whether it exists to carry out a purpose
reorganized in law as charitable or whether it is maintained for gain, profit, or private
advantage.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which,
subject to the provisions of the decree, is to be administered by the Office of the
President of the Philippines with the Ministry of Health and the Ministry of Human
Settlements. It was organized for the welfare and benefit of the Filipino people
principally to help combat the high incidence of lung and pulmonary diseases in the
Philippines. The raison d’etre for the creation of the petitioner is stated in the
decree, viz:
Whereas, for decades, respiratory diseases have been a priority concern,
having been the leading cause of illness and death in the Philippines,
comprising more than 45% of the total annual deaths from all causes, thus,
exacting a tremendous toll on human resources, which ailments are likely to
increase and degenerate into serious lung diseases on account of unabated
pollution, industrialization and unchecked cigarette smoking in the
country;lavvph!l.net
Whereas, the more common lung diseases are, to a great extent,
preventable, and curable with early and adequate medical care,
immunization and through prompt and intensive prevention and health
education programs;
Whereas, there is an urgent need to consolidate and reinforce existing
programs, strategies and efforts at preventing, treating and rehabilitating
 people affected by lung diseases, and to undertake research and training on
the cure and prevention of lung diseases, through a Lung Center which will
house and nurture the above and related activities and provide tertiary-level
care for more difficult and problematical cases;
Whereas, to achieve this purpose, the Government intends to provide
material and financial support towards the establishment and maintenance
of a Lung Center for the welfare and benefit of the Filipino people.15
The purposes for which the petitioner was created are spelled out in its Articles of
Incorporation, thus:
SECOND: That the purposes for which such corporation is formed are as
follows:
1. To construct, establish, equip, maintain, administer and conduct
an integrated medical institution which shall specialize in the
treatment, care, rehabilitation and/or relief of lung and allied
diseases in line with the concern of the government to assist and
provide material and financial support in the establishment and
maintenance of a lung center primarily to benefit the people of the
Philippines and in pursuance of the policy of the State to secure the
well-being of the people by providing them specialized health and
medical services and by minimizing the incidence of lung diseases
in the country and elsewhere.
2. To promote the noble undertaking of scientific research related
to the prevention of lung or pulmonary ailments and the care of
lung patients, including the holding of a series of relevant
congresses, conventions, seminars and conferences;
3. To stimulate and, whenever possible, underwrite scientific
researches on the biological, demographic, social, economic,
eugenic and physiological aspects of lung or pulmonary diseases
and their control; and to collect and publish the findings of such
research for public consumption;
4. To facilitate the dissemination of ideas and public acceptance of
information on lung consciousness or awareness, and the
development of fact-finding, information and reporting facilities
for and in aid of the general purposes or objects aforesaid,
especially in human lung requirements, general health and physical
fitness, and other relevant or related fields;
5. To encourage the training of physicians, nurses, health officers,
social workers and medical and technical personnel in the practical
and scientific implementation of services to lung patients;
6. To assist universities and research institutions in their studies
about lung diseases, to encourage advanced training in matters of
the lung and related fields and to support educational programs of
value to general health;
7. To encourage the formation of other organizations on the
national, provincial and/or city and local levels; and to coordinate
their various efforts and activities for the purpose of achieving a
more effective programmatic approach on the common problems
relative to the objectives enumerated herein;
8. To seek and obtain assistance in any form from both
international and local foundations and organizations; and to
administer grants and funds that may be given to the organization;
9. To extend, whenever possible and expedient, medical services to
the public and, in general, to promote and protect the health of the
masses of our people, which has long been recognized as an
economic asset and a social blessing;
10. To help prevent, relieve and alleviate the lung or pulmonary
afflictions and maladies of the people in any and all walks of life,
including those who are poor and needy, all without regard to or
discrimination, because of race, creed, color or political belief of
the persons helped; and to enable them to obtain treatment when
such disorders occur;
11. To participate, as circumstances may warrant, in any activity
designed and carried on to promote the general health of the
community;
12. To acquire and/or borrow funds and to own all funds or
equipment, educational materials and supplies by purchase,
donation, or otherwise and to dispose of and distribute the same in
such manner, and, on such basis as the Center shall, from time to
time, deem proper and best, under the particular circumstances, to
serve its general and non-profit purposes and
objectives;lavvphil.net
 13. To buy, purchase, acquire, own, lease, hold, sell, exchange,
transfer and dispose of properties, whether real or personal, for
purposes herein mentioned; and
14. To do everything necessary, proper, advisable or convenient for
the accomplishment of any of the powers herein set forth and to do
every other act and thing incidental thereto or connected
therewith.16
Hence, the medical services of the petitioner are to be rendered to the public in
general in any and all walks of life including those who are poor and the needy
without discrimination. After all, any person, the rich as well as the poor, may fall
sick or be injured or wounded and become a subject of charity.17
As a general principle, a charitable institution does not lose its character as such and
its exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution.18 In Congregational
Sunday School, etc. v. Board of Review,19 the State Supreme Court of Illinois held,
thus:
… [A]n institution does not lose its charitable character, and consequent
exemption from taxation, by reason of the fact that those recipients of its
benefits who are able to pay are required to do so, where no profit is made
by the institution and the amounts so received are applied in furthering its
charitable purposes, and those benefits are refused to none on account of
inability to pay therefor. The fundamental ground upon which all
exemptions in favor of charitable institutions are based is the benefit
conferred upon the public by them, and a consequent relief, to some extent,
of the burden upon the state to care for and advance the interests of its
citizens.20
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital
Association of South Dakota v. Baker:21
… [T]he fact that paying patients are taken, the profits derived from
attendance upon these patients being exclusively devoted to the
maintenance of the charity, seems rather to enhance the usefulness of the
institution to the poor; for it is a matter of common observation amongst
those who have gone about at all amongst the suffering classes, that the
deserving poor can with difficulty be persuaded to enter an asylum of any
kind confined to the reception of objects of charity; and that their honest
pride is much less wounded by being placed in an institution in which
paying patients are also received. The fact of receiving money from some of
the patients does not, we think, at all impair the character of the charity, so
long as the money thus received is devoted altogether to the charitable
object which the institution is intended to further. 22
The money received by the petitioner becomes a part of the trust fund and must be
devoted to public trust purposes and cannot be diverted to private profit or benefit. 23
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner
does not lose its character as a charitable institution simply because the gift or
donation is in the form of subsidies granted by the government. As held by the State
Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake
County:24
Second, the … government subsidy payments are provided to the project.
Thus, those payments are like a gift or donation of any other kind except
they come from the government. In both Intermountain Health Careand the
present case, the crux is the presence or absence of material reciprocity. It is
entirely irrelevant to this analysis that the government, rather than a private
benefactor, chose to make up the deficit resulting from the exchange
between St. Mark’s Tower and the tenants by making a contribution to the
landlord, just as it would have been irrelevant in Intermountain Health
Care if the patients’ income supplements had come from private individuals
rather than the government.
Therefore, the fact that subsidization of part of the cost of furnishing such
housing is by the government rather than private charitable contributions
does not dictate the denial of a charitable exemption if the facts otherwise
support such an exemption, as they do here.25
In this case, the petitioner adduced substantial evidence that it spent its income,
including the subsidies from the government for 1991 and 1992 for its patients and
for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its
operations.
Even as we find that the petitioner is a charitable institution, we hold, anent the
second issue, that those portions of its real property that are leased to private entities
are not exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes.
The settled rule in this jurisdiction is that laws granting exemption from tax are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the exception. The effect of an
exemption is equivalent to an appropriation. Hence, a claim for exemption from tax
payments must be clearly shown and based on language in the law too plain to be
mistaken.26 As held in Salvation Army v. Hoehn:27
An intention on the part of the legislature to grant an exemption from the
taxing power of the state will never be implied from language which will
admit of any other reasonable construction. Such an intention must be
expressed in clear and unmistakable terms, or must appear by necessary
implication from the language used, for it is a well settled principle that,
when a special privilege or exemption is claimed under a statute, charter or
act of incorporation, it is to be construed strictly against the property owner
and in favor of the public. This principle applies with peculiar force to a
claim of exemption from taxation . …28
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-
stock corporation organized primarily to help combat the high incidence of
lung and pulmonary diseases in the Philippines, all donations, contributions,
endowments and equipment and supplies to be imported by authorized
entities or persons and by the Board of Trustees of the Lung Center of the
Philippines, Inc., for the actual use and benefit of the Lung Center, shall be
exempt from income and gift taxes, the same further deductible in full for
the purpose of determining the maximum deductible amount under Section
30, paragraph (h), of the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of
taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment purchases
made by, or for the Lung Center.29
It is plain as day that under the decree, the petitioner does not enjoy any property tax
exemption privileges for its real properties as well as the building constructed
thereon. If the intentions were otherwise, the same should have been among the
enumeration of tax exempt privileges under Section 2:
It is a settled rule of statutory construction that the express mention of one
person, thing, or consequence implies the exclusion of all others. The rule is
expressed in the familiar maxim, expressio unius est exclusio alterius.
The rule of expressio unius est exclusio alterius is formulated in a number
of ways. One variation of the rule is the principle that what is expressed
puts an end to that which is implied. Expressium facit cessare tacitum. Thus,
where a statute, by its terms, is expressly limited to certain matters, it may
not, by interpretation or construction, be extended to other matters.
...
The rule of expressio unius est exclusio alterius and its variations are canons
of restrictive interpretation. They are based on the rules of logic and the
natural workings of the human mind. They are predicated upon one’s own
voluntary act and not upon that of others. They proceed from the premise
that the legislature would not have made specified enumeration in a statute
had the intention been not to restrict its meaning and confine its terms to
those expressly mentioned.30
The exemption must not be so enlarged by construction since the reasonable
presumption is that the State has granted in express terms all it intended to grant at
all, and that unless the privilege is limited to the very terms of the statute the favor
would be intended beyond what was meant.31
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
(3) Charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious,
charitable or educational purposes shall be exempt from taxation.32
The tax exemption under this constitutional provision covers property taxes
only.33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986
Constitutional Commission, explained: ". . . what is exempted is not the institution
itself . . .; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious, charitable or
educational purposes."34
Consequently, the constitutional provision is implemented by Section 234(b) of
Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as
follows:
SECTION 234. Exemptions from Real Property Tax. – The following are
exempted from payment of the real property tax:
...
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries
and all lands, buildings, and improvements actually, directly,
and exclusivelyused for religious, charitable or educational
purposes.35
We note that under the 1935 Constitution, "... all lands, buildings, and improvements
used ‘exclusively’ for … charitable … purposes shall be exempt from
taxation."36 However, under the 1973 and the present Constitutions, for "lands,
buildings, and improvements" of the charitable institution to be considered exempt,
the same should not only be "exclusively" used for charitable purposes; it is required
that such property be used "actually" and "directly" for such purposes.37
In light of the foregoing substantial changes in the Constitution, the petitioner cannot
rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was
promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took
effect.38 As this Court held in Province of Abra v. Hernando:39
… Under the 1935 Constitution: "Cemeteries, churches, and parsonages or
convents appurtenant thereto, and all lands, buildings, and improvements
used exclusively for religious, charitable, or educational purposes shall be
exempt from taxation." The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and required that for the
exemption of "lands, buildings, and improvements," they should not only be
"exclusively" but also "actually" and "directly" used for religious or
charitable purposes. The Constitution is worded differently. The change
should not be ignored. It must be duly taken into consideration. Reliance on
past decisions would have sufficed were the words "actually" as well as
"directly" not added. There must be proof therefore of
the actual and direct use of the lands, buildings, and improvements for
religious or charitable purposes to be exempt from taxation. …
The petitioner failed to discharge its burden to prove that the entirety of its real
property is actually, directly and exclusively used for charitable purposes. While
portions of the hospital are used for the treatment of patients and the dispensation of
medical services to them, whether paying or non-paying, other portions thereof are
being leased to private individuals for their clinics and a canteen. Further, a portion
of the land is being leased to a private individual for her business enterprise under
the business name "Elliptical Orchids and Garden Center." Indeed, the petitioner’s
evidence shows that it collected ₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28
for 1992 from the said lessees.
Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such
taxes.45 On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to
determine, after due hearing, the precise portions of the land and the area thereof
which are leased to private persons, and to compute the real property taxes due
thereon as provided for by law.
SO ORDERED.
G.R. No. 195909 September 26, 2012

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled COMMISSIONER OF INTERNAL REVENUE, PETITIONER,
to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, vs.
that (a) it is a charitable institution; and (b) its real properties ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and "exclusively" is defined, "in a manner to x-----------------------x
exclude; as enjoying a privilege exclusively."40 If real property is used for one or
more commercial purposes, it is not exclusively used for the exempted purposes but G.R. No. 195960
is subject to taxation.41 The words "dominant use" or "principal use" cannot be
substituted for the words "used exclusively" without doing violence to the ST. LUKE'S MEDICAL CENTER, INC., PETITIONER,
Constitutions and the law.42 Solely is synonymous with exclusively.43 vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to DECISION
the purposes for which the charitable institution is organized. It is not the use of the
income from the real property that is determinative of whether the property is used CARPIO, J.:
for tax-exempt purposes.44
The Case
These are consolidated 1 petitions for review on certiorari under Rule 45 of the Rules
of Court assailing the Decision of 19 November 2010 of the Court of Tax Appeals
(CTA) En Banc and its Resolution 2 of 1 March 2011 in CTA Case No. 6746. This
Court resolves this case on a pure question of law, which involves the interpretation
of Section 27(B) vis-à-vis Section 30(E) and (G) of the National Internal Revenue
Code of the Philippines (NIRC), on the income tax treatment of proprietary non-
profit hospitals.
The Facts
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and
non-profit corporation. Under its articles of incorporation, among its corporate
purposes are:
(a) To establish, equip, operate and maintain a non-stock, non-profit
Christian, benevolent, charitable and scientific hospital which shall give
curative, rehabilitative and spiritual care to the sick, diseased and disabled
persons; provided that purely medical and surgical services shall be
performed by duly licensed physicians and surgeons who may be freely and
individually contracted by patients;
(b) To provide a career of health science education and provide medical
services to the community through organized clinics in such specialties as
the facilities and resources of the corporation make possible;
(c) To carry on educational activities related to the maintenance and
promotion of health as well as provide facilities for scientific and medical
researches which, in the opinion of the Board of Trustees, may be justified
by the facilities, personnel, funds, or other requirements that are available;
(d) To cooperate with organized medical societies, agencies of both
government and private sector; establish rules and regulations consistent
with the highest professional ethics;
xxxx3
On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's
deficiency taxes amounting to ₱76,063,116.06 for 1998, comprised of deficiency
income tax, value-added tax, withholding tax on compensation and expanded
withholding tax. The BIR reduced the amount to ₱63,935,351.57 during trial in the
First Division of the CTA. 4
On 14 January 2003, St. Luke's filed an administrative protest with the BIR against
the deficiency tax assessments. The BIR did not act on the protest within the 180-day
period under Section 228 of the NIRC. Thus, St. Luke's appealed to the CTA.
The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a
10% preferential tax rate on the income of proprietary non-profit hospitals, should be
applicable to St. Luke's. According to the BIR, Section 27(B), introduced in 1997, "is
a new provision intended to amend the exemption on non-profit hospitals that were
previously categorized as non-stock, non-profit corporations under Section 26 of the
1997 Tax Code x x x." 5 It is a specific provision which prevails over the general
exemption on income tax granted under Section 30(E) and (G) for non-stock, non-
profit charitable institutions and civic organizations promoting social welfare. 6
The BIR claimed that St. Luke's was actually operating for profit in 1998 because
only 13% of its revenues came from charitable purposes. Moreover, the hospital's
board of trustees, officers and employees directly benefit from its profits and assets.
St. Luke's had total revenues of ₱1,730,367,965 or approximately ₱1.73 billion from
patient services in 1998. 7
St. Luke's contended that the BIR should not consider its total revenues, because its
free services to patients was ₱218,187,498 or 65.20% of its 1998 operating income
(i.e., total revenues less operating expenses) of ₱334,642,615. 8 St. Luke's also
claimed that its income does not inure to the benefit of any individual.
St. Luke's maintained that it is a non-stock and non-profit institution for charitable
and social welfare purposes under Section 30(E) and (G) of the NIRC. It argued that
the making of profit per se does not destroy its income tax exemption.
The petition of the BIR before this Court in G.R. No. 195909 reiterates its arguments
before the CTA that Section 27(B) applies to St. Luke's. The petition raises the sole
issue of whether the enactment of Section 27(B) takes proprietary non-profit
hospitals out of the income tax exemption under Section 30 of the NIRC and instead,
imposes a preferential rate of 10% on their taxable income. The BIR prays that St.
Luke's be ordered to pay ₱57,659,981.19 as deficiency income and expanded
withholding tax for 1998 with surcharges and interest for late payment.
The petition of St. Luke's in G.R. No. 195960 raises factual matters on the treatment
and withholding of a part of its income, 9 as well as the payment of surcharge and
delinquency interest. There is no ground for this Court to undertake such a factual
review. Under the Constitution 10 and the Rules of Court, 11 this Court's review power
is generally limited to "cases in which only an error or question of law is
involved." 12 This Court cannot depart from this limitation if a party fails to invoke a
recognized exception.
The Ruling of the Court of Tax Appeals
The CTA En Banc Decision on 19 November 2010 affirmed in toto the CTA First
Division Decision dated 23 February 2009 which held:
WHEREFORE, the Amended Petition for Review [by St. Luke's] is hereby
PARTIALLY GRANTED. Accordingly, the 1998 deficiency VAT assessment issued
by respondent against petitioner in the amount of ₱110,000.00 is hereby
CANCELLED and WITHDRAWN. However, petitioner is hereby ORDERED to
PAY deficiency income tax and deficiency expanded withholding tax for the taxable
year 1998 in the respective amounts of ₱5,496,963.54 and ₱778,406.84 or in the sum
of ₱6,275,370.38, x x x.
xxxx
In addition, petitioner is hereby ORDERED to PAY twenty percent (20%)
delinquency interest on the total amount of ₱6,275,370.38 counted from October 15,
2003 until full payment thereof, pursuant to Section 249(C)(3) of the NIRC of 1997.
SO ORDERED. 13
The deficiency income tax of ₱5,496,963.54, ordered by the CTA En Banc to be
paid, arose from the failure of St. Luke's to prove that part of its income in 1998
(declared as "Other Income-Net") 14 came from charitable activities. The CTA
cancelled the remainder of the ₱63,113,952.79 deficiency assessed by the BIR based
on the 10% tax rate under Section 27(B) of the NIRC, which the CTA En Banc held
was not applicable to St. Luke's. 15
The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution
covered by Section 30(E) and (G) of the NIRC. This ruling would exempt all income
derived by St. Luke's from services to its patients, whether paying or non-paying.
The CTA reiterated its earlier decision in St. Luke's Medical Center, Inc. v.
Commissioner of Internal Revenue, 16 which examined the primary purposes of St.
Luke's under its articles of incorporation and various documents 17 identifying St.
Luke's as a charitable institution.
The CTA adopted the test in Hospital de San Juan de Dios, Inc. v. Pasay
City, 18 which states that "a charitable institution does not lose its charitable character
and its consequent exemption from taxation merely because recipients of its benefits
who are able to pay are required to do so, where funds derived in this manner are
devoted to the charitable purposes of the institution x x x." 19 The generation of
income from paying patients does not per se destroy the charitable nature of St.
Luke's.
Hospital de San Juan cited Jesus Sacred Heart College v. Collector of Internal
Revenue, 20 which ruled that the old NIRC (Commonwealth Act No. 466, as
amended) 21 "positively exempts from taxation those corporations or associations
which, otherwise, would be subject thereto, because of the existence of x x x net
income." 22 The NIRC of 1997 substantially reproduces the provision on charitable
institutions of the old NIRC. Thus, in rejecting the argument that tax exemption is
lost whenever there is net income, the Court in Jesus Sacred Heart College declared:
"[E]very responsible organization must be run to at least insure its existence, by
operating within the limits of its own resources, especially its regular income. In
other words, it should always strive, whenever possible, to have a surplus." 23
The CTA held that Section 27(B) of the present NIRC does not apply to St.
Luke's. 24 The CTA explained that to apply the 10% preferential rate, Section 27(B)
requires a hospital to be "non-profit." On the other hand, Congress specifically used
the word "non-stock" to qualify a charitable "corporation or association" in Section
30(E) of the NIRC. According to the CTA, this is unique in the present tax code,
indicating an intent to exempt this type of charitable organization from income tax.
Section 27(B) does not require that the hospital be "non-stock." The CTA stated, "it is
clear that non-stock, non-profit hospitals operated exclusively for charitable purpose
are exempt from income tax on income received by them as such, applying the
provision of Section 30(E) of the NIRC of 1997, as amended." 25
The Issue
The sole issue is whether St. Luke's is liable for deficiency income tax in 1998 under
Section 27(B) of the NIRC, which imposes a preferential tax rate of 10% on the
income of proprietary non-profit hospitals.
The Ruling of the Court
St. Luke's Petition in G.R. No. 195960
As a preliminary matter, this Court denies the petition of St. Luke's in G.R. No.
195960 because the petition raises factual issues. Under Section 1, Rule 45 of the
Rules of Court, "[t]he petition shall raise only questions of law which must be
distinctly set forth." St. Luke's cites Martinez v. Court of Appeals 26 which permits
factual review "when the Court of Appeals [in this case, the CTA] manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion." 27
This Court does not see how the CTA overlooked relevant facts. St. Luke's itself
stated that the CTA "disregarded the testimony of [its] witness, Romeo B. Mary,
being allegedly self-serving, to show the nature of the 'Other Income-Net' x x
x." 28 This is not a case of overlooking or failing to consider relevant evidence. The
CTA obviously considered the evidence and concluded that it is self-serving. The
CTA declared that it has "gone through the records of this case and found no other
evidence aside from the self-serving affidavit executed by [the] witnesses [of St.
Luke's] x x x." 29
The deficiency tax on "Other Income-Net" stands. Thus, St. Luke's is liable to pay
the 25% surcharge under Section 248(A)(3) of the NIRC. There is "[f]ailure to pay
the deficiency tax within the time prescribed for its payment in the notice of
assessment[.]" 30 St. Luke's is also liable to pay 20% delinquency interest under
Section 249(C)(3) of the NIRC. 31 As explained by the CTA En Banc, the amount of
₱6,275,370.38 in the dispositive portion of the CTA First Division Decision includes
only deficiency interest under Section 249(A) and (B) of the NIRC and not
delinquency interest. 32
The Main Issue
The issue raised by the BIR is a purely legal one. It involves the effect of the
introduction of Section 27(B) in the NIRC of 1997 vis-à-vis Section 30(E) and (G)
on the income tax exemption of charitable and social welfare institutions. The 10%
income tax rate under Section 27(B) specifically pertains to proprietary educational
institutions and proprietary non-profit hospitals. The BIR argues that Congress
intended to remove the exemption that non-profit hospitals previously enjoyed under
Section 27(E) of the NIRC of 1977, which is now substantially reproduced in Section
30(E) of the NIRC of 1997. 33 Section 27(B) of the present NIRC provides:
SEC. 27. Rates of Income Tax on Domestic Corporations. -
xxxx
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational
institutions and hospitals which are non-profit shall pay a tax of ten percent (10%) on
their taxable income except those covered by Subsection (D) hereof: Provided, That
if the gross income from unrelated trade, business or other activity exceeds fifty
percent (50%) of the total gross income derived by such educational institutions or
hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be
imposed on the entire taxable income. For purposes of this Subsection, the term
'unrelated trade, business or other activity' means any trade, business or other
activity, the conduct of which is not substantially related to the exercise or
performance by such educational institution or hospital of its primary purpose or
function. A 'proprietary educational institution' is any private school maintained and
administered by private individuals or groups with an issued permit to operate from
the Department of Education, Culture and Sports (DECS), or the Commission on
Higher Education (CHED), or the Technical Education and Skills Development
Authority (TESDA), as the case may be, in accordance with existing laws and
regulations. (Emphasis supplied)
St. Luke's claims tax exemption under Section 30(E) and (G) of the NIRC. It
contends that it is a charitable institution and an organization promoting social
welfare. The arguments of St. Luke's focus on the wording of Section 30(E)
exempting from income tax non-stock, non-profit charitable institutions. 34 St. Luke's
asserts that the legislative intent of introducing Section 27(B) was only to remove the
exemption for "proprietary non-profit" hospitals. 35 The relevant provisions of
Section 30 state:
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall
not be taxed under this Title in respect to income received by them as such:
xxxx
(E) Nonstock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
of veterans, no part of its net income or asset shall belong to or inure to the benefit of
any member, organizer, officer or any specific person;
xxxx
(G) Civic league or organization not organized for profit but operated exclusively for
the promotion of social welfare;
xxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under this Code.
(Emphasis supplied)
The Court partly grants the petition of the BIR but on a different ground. We hold
that Section 27(B) of the NIRC does not remove the income tax exemption of
proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one
hand, and Section 30(E) and (G) on the other hand, can be construed together
without the removal of such tax exemption. The effect of the introduction of Section
27(B) is to subject the taxable income of two specific institutions, namely,
proprietary non-profit educational institutions 36 and proprietary non-profit hospitals,
among the institutions covered by Section 30, to the 10% preferential rate under
Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of
Section 30 in relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit
hospitals. The only qualifications for hospitals are that they must be proprietary and
non-profit. "Proprietary" means private, following the definition of a "proprietary
educational institution" as "any private school maintained and administered by
private individuals or groups" with a government permit. "Non-profit" means no net
income or asset accrues to or benefits any member or specific person, with all the net
income or asset devoted to the institution's purposes and all its activities conducted
not for profit.
"Non-profit" does not necessarily mean "charitable." In Collector of Internal
Revenue v. Club Filipino Inc. de Cebu, 37this Court considered as non-profit a sports
club organized for recreation and entertainment of its stockholders and members.
The club was primarily funded by membership fees and dues. If it had profits, they
were used for overhead expenses and improving its golf course. 38 The club was non-
profit because of its purpose and there was no evidence that it was engaged in a
profit-making enterprise. 39
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not
charitable. The Court defined "charity" in Lung Center of the Philippines v. Quezon
City 40 as "a gift, to be applied consistently with existing laws, for the benefit of an
indefinite number of persons, either by bringing their minds and hearts under the
influence of education or religion, by assisting them to establish themselves in life or
[by] otherwise lessening the burden of government." 41A non-profit club for the
benefit of its members fails this test. An organization may be considered as non-
profit if it does not distribute any part of its income to stockholders or members.
However, despite its being a tax exempt institution, any income such institution earns
from activities conducted for profit is taxable, as expressly provided in the last
paragraph of Section 30.
To be a charitable institution, however, an organization must meet the substantive
test of charity in Lung Center. The issue in Lung Center concerns exemption from
real property tax and not income tax. However, it provides for the test of charity in
our jurisdiction. Charity is essentially a gift to an indefinite number of persons which
lessens the burden of government. In other words, charitable institutions provide for
free goods and services to the public which would otherwise fall on the shoulders of
government. Thus, as a matter of efficiency, the government forgoes taxes which
should have been spent to address public needs, because certain private entities
already assume a part of the burden. This is the rationale for the tax exemption of
charitable institutions. The loss of taxes by the government is compensated by its
relief from doing public works which would have been funded by appropriations
from the Treasury. 42
Charitable institutions, however, are not ipso facto entitled to a tax exemption. The
requirements for a tax exemption are specified by the law granting it. The power of
Congress to tax implies the power to exempt from tax. Congress can create tax
exemptions, subject to the constitutional provision that "[n]o law granting any tax
exemption shall be passed without the concurrence of a majority of all the Members
of Congress." 43 The requirements for a tax exemption are strictly construed against
the taxpayer 44 because an exemption restricts the collection of taxes necessary for the
existence of the government.
The Court in Lung Center declared that the Lung Center of the Philippines is a
charitable institution for the purpose of exemption from real property taxes. This
ruling uses the same premise as Hospital de San Juan 45 and Jesus Sacred Heart
College 46 which says that receiving income from paying patients does not destroy the
charitable nature of a hospital.
As a general principle, a charitable institution does not lose its character as such and
its exemption from taxes simply because it derives income from paying patients,
whether out-patient, or confined in the hospital, or receives subsidies from the
government, so long as the money received is devoted or used altogether to the
charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. 47
For real property taxes, the incidental generation of income is permissible because
the test of exemption is the use of the property. The Constitution provides that
"[c]haritable institutions, churches and personages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall
be exempt from taxation." 48 The test of exemption is not strictly a requirement on the
intrinsic nature or character of the institution. The test requires that the institution use
the property in a certain way, i.e. for a charitable purpose. Thus, the Court held that
the Lung Center of the Philippines did not lose its charitable character when it used a
portion of its lot for commercial purposes. The effect of failing to meet the use
requirement is simply to remove from the tax exemption that portion of the property
not devoted to charity.
The Constitution exempts charitable institutions only from real property taxes. In the
NIRC, Congress decided to extend the exemption to income taxes. However, the way
Congress crafted Section 30(E) of the NIRC is materially different from Section
28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the
corporation or association that is exempt from income tax. On the other hand,
Section 28(3), Article VI of the Constitution does not define a charitable institution,
but requires that the institution "actually, directly and exclusively" use the property
for a charitable purpose.
Section 30(E) of the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit
of any member, organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be
devoted "exclusively" for charitable purposes. The organization of the institution
refers to its corporate form, as shown by its articles of incorporation, by-laws and
other constitutive documents. Section 30(E) of the NIRC specifically requires that
the corporation or association be non-stock, which is defined by the Corporation
Code as "one where no part of its income is distributable as dividends to its
members, trustees, or officers" 49 and that any profit "obtain[ed] as an incident to its
operations shall, whenever necessary or proper, be used for the furtherance of the
purpose or purposes for which the corporation was organized." 50 However, under
Lung Center, any profit by a charitable institution must not only be plowed back
"whenever necessary or proper," but must be "devoted or used altogether to the
charitable object which it is intended to achieve." 51
The operations of the charitable institution generally refer to its regular activities.
Section 30(E) of the NIRC requires that these operations be exclusive to charity.
There is also a specific requirement that "no part of [the] net income or asset shall
belong to or inure to the benefit of any member, organizer, officer or any specific
person." The use of lands, buildings and improvements of the institution is but a part
of its operations.
There is no dispute that St. Luke's is organized as a non-stock and non-profit
charitable institution. However, this does not automatically exempt St. Luke's from
paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's
meets the test of charity, a charitable institution is not ipso facto tax exempt. To be
exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property "actually, directly and
exclusively" for charitable purposes. To be exempt from income taxes, Section 30(E)
of the NIRC requires that a charitable institution must be "organized and operated
exclusively" for charitable purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution be "operated exclusively" for
social welfare.
However, the last paragraph of Section 30 of the NIRC qualifies the words
"organized and operated exclusively" by providing that:
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under this Code.
(Emphasis supplied)
In short, the last paragraph of Section 30 provides that if a tax exempt charitable
institution conducts "any" activity for profit, such activity is not tax exempt even as
its not-for-profit activities remain tax exempt. This paragraph qualifies the
requirements in Section 30(E) that the "[n]on-stock corporation or association [must
be] organized and operated exclusively for x x x charitable x x x purposes x x x." It
likewise qualifies the requirement in Section 30(G) that the civic organization must
be "operated exclusively" for the promotion of social welfare.
Thus, even if the charitable institution must be "organized and operated exclusively"
for charitable purposes, it is nevertheless allowed to engage in "activities conducted
for profit" without losing its tax exempt status for its not-for-profit activities. The
only consequence is that the "income of whatever kind and character" of a charitable
institution "from any of its activities conducted for profit, regardless of the
disposition made of such income, shall be subject to tax." Prior to the introduction of
Section 27(B), the tax rate on such income from for-profit activities was the ordinary
corporate rate under Section 27(A). With the introduction of Section 27(B), the tax
rate is now 10%.
In 1998, St. Luke's had total revenues of ₱1,730,367,965 from services to paying
patients. It cannot be disputed that a hospital which receives approximately ₱1.73
billion from paying patients is not an institution "operated exclusively" for charitable
purposes. Clearly, revenues from paying patients are income received from
"activities conducted for profit." 52 Indeed, St. Luke's admits that it derived profits
from its paying patients. St. Luke's declared ₱1,730,367,965 as "Revenues from
Services to Patients" in contrast to its "Free Services" expenditure of ₱218,187,498.
In its Comment in G.R. No. 195909, St. Luke's showed the following "calculation" to
support its claim that 65.20% of its "income after expenses was allocated to free or
charitable services" in 1998. 53
REVENUES FROM SERVICES TO PATIENTS ₱1,730,367,965.00
OPERATING EXPENSES
Professional care of patients ₱1,016,608,394.00
Administrative 287,319,334.00
Household and Property 91,797,622.00
₱1,395,725,350.00
INCOME FROM OPERATIONS ₱334,642,615.00 100%

Free Services -218,187,498.00 -65.20%
INCOME FROM OPERATIONS, Net of FREE ₱116,455,117.00 34.80%
SERVICES
OTHER INCOME 17,482,304.00
EXCESS OF REVENUES OVER EXPENSES ₱133,937,421.00
In Lung Center, this Court declared:
"[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and "exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively." x x x The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing
violence to the Constitution and the law. Solely is synonymous with exclusively. 54
The Court cannot expand the meaning of the words "operated exclusively" without
violating the NIRC. Services to paying patients are activities conducted for profit.
They cannot be considered any other way. There is a "purpose to make profit over
and above the cost" of services. 55 The ₱1.73 billion total revenues from paying
patients is not even incidental to St. Luke's charity expenditure of ₱218,187,498 for
non-paying patients.
St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20% of its
operating income in 1998. However, if a part of the remaining 34.80% of the
operating income is reinvested in property, equipment or facilities used for services
to paying and non-paying patients, then it cannot be said that the income is "devoted
or used altogether to the charitable object which it is intended to achieve." 56 The
income is plowed back to the corporation not entirely for charitable purposes, but for
profit as well. In any case, the last paragraph of Section 30 of the NIRC expressly
qualifies that income from activities for profit is taxable "regardless of the
disposition made of such income."
Jesus Sacred Heart College declared that there is no official legislative record
explaining the phrase "any activity conducted for profit." However, it quoted a
deposition of Senator Mariano Jesus Cuenco, who was a member of the Committee
of Conference for the Senate, which introduced the phrase "or from any activity
conducted for profit."
P. Cuando ha hablado de la Universidad de Santo Tomás que tiene un hospital, no
cree Vd. que es una actividad esencial dicho hospital para el funcionamiento del
colegio de medicina de dicha universidad?
xxxx
R. Si el hospital se limita a recibir enformos pobres, mi contestación seria afirmativa;
pero considerando que el hospital tiene cuartos de pago, y a los mismos
generalmente van enfermos de buena posición social económica, lo que se paga por
estos enfermos debe estar sujeto a 'income tax', y es una de las razones que hemos
tenido para insertar las palabras o frase 'or from any activity conducted for profit.' 57
The question was whether having a hospital is essential to an educational institution
like the College of Medicine of the University of Santo Tomas. Senator Cuenco
answered that if the hospital has paid rooms generally occupied by people of good
economic standing, then it should be subject to income tax. He said that this was one
of the reasons Congress inserted the phrase "or any activity conducted for profit."
The question in Jesus Sacred Heart College involves an educational
institution. 58 However, it is applicable to charitable institutions because Senator
Cuenco's response shows an intent to focus on the activities of charitable institutions.
Activities for profit should not escape the reach of taxation. Being a non-stock and
non-profit corporation does not, by this reason alone, completely exempt an
institution from tax. An institution cannot use its corporate form to prevent its
profitable activities from being taxed.
The Court finds that St. Luke's is a corporation that is not "operated exclusively" for
charitable or social welfare purposes insofar as its revenues from paying patients are
concerned. This ruling is based not only on a strict interpretation of a provision
granting tax exemption, but also on the clear and plain text of Section 30(E) and (G).
Section 30(E) and (G) of the NIRC requires that an institution be "operated
exclusively" for charitable or social welfare purposes to be completely exempt from
income tax. An institution under Section 30(E) or (G) does not lose its tax exemption
if it earns income from its for-profit activities. Such income from for-profit activities,
under the last paragraph of Section 30, is merely subject to income tax, previously at
the ordinary corporate rate but now at the preferential 10% rate pursuant to Section
27(B).
A tax exemption is effectively a social subsidy granted by the State because an
exempt institution is spared from sharing in the expenses of government and yet
benefits from them. Tax exemptions for charitable institutions should therefore be
limited to institutions beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to exploit this subsidy to the
detriment of the government and other taxpayers.1âwphi1
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to
be completely tax exempt from all its income. However, it remains a proprietary non-
profit hospital under Section 27(B) of the NIRC as long as it does not distribute any
of its profits to its members and such profits are reinvested pursuant to its corporate
purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to the preferential
tax rate of 10% on its net income from its for-profit activities.
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B)
of the NIRC. However, St. Luke's has good reasons to rely on the letter dated 6 June
1990 by the BIR, which opined that St. Luke's is "a corporation for purely charitable
and social welfare purposes"59 and thus exempt from income tax. 60 In Michael J.
Lhuillier, Inc. v. Commissioner of Internal Revenue, 61 the Court said that "good faith
and honest belief that one is not subject to tax on the basis of previous interpretation
of government agencies tasked to implement the tax law, are sufficient justification
to delete the imposition of surcharges and interest." 62
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No.
195909 is PARTLY GRANTED. The Decision of the Court of Tax Appeals En Banc
dated 19 November 2010 and its Resolution dated 1 March 2011 in CTA Case No.
6746 are MODIFIED. St. Luke's Medical Center, Inc. is ORDERED TO PAY the
deficiency income tax in 1998 based on the 10% preferential income tax rate under
Section 27(B) of the National Internal Revenue Code. However, it is not liable for
surcharges and interest on such deficiency income tax under Sections 248 and 249 of
the National Internal Revenue Code. All other parts of the Decision and Resolution
of the Court of Tax Appeals are AFFIRMED.
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for
violating Section 1, Rule 45 of the Rules of Court.
SO ORDERED.
G.R. No. 124043 October 14, 1998
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S
CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents.
PANGANIBAN, J.:
Is the income derived from rentals of real property owned by the Young Men's
Christian Association of the Philippines, Inc. (YMCA) — established as "a welfare,
educational and charitable non-profit corporation" — subject to income tax under the
National Internal Revenue Code (NIRC) and the Constitution?
The Case
This is the main question raised before us in this petition for review
on certiorari challenging two Resolutions issued by the Court of Appeals1 on
September 28, 19952 and February 29, 19963 in CA-GR SP No. 32007. Both
Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing
the YMCA to claim tax exemption on the latter's income from the lease of its
real property.
The Facts
The facts are undisputed.4 Private Respondent YMCA is a non-stock, non-profit
institution, which conducts various programs and activities that are beneficial to the
public, especially the young people, pursuant to its religious, educational and
charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from
leasing out a portion of its premises to small shop owners, like restaurants and
canteen operators, and P44,259.00 from parking fees collected from non-members.
On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to
private respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on rentals
and professional fees and deficiency withholding tax on wages. Private respondent
formally protested the assessment and, as a supplement to its basic protest, filed a
letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court
of Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling
in favor of the YMCA:
. . . [T]he leasing of [private respondent's] facilities to small shop
owners, to restaurant and canteen operators and the operation of
the parking lot are reasonably incidental to and reasonably
necessary for the accomplishment of the objectives of the [private
respondents]. It appears from the testimonies of the witnesses for
the [private respondent] particularly Mr. James C. Delote, former
accountant of YMCA, that these facilities were leased to members
and that they have to service the needs of its members and their
guests. The rentals were minimal as for example, the barbershop
was only charged P300 per month. He also testified that there was
 actually no lot devoted for parking space but the parking was done
at the sides of the building. The parking was primarily for
members with stickers on the windshields of their cars and they
charged P.50 for non-members. The rentals and parking fees were
just enough to cover the costs of operation and maintenance only.
The earning[s] from these rentals and parking charges including
those from lodging and other charges for the use of the recreational
facilities constitute [the] bulk of its income which [is] channeled to
support its many activities and attainment of its objectives. As
pointed out earlier, the membership dues are very insufficient to
support its program. We find it reasonably necessary therefore for
[private respondent] to make [the] most out [of] its existing
facilities to earn some income. It would have been different if
under the circumstances, [private respondent] will purchase a lot
and convert it to a parking lot to cater to the needs of the general
public for a fee, or construct a building and lease it out to the
highest bidder or at the market rate for commercial purposes, or
should it invest its funds in the buy and sell of properties, real or
personal. Under these circumstances, we could conclude that the
activities are already profit oriented, not incidental and reasonably
necessary to the pursuit of the objectives of the association and
therefore, will fall under the last paragraph of Section 27 of the Tax
Code and any income derived therefrom shall be taxable.
Considering our findings that [private respondent] was not engaged
in the business of operating or contracting [a] parking lot, we find
no legal basis also for the imposition of [a] deficiency fixed tax
and [a] contractor's tax in the amount[s] of P353.15 and P3,129.73,
respectively.
xxx xxx xxx
WHEREFORE, in view of all the foregoing, the following
assessments are hereby dismissed for lack of merit:
1980 Deficiency Fixed Tax — P353,15;
1980 Deficiency Contractor's Tax — P3,129.23;
1980 Deficiency Income Tax — P372,578.20.
While the following assessments are hereby sustained:
1980 Deficiency Expanded Withholding Tax — P1,798.93;
1980 Deficiency Withholding Tax on Wages — P33,058.82
plus 10% surcharge and 20% interest per annum from July 2, 1984
until fully paid but not to exceed three (3) years pursuant to
Section 51(e)(2) & (3) of the National Internal Revenue Code
effective as of 1984. 5
Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals
(CA). In its Decision of February 16, 1994, the CA6 initially decided in favor of the
CIR and disposed of the appeal in the following manner:
Following the ruling in the afore-cited cases of Province of Abra
vs. Hernando and Abra Valley College Inc. vs. Aquino, the ruling
of the respondent Court of Tax Appeals that "the leasing of
petitioner's (herein respondent's) facilities to small shop owners, to
restaurant and canteen operators and the operation of the parking
lot are reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the petitioners, and the
income derived therefrom are tax exempt, must be reversed.
WHEREFORE, the appealed decision is hereby REVERSED in so
far as it dismissed the assessment for:
1980 Deficiency Income Tax P 353.15
1980 Deficiency Contractor's Tax P 3,129.23, &
1980 Deficiency Income Tax P 372,578.20
but the same is AFFIRMED in all other respect. 7
Aggrieved, the YMCA asked for reconsideration based on the following grounds:
I
The findings of facts of the Public Respondent Court of Tax
Appeals being supported by substantial evidence [are] final and
conclusive.
II
The conclusions of law of [p]ublic [r]espondent exempting
[p]rivate [r]espondent from the income on rentals of small shops
 and parking fees [are] in accord with the applicable law and
jurisprudence. 8
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA
reversed itself and promulgated on September 28, 1995 its first assailed Resolution
which, in part, reads:
The Court cannot depart from the CTA's findings of fact, as they
are supported by evidence beyond what is considered as
substantial.
xxx xxx xxx
The second ground raised is that the respondent CTA did not err in
saying that the rental from small shops and parking fees do not
result in the loss of the exemption. Not even the petitioner would
hazard the suggestion that YMCA is designed for profit.
Consequently, the little income from small shops and parking fees
help[s] to keep its head above the water, so to speak, and allow it to
continue with its laudable work.
The Court, therefore, finds the second ground of the motion to be
meritorious and in accord with law and jurisprudence.
WHEREFORE, the motion for reconsideration is GRANTED; the
respondent CTA's decision is AFFIRMED in toto.9
The internal revenue commissioner's own Motion for Reconsideration was denied by
Respondent Court in its second assailed Resolution of February 29, 1996. Hence, this
petition for review under Rule 45 of the Rules of Court. 10
The Issues
Before us, petitioner imputes to the Court of Appeals the following errors:
I been held that "[t]here is a question of law in a given case when the doubt or
In holding that it had departed from the findings of fact of
Respondent Court of Tax Appeals when it rendered its Decision
dated February 16, 1994; and
II
In affirming the conclusion of Respondent Court of Tax Appeals
that the income of private respondent from rentals of small shops
and parking fees [is] exempt from taxation. 11
This Court's Ruling
The petition is meritorious.
First Issue:
Factual Findings of the CTA
Private respondent contends that the February 16, 1994 CA Decision reversed the
factual findings of the CTA. On the other hand, petitioner argues that the CA merely
reversed the "ruling of the CTA that the leasing of private respondent's facilities to
small shop owners, to restaurant and canteen operators and the operation of parking
lots are reasonably incidental to and reasonably necessary for the accomplishment of
the objectives of the private respondent and that the income derived therefrom are
tax exempt." 12 Petitioner insists that what the appellate court reversed was the legal
conclusion, not the factual finding, of the CTA. 13The commissioner has a point.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when
supported by substantial evidence, will be disturbed on appeal unless it is shown that
the said court committed gross error in the appreciation of facts. 14 In the present
case, this Court finds that the February 16, 1994 Decision of the CA did not deviate
from this rule. The latter merely applied the law to the facts as found by the CTA and
ruled on the issue raised by the CIR: "Whether or not the collection or earnings of
rental income from the lease of certain premises and income earned from parking
fees shall fall under the last paragraph of Section 27 of the National Internal Revenue
Code of 1977, as amended." 15
Clearly, the CA did not alter any fact or evidence. It merely resolved the
aforementioned issue, as indeed it was expected to. That it did so in a manner
different from that of the CTA did not necessarily imply a reversal of factual
findings.
The distinction between a question of law and a question of fact is clear-cut. It has
difference arises as to what the law is on a certain state of facts; there is a question of
fact when the doubt or difference arises as to the truth or falsehood of alleged
facts." 16 In the present case, the CA did not doubt, much less change, the facts
narrated by the CTA. It merely applied the law to the facts. That its interpretation or
conclusion is different from that of the CTA is not irregular or abnormal.
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its real
estate subject to tax? At the outset, we set forth the relevant provision of the NIRC:
Sec. 27. Exemptions from tax on corporations. — The following
organizations shall not be taxed under this Title in respect to
income received by them as such —
xxx xxx xxx
(g) Civic league or organization not organized for profit but
operated exclusively for the promotion of social welfare;
(h) Club organized and operated exclusively for pleasure,
recreation, and other non-profitable purposes, no part of the net
income of which inures to the benefit of any private stockholder or
member;
xxx xxx xxx
Notwithstanding the provisions in the preceding paragraphs, the
income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from
any of their activities conducted for profit, regardless of the
disposition made of such income, shall be subject to the tax
imposed under this Code. (as amended by Pres. Decree No. 1457)
Petitioner argues that while the income received by the organizations enumerated in
Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of
tax "in respect to income received by them as such," the exemption does not apply to
income derived ". . . from any of their properties, real or personal, or from any of
their activities conducted for profit, regardless of the disposition made of such
income . . . ."
Petitioner adds that "rental income derived by a tax-exempt organization from the
lease of its properties, real or personal, [is] not, therefore, exempt from income
taxation, even if such income [is] exclusively used for the accomplishment of its
objectives." 17 We agree with the commissioner.
Because taxes are the lifeblood of the nation, the Court has always applied the
doctrine of strict in interpretation in construing tax exemptions. 18 Furthermore, a
claim of statutory exemption from taxation should be manifest. and unmistakable
from the language of the law on which it is based. Thus, the claimed exemption
"must expressly be granted in a statute stated in a language too clear to be
mistaken." 19
In the instant case, the exemption claimed by the YMCA is expressly disallowed by
the very wording of the last paragraph of then Section 27 of the NIRC which
mandates that the income of exempt organizations (such as the YMCA) from any of
their properties, real or personal, be subject to the tax imposed by the same Code.
Because the last paragraph of said section unequivocally subjects to tax the rent
income of the YMCA from its real property, 20 the Court is duty-bound to abide
strictly by its literal meaning and to refrain from resorting to any convoluted attempt
at construction.
It is axiomatic that where the language of the law is clear and unambiguous, its
express terms must be applied. 21 Parenthetically, a consideration of the question of
construction must not even begin, particularly when such question is on whether to
apply a strict construction or a liberal one on statutes that grant tax exemptions to
"religious, charitable and educational propert[ies] or institutions." 22
The last paragraph of Section 27, the YMCA argues, should be "subject to the
qualification that the income from the properties must arise from activities
'conducted for profit' before it may be considered taxable." 23This argument is
erroneous. As previously stated, a reading of said paragraph ineludibly shows that the
income from any property of exempt organizations, as well as that arising from any
activity it conducts for profit, is taxable. The phrase "any of their activities conducted
for profit" does not qualify the word "properties." This makes from the property of
the organization taxable, regardless of how that income is used — whether for profit
or for lofty non-profit purposes.
Verba legis non est recedendum. Hence, Respondent Court of Appeals committed
reversible error when it allowed, on reconsideration, the tax exemption claimed by
YMCA on income it derived from renting out its real property, on the solitary but
unconvincing ground that the said income is not collected for profit but is merely
incidental to its operation. The law does not make a distinction. The rental income is
taxable regardless of whence such income is derived and how it is used or disposed
of. Where the law does not distinguish, neither should we.
Constitutional Provisions
On Taxation
Invoking not only the NIRC but also the fundamental law, private respondent
submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts
"charitable institutions" from the payment not only of property taxes but also of
income tax from any source. 25 In support of its novel theory, it compares the use of
the words "charitable institutions," "actually" and "directly" in the 1973 and the 1987
Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935
Constitution, on the other hand. 26
Private respondent enunciates three points. First, the present provision is divisible
into two categories: (1) "[c]haritable institutions, churches and parsonages or
convents appurtenant thereto, mosques and non-profit cemeteries," the incomes of
which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and
improvements actually and directly used for religious, charitable or educational
purposes," which are exempt only from property taxes. 28 Second, Lladoc v.
Commissioner of Internal Revenue, 29which limited the exemption only to the
payment of property taxes, referred to the provision of the 1935 Constitution and not
to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the phrase
"actually, directly and exclusively used for religious, charitable or educational
purposes" refers not only to "all lands, buildings and improvements," but also to the
above-quoted first category which includes charitable institutions like the private
respondent. 31
The Court is not persuaded. The debates, interpellations and expressions of opinion
of the framers of the Constitution reveal their intent which, in turn, may have guided
the people in ratifying the Charter. 32 Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner,
who is now a member of this Court, stressed during the Concom debates that ". . .
what is exempted is not the institution itself . . .; those exempted from real estate
taxes are lands, buildings and improvements actually, directly and exclusively used
for religious, charitable or educational
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and
also a member of the Concom, adhered to the same view that the exemption created
by said provision pertained only to property taxes. 34
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax
exemption coversproperty taxes only." 35 Indeed, the income tax exemption claimed
by private respondent finds no basis in Article VI, Section 26, par. 3 of the
Constitution.
Private respondent also invokes Article XIV, Section 4, par. 3 of the
Character, 36 claiming that the YMCA "is a non-stock, non-profit educational
institution whose revenues and assets are used actually, directly and exclusively for
educational purposes so it is exempt from taxes on its properties and income." 37 We
reiterate that private respondent is exempt from the payment of property tax, but not
income tax on the rentals from its property. The bare allegation alone that it is a non-
stock, non-profit educational institution is insufficient to justify its exemption from
the payment of income tax.
As previously discussed, laws allowing tax exemption are construed strictissimi
juris. Hence, for the YMCA to be granted the exemption it claims under the
aforecited provision, it must prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly, and exclusively for
educational purposes. However, the Court notes that not a scintilla of evidence was
submitted by private respondent to prove that it met the said requisites.
Is the YMCA an educational institution within the purview of Article XIV, Section 4,
par. 3 of the Constitution? We rule that it is not. The term "educational institution" or
"institution of learning" has acquired a well-known technical meaning, of which the
members of the Constitutional Commission are deemed cognizant. 38 Under the
Education Act of 1982, such term refers to schools. 39 The school system is
synonymous with formal education, 40 which "refers to the hierarchically structured
and chronologically graded learnings organized and provided by the formal school
system and for which certification is required in order for the learner to progress
through the grades or move to the higher levels." 41 The Court has examined the
"Amended Articles of Incorporation" and "By-Laws"43 of the YMCA, but found
nothing in them that even hints that it is a school or an educational institution. 44
Furthermore, under the Education Act of 1982, even non-formal education is
understood to be school-based and "private auspices such as foundations and civic-
spirited organizations" are ruled out. 45 It is settled that the term "educational
institution," when used in laws granting tax exemptions, refers to a ". . . school
seminary, college or educational establishment . . . ." 46 Therefore, the private
respondent cannot be deemed one of the educational institutions covered by the
constitutional provision under consideration.
. . . Words used in the Constitution are to be taken in their ordinary
acceptation. While in its broadest and best sense education
embraces all forms and phases of instruction, improvement and
development of mind and body, and as well of religious and moral
sentiments, yet in the common understanding and application it
means a place where systematic instruction in any or all of the
useful branches of learning is given by methods common to
schools and institutions of learning. That we conceive to be the
true intent and scope of the term [educational institutions,] as used
in the
Constitution. 47
Moreover, without conceding that Private Respondent YMCA is an educational
institution, the Court also notes that the former did not submit proof of the
proportionate amount of the subject income that was actually, directly and
exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-
laws, which formed part of the evidence submitted, is patently insufficient, since the
same merely signified that "[t]he net income derived from the rentals of the
commercial buildings shall be apportioned to the Federation and Member
Associations as the National Board may decide." 48 In sum, we find no basis for
granting the YMCA exemption from income tax under the constitutional provision
invoked.
Cases Cited by Private
Respondent Inapplicable
The cases 49 relied on by private respondent do not support its cause. YMCA of
Manila v. Collector of Internal Revenue 50 and Abra Valley College, Inc. v.
Aquino 51 are not applicable, because the controversy in both cases involved
exemption from the payment of property tax, not income tax. Hospital de San Juan
de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim for
exemption from the payment of regulatory fees, specifically electrical inspection
fees, imposed by an ordinance of Pasay City — an issue not at all related to that
involved in a claimed exemption from the payment of income taxes imposed on
property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the
party therein, which claimed an exemption from the payment of income tax, was an
educational institution which submitted substantial evidence that the income subject
of the controversy had been devoted or used solely for educational purposes. On the
other hand, the private respondent in the present case has not given any proof that it
is an educational institution, or that part of its rent income is actually, directly and
exclusively used for educational purposes.
Epilogue
In deliberating on this petition, the Court expresses its sympathy with private
respondent. It appreciates the nobility of its cause. However, the Court's power and
function are limited merely to applying the law fairly and objectively. It cannot
change the law or bend it to suit its sympathies and appreciations. Otherwise, it
would be overspilling its role and invading the realm of legislation.
We concede that private respondent deserves the help and the encouragement of the
government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks.
But the Court regrets that, given its limited constitutional authority, it cannot rule on
the wisdom or propriety of legislation. That prerogative belongs to the political
departments of government. Indeed, some of the members of the Court may even
believe in the wisdom and prudence of granting more tax exemptions to private
respondent. But such belief, however well-meaning and sincere, cannot bestow upon
the Court the power to change or amend the law.
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals
dated September 28, 1995 and February 29, 1996 are hereby REVERSED and SET
ASIDE. The Decision of the Court of Appeals dated February 16, 1995 is
REINSTATED, insofar as it ruled that the income derived by petitioner from rentals
of its real property is subject to income tax. No pronouncement as to costs.
SO ORDERED.
G.R. No. 117359 July 23, 1998
DAVAO GULF LUMBER CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.
PANGANIBAN, J.:
Because taxes are the lifeblood of the nation, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of the government.
Otherwise stated, any exemption from the payment of a tax must be clearly stated in
the language of the law; it cannot be merely implied therefrom.
Statement of the Case
This principium is applied by the Court in resolving this petition for review under
Rule 45 of the Rules of Court, assailing the Decision 1 of Respondent Court of
Appeals 2 in CA-GR SP No. 34581 dated September 26, 1994, which affirmed the
June 21, 1994 Decision 3 of the Court of Tax Appeals 4 in CTA Case No. 3574. The
dispositive portion of the CTA Decision affirmed by Respondent Court reads:
WHEREFORE, judgment is hereby rendered ordering the
respondent to refund to the petitioner the amount of P2,923.15
representing the partial refund of specific taxes paid on
manufactured oils and fuels. 5
The Antecedent Facts
The facts are undisputed. 6 Petitioner is a licensed forest concessionaire possessing a
Timber License Agreement granted by the Ministry of Natural Resources (now
Department of Environment and Natural Resources). From July 1, 1980 to January
31, 1982 petitioner purchased, from various oil companies, refined and manufactured
mineral oils as well as motor and diesel fuels, which it used exclusively for the
exploitation and operation of its forest concession. Said oil companies paid the
specific taxes imposed, under Sections 153 and 156 7 of the 1977 National Internal
Revenue Code (NIRC), on the sale of said products. Being included in the purchase
price of the oil products, the specific taxes paid by the oil companies were eventually
passed on to the user, the petitioner in this case.
On December 13, 1982, petitioner filed before Respondent Commissioner of Internal
Revenue (CIR) a claim for refund in the amount of P120,825.11, representing 25%
of the specific taxes actually paid on the above-mentioned fuels and oils that were
used by petitioner in its operations as forest concessionaire. The claim was based
on Insular Lumber Co. vs. Court of Tax Appeals 8 and Section 5 of RA 1435 which
reads:
Sec. 5. The proceeds of the additional tax on manufactured oils
shall accrue to the road and bridge funds of the political
subdivision for whose benefit the tax is
collected: Provided, however, That whenever any oils mentioned
above are used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific tax paid thereon
shall be refunded by the Collector of Internal Revenue upon
submission of proof of actual use of oils and under similar
conditions enumerated in subparagraphs one and two of section
one hereof, amending section one hundred forty-two of the Internal
Revenue Code: Provided,further, That no new road shall be
constructed unless the routes or location thereof shall have been
approved by the Commissioner of Public Highways after a
determination that such road can be made part of an integral and
articulated route in the Philippine Highway System, as required in
section twenty-six of the Philippine Highway Act of 1953.
It is an unquestioned fact that petitioner complied with the procedure for refund,
including the submission of proof of the actual use of the aforementioned oils in its
forest concession as required by the above-quoted law. Petitioner, in support of its
claim for refund, submitted to the CIR the affidavits of its general manager, the
president of the Philippine Wood Products Association, and three disinterested
persons, all attesting that the said manufactured diesel and fuel oils were actually
used in the exploitation and operation of its forest concession.
On January 20, 1983, petitioner filed at the CTA a petition for review docketed as
CTA Case No. 3574. On June 21, 1994, the CTA rendered its decision finding
petitioner entitled to a partial refund of specific taxes the latter had paid in the
reduced amount of P2,923.15. The CTA ruled that the claim on purchases of
lubricating oil (from July 1, 1980 to January 19, 1981) and on manufactured oils
other than lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed.
Disallowed on the ground that they were not included in the original claim filed
before the CIR were the claims for refund on purchases of manufactured oils from
January 1, 1980 to June 30, 1980 and from February 1, 1982 to June 30, 1982. In
regard to the other purchases, the CTA granted the claim, but it computed the refund
based on rates deemed paid under RA 1435, and not on the higher rates actualhy paid
by petitioner under the NIRC.
Insisting that the basis for computing the refund should be the increased rates
prescribed by Sections 153 and 156 of the NIRC, petitioner elevated the matter to the
Court of Appeals. As noted earlier, the Court of Appeals affirmed the CTA Decision.
Hence, this petition for review. 9
Public Respondent's Ruling
In its petition before the Court of Appeals, petitioner raised the following arguments:
I. The respondent Court of Tax Appeals failed to apply the
Supreme Court's Decision in Insular Lumber Co. v. Court of Tax
Appeals which granted the claim for partial refund of specific taxes
paid by the claimant, without qualification or limitation.
II. The respondent Court of Tax Appeals ignored the increase in
rates imposed by succeeding amendatory laws,under which the
petitioner paid the specific taxes on manufactured and diesel fuels.
III. In its decision, the respondent Court of Tax Appeals ruled
contrary to established tenets of law when it lent itself to
interpreting Section 5 of R.A. 1435, when the construction of said
law is not necessary.
IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions
to be applied but rather, Sections 153 and 156 of the National
Internal Revenue Code, as amended.
V. To rule that the basis for computation of the refunded taxes
should be Sections 1 and 2 of R.A. 1435 rather than Section 153
and 156 of the National Internal Revenue Code is unfair,
erroneous, arbitrary, inequitable and oppressive. 10
The Court of Appeals held that the claim for refund should indeed be computed on
the basis of the amounts deemed paid under Sections 1 and 2 of RA 1435. In so
ruling, it cited our pronouncement in Commissioner of Internal Revenue v. Rio Tuba
Nickel Mining Corporation 11 and subsequent Resolution dated June 15, 1992
clarifying the said Decision. Respondent Court further ruled that the claims for
refund which prescribed and those which were not filed at the administrative level
must be excluded.
 The Issue
In its Memorandum, petitioner raises one critical issue:
Whether or not petitioner is entitled under Republic Act No. 1435
to the refund of 25% of the amount of specific taxes it actually paid
on various refined and manufactured mineral oils and other oil
products taxed under Sec. 153 and Sec. 156 of the 1977 (Sec. 142
and Sec. 145 of the 1939) National Internal Revenue Code. 12
In the main, the question before us pertains only to the computation of the tax refund.
Petitioner argues that the refund should be based on the increased rates of specific
taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC.
Public respondent, on the other hand, contends that it should be based on specific
taxes deemed paid under Sections 1 and 2 of RA 1435.
The Court's Ruling
The petition is not meritorious.
Petitioner Entitled to Refund
Under Sec. 5 of RA 1435
At the outset, it must be stressed that petitioner is entitled to a partial refund under
Section 5 of RA 1435, which was enacted to provide means for increasing the
Highway Special Fund.
The rationale for this grant of partial refund of specific taxes paid on purchases of
manufactured diesel and fuel oils rests on the character of the Highway Special Fund.
The specific taxes collected on gasoline and fuel accrue to the Fund, which is to be
used for the construction and maintenance of the highway system. But because the
gasoline and fuel purchased by mining and lumber concessionaires are used within
their own compounds and roads, and their vehicles seldom use the national
highways, they do not directly benefit from the Fund and its use. Hence, the tax
refund gives the mining and the logging companies a measure of relief in light of
their peculiar situation. 13 When the Highway Special Fund was abolished in 1985,
the reason for the refund likewise ceased to exist. 14 Since petitioner purchased the
subject manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982 and
submitted the required proof that these were actually used in operating its forest
concession, it is entitled to claim the refund under Section 5 of RA 1435.
Tax Refund Strictly Constrtued
Against the Grantee
Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it
had actually paid for the petroleum products used in its operations. In other words, it
claims a refund based on the increased rates under Sections 153 and 156 of the
NIRC. 15 Petitioner argues that the statutory grant of the refund privilege, specifically
the phrase "twenty-five per centum of the specific tax paid thereon shall be refunded
by the Collector of Internal Revenue," is "clear and unambiguous" enough to require
construction or qualification thereof. 16 In addition, it cites our pronouncement
in Insular Lumber vs. Court of Tax Appeals: 17
. . . Sec. 5 [of RA 1435] makes reference to subparagraphs 1 and 2
of Section 1 only for the purpose of prescribing the procedure for
refund. This express reference cannot be expanded in scope to
include the limitation of the period of refund. If the limitation of
the period of refund of specific taxes paid on oils used in aviation
and agriculture is intended to cover similar taxes paid on oil used
by miners and forest concessionaires, there would have been no
need of dealing with oil used by miners and forest concessions
separately and Section 5 would very well have been included in
Section 1 of Republic Act No. 1435, notwithstanding the different
rate of exemption.
Petitioner then reasons that "the express mention of Section 1 of RA 1435 in Section
5 cannot be expanded to include a limitation on the tax rates to be applied . . .
[otherwise,] Section 5 should very well have been included in Section 1 . . . ." 18
The Court is nor persuaded. The relevant statutory provisions do not clearly support
petitioner's claim for refund. RA 1435 provides:
Sec. 1 Section one hundred and forty-two of the National Internal
Revenue Code, as amended, is further amended to read as follows:
Sec. 142. Specific tax on manufactured oils and other fuels. — On
refined and manufactured mineral oils and motor fuels, there shall
be collected the following taxes:
(a) Kerosene or petroleum, per liter of volume capacity, two and
one-half centavos;
(b) Lubricating oils, per liter of volume capacity, seven centavos;
(c) Naptha, gasoline, and all other similar products of distillation,
per liter of volume capacity, eight centavos; and
(d) On denatured alcohol to be used for motive power, per liter of
volume capacity, one centavo: Provided, That if the denatured
alcohol is mixed with gasoline, the specific tax on which has
already been paid, only the alcohol content shall be subject to the
tax herein prescribed. For the purpose of this subsection, the
removal of denatured alcohol of not less than one hundred eighty
degrees proof (ninety per centum absolute alcohol) shall be
deemed to have been removed for motive power, unless shown to
the contrary.
Whenever any of the oils mentioned above are, during the five
years from June eighteen, nineteen hundred and fifty two, used in
agriculture and aviation, fifty per centum of the specific tax paid
thereon shall be refunded by the Collector of Internal Revenue
upon the submission of the following:
(1) A sworn affidavit of the producer and two disinterested persons
proving that the said oils were actually used in agriculture, or in
lieu thereof.
(2) Should the producer belong to any producers' association or
federation, duly registered with the Securities and Exchange
Commission, the affidavit of the president of the association or
federation, attesting to the fact that the oils were actually used in
agriculture.
(3) In the case of aviation oils, a sworn certificate satisfactory to
the Collector proving that the said oils were actually used in
aviation: Provided, That no such refunds shall be granted in respect
to the oils used in aviation by citizens and corporations of foreign
countries which do not grant equivalent refunds or exemptions in
respect to similar oils used in aviation by citizens and corporations
of the Philippines.
Sec. 2 Section one hundred and forty-five of the National Internal
Revenue Code, as amended, is further amended to read as follows:
Sec. 145. Specific Tax on Diesel fuel oil. — On fuel oil,
commercially known as diesel fuel oil, and on all similar fuel oils,
having more or less the same generating power, there shall be
collected, per metric ton, one peso.
xxx xxx xxx
Sec. 5. The proceeds of the additional tax on manufactured oils
shall accrue to the road and bridge funds of the political
subdivision for whose benefit the tax is
collected: Provided, however, That whenever any oils mentioned
above are used by miners or forest concessionaires in their
operations, twenty-five per centum of the specific tax paid thereon
shall be refunded by the Collector of Internal Revenue upon
submission of proof of actual use of oils and under similar
conditions enumerated in subparagraphs one and two of section
one hereof, amending section one hundred forty-two of the Internal
Revenue Code: Provided,further, That no new road shall be
constructed unless the route or location thereof shall have been
approved by the Commissioner of Public Highways after a
determination that such road can be made part of an integral and
articulated route in the Philippine Highway System, as required in
section twenty-six of the Philippine Highway Act of 1953.
Subsequently the 1977 NIRC, PD 1672 and EO 672 amended the first two
provisions, renumbering them and prescribing higher rates. Accordingly, petitioner
paid specific taxes on petroleum products purchased from July 1, 1980 to January 31,
1982 under the following statutory provisions.
From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as
follows:
Sec. 153. Specific tax on manufactured oils and other fuels. — On
refined and manufactured mineral oils and motor fuels, there shall
be collected the following taxes which shall attach to the articles
hereunder enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, seven centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation,
per liter of volume capacity, ninety-one centavos: Provided, That
on premium and aviation gasoline, the tax shall be one peso per
liter of volume capacity;
(d) On denatured alcohol to be used for motive power, per liter of
volume capacity, one centavo: Provided, That unless otherwise
provided for by special laws, if the denatured alcohol is mixed with
gasoline, the specific tax on which has already been paid, only the
alcohol content shall be subject to the tax herein prescribed. For
the purposes of this subsection, the removal of denatured alcohol
 of not less than one hundred eighty degrees proof (ninety per
centum absolute alcohol) shall be deemed to have been removed
for motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, fifty-seven
centavos;
(g) Liquefied petroleum gas, per kilogram, fourteen
centavos: Provided, That liquefied petroleum gas used for motive
power shall be taxed at the equivalent rate as the specific tax on
diesel fuel oil;
(h) Asphalts, per kilogram, eight centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five
centavos. (As amended by Sec. 1, P.D. No. 1672.)
xxx xxx xxx
Sec. 156. Specific tax on diesel fuel oil. — On fuel oil,
commercially known as diesel fuel oil, and on all similar fuel oils,
having more or less the same generating power, per liter of volume
capacity, seventeen and one-half centavos, which tax shall attach to
this fuel oil as soon as it is in existence as such.
Then on March 21, 1981, these provisions were amended by EO 672 to read:
Sec. 153. Specific tax on manufactured oils and other fuels. — On
refined and manufactured mineral oils and motor fuels, there shall
be collected the following taxes which shall attach to the articles
hereunder enumerated as soon as they are in existence as such:
(a) Kerosene, per liter of volume capacity, nine centavos;
(b) Lubricating oils, per liter of volume capacity, eighty centavos;
(c) Naphtha, gasoline and all other similar products of distillation,
per liter of volume capacity, one peso and six centavos: Provided,
That on premium and aviation gasoline, the tax shall be one peso
and ten centavos and one peso, respectively, per liter of volume
capacity;
(d) On denatured alcohol to be used for motive power, per liter of
volume capacity, one centavo; Provided, That unless otherwise
provided for by special laws, if the denatured alcohol is mixed with
gasoline, the specific tax on which has already been paid, only the
alcohol content shall be subject to the tax herein prescribed. For
the purpose of this subsection, the removal of denatured alcohol of
not less than one hundred eighty degrees proof (ninety per
centumabsolute alcohol) shall be deemed to have been removed for
motive power, unless shown to the contrary;
(e) Processed gas, per liter of volume capacity, three centavos;
(f) Thinners and solvents, per liter of volume capacity, sixty-one
centavos;
(g) Liquefied petroleum gas, per kilogram, twenty-one
centavos: Provided, That, liquified petroleum gas used for motive
power shall be taxed at the equivalent rate as the specific tax on
diesel fuel oil;
(h) Asphalts, per kilogram, twelve centavos;
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
(j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four
centavos.
xxx xxx xxx
Sec. 156. Specific tax on diesel fuel oil. — On fuel oil,
commercially known as diesel fuel oil, and all similar fuel oils,
having more or less the same generating power, per liter of volume
capacity, twenty-five and one-half centavos, which tax shall attach
to this fuel oil as soon as it is in existence as such.
A tax cannot be imposed unless it is supported by the clear and express language of a
statute; 19 on the other hand, once the tax is unquestionably imposed, "[a] claim of
exemption from tax payments must be clearly shown and based on language in the
law too plain to be mistaken." 20 Since the partial refund authorized under Section 5,
RA 1435, is in the nature of a tax exemption, 21 it must be
construed strictissimiJuris against the grantee. Hence, petitioner's claim of refund on
the basis of the specific taxes it actually paid must expressly be granted in a statute
stated in a language too clear to be mistaken.
We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and
found no expression of a legislative will authorizing a refund based on the higher
rates claimed by petitioner. The mere fact that the privilege of refund was included in
Section 5, and not in Section 1, is insufficient to support petitioner's claim. When the
law itself does not explicitly provide that a refund under RA 1435 may be based on
higher rates which were nonexistent at the time of its enactment, this Coure cannot
presume otherwise. A legislative lacuna cannot be filled by judicial fiat. 22
The issue is not really novel. In Commissioner of Internal Revenue vs. Court of
Appeals and Atlas Consolidated Mining and Development
Corporation 23 (the second Atlas case), the CIR contended that the refund should be
based on Sections 1 and 2 of RA 1435, not Sections 153 and 156 of the NIRC of
1977. In categorically ruling that Private Respondent Atlas Consolidated Mining and
Development Corporation was entitled to a refund based on Sections 1 and 2 of RA
1435, the Court, through Mr. Justice Hilario G. Davide, Jr., reiterated our
pronouncement in Commissioner of Internal Revenue vs. Rio Tuba Nickel and
Mining Corporation:
Our Resolution of 25 March 1992 modifying our 30 September
1991 Decision in the Rio Tubacase sets forth the controlling
doctrine. In that Resolution, we stated:
Since the private respondent's claim for refund covers specific
taxes paid from 1980 to July 1983 then we find that the private
respondent is entitled to a refund. It should be made clear,
however, that Rio Tuba is not entitled to the whole amount it
claims as refund.
The specific taxes on oils which Rio Tuba paid for the aforesaid
period were no longer based on the rates specified by Sections 1
and 2 of R.A. No. 1435 but on the increased rates mandated under
Sections 153 and 156 of the National Internal Revenue Code of
1977. We note however, that the latter law does not specifically
provide for a refund to these mining and lumber companies of
specific taxes paid on manufactured and diesel fuel oils.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710
[1981]), the Court held that the authorized partial refund under
Section 5 of R.A. No. 1435 partakes of the nature of a tax
exemption and therefore cannot be allowed unless granted in the
most explicit and categorical language. Since the grant of refund
privileges must be strictly construed against the taxpayer, the basis
for the refund shall be the amounts deemed paid under Sections 1
and 2 of R.A. No. 1435.
ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby
MODIFIED. The private respondent's CLAIM for REFUND is
GRANTED, computed on the basis of the amounts deemed paid
under Sections 1 and 2 of R.A. No. 1435, without interest. 24
We rule, therefore, that since Atlas's claims for refund cover
specific taxes paid before 1985, it should be granted the refund
based on the rates specified by Sections 1 and 2 of R.A. No.
1435 and not on the increased rates under Sections 153 and 156
of the Tax Code of 1977, provided the claims are not yet barred
by prescription. (Emphasis supplied.)
Insular Lumber Co. and First Atlas Case
Not Inconsistent With Rio Tuba
and Second Atlas Case
Petitioner argues that the applicable jurisprudence in this case should
be Commissioner of Internal Revenue vs. Atlas Consolidated and Mining Corp. (the
first Atlas case), an unsigned resolution, and Insular Lumber Co. vs. Court of Tax
Appeals, an en banc decision. 25 Petitioner also asks the Court to take a "second look"
at Rio Tuba and the second Atlas case, both decided by Divisions, in view
of Insular which was decided en banc. Petitioner posits that "[I]n view of the
similarity of the situation of herein petitioner with Insular Lumber Company
(claimant in Insular Lumber) and Rio Tuba Nickel Mining Corporation (claimant
in Rio Tuba), a dilemma has been created as to whether or not Insular Lumber, which
has been decided by the Honorable Court en banc, or Rio Tuba, which was decided
only [by] the Third Division of the Honorable Court, should
apply." 26
We find no conflict between these two pairs of cases. Neither Insular Lumber Co.
nor the first Atlas case ruled on the issue of whether the refund privilege under
Section 5 should be computed based on the specific tax deemed paid under Sections
1 and 2 of RA 1435, regardless of what was actually paid under the increased
rates. Rio Tuba and the second Atlas case did.
Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum
products purchased in the year 1963, when the increased rates under the NIRC of
1977 were nor yet in effect. Thus, the issue now before us did not exist at the time,
since the applicable rates were still those prescribed under Sections 1 and 2 of RA
1435.
On the other hand, the issue raised in the first Atlas case was whether the claimant
was entitled to the refund under Section 5, notwithstanding its failure to pay any
additional tax under a municipal or city ordinance. Although Atlas purchased
petroleum products in the years, 1976 to 1978 when the rates had already been
changed, the Court did not decide or make any pronouncement on the issue in that
case.

Clearly, it is impossible for these two decisions to clash with our pronouncement
in Rio Tuba and second Atlas case, in which we ruled that the refund granted be
computed on the basis of the amounts deemed paid under Sections 1 and 2 of RA
1435. In this light, we find no basis for petitioner's invocation of the constitutional
proscription that "no doctrine or principle of law laid down by the Court in a decision
rendered en banc or in division may be modified or reversed except by the Court
sitting en banc. 27

Finally, petitioner asserts that "equity and justice demand that the computation of the
tax refunds be based on actual amounts paid under Sections 153 and 156 of the
NIRC." 28 We disagree. According to an eminent authority on taxation, "there is no
tax exemption solely on the, ground of equity." 29

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED.

SO ORDERED.