delegated to local governments in respect of matters of

local concern. With that, it cannot be said that Section 2 of

TAXATION LAW I 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.
COURSE OUTLINE

TAXATION i. Inherent

Defines the POWER by which the sovereign raises The power to tax is an attribute of sovereignty
revenue to defray necessary expenses of government. It is a and is inherent in the State. It is a power
WAY of apportioning the cost of government among those who emanating from necessity because it imposes
in some measure are privileged to enjoy its benefits and must a necessary burden to preserve the state’s
bear its burden. sovereignty.

I. Concepts & Principles It is considered inherent because it is a

necessary attribute of sovereignty. Without this
power no sovereign state can endure or exist.
A. Definition and Concept

Only the congress has the authority to exercise

i. Power the state’s inherent powers. The State’s local
ii. Process government units, being mere creatures of the
iii. Means National Government, do not possess inherent
powers. But those can be delegated by the
B. Nature national government to its local government
units.
PEPSI-COLA v. MUNICIPALITY OF TANAUAN; G.R. No. L-
31156 a. Local Government Units & Other Political
Subdivisions
Facts:
On February 14, 1963, the plaintiff-appellant, Pepsi- ICARD v. CITY OF BAGUIO; G.R. No. L-1281
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 Facts:
Act No. 2264.1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as The City of Baguio has enacted the following
well as to declare Ordinances Nos. 23 and 27, series of 1962, ordinances:
of the municipality of Tanauan, Leyte, null and void.
The Ordinance 23 levies and collects from soft drinks 1. No. 6-v, providing among other things for an amusement tax
producers and manufacturers a tax of one-sixteenth (1/16) of a of P0.20 for every person entering a night club licensed to do
centavo for every bottle of soft drink corked, and Ordinance 27 business in the city;
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 2. No. 11-V, providing for a property tax on motor vehicles kept
volume capacity. Aside from the undue delegation of authority, and operated in the city; and
appellant contends that it allows double taxation, and that the
subject ordinances are void for they impose percentage or 3. No. 12-V, imposing a graduated license fee on every
specific tax. admission ticket sold by enterprises enumerated in said
On October 7, 1963, the Court of First Instance of ordinance among them, cinematographs.
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
Petitioner, a resident of the City of Baguio is holder of
constitutional; ordering the plaintiff to pay the taxes due under
a municipal license for the operation of a night club called "El
the oft the said Ordinances; and to pay the costs."
Club Monaco. As such, he has to pay to the National
From this judgment, the plaintiff Pepsi-Cola Bottling
Government an amusement tax on its total gross receipts
Company appealed to the Court of Appeals, which, in turn,
under section 260 of the Internal Revenue Code, and to the
elevated the case to Us pursuant to Section 31 of the Judiciary
City of Baguio the annual license fee provided for in said
Act of 1948, as amended.
Ordinance No. 6-V. But in addition to said amusement tax and
license fee, he has also been required to pay the amusement
Issue:
tax imposed in that same ordinance which he paid under
Whether or not Section 2, Republic Act No. 2264
protest.
an undue delegation of power, confiscatory and
oppressive?
As owner of a six-passenger automobile for private
use a Chevrolet Ford or Sedan kept and operated in the City of
Baguio, he already paid registration fee under the Revised
Ruling:
Motor Vehicle Law, but pursuant to Ordinance No. 11-V of said
NO. The power of taxation is an essential and
city he would also have to pay in addition an annual property
inherent attribute of sovereignty, belonging as a matter of
tax on the same automobile. He contends that the ordinances
right to every independent government, without being
above mentioned are unjust and ultra vires.
expressly conferred by the people. It is a power that is
The lower court ruled in favor of petitioner.
purely legislative and which the central legislative body
cannot delegate either to the executive or judicial
Issue:
department of the government without infringing upon the
theory of separation of powers. The exception, however,
Is the City of Baguio empowered to levy a property tax on
lies in the case of municipal corporations, to which, said
motor and an amusement tax on night clubs?
theory does not apply. Legislative powers may be

Held: No
It is settled that a municipal corporation unlike a
sovereign state is clothed with no inherent power of taxation.
The charter or statute must plainly show an intent to confer that
power or the municipality, cannot assume it. And the power
when granted is to be construed in strictissimi juris. Any doubt
or ambiguity, that power must be resolved against the
municipality.
NPC v. CITY OF CABANATUAN; G.R. No. 149110
MCIAA v. MARCOS; G.R. No. 120082
FACTS
Mactan Cebu International Airport Authority was created by
virtue of RA 6958 to manage the Mactan International Airport
and the Lahug Airport. Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption from payment of
realty taxes. In Section 14 of its Charter provides that “the
Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions,
agencies and instrumentalities.”
In 1994, however, the Office of the Treasurer of the City of
Cebu demanded payment for realty taxes on several parcels of
land belonging to petitioner. Petitioner objected to such
demand, citing Sec. 14. It asserted that it is an instrumentality
of the government which performs governmental functions,
citing Sec. 133 of the Local Government Code which puts
limitations on the taxing powers of local government units. Sec.
133, LGC provides that the exercise of the taxing powers of
provinces, cities, municipalities and barangays shall not extend
to the levy of... taxes, fees or charges of any kind on the
National government, its agencies and instrumentalities and
local government units.
The Respondent City refused to cancel and set aside the realty
tax account, insisting that the MCIAA is a GOCC whose tax
exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the LGC. Sec. 193 provides that tax
exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including GOCCs except
local water districts, cooperatives duly registered under RA
6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon the effectivity of this
Code. Section 234 meanwhile provides that exemption from
payment of real property tax previously granted to or presently
enjoyed by all persons, whether natural or juridical, including
GOCCs are hereby withdrawn upon the effectivity of the LGC.
Because the City of Cebu was about to issue a warrant of levy
against the properties of MCIAA, the latter was compelled to
pay its tax account under protest. MCIAA likewise filed a
petition for declaratory relief with the RTC of Cebu, contending
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. MCIAA insisted that while it is indeed
a GOCC, it nontheless stands on the same footing as an
agency or instrumentality of the national government by the
very nature of its powers and functions. The City however
maintained that MCIAA is not an instrumentality of the
government but merely a GOCC performing proprietary
functions, and hence, the exemptions granted to it were
deemed withdrawn by virtue of Secs. 193 and 234 of the LGC.
The trial court dismissed the petition. MR denied. Hence this
petition. Petitioner asserts that although it is a GOCC, it is
mandated to perform functions in the same category as an
instrumentality of the government. An instrumentality of the
Government is one created to perform governmental functions
primarily to promote certain aspects of the economic life of the
people. Petitioner further 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 Sec. 133 of the LGC. In Basco v. PAGCOR,
the SC said the local governments have no power to tax
instrumentalities of the National Gov't like PAGCOR, which has
a dual role (its role to regulate gambling casinos is
governmental, placing it in the category of an agency or
instrumentality of the Government which should be exempt
from local taxes. Petitioner thus concludes that there is a
distinction in the LGC between a GOCC performing gov't
functions as against one performing merely proprietary ones,
and it is clear from Secs. 133 and 234, LGC that the legislature
meant to exclude instrumentalities of the national government
from the taxing powers of LGUs.
ISSUE
Whether petitioner is exempted from payment of taxes or not
RULING
No. Taxation is the rule and exemption is the exception. Thus,
the exemption may 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.
The general rule, as laid down in Section 133 of the LGC is
that the taxing powers of LGUs cannot extend to the levy of,
inter alia, “taxes, fees and charges of any kind on the National
Government, its agencies, and instrumentalities, and LGUs.”
However, pursuant to Section 232, provinces, cities and
municipalities in the Metro Manila Area MAY impose real
property taxes except on inter alia, real property owned by the
Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted for
consideration or otherwise, to a taxable person (Sec. 234a).
As to tax exemptions/incentives granted to or presently
enjoyed by natural or juridical persons, including GOCCs,
GENERAL RULE: Tax exemptions or incentives are withdrawn
upon the effectivity of the LGC
EXCEPTION: Those granted to local water districts,
cooperatives duly registered under RA 6938, non-stock and
non-profit hospitals and educ institutions, and unless otherwise
provided in the LGC. This latter proviso could refer to Section
234 enumerating the properties exempt from real property tax.
The last paragraph of Section 234 further qualifies the
retention of the exemption insofar as real property taxes are
concerned by limiting the retention only to those enumerated
therein; all others not included in the enumeration therefore
lost the privilege upon the effectivity of the LGC. Even as to
real property owned by the Rep. 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 a taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from
payment of 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
by its charter has been withdrawn.
‣ C.N. HODGES v. MUNICIPAL
BOARD; G.R. No. L-18129
ii. Legislative
Power to Tax is inherently legislative in nature
and character because it can only be
exercised through the enactment of law.
Legislature determines the coverage, object,
nature, extent and situs.
Taxes are grant of the people who are taxed,
and the grant must be made by the immediate
 representative of the people, there it must
remain and be exercised.
The Legislative bodies can enact laws to raise
revenues in the absence of constitutional
provisions, the constitutional provisions
relating to the power of taxation do not operate
as grants of the power of taxation to the
government but instead merely constitute a
limitation upon a power which would otherwise
be practically without limit.
a. Imposition of Tax
1. Nature (Kind)
2. Coverage (Subjects)
3. Purpose (Object)
4. Extent (Rate)
5. Situs (Place)
CREBA v. ROMULO; G.R. No. 160756
FACTS:
Chamber of Real Estate and Builders' Associations, Inc.
(CHAMBER) is questioning the constitutionality of Sec 27 (E)
of RA 8424 and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision
and those involving creditable withholding taxes (CWT). [CWT
issues will not be discussed]
CHAMBER assails the validity of the imposition of minimum
corporate income tax (MCIT) on corporations and creditable
withholding tax (CWT) on sales of real properties classified as
ordinary assets. Chamber argues that the MCIT violates the
due process clause because it levies income tax even if there
is no realized gain.
MCIT scheme: (Section 27 (E). [MCIT] on Domestic
Corporations.)
A corporation, beginning on its fourth year of operation, is
assessed an MCIT
of 2% of its gross income when such MCIT is greater than the
normal corporate income tax imposed under Section 27(A)
(Applying the 30% tax
rate to net income). If the regular income tax is higher than the
MCIT, the corporation does not pay the MCIT.
Any excess of the MCIT over the normal tax shall be carried
forward and credited against the normal income tax for the
three immediately succeeding taxable years.
The Secretary of Finance is hereby authorized to suspend the
imposition of the [MCIT] on any corporation which suffers
losses on account of prolonged labor dispute, or because of
force majeure, or because of legitimate business reverses.
The term ‘gross income’ shall mean gross sales less sales
returns, discounts and allowances and cost of goods sold.
"Cost of goods sold" shall include all business expenses
directly incurred to produce the merchandise to bring them to
their present location and use.
CHAMBER claims that the MCIT under Section 27(E) of RA
8424 is unconstitutional because it is highly oppressive,
arbitrary and confiscatory which amounts to deprivation of
property without due process of law. It explains that gross
income as defined under said provision only considers the cost
of goods sold and other direct expenses; other major
expenditures, such as administrative and interest expenses
which are equally necessary to produce gross income, were
not taken into account. Thus, pegging the tax base of the MCIT
to a corporation’s gross income is tantamount to a confiscation
of capital because gross income, unlike net income, is not
"realized gain."
ISSUE:
1. WON the imposition of the MCIT on domestic corporations is
unconstitutional
2. WON RR 9-98 is a deprivation of property without due
process of law because the MCIT is being imposed and
collected even when there is actually a loss, or a zero or
negative taxable income
HELD:
1. NO. MCIT is not violative of due process. The MCIT is not a
tax on capital. The MCIT is imposed on gross income which is
arrived at by deducting the capital spent by a corporation in the
sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being
taxed.
Furthermore, the MCIT is not an additional tax imposition. It is
imposed in lieu of the normal net income tax, and only if the
normal income tax is suspiciously low.
The MCIT merely approximates the amount of net income tax
due from a corporation, pegging the rate at a very much
reduced 2% and uses as the base the corporation’s gross
income.
CHAMBER failed to support, by any factual or legal basis, its
allegation that the MCIT is arbitrary and confiscatory. It does
not cite any actual, specific and concrete negative experiences
of its members nor does it present empirical data to show that
the implementation of the MCIT resulted in the confiscation of
their property.
Taxation is necessarily burdensome because, by its nature, it
adversely affects property rights. The party alleging the law’s
unconstitutionality has the burden to demonstrate the
supposed violations in understandable terms.
2. NO. RR 9-98, in declaring that MCIT should be imposed
whenever such corporation has zero or negative taxable
income, merely defines the coverage of Section 27(E).
This means that even if a corporation incurs a net loss in its
business operations or reports zero income after deducting its
expenses, it is still subject to an MCIT of 2% of its gross
income. This is consistent with the law which imposes the
MCIT on gross income notwithstanding the amount of the net
income.
Congress has the power to condition, limit or deny deductions
from gross income in order to arrive at the net that it chooses
to tax. This is because deductions are a matter of legislative
grace. The assignment of gross income, instead of net income,
as the tax base of the MCIT, taken with the reduction of the tax
rate from 32% to 2%, is not constitutionally objectionable.
b. Grant of Exemption
GOMEZ v. PALOMAR; G.R. No. L-23645
FACTS: Petitioner Benjamin Gomez mailed a letter at the post
office in San Fernando, Pampanga. It did not bear the special
anti-TB stamp required by the RA 1635. It was returned to the
petitioner. Petitioner now assails the constitutionality of the
statute claiming that RA 1635 otherwise known as the Anti-TB
Stamp law is violative of the equal protection clause because it
constitutes mail users into a class for the purpose of the tax
while leaving untaxed the rest of the population and that even
among postal patrons the statute discriminatorily grants
exemptions. The law in question requires an additional 5
centavo stamp for every mail being posted, and no mail shall
be delivered unless bearing the said stamp.
ISSUE:
Is the Anti-TB Stamp Law unconstitutional, for being allegedly
violative of the equal protection clause?
HELD:
No. It is settled that the legislature has the inherent power to
select the subjects of taxation and to grant exemptions. This
power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more
than in other areas, the legislature possesses the greatest
freedom in classification. The reason for this is that
traditionally, classification has been a device for fitting tax
programs to local needs and usages in order to achieve an
equitable distribution of the tax burden.
The classification of mail users is based on the ability to pay,
the enjoyment of a privilege and on administrative
convenience. Tax exemptions have never been thought of as
raising revenues under the equal protection clause.
CIR v. LINGAYEN GULF; G.R. No. L-23771
FACTS:
Lingayen Gulf Electric Power operates an electric power plant
serving the municipalities of Lingayen and Binmaley,
Pangasinan, pursuant to municipal franchise granted it by the
respective municipal councils. The franchises provided that the
grantee shall pay quarterly to the provincial treasury of
Pangasinan 1% of the gross earnings obtained through the
privilege for the first 20 years (from 1946) and 2% during the
remaining 15 years of the life of the franchise. In 1955, the BIR
assessed and demanded against the company deficiency
franchise taxes and surcharges from the years 1946 to 1954
applying the franchise tax rate of 5% on gross receipts from
1948 to 1954. The company asked for a reinvestigation, which
was denied. CTA, however, ruled for Lingayen. Hence, this
petition.
ISSUES:
1. Whether the Court can inquire into the wisdom of the
franchise
2. Whether a rate below 5% is violative of the uniformity clause
in the Constitution
RULING:
No, the Court does not have the authority to inquire into the
wisdom of the Act. Charters or special laws granted and
enacted by the legislature are in the nature of private contracts.
They do not constitute a part of the machinery of the general
government. Also, the Court ought not to disturb the ruling of
the Court of Tax Appeals on the constitutionality of the law in
question.
No. The legislature has the inherent power not only to select
the subjects of taxation but to grant exemptions. Tax
exemptions have never been deemed violative of the equal
protection clause. Herein, the 5% franchise tax rate provided in
Section 259 of the Tax Code was never intended to have
universal application. Section 259 expressly allows the
payment of taxes at rates lower than 5% when the charter
granting the franchise precludes the imposition of a higher tax.
RA 3843, the law granting the franchise, did not only fix and
specify a franchise tax of 2% on its gross receipts but made it
in lieu of any and all taxes, all laws to the contrary
notwithstanding. The company, hence, is not liable for
deficiency taxes.
JOHN HAY PEOPLE’S ALTERNATIVE COALITION v. LIM;
G.R. No. 119775
Facts:
On August 16, 1993, BCDA entered into a Memorandum
of Agreement and Escrow Agreement with private respondents
Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD), private corporations
registered under the laws of the British Virgin Islands,
preparatory to the formation of a joint venture for the
development of Poro Point in La Union and Camp John Hay as
premier tourist destinations and recreation centers.
The Baguio City government meanwhile passed a
number of resolutions in response to the actions taken by
BCDA as owner and administrator of Camp John Hay.
The issuance of Proclamation No. 420 spawned the present
petition[17] for prohibition, mandamus and declaratory relief
which was filed on April 25, 1995 challenging, in the main, its
constitutionality or validity as well as the legality of the
Memorandum of Agreement and Joint Venture Agreement
between public respondent BCDA and private
respondents TUNTEX and ASIAWORLD.
Issue:
Whether the tax exemptions and other financial incentives
granted to the Subic SEZ under Section 12 of RA 7227 are
applicable to the John Hay SEZ.
Ruling:
NO. As gathered from the earlier-quoted Section 12 of
R.A. No. 7227, the privileges given to Subic SEZ consist
principally of exemption from tariff or customs duties, national
and local taxes of business entities therein (paragraphs (b) and
(c)), free market and trade of specified goods or properties
(paragraph d), liberalized banking and finance (paragraph f),
and relaxed immigration rules for foreign investors (paragraph
g). Yet, apart from these, Proclamation No. 420 also makes
available to the John Hay SEZ benefits existing in other laws
such as the privilege of export processing zone-based
businesses of importing capital equipment and raw materials
free from taxes, duties and other restrictions; tax and duty
exemptions, tax holiday, tax credit, and other incentives under
the Omnibus Investments Code of 1987;and the applicability to
the subject zone of rules governing foreign investments in the
Philippines.
While the grant of economic incentives may be essential
to the creation and success of SEZs, free trade zones and the
like, the grant thereof to the John Hay SEZ cannot be
sustained. The incentives under R.A. No. 7227
are exclusive only to the Subic SEZ, hence, the extension of
the same to the John Hay SEZ finds no support therein.
Neither does the same grant of privileges to the John Hay SEZ
find support in the other laws specified under Section 3 of
Proclamation No. 420, which laws were already extant before
the issuance of the proclamation or the enactment of R.A. No.
7227.
More importantly, the nature of most of the assailed
privileges is one of tax exemption. It is the legislature, unless
limited by a provision of the state constitution, that has full
power to exempt any person or corporation or class of property
from taxation, its power to exempt being as broad as its power
to tax. Other than Congress, the Constitution may itself provide
for specific tax exemptions, or local governments may pass
ordinances on exemption only from local taxes.
WHEREFORE, the second sentence of Section 3 of
Proclamation No. 420 is hereby declared NULL AND VOID and
is accordingly declared of no legal force and effect. Public
respondents are hereby enjoined from implementing the
aforesaid void provision.
Proclamation No. 420, without the invalidated portion,
remains valid and effective.

c. Provision of Remedies
PEPSI-COLA v. MUNICIPALITY OF TANAUAN; G.R. No. L-
31156
Facts:
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.
The Ordinance 23 levies and collects from soft drinks
producers and manufacturers a tax of one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked, and Ordinance 27
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. Aside from the undue delegation of authority,
appellant contends that it allows double taxation, and that the
subject ordinances are void for they impose percentage or
specific 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.
Issue:
Whether or not Section 2, Republic Act No. 2264
an undue delegation of power, confiscatory and
oppressive?
Whether or not ordinances Nos. 23 and 27 constitute
double taxation and impose percentage or specific taxes?
Whether or not Ordinances Nos. 23 and 27 unjust and
unfair?
Ruling:
NO. 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. 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. With that, 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.
NO. 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
NO. The tax of one (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity on all softdrinks, produced or
manufactured, or an equivalent of 1-½ centavos per case,
cannot be considered unjust and unfair. An increase in the tax
alone would not support the claim that the tax is oppressive,
unjust and confiscatory. Municipal corporations are allowed
much discretion in determining the reates of imposable taxes.
This is in line with the constutional policy of according the
widest possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the Local
Tax Code (PD No. 231, July 1, 1973). Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off
an ordinance as unreasonable. Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the
purpose of the law to further strengthen local autonomy were
to be realized.
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.
‣CIR v. FORTUNE TOBACCO; G.R. Nos.
167274-75
C. Basis
i. Necessity Theory (Principle of Necessity)
a. Lifeblood Doctrine
The lifeblood theory constitutes the
theory of taxation, which provides that
the existence of government is a
necessity; that government cannot
continue without means to pay its
expenses; and that for these means it
has a right to compel its citizens and
property within its limits to contribute.
PHILIPPINE GUARANTY v. CIR; G.R. No. L-22074
Petitioner entered into reinsurance contracts, on
various dates, with foreign insurance companies not doing
business in the Philippines. The former agreed to cede to the
foreign reinsurers a portion of the premiums on insurance in
consideration for the assumption by the latter of liability on an
equivalent portion of the risks insured. A proportionate amount
of taxes on insurance premiums not recovered from the
original assured were to be paid for by the foreign reinsurers
and they further agreed, in consideration for managing or
administering their affairs in the Philippines, to compensate the
Philippine Guaranty Co., Inc., in an amount equal to 5% of the
reinsurance premiums. Petitioner ceded to the foreign
reinsurers the premiums in year 1953 and 1954.from its gross
income when it file its income tax returns. However, CIR
assessed against petitioner withholding tax on the ceded
reinsurance premiums.
Issue:
Whether or not reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines are subject to
withholding tax under Section 53 and 54 of the Tax Code.
Held:
YES
Sec. 54 of the Tax Code provides that foreign
corporations not engaged in trade or business within the
Philippines and not having any office or place of business here
shall be deducted and withheld a tax at the source, which in
this case is the petitioner, equal to twenty-four per centum
thereof, in the same manner as provided in Sec. 53.
The power to tax is an attribute of sovereignty. It is a
power emanating from necessity. It is a necessary burden to
preserve the State's sovereignty and a means to give the
citizenry an army to resist an aggression, a navy to defend its
shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and
those which come within the State's territory, and facilities and
protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were
afforded protection by the government and the recipient foreign
reinsurers exercised rights and privileges guaranteed by our
laws, such reinsurance premiums and reinsurers should share
the burden of maintaining the state.
CIR v. ALGUE; G.R. No. L-28896
Facts:
Algue Inc. is a domestic corp engaged in engineering,
construction and other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR
regarding its delinquency income taxes from 1958-1959,
amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue
Inc on Jan 18
On March 12, a warrant of distraint and levy was
presented to Algue Inc. thru its counsel, Atty. Guevara,
who refused to receive it on the ground of the pending
protest. Since the protest was not found on the records,
a file copy from the corp was produced and given to BIR
Agent Reyes, who deferred service of the warrant. On
April 7, Atty. Guevara was informed that the BIR was not
taking any action on the protest and it was only then that
he accepted the warrant of distraint and levy earlier
sought to be served. On April 23, Algue filed a petition
for review of the decision of the CIR with the Court of
Tax Appeals
CIR contentions:
the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or
necessary business expensepayments are fictitious
because most of the payees are members of the same
family in control of Algue and that there is not enough
substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for
actual services rendered in the form of promotional fees.
These were collected by the Payees for their work in the
creation of the Vegetable Oil Investment Corporation of
the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development
Company.
Issue: W/N the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by Algue
as legitimate business expenses in its income tax
returns
Ruling:
Taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance, made in
accordance with law.
RA 1125: the appeal may be made within thirty days
after receipt of the decision or ruling challenged . During
the intervening period, the warrant was premature and
could therefore not be served.
Originally, CIR claimed that the 75K promotional fees to
be personal holding company income, but later on
conformed to the decision of CTA. There is no dispute
that the payees duly reported their respective shares of
the fees in their income tax returns and paid the
corresponding taxes thereon. CTA also found, after
examining the evidence, that no distribution of dividends
was involved CIR suggests a tax dodge, an attempt to
evade a legitimate assessment by involving an
imaginary deduction. Algue Inc. was a family corporation
where strict business procedures were not applied and
immediate issuance of receipts was not required. at the
end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. This
arrangement was understandable in view of the close
relationship among the persons in the family .
The amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar
Estate Development Co. to Algue Inc. was P125K. After
deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission.
This was a reasonable proportion, considering that it
was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to
the actual purchase by it of the Sugar Estate properties.
Sec. 30 of the Tax Code: allowed deductions in the net
income – Expenses - All the ordinary and necessary
expenses paid or incurred during the taxable year in
carrying on any trade or business, including a
reasonable allowance for salaries or other compensation
for personal services actually rendered xxx
the burden is on the taxpayer to prove the validity of the
claimed deduction
In this case, Algue Inc. has proved that the payment of
the fees was necessary and reasonable in the light of
the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new
business requiring millions of pesos. Taxes are what we
pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is
able to must contribute his share in the running of the
government. The government for its part, is expected to
respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance
their moral and material values. Taxation must be
exercised reasonably and in accordance with the
prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his
succor
CIR v. PINEDA; G.R. L-22734
FACTS:
Atanasio Pineda died, survived by his wife, Felicisima
Bagtas, and 15 children, the eldest of whom is Atty.
Manuel Pineda. Estate proceedings were had in Court
so that the estate was divided among and awarded to
the heirs. Atty Pineda's share amounted to about
P2,500.00. After the estate proceedings were closed, the
BIR investigated the income tax liability of the estate for
the years 1945, 1946, 1947 and 1948 and it found that
the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal
Revenue filed said returns for the estate issued an
assessment and charged the full amount to the
inheritance due to Atty. Pineda who argued that he is
liable only to extent of his proportional share in the
inheritance.
ISSUE:
Can BIR collect the full amount of estate taxes from an
heir's inheritance.
HELD:
Yes. The Government can require Atty. Pineda to pay
the full amount of the taxes assessed. The reason is that
the Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance, for
unpaid income taxes for which said estate is liable. By
virtue of such lien, the Government has the right to
subject the property in Pineda's possession to satisfy the
income tax assessment. After such payment, Pineda will
have a right of contribution from his co-heirs, to achieve
an adjustment of the proper share of each heir in the
distributable estate. All told, the Government has two
ways of collecting the tax in question. One, by going
after all the heirs and collecting from each one of them
the amount of the tax proportionate to the inheritance
received; and second, is by subjecting said property of
the estate which is in the hands of an heir or transferee
to the payment of the tax due. This second remedy is the
very avenue the Government took in this case to collect
the tax. The Bureau of Internal Revenue should be
given, in instances like the case at bar, the necessary
discretion to avail itself of the most expeditious way to
collect the tax as may be envisioned in the particular
provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and
certain availability is an imperious need.
NPC v. CITY OF CABANATUAN; G.R. No. 149110
Facts:
NAPOCOR, a government-owned and controlled corporation,
is tasked to undertake the “development of hydroelectric
generations of power and the production of electricity from
nuclear, geothermal, and other sources, as well as, the
transmission of electric power on a nationwide basis.”
For many years now, NAPOCOR sells electric power to the
resident Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance
No. 165-92, the respondent assessed the petitioner a franchise
tax amounting to P808,606.41, representing 75% of 1% of the
former’s gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly paid
by the Philippine Government, refused to pay the tax
assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contend that
as a non-profit organization, it is exempted from the payment
of all forms of taxes, charges, duties or fees in accordance with
Sec. 13 of RA 6395, as amended.
The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay the assessed
tax, plus surcharge equivalent to 25% of the amount of tax and
2% monthly interest. Respondent alleged that petitioner’s
exemption from local taxes has been repealed by Sec. 193 of
RA 7160 (Local Government Code). The trial court issued an
order dismissing the case. On appeal, the Court of Appeals
reversed the decision of the RTC and ordered the petitioner to
pay the city government the tax assessment.
Issues:
Whether or not NAPOCOR is excluded from the coverage of
the franchise tax simply because its stocks are wholly owned
by the National Government and its charter characterized is as
a ‘non-profit organization’.
Whether or not NAPOCOR’s exemption from all forms of taxes
is repealed by the provisions of the Local Government Code
(LGC)
Held:
(1) NO. To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a privilege
to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and
distinct entity from the National Government. It can sue and be
sued under its own name, and can exercise all the powers of a
corporation under the Corporation Code. To be sure, the
ownership by the National Government of its entire capital
stock does not necessarily imply that petitioner is no engage
din business.
(2) YES. One of the most significant provisions of the LGC is
the removal of the blanket exclusion of instrumentalities and
agencies of the National Government from the coverage of
local taxation. Although as a general rule, LGUs cannot impose
taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now
admits an exception, i.e. when specific provisions of the LGC
authorize the LGUs to impose taxes, fees, or charges on the
aforementioned entities. The legislative purpose to withdraw
tax privileges enjoyed under existing laws or charter is clearly
manifested by the language used on Sec. 137 and 193
categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be tedious and
impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could
have been used.
VERA v. FERNANDEZ; G.R. No. L-31364
FACTS: The BIR filed on July 29, 1969 a motion for allowance
of claim and for payment of taxes representing the estate's tax
deficiencies in 1963 to 1964 in the intestate proceedings of
Luis Tongoy. The administrator opposed arguing that the claim
was already barred by the statute of limitation, Section 2 and
Section 5 of Rule 86 of the Rules of Court which provides that
all claims for money against the decedent, arising from
contracts, express or implied, whether the same be due, not
due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment
for money against the decedent, must be filed within the time
limited in the notice; otherwise they are barred forever.
ISSUE: Does the statute of non-claims of the Rules of Court
bar the claim of the government for unpaid taxes?
HELD: No. The reason for the more liberal treatment of claims
for taxes against a decedent's estate in the form of exception
from the application of the statute of non-claims, is not hard to
find. Taxes are the lifeblood of the Government and their
prompt and certain availability are imperious need. (CIR vs.
Pineda, 21 SCRA 105). Upon taxation depends the
Government ability to serve the people for whose benefit taxes
are collected. To safeguard such interest, neglect or omission
of government officials entrusted with the collection of taxes
should not be allowed to bring harm or detriment to the people,
in the same manner as private persons may be made to suffer
individually on account of his own negligence, the presumption
being that they take good care of their personal affairs. This
should not hold true to government officials with respect to
matters not of their own personal concern. This is the
philosophy behind the government's exception, as a general
rule, from the operation of the principle of estoppel.
MCIAA v. MARCOS; G.R. No. 120082
FACTS
Mactan Cebu International Airport Authority was created by
virtue of RA 6958 to manage the Mactan International Airport
and the Lahug Airport. Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption from payment of
realty taxes. In Section 14 of its Charter provides that “the
Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions,
agencies and instrumentalities.”
In 1994, however, the Office of the Treasurer of the City of
Cebu demanded payment for realty taxes on several parcels of
land belonging to petitioner. Petitioner objected to such
demand, citing Sec. 14. It asserted that it is an instrumentality
of the government which performs governmental functions,
citing Sec. 133 of the Local Government Code which puts
limitations on the taxing powers of local government units. Sec.
133, LGC provides that the exercise of the taxing powers of
provinces, cities, municipalities and barangays shall not extend
to the levy of... taxes, fees or charges of any kind on the
National government, its agencies and instrumentalities and
local government units.
The Respondent City refused to cancel and set aside the realty
tax account, insisting that the MCIAA is a GOCC whose tax
exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the LGC. Sec. 193 provides that tax
exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including GOCCs except
local water districts, cooperatives duly registered under RA
6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon the effectivity of this
Code. Section 234 meanwhile provides that exemption from
payment of real property tax previously granted to or presently
enjoyed by all persons, whether natural or juridical, including
GOCCs are hereby withdrawn upon the effectivity of the LGC.
GENERAL RULE: Tax exemptions or incentives are withdrawn
upon the effectivity of the LGC
EXCEPTION: Those granted to local water districts,
cooperatives duly registered under RA 6938, non-stock and
non-profit hospitals and educ institutions, and unless otherwise
provided in the LGC. This latter proviso could refer to Section
234 enumerating the properties exempt from real property tax.
The last paragraph of Section 234 further qualifies the
retention of the exemption insofar as real property taxes are
concerned by limiting the retention only to those enumerated
therein; all others not included in the enumeration therefore
lost the privilege upon the effectivity of the LGC. Even as to
real property owned by the Rep. 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 a taxable person for
consideration or otherwise.

Because the City of Cebu was about to issue a warrant of levy Since the last paragraph of Section 234 unequivocally
against the properties of MCIAA, the latter was compelled to withdrew, upon the effectivity of the LGC, exemptions from
pay its tax account under protest. MCIAA likewise filed a payment of real property taxes granted to natural or juridical
petition for declaratory relief with the RTC of Cebu, contending persons, including government-owned or controlled
that the taxing powers of local government units do not extend corporations, except as provided in the said section, and the
to the levy of taxes or fees of any kind on an instrumentality of petitioner is, undoubtedly, a government-owned corporation, it
the national government. MCIAA insisted that while it is indeed necessarily follows that its exemption from such tax granted it
a GOCC, it nontheless stands on the same footing as an by its charter has been withdrawn.
agency or instrumentality of the national government by the
very nature of its powers and functions. The City however
PBCOM v. CIR; G.R. No. 112024
maintained that MCIAA is not an instrumentality of the
government but merely a GOCC performing proprietary
FACTS:
functions, and hence, the exemptions granted to it were
deemed withdrawn by virtue of Secs. 193 and 234 of the LGC.
Petitioner PBCom filed its first and second quarter income tax
returns, reported profits, and paid income
The trial court dismissed the petition. MR denied. Hence this
taxes amounting to P5.2M in 1985. However, at the end of the
petition. Petitioner asserts that although it is a GOCC, it is
year PBCom suffered losses so that when it filed
mandated to perform functions in the same category as an
its Annual Income Tax Returns for the year-ended December
instrumentality of the government. An instrumentality of the
31, 1986, the petitioner likewise reported a net
Government is one created to perform governmental functions
loss of P14.1 M, and thus declared no tax payable for the year.
primarily to promote certain aspects of the economic life of the
In 1988, the bank requested from CIR for a tax
people. Petitioner further contends that being an
credit and tax refunds representing overpayment of taxes.
instrumentality of the National Government, respondent City of
Pending investigation of the respondent CIR,
Cebu has no power nor authority to impose realty taxes upon it
petitioner instituted a Petition for Review before the Court of
in accordance with Sec. 133 of the LGC. In Basco v. PAGCOR,
Tax Appeals (CTA). CTA denied its petition for tax
the SC said the local governments have no power to tax
credit and refund for failing to file within the prescriptive period
instrumentalities of the National Gov't like PAGCOR, which has
to which the petitioner belies arguing the
a dual role (its role to regulate gambling casinos is
Revenue Circular No.7-85 issued by the CIR itself states that
governmental, placing it in the category of an agency or
claim for overpaid taxes are not covered by the
instrumentality of the Government which should be exempt
two-year prescriptive period mandated under the Tax Code.
from local taxes. Petitioner thus concludes that there is a
distinction in the LGC between a GOCC performing gov't
ISSUE:
functions as against one performing merely proprietary ones,
Is the contention of the petitioner correct? Is the revenue
and it is clear from Secs. 133 and 234, LGC that the legislature
circular a valid exemption to the NIRC?
meant to exclude instrumentalities of the national government
from the taxing powers of LGUs.
HELD:
No. The relaxation of revenue regulations by RMC 7-85 is not
ISSUE
warranted as it disregards the two-year
Whether petitioner is exempted from payment of taxes or not
prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the
RULING
nation." The primary purpose is to generate funds for
No. Taxation is the rule and exemption is the exception. Thus,
the State to finance the needs of the citizenry and to advance
the exemption may be withdrawn at the pleasure of the taxing
the common weal. Due process of law under the
authority. The only exception to this rule is where the
Constitution does not require judicial proceedings in tax cases.
exemption was granted to private parties based on material
This must necessarily be so because it is upon
consideration of a mutual nature, which then becomes
taxation that the government chiefly relies to obtain the means
contractual and is thus covered by the non-impairment clause
to carry on its operations and it is of utmost
of the Constitution.
importance that the modes adopted to enforce the collection of
taxes levied should be summary and interfered
The general rule, as laid down in Section 133 of the LGC is
with as little as possible.
that the taxing powers of LGUs cannot extend to the levy of,
From the same perspective, claims for refund or tax credit
inter alia, “taxes, fees and charges of any kind on the National
should be exercised within the time fixed by law
Government, its agencies, and instrumentalities, and LGUs.”
because the BIR being an administrative body enforced to
However, pursuant to Section 232, provinces, cities and
collect taxes, its functions should not be unduly
municipalities in the Metro Manila Area MAY impose real
delayed or hampered by incidental matters.
property taxes except on inter alia, real property owned by the
Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted for
CIR v. CEBU PORTLAND CEMENT; G.R. L-29059
consideration or otherwise, to a taxable person (Sec. 234a).

As to tax exemptions/incentives granted to or presently FACTS:

enjoyed by natural or juridical persons, including GOCCs, By virtue of a decision of the CTA, as modified on
appeal by the Supreme Court, the CIR was ordered to refund
to Cebu Portland Cement Company the amount of P
359,408.98, representing overpayments of ad valorem taxes
on cement produced and sold by it. When respondent moved
for a writ of execution, petitioner opposed on the ground that
the private respondent had an outstanding sales tax liability to
which the judgment debt had already been credited. In fact, it
was stressed, there was still a balance owing on the sales
taxes in the amount of P 4,789,279.85 plus 28% surcharge.
The CTA granted the CIR’s motion.
The CIR claims that the refund should be charged
against the tax deficiency of the private respondent on the
sales of cement under Section 186 of the Tax Code. His
position is that cement is a manufactured and not a mineral
product and therefore not exempt from sales taxes. The
petitioner also denies that the sales tax assessments have
already prescribed because the prescriptive period should be
counted from the filing of the sales tax returns, which had not
yet been done by the private respondent.
Meanwhile, the private respondent disclaims liability
for the sales taxes, on the ground that cement is not a
manufactured product but a mineral product. As such, it was
exempted from sales taxes. Also, the alleged sales tax
deficiency could not as yet be enforced against it because the
tax assessment was not yet final, the same being still under
protest and still to be definitely resolved on the merits. Besides,
the assessment had already prescribed, not having been made
within the reglementary five-year period from the filing of the
tax returns.
ISSUE: Whether or not sales tax was properly imposed upon
private respondent.
HELD: Yes, because cement has always been considered a
manufactured product and not a mineral product. This matter
was extensively discussed and categorically resolved in
Commissioner of Internal Revenue v. Republic Cement
Corporation, decided on August 10, 1983, stating that cement
qua cement was never considered as a mineral product within
the meaning of Section 246 of the Tax Code, notwithstanding
that at least 80% of its components are minerals, for the simple
reason that cement is the product of a manufacturing process
and is no longer the mineral product contemplated in the Tax
Code (i.e.; minerals subjected to simple treatments) for the
purpose of imposing the ad valorem tax.
The argument that the assessment cannot as yet be
enforced because it is still being contested loses sight of the
urgency of the need to collect taxes as "the lifeblood of the
government." If the payment of taxes could be postponed by
simply questioning their validity, the machinery of the state
would grind to a halt and all government functions would be
paralyzed.
That is the reason why, save for the exception in RA
1125 , the Tax Code provides that injunction is not available to
restrain collection of tax. Thereby, we hold that the respondent
Court of Tax Appeals erred in its order.
FIRST LEPANTO v. CIR; G.R. No. 197117
CHURCHILL v. RAFFERTY; G.R. No. L-10572
Appellees, Francis A. Churchill and Stewart Tait are involved in
the advertising business, particularly in billboard advertising.
Their billboards located upon private lands in the Province of
Rizal were removed upon complaints and by the orders of the
defendant Collector of Internal Revenue by virtue of the
provisions of subsection (b) of section 100 of Act No. 2339.
Appellees, in their supplementary complaint challenge the
power of the of the Collector of Internal Revenue to remove
any sign, signboard, or billboard upon the ground that the
same is offensive to the sight or is otherwise a nuisance and
maintain that the billboards in question “in no sense constitute
a nuisance and are not deleterious to the health, morals, or
general welfare of the community, or of any persons.”
Defendant Collector of Internal Revenue avers that after due
investigation made upon the complaints of the British and
German Consuls, the defendant “decided that the billboard
complained of was and still offensive to the sight and is
otherwise a nuisance.”
Issue
1. Was the enactment assailed by the plaintiffs was a
legitimate exercise of the police power
of the Government?
Held:
Yes. There can be no doubt that the exercise of the police
power of the Philippine Government belongs to the Legislature
and that this power is limited only by the Acts of Congress and
those fundamentals principles which lie at the foundation of all
republican forms of government. An Act of the Legislature
which is obviously and undoubtedly foreign to any of the
purposes of the police power and interferes with the ordinary
enjoyment of property would, without doubt, be held to be
invalid. But where the Act is reasonably within a proper
consideration of and care for the public health, safety, or
comfort, it should not be disturbed by the courts.
"The power vested in the legislature by the constitution to
make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they
shall judge to be for the good and welfare of the
commonwealth, and of the subjects of the same."
"The police power of the State, so far, has not received a full
and complete definition. It may be said, however, to be the
right of the State, or state functionary, to prescribe regulations
for the good order, peace, health, protection, comfort,
convenience and morals of the community, which do not ...
violate any of the provisions of the organic law."
"It [the police power] has for its object the improvement of
social and economic conditioned affecting the community at
large and collectively with a view to bring about "he greatest
good of the greatest number."Courts have consistently and
wisely declined to set any fixed limitations upon subjects
calling for the exercise of this power. It is elastic and is
exercised from time to time as varying social conditions
demand correction."
"It may be said in a general way that the police power extends
to all the great public needs. It may be put forth in aid of what
is sanctioned by usage, or held by the prevailing morality or
strong and preponderant opinion to be greatly and immediately
necessary to the public welfare."
"It is much easier to perceive and realize the existence and
sources of this police power than to mark its boundaries, or to
prescribe limits to its exercise."
ii. Benefits-Protection Theory (Principle of
Benefits Received)
This theory bases the power of the State to demand
and receive taxes on the reciprocal duties of support
and protection. The citizen supports the State by
paying the portion from his property that is demanded
in order that he may, by means thereof, be secured in
the enjoyment of the benefits of an organized society.
Thus, the taxpayer cannot question the validity of the
tax law on the ground that payment of such tax will
render him impoverished, or lessen his financial or
social standing, because the obligation to pay taxes is
involuntary and compulsory, in exchange for the
protection and benefits one receives from the
government.
In return for his contribution, the taxpayer receives the
general advantages and protection which the
government affords the taxpayer and his property.
One is compensation or consideration for the other;
protection for support and support for protection.
 However, it does not mean that only those who are
able to and do pay taxes can enjoy the privileges and
protection given to a citizen by the government.
a. Symbiotic Relationship
NPC v. CITY OF CABANATUAN
Facts:
NAPOCOR, a government-owned and controlled corporation,
is tasked to undertake the “development of hydroelectric
generations of power and the production of electricity from
nuclear, geothermal, and other sources, as well as, the
transmission of electric power on a nationwide basis.”
For many years now, NAPOCOR sells electric power to the
resident Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance
No. 165-92, the respondent assessed the petitioner a franchise
tax amounting to P808,606.41, representing 75% of 1% of the
former’s gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly paid
by the Philippine Government, refused to pay the tax
assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contend that
as a non-profit organization, it is exempted from the payment
of all forms of taxes, charges, duties or fees in accordance with
Sec. 13 of RA 6395, as amended.
The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay the assessed
tax, plus surcharge equivalent to 25% of the amount of tax and
2% monthly interest. Respondent alleged that petitioner’s
exemption from local taxes has been repealed by Sec. 193 of
RA 7160 (Local Government Code). The trial court issued an
order dismissing the case. On appeal, the Court of Appeals
reversed the decision of the RTC and ordered the petitioner to
pay the city government the tax assessment.
Issues:
Whether or not NAPOCOR is excluded from the coverage of
the franchise tax simply because its stocks are wholly owned
by the National Government and its charter characterized is as
a ‘non-profit organization’.
Whether or not NAPOCOR’s exemption from all forms of taxes
is repealed by the provisions of the Local Government Code
(LGC)?
Held:
(1) NO. To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a privilege
to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and
distinct entity from the National Government. It can sue and be
sued under its own name, and can exercise all the powers of a
corporation under the Corporation Code. To be sure, the
ownership by the National Government of its entire capital
stock does not necessarily imply that petitioner is no engage
din business.
(2) YES. One of the most significant provisions of the LGC is
the removal of the blanket exclusion of instrumentalities and
agencies of the National Government from the coverage of
local taxation. Although as a general rule, LGUs cannot impose
taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now
admits an exception, i.e. when specific provisions of the LGC
authorize the LGUs to impose taxes, fees, or charges on the
aforementioned entities. The legislative purpose to withdraw
tax privileges enjoyed under existing laws or charter is clearly
manifested by the language used on Sec. 137 and 193
categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be tedious and
impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could
have been used.
CIR v. ALGUE; G.R. No. L-28896
Facts:
Algue Inc. is a domestic corp engaged in engineering,
construction and other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR
regarding its delinquency income taxes from 1958-1959,
amtg to P83,183.85
A letter of protest or reconsideration was filed by Algue
Inc on Jan 18
On March 12, a warrant of distraint and levy was
presented to Algue Inc. thru its counsel, Atty. Guevara,
who refused to receive it on the ground of the pending
protest. Since the protest was not found on the records,
a file copy from the corp was produced and given to BIR
Agent Reyes, who deferred service of the warrant. On
April 7, Atty. Guevara was informed that the BIR was not
taking any action on the protest and it was only then that
he accepted the warrant of distraint and levy earlier
sought to be served. On April 23, Algue filed a petition
for review of the decision of the CIR with the Court of
Tax Appeals
CIR contentions:
the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or
necessary business expensepayments are fictitious
because most of the payees are members of the same
family in control of Algue and that there is not enough
substantiation of such payments
CTA: 75K had been legitimately paid by Algue Inc. for
actual services rendered in the form of promotional fees.
These were collected by the Payees for their work in the
creation of the Vegetable Oil Investment Corporation of
the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development
Company.
Issue: W/N the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by Algue
as legitimate business expenses in its income tax
returns
Ruling:
Taxes are the lifeblood of the government and so should
be collected without unnecessary hindrance, made in
accordance with law.
RA 1125: the appeal may be made within thirty days
after receipt of the decision or ruling challenged . During
the intervening period, the warrant was premature and
could therefore not be served.
Originally, CIR claimed that the 75K promotional fees to
be personal holding company income, but later on
conformed to the decision of CTA. There is no dispute
that the payees duly reported their respective shares of
the fees in their income tax returns and paid the
corresponding taxes thereon. CTA also found, after
examining the evidence, that no distribution of dividends
was involved CIR suggests a tax dodge, an attempt to
evade a legitimate assessment by involving an
imaginary deduction. Algue Inc. was a family corporation
where strict business procedures were not applied and
immediate issuance of receipts was not required. at the
end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. This
arrangement was understandable in view of the close
relationship among the persons in the family .
The amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar
Estate Development Co. to Algue Inc. was P125K. After
deducting the said fees, Algue still had a balance of
P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission.
This was a reasonable proportion, considering that it
was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to
the actual purchase by it of the Sugar Estate properties.
Sec. 30 of the Tax Code: allowed deductions in the net
income – Expenses - All the ordinary and necessary
expenses paid or incurred during the taxable year in
carrying on any trade or business, including a
reasonable allowance for salaries or other compensation
for personal services actually rendered xxx
the burden is on the taxpayer to prove the validity of the
claimed deduction
In this case, Algue Inc. has proved that the payment of
the fees was necessary and reasonable in the light of
the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new
business requiring millions of pesos. Taxes are what we
pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive
power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is
able to must contribute his share in the running of the
government. The government for its part, is expected to
respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance
their moral and material values. Taxation must be
exercised reasonably and in accordance with the
prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his
succor
GOMEZ v. PALOMAR; G.R. No. L-23645
FACTS:
Petitioner Benjamin Gomez mailed a letter at the
post office in San Fernando, Pampanga. It did
not bear the special anti-TB stamp required by
the RA 1635. It was returned to the petitioner.
Petitioner now assails the constitutionality of the
statute claiming that RA 1635 otherwise known
as the Anti-TB Stamp law is violative of the equal
protection clause because it constitutes mail
users into a class for the purpose of the tax while
leaving untaxed the rest of the population and
that even among postal patrons the statute
discriminatorily grants exemptions. The law in
question requires an additional 5 centavo stamp
for every mail being posted, and no mail shall be
delivered unless bearing the said stamp.
ISSUE: Is the Anti-TB Stamp Law
unconstitutional, for being allegedly violative of
the equal protection clause?
HELD:
No. It is settled that the legislature has the
inherent power to select the subjects of taxation
and to grant exemptions. This power has aptly
been described as "of wide range and flexibility."
Indeed, it is said that in the field of taxation, more
than in other areas, the legislature possesses the
greatest freedom in classification. The reason for
this is that traditionally, classification has been a
device for fitting tax programs to local needs and
usages in order to achieve an equitable
distribution of the tax burden.
The classification of mail users is based on the
ability to pay, the enjoyment of a privilege and on
administrative convenience. Tax exemptions
have never been thought of as raising revenues
under the equal protection clause.
LORENZO v. POSADAS; G.R. L-43082
FACTS: Thomas Hanley died, leaving a will and a
considerable amount of real and personal properties.
Proceedings for the probate of his will and the settlement and
distribution of his estate were begun in the CFI of Zamboanga.
The will was admitted to probate.
The CFI considered it proper for the best interests of the estate
to appoint a trustee to administer the real properties which,
under the will, were to pass to nephew Matthew ten years after
the two executors named in the will was appointed trustee.
Moore acted as trustee until he resigned and the plaintiff
Lorenzo herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant
Collector of Internal Revenue (Posadas) assessed against the
estate an inheritance tax, together with the penalties for
deliquency in payment. Lorenzo paid said amount under
protest, notifying Posadas at the same time that unless the
amount was promptly refunded suit would be brought for its
recovery. Posadas overruled Lorenzo’s protest and refused to
refund the said amount. Plaintiff went to court. The CFI
dismissed Lorenzo’s complaint and Posadas’ counterclaim.
Both parties appealed to this court.
ISSUE:
(e) Has there been delinquency in the payment of the
inheritance tax?
HELD: The judgment of the lower court is accordingly
modified, with costs against the plaintiff in both instances
YES
The defendant maintains that it was the duty of the executor to
pay the inheritance tax before the delivery of the decedent’s
property to the trustee. Stated otherwise, the defendant
contends that delivery to the trustee was delivery to the cestui
que trust, the beneficiary in this case, within the meaning of the
first paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is
sustained. A trustee is but an instrument or agent for the cestui
que trust
The appointment of Moore as trustee was made by the trial
court in conformity with the wishes of the testator as expressed
in his will. It is true that the word “trust” is not mentioned or
used in the will but the intention to create one is clear. No
particular or technical words are required to create a
testamentary trust. The words “trust” and “trustee”, though apt
for the purpose, are not necessary. In fact, the use of these
two words is not conclusive on the question that a trust is
created. ” To constitute a valid testamentary trust there must
be a concurrence of three circumstances:
(1) Sufficient words to raise a trust;
(2) a definite subject;
(3) a certain or ascertain object; statutes in some jurisdictions
expressly or in effect so providing.”
There is no doubt that the testator intended to create a trust.
He ordered in his will that certain of his properties be kept
together undisposed during a fixed period, for a stated
purpose. The probate court certainly exercised sound
judgment in appointmening a trustee to carry into effect the
provisions of the will
As the existence of the trust was already proven, it results that
the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the
payment of interest and surcharge provided by law in such
cases.
The delinquency in payment occurred on March 10, 1924, the
date when Moore became trustee. On that date trust estate
vested in him. The interest due should be computed from that
date.
NOTES: Other issues:
(a) When does the inheritance tax accrue and when must it be
satisfied?
The accrual of the inheritance tax is distinct from the obligation
to pay the same.
Acording to article 657 of the Civil Code, “the rights to the
succession of a person are transmitted from the moment of his
death.” “In other words”, said Arellano, C. J., “. . . the heirs
succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of
the death of the ancestor as completely as if the ancestor had
executed and delivered to them a deed for the same before his
death.”
Whatever may be the time when actual transmission of the
inheritance takes place, succession takes place in any event at
the moment of the decedent’s death. The time when the heirs
legally succeed to the inheritance may differ from the time
when the heirs actually receive such inheritance. ” Thomas
Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27,
1922, it does not follow that the obligation to pay the tax arose
as of the date. The time for the payment on inheritance tax is
clearly fixed by section 1544 of the Revised Administrative
Code as amended by Act No. 3031, in relation to section 1543
of the same Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and
transmissions. — The following shall not be taxed:
(a) The merger of the usufruct in the owner of the naked title.
(b) The transmission or delivery of the inheritance or legacy by
the fiduciary heir or legatee to the trustees.
(c) The transmission from the first heir, legatee, or donee in
favor of another beneficiary, in accordance with the desire of
the predecessor. xx
SEC. 1544. When tax to be paid. — The tax fixed in this article
shall be paid:
(a) In the second and third cases of the next preceding section,
before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the
death of the predecessor; but if judicial testamentary or
intestate proceedings shall be instituted prior to the expiration
of said period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
The instant case does[not] fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here
no fiduciary heirs, first heirs, legatee or donee. Under the
subsection, the tax should have been paid before the delivery
of the properties in question to Moore as trustee.
(b) Should the inheritance tax be computed on the basis of the
value of the estate at the time of the testator’s death, or on its
value ten years later?
If death is the generating source from which the power of the
estate to impose inheritance taxes takes its being and if, upon
the death of the decedent, succession takes place and the
right of the estate to tax vests instantly, the tax should be
measured by the value of the estate as it stood at the time of
the decedent’s death, regardless of any subsequent
contingency value of any subsequent increase or decrease in
value
(c) In determining the net value of the estate subject to tax, is it
proper to deduct the compensation due to trustees?
A trustee, no doubt, is entitled to receive a fair compensation
for his services. But from this it does not follow that the
compensation due him may lawfully be deducted in arriving at
the net value of the estate subject to tax. There is no statute in
the Philippines which requires trustees’ commissions to be
deducted in determining the net value of the estate subject to
inheritance tax
(d) What law governs the case at bar? Should the provisions of
Act No. 3606 favorable to the tax-payer be given retroactive
effect?
A statute should be considered as prospective in its operation,
whether it enacts, amends, or repeals an inheritance tax,
unless the language of the statute clearly demands or
expresses that it shall have a retroactive effect, . . . .” Act No.
3606 itself contains no provisions indicating legislative intent to
give it retroactive effect. No such effect can be given the
statute by this court.
D. Objectives & Purposes
i. Revenue
ii. Non-Revenue (Sumptuary)
TIO v. VRB; G.R. No. L-75697
FACTS:
Herein petitioner filed a petition on September 1, on
his own behalf and purportedly on behalf of other videogram
operators adversely affected assailing the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate
and supervise the videogram industry (hereinafter briefly
referred to as the BOARD). The Decree was promulgated on
October 5, 1985 and took effect on April 10, 1986, fifteen (15)
days after completion of its publication in the Official Gazette.
Petitioner's attack on the constitutionality of the DECREE
rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a RIDER and the
same is not germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in
unlawful restraint of trade in violation of the due process clause
of the Constitution;
ISSUE:
Whether or not the imposition of taxes is invalid in the
promulgation of PD NO. 1987
RULING:
NO. The Constitutional requirement that "every bill shall
embrace only one subject which shall be expressed in the title
thereof" is sufficiently complied with if the title be
comprehensive enough to include the general purpose which a
statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to
accomplish. The requirement is satisfied if all the parts of the
statute are related, and are germane to the subject matter
expressed in the title, or as long as they are not inconsistent
with or foreign to the general subject and title. An act having a
single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so
long as they are not inconsistent with or foreign to the general
subject, and may be considered in furtherance of such subject
by providing for the method and means of carrying out the
general object." The rule also is that the constitutional
requirement as to the title of a bill should not be so narrowly
construed as to cripple or impede the power of legislation. It
should be given practical rather than technical construction.
Petitioner also submits that the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in restraint
of trade. However, it is beyond serious question that a tax does
not cease to be valid merely because it regulates, discourages,
or even definitely deters the activities taxed. 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. In imposing a tax,
the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation.
The levy of the 30% tax is for a public purpose. It was
imposed primarily to answer the need for regulating the video
industry, particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the
tax remains a valid imposition.
In fine, petitioner has not overcome the presumption of validity
which attaches to a challenged statute. We find no clear
violation of the Constitution which would justify us in
pronouncing Presidential Decree No. 1987 as unconstitutional
and void.
WHEREFORE, the instant Petition is hereby dismissed.
LUTZ v. ARANETA; G.R. No. L-7859
FACTS:
Appelant in this case Walter Lutz in his capacity as the Judicial
Administrator of the intestate of the deceased Antonio Jayme
Ledesma, seeks to recover from the Collector of the Internal
Revenue the total sum of fourteen thousand six hundred sixty
six and forty cents (P 14, 666.40) paid by the estate as taxes,
under section 3 of Commonwealth Act No. 567, also known as
the Sugar Adjustment Act, for the crop years 1948-1949 and
1949-1950. Commonwealth Act. 567 Section 2 provides for an
increase of the existing tax on the manufacture of sugar on a
graduated basis, on each picul of sugar manufacturer; while
section 3 levies on the owners or persons in control of the land
devoted tot he cultivation of sugarcane and ceded to others for
consideration, on lease or otherwise - "a tax equivalent to the
difference between the money value of the rental or
consideration collected and the amount representing 12 per
centum of the assessed value of such land. It was alleged that
such tax is unconstitutional and void, being levied for the aid
and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be
constitutionally levied. The action was dismissed by the CFI
thus the plaintiff appealed directly to the Supreme Court.
ISSUE:
Whether or not the tax imposition in the Commonwealth Act
No. 567 are unconstitutional.
RULING:
Yes, the Supreme Court held that the fact that sugar
production is one of the greatest industry of our nation, sugar
occupying a leading position among its export products; that it
gives employment to thousands of laborers in the fields and
factories; that it is a great source of the state's wealth, is one of
the important source of foreign exchange needed by our
government and is thus pivotal in the plans of a regime
committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the
general welfare. Hence it was competent for the legislature to
find that the general welfare demanded that the sugar industry
be stabilized in turn; and in the wide field of its police power,
the law-making body could provide that the distribution of
benefits therefrom be readjusted among its components to
enable it to resist the added strain of the increase in taxes that
it had to sustain.
The subject tax is levied with a regulatory purpose, to provide
means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily a valid
exercise of police power.
CALTEX v. COA; G.R. No. 92585
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its
collection to the Oil Price Stabilization Fund (OPSF), excluding
that unremitted for the years 1986 and 1988, of the additional
tax on petroleum products authorized under the PD 1956.
Pending such remittance, all of its claims for reimbursement
from the OPSF shall be held in abeyance. The grant total of its
unremitted collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the
recovery of claims. COA approved the proposal but prohibited
Caltex from further offsetting remittances and reimbursements
for the current and ensuing years. Caltex moved for
reconsideration but was denied. Hence, the present petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be
offsetted against Caltex’s outstanding claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure merely to
raise revenue to support the existence of government. Taxes
may be levied with a regulatory purpose to provide means for
the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police
power of the State.
PD 1956, as amended by EO 137, explicitly provides that the
source of OPSF is taxation. A taxpayer may not offset taxes
due from the claims he may have against the government.
Taxes cannot be subject of compensation because the
government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt,
demand,, contract or judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltex’s claim for
reimbursement of underrecovery arising from sales to the
National Power Corporation is allowed.
PAL v. EDU; G.R. No. L-41383
FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the
air transportation business under a legislative franchise, Act
No. 42739. Under its franchise, PAL is exempt from the
payment of taxes.
Sometime in 1971, however, Land Transportation
Commissioner Romeo F. Elevate (Elevate) issued a regulation
pursuant to Section 8, Republic Act 4136, otherwise known as
the Land and Transportation and Traffic Code, requiring all tax
exempt entities, among them PAL to pay motor vehicle
registration fees.
Despite PAL's protestations, Elevate refused to
register PAL's motor vehicles unless the amounts imposed
under Republic Act 4136 were paid. PAL thus paid, under
protest, registration fees of its motor vehicles. After paying
under protest, PAL through counsel, wrote a letter dated May
19,1971, to Land Transportation Commissioner Romeo Edu
(Edu) demanding a refund of the amounts paid. Edu denied the
request for refund. Hence, PAL filed a complaint against Edu
and National Treasurer UbaldoCarbonell (Carbonell).
The trial court dismissed PAL's complaint. PAL
appealed to the Court of Appeals which in turn certified the
case to the Supreme Court.
ISSUE:
Whether or not motor vehicle registration fees are considered
as taxes.
RULING:
They are taxes. Taxes are for revenue, whereas fees
are exactions for purposes of regulation and inspection, and
are for that reason limited in amount to what is necessary to
cover the cost of the services rendered in that connection. It is
the object of the charge, and not the name, that determines
whether a charge is a tax or a fee. The money collected under
the Motor Vehicle Law is not intended for the expenditures of
the Motor Vehicle Law is not intended for the expenditures of
the Motor Vehicles Office but accrues to the funds for the
construction and maintenance of public roads, streets and
bridges. As the fees are not collected for regulatory purposes
as an incident to the enforcement of regulations governing the
operation of motor vehicles on public highways, but to provide
revenue with which the Government is to construct and
maintain public highways for everyone’s use, they are veritable
taxes, not merely fees. PAL is, thus, exempt from paying such
fees, except for the period between June 27, 1968 to April 9,
1979, where its tax exception in the franchise was repealed.
CIR v. CENTRAL LUZON DRUG; G.R. No. 159647
Facts:
This is a petition for review under Rule 45 of Rules of Court
seeking the nullification of CA decision granting respondent’s
claim for tax equal to the amount of the 20% that it extended to
senior citizens on the latter’s purchases pursuant to Senior
Citizens Act.Respondent deducted the total amount of
Php219,778 from its gross income for the taxable year 1995
whereby respondent did not pay tax for that year reporting a
net loss of Php20,963 in its corporate income tax. In 1996,
claiming that the Php219,778 should be applied as a tax credit,
respondent claimed for refund in the amount of Php150, 193.
Issue:
Whether or not the 20% discount granted by the respondent to
qualified senior citizens may be claimed as tax credit or as
deduction from gross sales
Ruling:
“Tax credit” is explicitly provided for in Sec4 of RA 7432. The
discount given toSenior citizens is a tax credit, not a deduction
from the gross sales of the establishment concerned. The tax
credit that is contemplated under this Act is a form of
justcompensation, not a remedy for taxes that were
erroneously or illegally assessed andcollected. In the same
vein, prior payment of any tax liability is a pre-condition before
ataxable entity can benefit from tax credit. The credit may be
availed of upon payment, ifany. Where there is no tax liability
or where a private establishment reports a net loss forthe
period, the tax credit can be availed of and carried over to the
next taxable year.
CARLOS SUPERDRUG v. DSWD; G.R. No. 166494
FACTS:
Petitioners are domestic corporations and proprietors operating
pharmacies in the Philippines.Public respondents, on the other
hand, include the DSWD, DOH, DOF, DOJ, and the DILG,
specifically tasked to monitor the drugstores’ compliance with
the law; promulgate the implementing rules and regulations for
the effective implementation of the law; and prosecute and
revoke the licenses of erring drugstore establishments.
On 2004, R.A. No. 9257, amending R.A. No. 7432, was signed
into law by President Gloria Macapagal-Arroyo, otherwise
known as the “Expanded Senior Citizens Act of 2003.” Sec.
4(a) of the Act states that:
SEC. 4. Privileges for the Senior Citizens. – The senior citizens
shall be entitled to the following:
(a) the grant of twenty percent (20%) discount from all
establishments relative to the utilization of services in hotels
and similar lodging establishments, restaurants and recreation
centers, and purchase of medicines in all establishments for
the exclusive use or enjoyment of senior citizens, including
funeral and burial services for the death of senior citizens;
Petitioners assail the said Act because it allegedly constitutes
deprivation of private property and compelling drugstore
owners and establishments to grant the discount will result in a
loss of profit and capital.
ISSUE:
Whether Sec. 4(a) of the “Expanded Senior Citizens Act of
2003” is constitutional.
HELD:
Yes. The law is a legitimate exercise of police power which,
similar to the power of eminent domain, has general welfare for
its object.The State, in promoting the health and welfare of a
special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government
program. The Senior Citizens Act was enacted primarily to
maximize the contribution of senior citizens to nation-building,
and to grant benefits and privileges to them for their
improvement and well-being as the State considers them an
integral part of our society.
Police power has been described as “the most essential,
insistent and the least limitable of powers, extending as it does
to all the great public needs.” For this reason, when the
conditions so demand as determined by the legislature,
property rights must bow to the primacy of police power
because property rights, though sheltered by due process,
must yield to general welfare.
MANILA MEMORIAL v. SECRETARY; G.R. No. 175356
FACTS:
RA 7432 was passed into law (amended by RA 9257), granting
senior citizens 20% discount on certain establishments.
To implement the tax provisions of RA 9257, the Secretary of
Finance and the DSWD issued its own Rules and Regulations.
Hence, this petition.
Petitioners are not questioning the 20% discount granted to
senior citizens but are only assailing the constitutionality of the
tax deduction scheme prescribed under RA 9257 and the
implementing rules and regulations issued by the DSWD and
the DOF.
Petitioners posit that the tax deduction scheme contravenes
Article III, Section 9 of the Constitution, which provides that:
"private property shall not be taken for public use without just
compensation."
Respondents maintain that the tax deduction scheme is a
legitimate exercise of the State’s police power.
ISSUE:
Whether the legally mandated 20% senior citizen discount is
an exercise of police power or eminent domain.
RULING:
The 20% senior citizen discount is an exercise of police
power.
It may not always be easy to determine whether a challenged
governmental act is an exercise of police power or eminent
domain. The judicious approach, therefore, is to look at the
nature and effects of the challenged governmental act and
decide on the basis thereof.
The 20% discount is intended to improve the welfare of senior
citizens who, at their age, are less likely to be gainfully
employed, more prone to illnesses and other disabilities, and,
thus, in need of subsidy in purchasing basic commodities. It
serves to honor senior citizens who presumably spent their
lives on contributing to the development and progress of the
nation.
In turn, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment.
The subject regulation may be said to be similar to, but with
substantial distinctions from, price control or rate of return on
investment control laws which are traditionally regarded as
police power measures.
The subject regulation differs there from in that (1) the discount
does not prevent the establishments from adjusting the level of
prices of their goods and services, and (2) the discount does
not apply to all customers of a given establishment but only to
the class of senior citizens. Nonetheless, to the degree
material to the resolution of this case, the 20% discount may
be properly viewed as belonging to the category of price
regulatory measures which affect the profitability of
establishments subjected thereto. On its face, therefore, the
subject regulation is a police power measure.
E. Object
i. Person
ii. Property
iii. Privilege
F. Characteristics
i. Attribute of Sovereignty
ii. Legislative in Character
iii. Territorial in Operation
iv. Comprehensive
v. Plenary
vi. Unlimited
vii. Supreme
CHURCHILL v. CONCEPCION; G.R. No. L-75697
Section 100 of Act No. 2339, 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, by
reducing the tax on such signs, billboards, etc., to P2 per
square meter or fraction thereof. The taxes imposed by Act No.
2432, as amended, were ratified by the Congress of the United
States.
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 were taxes thereon was 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.
Issue:
WON the statute and the tax imposed is void for lack of
uniformity; constitutes double taxation.
Ruling:
No. Sec. 5 of the Philippine Bill declared “that the rule
of taxation in said Islands shall be uniform”.
Uniformity in taxation 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.
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."

CREBA VS ROMUULO
FACTS:
Chamber of Real Estate and Builders' Associations, Inc.
(CHAMBER) is questioning the constitutionality of Sec 27 (E)
of RA 8424 and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision
and those involving creditable withholding taxes (CWT). [CWT
issues will not be discussed]
CHAMBER assails the validity of the imposition of minimum
corporate income tax (MCIT) on corporations and creditable
withholding tax (CWT) on sales of real properties classified as
ordinary assets. Chamber argues that the MCIT violates the
due process clause because it levies income tax even if there
is no realized gain.
MCIT scheme: (Section 27 (E). [MCIT] on Domestic
Corporations.)
A corporation, beginning on its fourth year of operation, is
assessed an MCIT
of 2% of its gross income when such MCIT is greater than the
normal corporate income tax imposed under Section 27(A)
(Applying the 30% tax
rate to net income). If the regular income tax is higher than the
MCIT, the corporation does not pay the MCIT.
Any excess of the MCIT over the normal tax shall be carried
forward and credited against the normal income tax for the
three immediately succeeding taxable years.
The Secretary of Finance is hereby authorized to suspend the
imposition of the [MCIT] on any corporation which suffers
losses on account of prolonged labor dispute, or because of
force majeure, or because of legitimate business reverses.
The term ‘gross income’ shall mean gross sales less sales
returns, discounts and allowances and cost of goods sold.
"Cost of goods sold" shall include all business expenses
directly incurred to produce the merchandise to bring them to
their present location and use.
CHAMBER claims that the MCIT under Section 27(E) of RA
8424 is unconstitutional because it is highly oppressive,
arbitrary and confiscatory which amounts to deprivation of
property without due process of law. It explains that gross
income as defined under said provision only considers the cost
of goods sold and other direct expenses; other major
expenditures, such as administrative and interest expenses
which are equally necessary to produce gross income, were
not taken into account. Thus, pegging the tax base of the MCIT
to a corporation’s gross income is tantamount to a confiscation
of capital because gross income, unlike net income, is not
"realized gain."
ISSUE:
1. WON the imposition of the MCIT on domestic corporations is
unconstitutional
2. WON RR 9-98 is a deprivation of property without due
process of law because the MCIT is being imposed and
collected even when there is actually a loss, or a zero or
negative taxable income
HELD:
1. NO. MCIT is not violative of due process. The MCIT is not a
tax on capital. The MCIT is imposed on gross income which is
arrived at by deducting the capital spent by a corporation in the
sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being
taxed.
Furthermore, the MCIT is not an additional tax imposition. It is
imposed in lieu of the normal net income tax, and only if the
normal income tax is suspiciously low.
The MCIT merely approximates the amount of net income tax
due from a corporation, pegging the rate at a very much
reduced 2% and uses as the base the corporation’s gross
income.
CHAMBER failed to support, by any factual or legal basis, its
allegation that the MCIT is arbitrary and confiscatory. It does
not cite any actual, specific and concrete negative experiences
of its members nor does it present empirical data to show that
the implementation of the MCIT resulted in the confiscation of
their property.
Taxation is necessarily burdensome because, by its nature, it
adversely affects property rights. The party alleging the law’s
unconstitutionality has the burden to demonstrate the
supposed violations in understandable terms.
2. NO. RR 9-98, in declaring that MCIT should be imposed
whenever such corporation has zero or negative taxable
income, merely defines the coverage of Section 27(E).
This means that even if a corporation incurs a net loss in its
business operations or reports zero income after deducting its
expenses, it is still subject to an MCIT of 2% of its gross
income. This is consistent with the law which imposes the
MCIT on gross income notwithstanding the amount of the net
income.
Congress has the power to condition, limit or deny deductions
from gross income in order to arrive at the net that it chooses
to tax. This is because deductions are a matter of legislative
grace. The assignment of gross income, instead of net income,
as the tax base of the MCIT, taken with the reduction of the tax
rate from 32% to 2%, is not constitutionally objectionable.
G. Scope
i. Comprehensive
ii. Unlimited
iii. Plenary
H. Power to Destroy
The power of taxation is sometime also called the power to
destroy. Therefore, it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It must
be exercised fairly, equally and uniformly, lest the tax collector
kills the ‘hen that lays the golden egg.’ And, in order to
maintain the general public’s trust and confidence in the
government, this power must be used justly and not
treacherously.
Cases:
Roxas vs. CTA, 23 SCRA 276- The power of taxation includes
the power to destroy if it is used validly as an implement of the
police power of the state. If it is used solely for the purpose of
raising revenue, it does not include the power to destroy.

Standard Oil Co. vs. Posadas, 55 Phil 715- While ordinarily the
government does not tax its own political subdivisions or its
other entities, it may, however, do so by providing for it
explicitly.
i. Marshall Dictum
McCULLOCH v. MARYLAND; 17 U.S. (4 Wheat.) 316
Facts: The United States Congress incorporated a bank, the
Bank of the United States; and established a branch in the
State of Maryland. The State of Maryland, in turn, through its
legislature, imposed a tax upon the bank.
Issue:
Whether the State of Maryland can tax a federal bank.
Held:
The Government of the United States, though limited in its
powers, is supreme. Its laws, when made in pursuance of the
Constitution, form the supreme law of the land, “anything in the
Constitution or laws of any State, to the contrary, not
withstanding.” Among the enumerated powers of the
government are to lay and collect taxes; to regulate commerce;
to declare and conduct a war; and to raise and support armies
and navies. Still, the power of taxation is retained by the
States. It is not abridged by the grant of a similar power to the
Government of the Union. It is to be concurrently exercised by
the two governments. Consistently with a fair construction of
the Constitutions:
e power to tax involves the power to destroy; the power to
destroy may defeat and render useless the power to create;
and there is a plain repugnance in conferring on one
government a power to control the constitutional measures of
another, which other, with respect to those very measures, is
declared to be supreme over that whcih exerts the control.
Taxation does not necessarily and unavoidably destroy. To
carry it to the excess of destruction would be an abuse, and
would banish that confidence which is essential to all
government. Hence, the States have no power to retard,
impede, burden, or in any manner control, the operations of the
constitutional laws enacted by Congress to carry into execution
the powers vested in the general government. The law passed
by the legislature of Maryland, imposing a tax on the Bank of
the United States, is unconstitutional and void.
PASEO REALTY v. CA; G.R. No. 119286
Facts:
Paseo Realty and Development Corporation, a domestic
corporation engaged in the lease of two parcels of land at
Paseo de Roxas in Makati City. On April 16, 1990, petitioner
filed its Income Tax Return for the calendaryear1989 declaring
a gross income of P1,855,000.00, deductions of
P1,775,991.00, net income of P79,009.00, anincome tax due
thereon in the amount of P27,653.00, prior year‘s excess credit
of P146,026.00, and creditable taxes withheld in 1989 of
P54,104.00 or a total tax credit of P200,130.00 and credit
balance of P172,477.00.
In a resolution dated October 21, 1993 Respondent
Courtreconsidered its decision of July 29, 1993 and dismissed
the petition for review, stating that it has overlooked the fact
that the petitioner‘s 1989 Corporate Income Tax Return (Exh.
A ) indicated that the amount of P54,104.00 subject of
petitioner‘s claim for refund has already been included as part
and parcel of the P172,477.00 which the petitioner
automatically applied as tax credit for the succeeding taxable
year 1990. Petitioner filed a Motion for Reconsideration which
was denied by respondent Court on March 10,1994.Petitioner
filed a Petition for Review dated April 3, 1994with the Courtof
Appeals.
Resolving the twin issues of whether petitioner is entitled to a
refund of P54,104.00 representing creditable taxes withheld in
1989 and whether petitioner applied such creditable taxes
withheld to its 1990income tax liability, the appellate court held
that petitioner is not entitled to a refund because it had already
elected to apply the total amount of P172,447.00, which
includes the P54,104.00 refund claimed, against its income tax
liability for 1990. The appellate court elucidated on the reason
for its dismissal of petitioner‘s claim
for refund.
Issue:
Whether or not the alleged excess taxes paid by a corporation
during a taxable year should be refunded or credited against its
tax liabilities for the succeeding year
Ruling:
No. The petition must be denied. As a matter of principle, it is
not advisable for this Court to set aside the conclusion reached
by an agency such as the CTA which is, by the very nature of
its functions, dedicated exclusively to the study and
consideration of tax problems and has necessarily developed
an expertise on the subject, unless there has been an abuse or
improvident exercise of its authority.
This interdiction finds particular application in this case since
the CTA, after careful consideration of the merits of the
Commissioner of Internal Revenue‘s motion for
reconsideration, reconsidered its earlier decision which
ordered the latter to refund the amount of P54,104.00 to
petitioner.
Its resolution cannot be successfully assailed based, as it is,
on the pertinent laws as applied to the facts.
Petitioner‘s 1989 tax return indicates an aggregate creditable
tax of P172,477.00, representing its 1988 excess credit of
P146,026.00 and 1989 creditable tax of P54,104.00 less tax
due for 1989, which it elected to apply as tax credit for the
succeeding taxable year.According to petitioner, it successively
utilized this amount when it obtained refunds in CTA Case No.
4439 and CTA Case No. 4528 and applied its1990 tax liability,
leaving a balance of P54,104.00, the amount subject of the
instant claim for refund. The confusion as to petitioner‘s
entitlement to a refund could altogether have been avoided
had it presented its tax return for 1990. Such return would have
shown whether petitioner actually applied its 1989 tax credit of
P172,477.00, which includes the P54,104.00 creditable taxes
withheld for 1989subject of the instant claim for refund, against
its 1990 tax liability as it had elected in its 1989 return, or at
least, whether petitioner‘s tax credit of P172,477.00 was
applied to its approved refunds as it claims.
As clearly shown from the above-quoted provisions, in case
the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on
its final adjustment return maybe credited against the
estimated quarterly income tax liabilities for the taxable
quarters of the succeeding year.The carrying forward of any
excess or overpaid income tax for a given taxable year is
limited to the succeeding taxable year only.
Taxation is a destructive power which interferes with the
personal and property rights of the people and takes from
them a portion of their property for the support of the
government. And since taxes are what we pay for civilized
society, 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 taxpayer and liberally in favor of the taxing
authority. A claim of refund or exemption from tax
payments must be clearly shown and be based on
language in the law too plain to be mistaken. Else wise
stated, taxation is the rule,exemption therefrom is the
exception.
ROXAS v. CTA; G.R. No. L-25043
Facts:
Antonio, Eduardo and Jose Roxas, brothers and at
the same time partners of the Roxas y Compania, inherited
from their grandparents several properties namely:
(1) Agricultural lands with a total area of 19,000 hectares,
situated in the municipality of Nasugbu, Batangas province;
(2) A residential house and lot located at Wright St., Malate,
Manila; and
(3) Shares of stocks in different corporations.
The tenants who have all been tilling the lands in
Nasugbu for generations expressed their desire to purchase
the farmland. The tenants, however, did not have enough
funds, so the Roxases agreed to a purchase by installment.
During their bachelor days the Roxas brothers lived in
the residential house at Wright St., Malate, Manila, which they
inherited from their grandparents. After Antonio and Eduardo
got married, they resided somewhere else leaving only Jose in
the old house. In fairness to his brothers, Jose paid to Roxas y
Cia. rentals for the house in the sum of P8,000.00 a year.
The CIR demanded from Roxas y Cia the payment of
real estate dealer’s tax and tax for dealers of securities
@P150.00 each plus P10.00 compromise penalty for late
payment. The assessment was based on the fact that Roxas y
Cia. received house rentals from Jose Roxas in the amount of
P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of
a real estate who derives a yearly rental income therefrom in
the amount of P3,000.00 or more is considered a real estate
dealer and is liable to pay the corresponding fixed tax.
Subsequently, the CIR demanded from the brothers
the payment of deficiency income taxes resulting from the sale
of the farmlands to its tenants, 100% of the profits derived
therefrom was taxed. The brothers protested the assessment
but the same was denied. On appeal, the Court of Tax Appeals
sustained the assessment. Hence, this petition.
Issue:
1. Is the gain derived from the sale of the Nasugbu farm lands
an ordinary gain, hence 100% taxable?
2. Is Roxas y Cia. liable for the payment of the fixed tax on real
estate dealers?
Ruling:
1. No. It should be borne in mind that the sale of the
farmlands to the very farmers who tilled them for generations
was not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to
allocate lands to the landless.
In order to maintain the general public’s trust and
confidence in the Government this power must be used justly
and not treacherously. It does not conform with the sense of
justice for the Government to persuade the taxpayer to lend it a
helping hand and later on penalize him for duly answering the
urgent call.
In fine, Roxas cannot be considered a real estate
dealer and is not liable for 100% of the sale. Pursuant to
Section 34 of the Tax Code, the lands sold to the farmers are
capital assets and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.
2. Yes. Section 194 of the Tax Code, in considering as real
estate dealers owners of real estate receiving rentals of at
least P3,000.00 a year, does not provide any qualification as to
the persons paying the rentals. The law, which states:
"Real estate dealer" includes any person engaged in
the business of buying, selling, exchanging, leasing or renting
property on his own account as principal and holding himself
out as a full or part-time dealer in real estate or as an owner of
rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year
xxx”. is too clear and explicit to admit construction. The
findings of the Court of Tax Appeals or, this point is sustained.
TIO v. VRB; G.R. No. L-75697
FACTS:
Herein petitioner filed a petition on
September 1, on his own behalf and purportedly on
behalf of other videogram operators adversely
affected assailing the constitutionality of
Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with
broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred to
as the BOARD). The Decree was promulgated on
October 5, 1985 and took effect on April 10, 1986,
fifteen (15) days after completion of its publication
in the Official Gazette.
Petitioner's attack on the constitutionality of
the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30%
on the gross receipts payable to the local
government is a RIDER and the same is not
germane to the subject matter thereof;
2. The tax imposed is harsh, confiscatory,
oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the
Constitution;
ISSUE:
Whether or not the imposition of taxes is invalid in
the promulgation of PD NO. 1987
RULING:
NO. The Constitutional requirement that "every bill
shall embrace only one subject which shall be
expressed in the title thereof" is sufficiently
complied with if the title be comprehensive enough
to include the general purpose which a statute
seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes
to accomplish. The requirement is satisfied if all the
parts of the statute are related, and are germane to
the subject matter expressed in the title, or as long
as they are not inconsistent with or foreign to the
general subject and title. An act having a single
general subject, indicated in the title, may contain
any number of provisions, no matter how diverse
they may be, so long as they are not inconsistent
with or foreign to the general subject, and may be
considered in furtherance of such subject by
providing for the method and means of carrying out
the general object." The rule also is that the
constitutional requirement as to the title of a bill
should not be so narrowly construed as to cripple or
impede the power of legislation. It should be given
practical rather than technical construction.
Petitioner also submits that the thirty percent
(30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is
beyond serious question that a tax does not cease
to be valid merely because it regulates,
discourages, or even definitely deters the activities
taxed. 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. In imposing a tax, the legislature acts
upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive
taxation.
The levy of the 30% tax is for a public purpose. It
was imposed primarily to answer the need for
regulating the video industry, particularly because
of the rampant film piracy, the flagrant violation of
intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
In fine, petitioner has not overcome the
presumption of validity which attaches to a
challenged statute. We find no clear violation of the
Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional
and void.WHEREFORE, the instant Petition is
hereby dismissed.
SISON v. ANCHETA; G.R. No. L-59431
Facts:
Petitioners challenged the constitutionality of Section 1 of
Batas Pambansa Blg. 135. It amended
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.
Petitioner as taxpayer alleged that "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-vis those which are imposed upon fixed income or salaried
individual taxpayers." He characterizes the above section as
arbitrary amounting to class legislation, oppressive and
capricious in character.
For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses of the Constitution
as well as of the rule requiring uniformity in taxation.
The OSG prayed for dismissal of the petition due to lack of
merit.
Issue: Whether the imposition of a higher tax rate on taxable
net income derived from business or profession than on
compensation is constitutionally infirm.
(WON there is a transgression of both the equal protection and
due process clauses of the Constitution as well as of the rule
requiring uniformity in taxation)
Held: No. Petition dismissed
The need for more revenues is rationalized by the
government's role to fill the gap not done by public enterprise
in order to meet the needs of the times. It is better equipped to
administer for the public welfare.
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.
The power to tax is an attribute of sovereignty and the
strongest power of the government. There are restrictions,
however, diversely affecting as it does property rights, both the
due process and equal protection clauses may properly be
invoked, as petitioner does, to invalidate in appropriate cases a
revenue measure. If it were otherwise, taxation would be a
destructive power.
The petitioner failed to prove that the statute ran counter to the
Constitution. He used arbitrariness as basis without a factual
foundation. This is merely to adhere to the authoritative
doctrine 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.
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 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.
For equal protection, the applicable standard to determine
whether this was denied in the exercise of police power or
eminent domain was the presence of the purpose of hostility or
unreasonable discrimination.
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 circumstances, which if not
identical are analogous. If law be looks 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.
The equal protection clause is, of course, inspired by the noble
concept of approximating the ideal of the laws's 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.
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,
addressed 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.
Lutz v Araneta- 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.
Petitioner- kindred concept of uniformity- Court- Philippine
Trust Company- The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is hardly attainable
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
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"
There was a difference 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.
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. As there is
practically no overhead expense, these taxpayers are not
entitled to make deductions for income tax purposes because
they are in the same situation more or less.
Taxpayers who are recipients of compensation income are set
apart as a class.
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 was a lack of a factual foundation, the forcer of doctrines
on due process and equal protection, and he reasonableness
of the distinction between compensation and taxable net
income of professionals and businessmen not being a dubious
classification.
CHURCHILL v. CONCEPCION
Section 100 of Act No. 2339, 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, by
reducing the tax on such signs, billboards, etc., to P2 per
square meter or fraction thereof. The taxes imposed by Act No.
2432, as amended, were ratified by the Congress of the United
States.
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 were taxes thereon was 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.
Issue: WON the statute and the tax imposed is void for lack of
uniformity; constitutes double taxation.
Ruling:
No. Sec. 5 of the Philippine Bill declared “that the rule
of taxation in said Islands shall be uniform”.
Uniformity in taxation 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.
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."
CREBA v. ROMULO
I. Limitations
‣CIR v. ALGUE; G.R. No. L-28896 (NABALIK
NA NI NACASE )
ROXAS v. CTA; G.R. No. L-25043
Antonio, Eduardo and Jose Roxas, brothers and at
the same time partners of the Roxas y Compania, inherited
from their grandparents several properties namely:
(1) Agricultural lands with a total area of 19,000 hectares,
situated in the municipality of Nasugbu, Batangas province;
(2) A residential house and lot located at Wright St., Malate,
Manila; and
(3) Shares of stocks in different corporations.
The tenants who have all been tilling the lands in
Nasugbu for generations expressed their desire to purchase
the farmland. The tenants, however, did not have enough
funds, so the Roxases agreed to a purchase by installment.
During their bachelor days the Roxas brothers lived in
the residential house at Wright St., Malate, Manila, which they
inherited from their grandparents. After Antonio and Eduardo
got married, they resided somewhere else leaving only Jose in
the old house. In fairness to his brothers, Jose paid to Roxas y
Cia. rentals for the house in the sum of P8,000.00 a year.
The CIR demanded from Roxas y Cia the payment of
real estate dealer’s tax and tax for dealers of securities
@P150.00 each plus P10.00 compromise penalty for late
payment. The assessment was based on the fact that Roxas y
Cia. received house rentals from Jose Roxas in the amount of
P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of
a real estate who derives a yearly rental income therefrom in
the amount of P3,000.00 or more is considered a real estate
dealer and is liable to pay the corresponding fixed tax.
Subsequently, the CIR demanded from the brothers
the payment of deficiency income taxes resulting from the sale
of the farmlands to its tenants, 100% of the profits derived
therefrom was taxed. The brothers protested the assessment
but the same was denied. On appeal, the Court of Tax Appeals
sustained the assessment. Hence, this petition.
Issue:
1. Is the gain derived from the sale of the Nasugbu farm lands
an ordinary gain, hence 100% taxable?
2. Is Roxas y Cia. liable for the payment of the fixed
tax on real estate dealers?
Ruling:
1. No. It should be borne in mind that the sale of the
farmlands to the very farmers who tilled them for generations
was not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to
allocate lands to the landless.
In order to maintain the general public’s trust and
confidence in the Government this power must be used justly
and not treacherously. It does not conform with the sense of
justice for the Government to persuade the taxpayer to lend it a
helping hand and later on penalize him for duly answering the
urgent call.
In fine, Roxas cannot be considered a real estate
dealer and is not liable for 100% of the sale. Pursuant to
Section 34 of the Tax Code, the lands sold to the farmers are
capital assets and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.
2. Yes. Section 194 of the Tax Code, in considering as real
estate dealers owners of real estate receiving rentals of at
least P3,000.00 a year, does not provide any qualification as to
the persons paying the rentals. The law, which states:
"Real estate dealer" includes any person engaged in
the business of buying, selling, exchanging, leasing or renting
property on his own account as principal and holding himself
out as a full or part-time dealer in real estate or as an owner of
rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year
xxx”. is too clear and explicit to admit construction. The
findings of the Court of Tax Appeals or, this point is sustained.
i. Inherent Limitations
a. Public Purpose
The proceeds of the tax must be used a. for the support of the
State or b. for some recognized objects of government or
directly to promote the welfare of the community.
Cases:
Pascual vs. Sec. of Public Works, 110 Phil 331- The legislature
is without power to appropriate public revenues for anything
but a public purpose.
Valentin Tio vs. Videogram Regulatory Board, 151 SCRA 208-
The public purpose of a tax may legally exist even if the motive
which impelled the legislature to impose the tax was to favor
one industry over another.
PASCUAL v. SECRETARY; G.R. No. L-10405
LUTZ v. ARANETA
CALTEX v. COA; G.R. No. 92585
GOMEZ v. PALOMAR
TIO v. VRB; G.R. No. L-75697
(MANOSCA v. CA; G.R. No. 106440)
Facts:
Petitioners inherited a piece of land when the parcel was
ascertained by the NHI to have been the birth site of Felix Y.
Manalo, the founder of Iglesia Ni Cristo, it passed Resolution
No. 1, declaring the land to be a national historical landmark.
Petitioners moved to dismiss the complaint on the main thesis
that the intended expropriation was not for a public purpose
and, incidentally, that the act would constitute an application of
public funds, directly or indirectly, for the use, benefit, or
support of Iglesia ni Cristo, a religious entity, contrary to the
provision of Section 29(2), Article VI, of the 1987 Constitution.
Issue:
Whether or not the expropriation of the land whereat Manalo
was born is valid and constitutional.
Held:
Yes. The taking to be valid must be for public use. There was a
time when it was felt that a literal meaning should be attached
to such a requirement. Whatever project is undertaken must be
for the public to enjoy, as in the case of streets or parks.
Otherwise, expropriation is not allowable. It is not so any more.
As long as the purpose of the taking is public, then the power
of eminent domain comes into play. As just noted, the
constitution in at least two cases, to remove any doubt,
determines what public use is. One is the expropriation of
lands to be subdivided into small lots for resale at cost to
individuals. The other is the transfer, through the exercise of
this power, of utilities and other private enterprise to the
government. It is accurate to state then that at present
whatever may be beneficially employed for the general welfare
satisfies the requirement of public use.
PLANTERS PRODUCTS v. FERTIPHIL; G.R. No. 166006
FACTS:
President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the
imposition of a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers which resulted in
having Fertiphil paying P 10/bag sold to the Fertilizer and
Perticide Authority (FPA).
FPA remits its collection to Far East Bank and Trust Company
who applies to the payment of corporate debts of Planters
Products Inc. (PPI)
After the Edsa Revolution, FPA voluntarily stopped the
imposition of the P10 levy. Upon return of democracy, Fertiphil
demanded a refund but PPI refused. Fertiphil filed a complaint
for collection and damages against FPA and PPI with the RTC
on the ground that LOI No. 1465 is unjust, unreaonable
oppressive, invalid and unlawful resulting to denial of due
process of law.
FPA answered that it is a valid exercise of the police power of
the state in ensuring the stability of the fertilizing industry in the
country and that Fertiphil did NOT sustain damages since the
burden imposed fell on the ultimate consumers.
RTC and CA favored Fertiphil holding that it is an exercise of
the power of taxation ad is as such because it is NOT for
public purpose as PPI is a private corporation.
ISSUE:
W/N Fertiphil has locus standi
W/N LOI No. 1465 is an invalid exercise of the power of
taxation rather the police power
Held:
1. Yes. In private suits, locus standi requires a litigant to be a
"real party in interest" or party who stands to be benefited or
injured by the judgment in the suit. In public suits, there is the
right of the ordinary citizen to petition the courts to be freed
from unlawful government intrusion and illegal official action
subject to the direct injury test or where there must be
personal and substantial interest in the case such that he has
sustained or will sustain direct injury as a result. Being a mere
procedural technicality, it has also been held that locus standi
may be waived in the public interest such as cases of
transcendental importance or with far-reaching implications
whether private or public suit, Fertiphil has locus standi.
2. As a seller, it bore the ultimate burden of paying the levy
which made its products more expensive and harm its
business. It is also of paramount public importance since it
involves the constitutionality of a tax law and use of taxes for
public purpose.
3. Yes. Police power and the power of taxation are inherent
powers of the state but distinct and have different tests for
validity. Police power is the power of the state to enact the
legislation that may interfere with personal liberty on property
in order to promote general welfare. While, the power of
taxation is the power to levy taxes as to be used for public
purpose. The main purpose of police power is the regulation of
a behavior or conduct, while taxation is revenue generation.
The lawful subjects and lawful means tests are used to
determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
In this case, it is for purpose of revenue. But it is a robbery for
the State to tax the citizen and use the funds generation for a
private purpose. Public purpose does NOT only pertain to
those purpose which are traditionally viewed as essentially
governmental function such as building roads and delivery of
basic services, but also includes those purposes designed to
promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and urban
or agrarian reform.
b. Territoriality
CIR v. MARUBENI; G.R. No. 137377
Facts:
CIR assails the CA decision which affirmed CTA,
ordering CIR to desist from collecting the 1985 deficiency
income, branch profit remittance and contractor’s taxes from
Marubeni Corp after finding the latter to have properly availed
of the tax amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in
general import and export trading, financing and construction,
is duly registered in the Philippines with Manila branch office.
CIR examined the Manila branch’s books of accounts for fiscal
year ending March 1985, and found that respondent had
undeclared income from contracts with NDC and Philphos for
construction of a wharf/port complex and ammonia storage
complex respectively.
On August 27, 1986, Marubeni received a letter from
CIR assessing it for several deficiency taxes. CIR claims that
the income respondent derived were income from Philippine
sources, hence subject to internal revenue taxes. On Sept
1986, respondent filed 2 petitions for review with CTA: the first,
questioned the deficiency income, branch profit remittance and
contractor’s tax assessments and second questioned the
deficiency commercial broker’s assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for
unpaid income taxes for 1981-85, and that taxpayers who
wished to avail this should on or before Oct 31, 1986.
Marubeni filed its tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include
estate and donor’s taxes under Title 3 and business tax under
Chap 2, Title 5 of NIRC, extended the period of availment to
Dec 15, 1986 and stated those who already availed amnesty
under EO 41 should file an amended return to avail of the new
benefits. Marubeni filed a supplemental tax amnesty return on
Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty
and deemed cancelled the deficiency taxes. CA affirmed on
appeal.
Issue:
W/N Marubeni is exempted from paying tax
Held: Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax
amnesty because it falls under the exception in Sec 4b of EO
41:
“Sec. 4. Exceptions.—The following taxpayers may
not avail themselves of the amnesty herein granted: xxx
b) Those with income tax cases already filed in Court as of the
effectivity hereof;”
Petitioner argues that at the time respondent filed for income
tax amnesty on Oct 30, 1986, a case had already been filed
and was pending before the CTA and Marubeni therefore fell
under the exception. However, the point of reference is the
date of effectivity of EO 41 and that the filing of income tax
cases must have been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case
questioning the 1985 deficiency was filed with CTA on Sept 26,
1986. When EO 41 became effective, the case had not yet
been filed. Marubeni does not fall in the exception and is thus,
not disqualified from availing of the amnesty under EO 41 for
taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractor’s
tax assessment (business tax) and respondent’s availment of
the amnesty under EO 64, which expanded EO 41’s coverage.
When EO 64 took effect on Nov 17, 1986, it did not provide for
exceptions to the coverage of the amnesty for business, estate
and donor’s taxes. Instead, Section 8 said EO provided that:
“Section 8. The provisions of Executive Orders Nos.
41 and 54 which are not contrary to or inconsistent with this
amendatory Executive Order shall remain in full force and
effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to
refer to EO 41 and its date of effectivity. The general rule is
that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or
by necessary implication and no vested right or obligations of
contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly
avail of the amnesty, it is still not liable for the deficiency tax
because the income from the projects came from the “Offshore
Portion” as opposed to “Onshore Portion”. It claims all
materials and equipment in the contract under the
“Offshore Portion” were manufactured and completed in
Japan, not in the Philippines, and are therefore not subject
to Philippine taxes.
CIR argues that since the two agreements are turn-
key, they call for the supply of both materials and services to
the client, they are contracts for a piece of work and are
indivisible. The situs of the two projects is in the Philippines,
and the materials provided and services rendered were all
done and completed within the territorial jurisdiction of the
Philippines. Accordingly, respondent’s entire receipts from the
contracts, including its receipts from the Offshore Portion,
constitute income from Philippine sources. The total gross
receipts covering both labor and materials should be subjected
to contractor’s tax (a tax on the exercise of a privilege of selling
services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that
not all its work was performed in the Philippines because some
of them were completed in Japan (and in fact subcontracted) in
accordance with the provisions of the contracts. All services for
the design, fabrication, engineering and manufacture of the
materials and equipment under Japanese Yen Portion I were
made and completed in Japan. These services were
rendered outside Philippines’ taxing jurisdiction and are
therefore not subject to contractor’s tax. Petition denied.
REAGAN v. CIR; G.R. No. L-26379
Facts:

William Reagan is a US citizen assigned at Clark Air
Base to help provide technical assistance to the US Air Force
(USAF). In April 1960 Reagan imported a 1960 Cadillac car
valued at $6,443.83. Two months later, he got permission to
sell the same car provided that he would sell the car to a US
citizen or a member of the USAF. He sold it to Willie Johnson,
Jr. for $6,600.00 as shown by a Bill of Sale. CIR assessed his
income of the said sale as taxable, rendering him liable for
income tax in the sum of P2,979.00. Reagan paid the
assessed tax but at the same time he sought for a refund
because he claims that he is exempt. He questioned the
assessed tax because the sale is executed on a “foreign soil”,
the transaction having taken place at the Clark Field Air Base.
Petitioner contends that the base is outside Philippine territory
and therefore beyond the jurisdictional power to tax.
Issue:
Whether or not the said income tax of P2,979.00 was
legally collected by respondent for petitioner.
Held:
YES.
The said foreign military bases are not to be
considered a foreign soil or territory for purposes of income tax
legislation. Philippine jurisdictional rights including the power to
tax are preserved. The Philippines is independent and
sovereign, its authority may be exercised over its entire
domain. There is no portion thereof that is beyond its power.
Within its limits, its decrees are supreme, its commands
paramount. Its laws govern therein, and everyone to whom it
applies must submit to its terms. That is the extent of its
jurisdiction, both territorial and personal. On the other hand,
there is nothing in the Military Bases Agreement that lends
support to Reagan’s assertion.
We thus manifest fealty to a pronouncement made
time and time again that the law does not look with favor on tax
exemptions and that he who would seek to be thus privileged
must justify it by words too plain to be mistaken and too
categorical to be misinterpreted.
MERALCO v. YATCO; G.R. No. 45697
FACTS:
Meralco entered into an insurance contract with a new york
based insurance company. Yatco, the Commissioner of
Internal Revenue, levied taxes on the premium paid. Meralco
paid under protest alleging that the Philippines had no
jurisdiction.
ISSUE:
Whether the CIR exceeded his powers in taxing Meralco’s paid
premium
RULING:
No. Where the risk insured against and certain incidents of the
contract are to be attended in the Philippines such as
payment of dividends when received in cash, the Philippines
may impose tax regardless whether the contract is executed
abroad. Under such circumstances, substantial elements of the
contract may be said to be so situated in the Philippines as to
give its government the power to tax. Even if it be assumed
that the tax imposed upon the insured will ultimately be passed
on to the insurer, thus constituting an indirect tax upon the
foreign corporation, by stipulations of its contract, has
subjected itself to the taxing jurisdiction of the Philippines.
After all, the Government of the Philippines, by protecting the
properties insured, benefits the foreign corporation. It is
thus reasonable that the latter should pay a just contribution
therefor.
c. Non-Delegation
(i) Delegation to the President
Flexible Tariff Clause; Sec. 28(2), Art. VI
The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions
as it 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.
(ii) Delegation to LGUs
Article X, Section 5. Each local government unit shall
have the power to create its own sources of revenues
and to levy taxes, fees and charges subject to such
guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the
local governments.
(ii) Tax Issuances
Legislative Rule
Interpretative Rule
CIR v. FORTUNE TOBACCO; G.R. Nos. 167274-75
ABAKADA v. ERMITA; G.R. No. 168056
FACTS:
RA 9337, an act amending certain sections of the National
Internal Revenue Code of 1997, is questioned by petitioners
for being unconstitutional. Procedural issues raised by
petitioners are the legality of the bicameral proceedings,
exclusive origination of revenue measures and the power of
the Senate concomitant thereto. Also, an issue was raised with
regard to the undue delegation of legislative power to the
President to increase the rate of value-added tax to 12%.
Petitioners also argue 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 P1,000,000.00, 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.
Issues:
Whether or not there is a violation of Article VI, Section 24 of
the Constitution.
Whether or not there is undue delegation of legislative power in
violation of Article VI Sec 28(2) of the Constitution.
Whether or not there is a violation of the due process and
equal protection of the Constitution.
Ruling:
No, 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, and excise and franchise
taxes.
No, there is no undue delegation of legislative power but only
of the discretion as to the execution of a law. This is
constitutionally permissible. 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. In this
case, it is not a delegation of legislative power but a delegation
of ascertainment of facts upon which enforcement and
administration of the increased rate under the law is
contingent.
No, 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.
i. International Comity
Under Section 2, Article II of our Constitution, the Philippines
"adopts the generally accepted principles of international law
as part of the law of the land, and adheres to the policy of
peace, equality, justice, freedom, cooperation, and amity with
all nations." One principle of international law which has
attained wide recognition is the principle of Sovereign Equality
Among States.
According to this principle, "states are juridically equal, enjoy
the same rights, and have equal capacity in their exercise. The
rights of each one do not depend upon the power which it
possesses to assure its exercise, but upon the simple fact of its
existence as a person under international law."
This principle, in turn, finds its roots in the rule of par in parem
non habet imperium, where even the strongest state cannot
assume jurisdiction over another state, no matter how weak, or
question the validity of its acts in so far as they are made to
take effect within its own territory. All states, including the
smallest and least influential, are also entitled to their dignity
and the protection of their honor and reputation.
To illustrate: If a tax law is passed imposing taxes on the
income of foreign ambassadors or imposing real property tax
upon foreign embassies, this is NOT a valid law because the
imposition is in violation of the universal principles of
international law. Under international laws, foreign embassies
are considered extensions of the territoriality of the foreign
states; to impose taxes upon them would be tantamount to an
exercise of jurisdiction over these foreign states
1. Doctrine of Sovereign Equality of the States
2. Sec. 2, Art. II, Constitution
The Philippines renounces war as an instrument
of national policy, adopts the generally accepted
principles of international law as part of the law of
the land and adheres to the policy of peace,
equality, justice, freedom, cooperation, and amity
with all nations.
ii. Government Exemption
BOARD OF ASSESSMENT APPEALS v. CTA; G.R. No.
18125
FACTS:
National Waterworks and Sewerage Authority (NWSA), a
public corporation owned by the Government of the Philippines
as well as all property comprising waterworks and sewerage
systems placed under it, took over the Cabuyao-Sta. Rosa-
Biñan Waterworks System in 1956. It was assessed by the
Provincial Assessor of Laguna, for purposes of real estate
taxes, on the real properties owned by Cabuyao Waterworks.
The respondent protested claiming it is exempted from the
payment of real estate taxes in view of the nature and kind of
said property and functions and activities of petitioner. The
petitioner denied the protest arguing that such real properties
are subject to real estate tax because although said properties
belong to the Republic of the Philippines, the same holds it, not
in its governmental, political or sovereign capacity, but in a
private, proprietary or patrimonial character, which, allegedly,
is not covered by the exemption contained in section 3(a) of
Republic Act No. 470.
ISSUE:
Are the real properties owned by the respondent public
corporation subject to real estate tax?
HELD:
No. Republic Act No. 470 makes no distinction between
property held in a sovereign, governmental or political capacity
and those possessed in a private, proprietary or patrimonial
character. And where the law does not distinguish neither may
we, unless there are facts and circumstances clearly showing
that the lawmaker intended the contrary, but no such facts and
circumstances have been brought to our attention. Indeed, the
noun "property" and the verb "owned" used in said section 3(a)
strongly suggest that the object of exemption is considered
more from the view point of dominion, than from that of
domain.
Moreover, taxes are financial burdens imposed for the
purpose of raising revenues with which to defray the cost of the
operation of the Government, and a tax on property of the
Government, whether national or local, would merely have the
effect of taking money from one pocket to put it in another
pocket. Hence, it would not serve, in the final analysis, the
main purpose of taxation. What is more, it would tend to defeat
it, on account of the paper work, time and consequently,
expenses it would entail.
MACEDA v. MACARAIG; G.R. No. 88291 (31 May 1991)
FACTS:
Commonwealth Act 120 created NAPOCOR as a public
corporation to undertake the development of hydraulic power
and the production of power from other sources. RA 358
granted NAPOCOR tax and duty exemption privileges. RA
6395 revised the charter of the NAPOCOR, tasking it to carry
out the policy of the national electrification and provided in
detail NAPOCOR’s tax exceptions. PD 380 specified that
NAPOCOR’s exemption includes all taxes, etc. imposed
“directly or indirectly.” PD 938 dated May 27, 1976 further
amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.
ISSUE:
Whether or not NPC has ceased to enjoy indirect tax and duty
exemption with the enactment of PD 938 on May 27, 1976
which amended PD 380 issued on January 11, 1974
RULING:
No, it is still exempt.
NAPOCOR is a non-profit public corporation created for the
general good and welfare, and wholly owned by the
government of the Republic of the Philippines. From the very
beginning of the corporation’s existence, NAPOCOR enjoyed
preferential tax treatment “to enable the corporation to pay the
indebtedness and obligation” and effective implementation of
the policy enunciated in Section 1 of RA 6395.
From the preamble of PD 938, it is evident that the provisions
of PD 938 were not intended to be interpreted liberally so as to
enhance the tax exempt status of NAPOCOR.
It is recognized that the rule on strict interpretation does not
apply in the case of exemptions in favor of government political
subdivision or instrumentality. In the case of property owned by
the state or a city or other public corporations, the express
exception should not be construed with the same degree of
strictness that applies to exemptions contrary to the policy of
the state, since as to such property “exception is the rule and
taxation the exception.”
(PPA v. CITY OF ILOILO; G.R. No. 109791)
FACTS:
PPA is created und PD 857 and under Section 25 of its
charter, PPA is exempted from paying real property tax.
PPA is engaged in the business of arrastre and stevedoring
and leasing of real estate. Also, it owns a warehouse for its
operation. On June 11, 1984, PD 1931 withdrew all tax
exemptions privileges granted to GOCC.
Thus, the city of Iloilo seeks to collect from PPA business tax
and real property tax from the last quarter of 1984 up to the
year 1986.
However, PPA claims the ff
The City of Iloilo cannot collect real property taxes from PPA
because the warehouse is part of the port. Under Sec 420 of
Civil Code, ports are part of public dominion.
PPA is not subject to business tax because they are not
engage in business. Their leasing of its property was not
motivated by profit but duly to manage and control port
operations.
ISSUE:
Whether or not Philippine Ports Authority is exempt from the
payment of real property tax and business tax.
RULING:
NO. The records show that the theory of petitioner before the
trial court was different from that of the present petition.
Initially, it argued that as a government-owned corporation, it is
exempt from paying real property taxes by virtue of its specific
exemption in its charter, Section 40 of the Real Property Tax
Code and Executive Order No. 93. Subsequently, in the
memorandum it filed with the trial court, it omitted its earlier
argument and changed its theory by alleging that it is a
government instrumentality, which, according to applicable
jurisprudence, may not be taxed by the local government.
PPA cannot claim that their warehouse is a public dominion
because such theory is different from the theory they adopted
and decided by the lower court.
Thus, PPA is bound by its admission of ownership of the
warehouse. It is therefore liable to pay real property tax.
Also, under Sec 420 of the CC, the ports mentioned are those
“constructed by the state”. Thus, PPA should prove that its port
was constructed by the state in order to conclude that such
property is a public dominion. However, PPA failed to prove
such.
Also, granting that its port is a public dominion, its warehouse
which they constructed is considered to be an improvement.
And improvement s made by the occupants is not exempted
from payment of tax.
On their second claim, PPA is liable for business tax for the
lease of their buildings to private corporations. During pre-trial,
they did not refute the claims of the city of Iloilo that they are
engage in business nor did they present proof of exemption
from tax.
PPA admitted that their act of leasing is not necessarily for
government function of administering ports but for
convenience. Therefore, any income or profit generated by the
entity, even without any intention of realizing profit is still
subject to business tax. What matters is that PPA leased its
properties to private entities and from which PPA earned
substantial income.
(i) Doctrine of Supremacy of the National
Government Over the Local Governments
BASCO v. PAGCOR; G.R. No. 91649
The Local governments have no power to tax
instrumentalities of the National Government. PAGCOR is
a government owned or controlled corporation with an original
charter, PD 1869. All of its shares of stocks are owned by the
National Government. In addition to its corporate powers (Sec.
3, Title II, PD 1869) it also exercises regulatory powers thus:
Sec. 9. Regulatory Power. — The Corporation shall maintain a
Registry of the affiliated entities, and shall exercise all the
powers, authority and the responsibilities vested in the
Securities and Exchange Commission over such affiliating
entities mentioned under the preceding section, including, but
not limited to amendments of Articles of Incorporation and By-
Laws, changes in corporate term, structure, capitalization and
other matters concerning the operation of the affiliated entities,
the provisions of the Corporation Code of the Philippines to the
contrary notwithstanding, except only with respect to original
incorporation.
PAGCOR has a dual role, to operate and to regulate gambling
casinos. The latter role 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. (MC Culloch v.
Marland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
Justice Holmes, speaking for the Supreme Court, made
reference 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, emphasis
supplied)
Otherwise, mere creatures 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 tool for regulation" (U.S. v. Sanchez, 340 US
42).
The power to tax which was called by Justice Marshall as the
"power to destroy" (Mc Culloch v. Maryland, supra) cannot be
allowed to defeat an instrumentality or creation of the very
entity which has the inherent power to wield it.
MIAA v. CA; G.R. No. 155650
Facts:
MIAA received Final Notices of Real Estate Tax Delinquency
from the City of Parañaque for the taxable years 1992 to 2001.
MIAA’s real estate tax delinquency was estimated at P624
million. The City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport
Lands and Buildings. The Mayor of the City of Parañaque
threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax
delinquency.
MIAA filed a petition sought to restrain the City of Parañaque
from imposing real estate tax on, levying against, and
auctioning for public sale the Airport Lands and Buildings.
The City of Parañaque contended that Section 193 of the Local
Government Code expressly withdrew the tax exemption
privileges of “government-owned and-controlled corporations”
upon the effectivity of the Local Government Code. Thus,
MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax
MIAA argued that Airport Lands and Buildings are owned by
the Republic. The government cannot tax itself. The reason for
tax exemption of public property is that its taxation would not
inure to any public advantage, since in such a case the tax
debtor is also the tax creditor.
Issue:
Whether or not the City of Parañaque can impose real tax, levy
against and auction for public sale the Airport Lands and
Buildings.
Held:
MIAA is Not a Government-Owned or Controlled
Corporation. The Airport Lands and Buildings of MIAA are
property of public dominion and therefore owned by the State
or the Republic of the Philippines. No one can dispute that
properties of public dominion mentioned in Article 420 of the
Civil Code, like “roads, canals, rivers, torrents, ports and
bridges constructed by the State,” are owned by the State. The
term “ports” includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a “port” constructed by the
State.
Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines. The
Airport Lands and Buildings are devoted to public use because
they are used by the public for international and domestic
travel and transportation. The fact that the MIAA collects
terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as
properties for public use. The charging of fees to the public
does not determine the character of the property whether it is
of public dominion or not. Article 420 of the Civil Code defines
property of public dominion as one “intended for public use.”
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the subject of
an auction sale. Properties of public dominion, being for public
use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on
execution or auction sale of any property of public dominion is
void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen
if the City of Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for non-payment of
real estate tax.
MCIAA v. MARCOS; G.R. No. 120082
Mactan Cebu International Airport Authority (MCIAA) was
created by virtue of Republic Act 6958. Since the time of its
creation, MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its
Charter. However on 11 October 1994, the Office of the
Treasurer of Cebu, demanded for the payment of realty taxes
on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless
and unjustified and asserted that it is an instrumentality of the
government performing governmental functions, which puts
limitations on the taxing powers of local government units.
The 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 Government
Code (LGC), and not an instrumentality of the government but
merely a government owned corporation performing
proprietary functions. MCIAA paid its tax account “under
protest” when City is about to issue a warrant of levy against
the MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC
contending that the taxing power of local government units do
not extend to the levy of taxes or fees on an instrumentality of
the national government. It contends that by the nature of its
powers and functions, it has the footing of an agency or
instrumentality of the national government; which claim the City
rejects. The trial court dismissed the petition, citing that close
reading of the LGC provides the express cancellation and
withdrawal of tax exemptions of Government Owned and
Controlled Corporations.
ISSUE: Whether the MCIAA is exempted from realty taxes.
RULING:
Tax statutes are construed strictly against the government and
liberally in favor of the taxpayer. But since taxes are paid for
civilized society, 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
taxpayer and liberally in favor of the taxing authority.
A claim of exemption from tax payments must be clearly shown
and based on language in the law too plain to be mistaken.
Taxation is the rule, exemption therefrom is the exception.
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.
Further, since taxation is the rule and exemption therefrom the
exception, the exemption may 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.
MCIAA is a “taxable person” under its Charter (RA 6958),
and 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.
Since Republic Act 7160 or the Local Government Code (LGC)
expressly provides that “All general and special laws, acts, city
charters, decrees [sic], executive orders, proclamations and
administrative regulations, or part of parts thereof which are
inconsistent with any of the provisions of this Code are hereby
repealed or modified accordingly.”
With that repealing clause in the LGC, the tax exemption
provided for in RA 6958 had been expressly repealed by the
provisions of the LGC. Therefore, MCIAA has to pay the
assessed realty tax of its properties effective after January 1,
1992 until the present.
MCIAA v. CITY OF LAPU-LAPU; G.R. No. 181756
MIAA is not a government-owned or controlled corporation
under Section 2(13) of the Introductory Provisions of the
Administrative Code because it is not organized as a stock or
non-stock corporation. Neither is MIAA a government-owned or
controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality
vested with corporate powers and performing essential public
services pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code.
As a government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in
Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such
a. Uniformity and Equality of Taxation; Sec. 28(1), Art.
VI
The rule of taxation shall be uniform and equitable (Sec.28
(1), Art.III, 1987 Constitution).
The tax is uniform when it operates with the same force and
effect in every place where the subject of it is found.
"Uniformity" means all property belonging to the same class
shall be taxed alike. It does not signify an intrinsic, but simply a
geographic, uniformity (Churchill & Tait vs. Conception, 34
Phil. 969). Uniformity does not require the same treatment; it
simply requires reasonable basis for classification.
Application
In the following cases, the uniformity requirement is not
violated:
(a) Where a statute imposes a tax of P2.50 a square meter or
fraction thereof on every billboard or sign anywhere in the
country (Churchill vs. Concepcion, 10 Phil.381 1908.)
(b) Where a license tax is imposed upon hotels and the
amount required to be paid is graduated by the number of
rooms which may be devoted to the accommodation of the
public (St. Louis vs. Bircher,7 Mo. App.169; US vs. Sumulong,
30 Phil.381 1915.)
(c) Where those with different incomes are made to pay
different rates of tax because in this case the incomes are
considered as belonging to different classes;
(d) Where residential houses, regardless of their assessed
value, are considered for purposes of taxation as belonging to
one class (i.e., residential property and made subject to the
same rate (e.g., 2% of assessed value) but different amounts
of tax depending on their value;
exception applies only if the beneficial use of real property
owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the
State or the Republic.
As properties of public dominion owned by the Republic, there
is no doubt whatsoever that the Airport Lands and Buildings
are expressly exempt from real estate tax under Section 234(a)
of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not
subject to execution or foreclosure sale.
Petitioner’s properties that are actually, solely and exclusively
used for public purpose, consisting of the airport terminal
building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the
City of Lapu-Lapu.
VOID all the real property tax assessments, including the
additional tax for the special education fund and the penalty
interest, as well as the final notices of real property tax
delinquencies, issued by the City of Lapu-Lapu on petitioner’s
properties, except the assessment covering the portions that
petitioner has leased to private parties.
NULL and VOID the sale in public auction of 27 of petitioner’s
properties and the eventual forfeiture and purchase of the said
properties by respondent City of Lapu-Lapu. We likewise
declare VOID the corresponding Certificates of Sale of
Delinquent Property issued to respondent City of Lapu-Lapu.
ii. Constitutional Limitations
The law, however, may validly further classify such property
according to their assessed value and levy different rates, and
consequently, different amounts of tax on the basis of such
value;
Section 28 (c), Article VI of the Constitution provides that “the
rule of taxation shall be uniform and equitable.”
The concept of uniformity in taxation implies that all taxable
articles or properties of the same class shall be taxed at the
same rate. It requires the uniform application and operation,
without discrimination, of the tax in every place where the
subject of the tax is found. It does not, however, require
absolute identity or equality under all circumstances, but
subject to reasonable classification.
The concept of equity in taxation requires that the
apportionment of the tax burden be, more or less, just in the
light of the taxpayer’s ability to shoulder the tax burden and, if
warranted, on the basis of the benefits received from the
government. Its cornerstone is the taxpayer’s ability to pay.
CHURCHILL v. CONCEPCION; G.R. No. 11572 – billboards
FACTS:
Section 100 of Act 2339 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. The section
was amended by Act 2432, reducing the tax to P2 per square
meter. Francis A. Churchill and Stewart Tait, co-partners in
Mercantile Advertising Agency, owned a billboard to which they
were taxes at P104. The tax was paid under protest. Churchill
and Tait instituted the action to recover the amount.

ISSUE:
Is the statute and the tax imposed void for lack of uniformity?
RULING:
No, the tax is valid.
Uniformity in taxation 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 all 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, at all times.
Herein, the Act imposes a tax of P2 per square meter or a
fraction thereof upon every electric sign, billboard, etc.
Wherever found in the Philippine Islands. The rule of taxation
upon such signs is uniform throughout the islands. The rule
does not require taxes to be graded according to the value of
the subjects upon which they are imposed, especially those
levied as privilege or occupation taxes.
PHILIPPINE TRUST COMPANY v. YATCO; G.R. Nos. L-
46255, 46256, 46259 and 46277 - banks, exemption gov’t
instrumentality
A tax is considered uniform when it operates with the same
force and effect in every place where the subject may be
found. (State v. Railroad Tax Cases, 92 U.S. 575, 595, 612, 23
Law. ed. 363, 373.) Section 1499 of the Revised Administrative
Code, as amended, applies uniformly to, and operates on, all
banks in the Philippines without distinction and discrimination,
and if the National City Bank of New York is exempted from its
operation because it is a federal instrumentality subject only to
the authority of Congress, that alone could have the effect of
rendering it violative of the rule of uniformity.
In every well-regulated and enlightened state or government,
certain descriptions of property and also certain institutions are
exempt from taxation, but these exemptions have never been
regarded as disturbing the rules of taxation, even where the
fundamental law had ordained that it should be uniform. (Des
Moines Bank v. Fairweather, 263 U.S. 103,118). The rule of
uniformity does not call for perfect uniformity or perfect
equality, because this is hardly
attainable.chanroblesvirtualawlibrary chanrobles virtual law
library
It is vaguely argued that section 1499 of the Revised
Administrative Code was declared unconstitutional by the
Supreme Court of the United States insofar as the National
City Bank of New York was concerned. This is an error. In
Posadas v. National City Bank, 296 U.S. 499, 80 Law. ed. 352,
it was held that the National City Bank of New York in the
Philippines was established by virtue of section 25 of the
Federal Reserve Act of 1913, which authorized the
establishment of branches of national banking associations in
foreign countries or dependencies of the United States," and
that the Philippines being a possession and dependency of the
United States, the rule laid down in Domenech v. National City
Bank, 294 U.S. 199, 204, 79 Law. ed. 857, 861, 55 S. Ct. 366,
that "a dependency may not tax its sovereign," must be
considered controlling.
There was no declaration, either express or implied, that
section 1499 is unconstitutional and
void.chanroblesvirtualawlibrary chanrobles virtual law li brar y
EASTERN THEATRICAL v. ALFONSO; G.R. No. L-1104 - fee
on ticket - not all amusement places
SISON v. ANCHETA; G.R. No. L-59431 - compensation and
business income
Facts: Section 1 of BP Blg 135 amended the Tax Code and
petitioner Antero M. Sison, as taxpayer, alleges that "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-vis those which are imposed upon fixed
income or salaried individual taxpayers. He characterizes said
provision as arbitrary amounting to class legislation,
oppressive and capricious in character. It therefore violates
both the equal protection and due process clauses of the
Constitution as well asof the rule requiring uniformity in
taxation.
Issue: Whether BP 135 violates the due process and equal
protection clauses, and the rule on uniformity in taxation.
Held:
There is a need for proof of such persuasive character as
would lead to a conclusion that there was a violation of the due
process and equal protection clauses. Absent such showing,
the presumption of validity must prevail. 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.
Where the differentitation conforms to the practical dictates of
justice and equity, similar to the standards of equal protection,
it is not discriminatory within the meaning of the clause and is
therefore uniform.
Taxpayers may be classified into different categories, such as
recipients of compensation income as against professionals.
Recipients of compensation income are not entitled to
make deductions for income tax purposes as there is no
practically no overhead expense, while professionals and
businessmen have no uniform costs or expenses
necessaryh to produce their income. There is ample
justification 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.
VILLEGAS v. HIU TSIONG TSAI PAO HO; G.R. No. L-29646)
Facts: The Municipal Board of Manila enacted Ordinance 6537
requiring aliens (except those employed in the diplomatic and
consular missions of foreign countries, in technical assistance
programs of the government and another country, and
members of religious orders or congregations) to procure the
requisite mayor’s permit so as to be employed or engage in
trade in the City of Manila. The permit fee is P50, and the
penalty for the violation of the ordinance is 3 to 6 months
imprisonment or a fine of P100 to P200, or both.
Issue: Whether the ordinance imposes a regulatory fee or a
tax.
Held: The ordinance’s purpose is clearly to raise money under
the guise of regulation by exacting P50 from aliens who have
been cleared for employment. The amount is unreasonable
and excessive because it fails to consider difference in
situation among aliens required to pay it, i.e. being casual,
permanent, part-time, rank-and-file or executive.
The Ordinance was declared invalid as it is arbitrary,
oppressive and unreasonable, being applied only to aliens who
are thus deprived of their rights to life, liberty and property and
therefore violates the due process and equal protection
clauses of the Constitution. Further, the ordinance does not lay
down any criterion or standard to guide the Mayor in the
exercise of his discretion, thus conferring upon the mayor
arbitrary and unrestricted powers.
CIR v. LINGAYEN GULF; G.R. No. L-23771 - franchises 2%
and 5%
FACTS:
Lingayen Gulf Electric Power operates an electric power plant
serving the municipalities of Lingayen and Binmaley,
Pangasinan, pursuant to municipal franchise granted it by the
respective municipal councils. The franchises provided that the
grantee shall pay quarterly to the provincial treasury of
Pangasinan 1% of the gross earnings obtained through the
privilege for the first 20 years (from 1946) and 2% during the
remaining 15 years of the life of the franchise. In 1955, the BIR
assessed and demanded against the company deficiency
franchise taxes and surcharges from the years 1946 to 1954
applying the franchise tax rate of 5% on gross receipts from
1948 to 1954. The company asked for a reinvestigation, which
was denied. CTA, however, ruled for Lingayen. Hence, this
petition.
Issue:
Whether a rate below 5% is violative of the uniformity clause in
the Constitution
RULING:
No. The legislature has the inherent power not only to select
the subjects of taxation but to grant exemptions. Tax
exemptions have never been deemed violative of the equal
protection clause. Herein, the 5% franchise tax rate provided in
Section 259 of the Tax Code was never intended to have
universal application. Section 259 expressly allows the
payment of taxes at rates lower than 5% when the charter
granting the franchise precludes the imposition of a higher tax.
RA 3843, the law granting the franchise, did not only fix and
specify a franchise tax of 2% on its gross receipts but made it
in lieu of any and all taxes, all laws to the contrary
notwithstanding. The company, hence, is not liable for
deficiency taxes.
(i) Classification Freeze Provision
BRITISH AMERICAN TOBACCO v. CAMACHO; G.R. No.
163583
June 2001, petitioner British American Tobacco introduced and
sold Lucky Strike, Lucky Strike Lights and Lucky Strike
Menthol Lights cigarettes w/ SRP P 9.90/pack - Initial
assessed excise tax: P 8.96/pack (Sec. 145 [c])
February 17, 2003: RR 9-2003: Periodic review every 2 years
or earlier of the current net retail price of new brands and
variants thereof for the purpose of the establishing and
updating their tax classification
March 11, 2003: RMO 6-2003: Guidelines and procedures in
establishing current net retail prices of new brands of
cigarettes and alcohol products
August 8, 2003: RR 22-2003: Implement the revised tax
classification of certain new brands introduced in the market
after January 1, 1997 based on the survey of their current net
retail prices. This increased the excise tax to P13.44 since the
average net retail price is above P 10/pack. This cause
petitioner to file before the RTC of Makati a petition for
injunction with prayer for issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction sought to enjoin the
implementation of Sec. 145 of the NIRC, RR No. 1-97, 9-2003,
22-2003 and 6-2003 on the ground that they discriminate
against new brands of cigarettes in violation of the equal
protection and uniformity provisions of the Constitution
RTC: Dismissed
While petitioner's appeal was pending, RA 9334 amending
Sec. 145 of the 1997 NIRC among other took effect on January
1, 2005 which in effect increased petitioners excise tax to
P25/pack
Petitioner filed a Motion to Admit attached supplement and a
supplement to the petition for review assailing the
constitutionality of RA 9334 and praying a downward
classification of Lucky Strike products at the bracket taxable at
P 8.96/pack since existing brands are still taxed based on their
price as of October 1996 eventhough they are equal or higher
than petitioner's product price.
Philip Morris Philippines Manufacturing Incorporated, Fortune
Tobacco Corp., Mighty Corp. and JT International Intervened.
Fortune Tobacco claimed that the CTA should have the
exclusive appellate jurisdiction over the decision of the BIR in
tax disputes
Issue:
W/N RA 9334 of the classification freeze provision is
unconstitutional for violating the equal protection and
uniformity provisions of the Constitution
Ruling:
No. In Sison Jr. v. Ancheta, the court held that "xxx 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. If the law
be looked upon in tems of burden on 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. xxx" Thus, classification if rational in character is
allowable. In Lutz v. Araneta: "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"
SC previously 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"
Under the the rational basis test, a legislative classification, to
survive an equal protection challenge, must be shown to
rationally further a legitimate state interest. The classifications
must be reasonable and rest upon some ground of difference
having a fair and substantial relation to the object of the
legislation
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.
Moreover, petitioner failed to clearly demonstrate the exact
extent of such impact as the price is not the only factor that
affects competition.
(ii) Progressive System of Taxation
TOLENTINO v. SECRETARY; G.R. No. 115455 (25 August
1994; 30 October 1995)
ACTS:
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. RA 7716 seeks to widen the tax base of
the existing VAT system and enhance its administration by
amending the National Internal Revenue Code (NIRC).
Herein, various petitioners seek to declare RA 7166 as
unconstitutional. One of the reasons is that it violates Article VI,
Section 28 (1) which provides that “the rule of taxation shall be
uniform and equitable. The Congress shall evolve a
progressive system of taxation.”
ISSUE:
Whether RA 7166 violates the principle of progressive system
of taxation
RULING:
No. 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 is largely an
academic exercise.
Regressivity is not a negative standard for courts to enforce.
“Evolve a progressive system of taxation” is a directive to
Congress. These provisions are placed in the Constitution as
moral incentives to legislation, not as judicially enforceable
rights.
b. Exemption of Properties Actually, Directly, and
Exclusively Used for Religious, Charitable, and
Educational Purposes; Sec. 28(3), Art. VI
LLADOC v. CIR; G.R. No. L-19201
Facts: Sometime in 1957, M.B. Estate Inc., of Bacolod City,
donated 10,000.00 pesos in cash to Fr. Crispin Ruiz, the parish
priest of Victorias, Negros Occidental, and predecessor of Fr.
Lladoc, for the construction of a new Catholic church in the
locality. The donated amount was spent for such purpose.
On March 3, 1958, the donor M.B. Estate filed the donor's gift
tax return. Under date of April 29, 1960. Commissioner of
Internal Revenue issued an assessment for the donee's gift tax
against the Catholic Parish of Victorias of which petitioner was
the parish priest.
Issue: Whether or not the imposition of gift tax despite the fact
the Fr. Lladoc was not the Parish priest at the time of donation,
Catholic Parish priest of Victorias did not have juridical
personality as the constitutional exemption for religious
purpose is valid.
Section 22 (3), Art. VI of the Constitution of the Philippines,
exempts from taxation cemeteries, churches and parsonages
or convents, appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious purposes. The
exemption is only from the payment of taxes assessed on such
properties enumerated, as property taxes, as contra
distinguished from excise taxes.
In the present case, what the Collector assessed was a
donee's gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was an
excise upon the use made of the properties, upon the exercise
of the privilege of receiving the properties (Phipps vs. Com. of
Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the
exempting provisions of the section just mentioned. A gift
tax is not a property tax, but an excise tax imposed on the
transfer of property by way of gift inter vivos, the imposition of
which on property used exclusively for religious purposes,
does not constitute an impairment of the Constitution.
As well observed by the learned respondent Court, the
phrase "exempt from taxation," as employed in the
Constitution (supra) should not be interpreted to mean
exemption from all kinds of taxes. And there being no
clear, positive or express grant of such privilege by law, in
favor of petitioner, the exemption herein must be denied.
CIR v. CA and YMCA; G.R. No. 124043
FACTS:
Young Men’s Christian Association of the Philippines, Inc. 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, the private respondent earned, among others an
income from the leasing out of a portion of its premises to
small shop owners, like restaurants and canteen operators and
parking fees collected from non-members.
CIR issued an assessment to private respondent for deficiency
income tax, deficiency expanded withholding taxes on rentals
and professional fees and deficiency withholding tax on wages
. Private respondent protested the assessment. CIR denied the
claims of YMCA considering that it was no engaged in the
business of operating or contracting parking lot as it is only for
members with stickers. The rentals and parking fees were only
enough to cover the costs of operation and maintenance.
CIR elevated the case to the CA who decided in favor of CIR,
reversing the CTA decision. YMCA asked for reconsideration,
which CA granted. CTA decision now affirmed.
CIR then filed motion for reconsideration which was denied by
CA.
ISSUE:
WON the income derived from the rentals of real property
owned by YMCA (a welfare, educational and charitable non-
profit corporation) is subject to income tax under NIRC and the
constitution.
HELD:
YES. The exemption claimed by YMCA is expressly
disallowed by the very wording of the last paragraph of the
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. The last paragraph of said section
unequivocally subjects to tax the rent income of the YMCA
from its real property. Thus the Court is duty-bound to abide
strictly by its literal meaning and to refrain from resorting to any
convoluted attempt at construction.
The CA 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 byt 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.
On YMCA’s argument that the constitution gives tax exemption
on charitable institutions, the Court is not persuaded. Justice
Hilario Davide, Jr., 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 education purposes.” Father Joaquin
Bernas adhered to the same view (in short, only property
taxes).
YMCA is only exempt from payment of property tax, but not
income tax on the rentals from its property. Laws allowing tax
exemptions are construed strictissimi juris as taxes are the
lifeblood of the government.
ADDITIONAL: For YMCA to be granted the exemption it
claims, 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. Such was not proven by the YMCA.
Sec. 27 of the NIRC (NOW SEC. 26) provides:
Exemptions from tax on corporations- the following
organizations shall not be taxed under this title in respect to
income received by them as such-
(g) Civic league 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-profittable purposes, no part of the
net income of which inures to the benefit of any private
stockholder or member
xxx
Notwithstanding the provisions in the preceding paragraphs,
the income of whatever kind and character of the foregoing
organization 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.
The CA decision is reversed.
BISHOP OF NUEVA SEGOVIA v. PROVINCIAL BOARD; G.R.
No. L-27588
FACTS:
The Roman Catholic Apostolic Church represented by the
Bishop of Nueva Segovia, possessed and owned a parcel of
land in the municipality of San Nicolas, Ilocos Norte, 4 sides of
which face the public streets. On south side is the church yard,
the convent and an adjacent lot used as vegetable garden. At
the center is the rest of the yard and the church on the north is
an old cemetery with two of its walls still standing, and a
portion were formally stood a tower.
As required by the Provincial Board, plaintiff paid under protest
on July 3, 1925 the land tax on the lot adjoining the convent
which formerly was the cemetery. Plaintiff filed action for
recovery of sum paid by to the Provincial Board by way of land
tax, alleging that the collection of tax is illegal. The Lower Court
absolved the Provincial Board and declared that the tax
collected on the lot was legal. Both parties appealed from this
judgment.
ISSUE: WON Plaintiff is exempted in the payment of land
tax?
HELD: YES.
The exemption from payment of land tax of a convent refers to
the home of the party who resides over the church and who
has to take care of himself in order to discharge his duties. It is
therefore include not only the land actually occupied by the
church, but also the adjacent ground destined for the ordinary
and incidental uses of the occupant. Except in large cities
where density of the population and the development of
commerce require the use of larger tracts of land for buildings,
a vegetable garden belongs to a house and in the present
case, its use is limited to the necessities of the priest, which
comes under exemption.
As regards to the lot which formerly was the cemetery, while it
is no longer used as such, neither is it used for commercial
purposes and according to the evidence, is now being used as
a lodging house by the people who participate in religion
festivities, which constitutes an incidental use in religious
functions, which also comes within the exemption.
The judgment appealed from is reversed in all its part and it is
held that both lots are exempt from land tax and the
defendants are ordered to refund to plaintiff whatever was paid
as such tax, without any special pronouncement as to cost. So
Ordered.
LUNG CENTER v. QUEZON CITY; G.R. No. 144104
The Petitioner is a non-stock, non-profit entity which
owns a parcel of land in Quezon City. Erected in the middle of
the aforesaid lot is a hospital known as the Lung Center of the
Philippines. The ground floor is being leased to a canteen,
medical professionals whom use the same as their private
clinics, as well as to other private parties. The right portion of
the lot is being leased for commercial purposes to 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.
Petitioner filed a Claim for Exemption from realty
taxes amounting to about Php4.5 million, predicating its claim
as a charitable institution. The city assessor denied the Claim.
When appealed to the QC-Local Board of Assessment, the
same was dismissed. The decision of the QC-LBAA was
affirmed by the Central Board of Assessment Appeals, despite
the Petitioners claim that 60% of its hospital beds are used
exclusively for charity.
Issue:
Whether or not the Petitioner is entitled to exemption
from realty taxes notwithstanding the fact that it admits paying
clients and leases out a portion of its property for commercial
purposes.
Held:
The Court held that the petitioner is indeed a
charitable institution based on its charter and articles of
incorporation. 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.
Despite this, the Court held that the portions of 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. (strictissimi juris)
Moreover, P.D. No. 1823 only speaks of tax exemptions as
regards to:
 income and gift taxes for 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 for the actual use and benefit of the Lung
Center; and
 taxes, charges and fees imposed by the Government
or any political subdivision or instrumentality thereof
with respect to equipment purchases (expression
unius est exclusion alterius / expressium facit cessare
tacitum).
ABRA VALLEY COLLEGE v. AQUINO; G.R. No. L-39086
FACTS:
Abra Valley College is an educational corporation and
institution of higher learning in Bangued, Abra. In 1974, the CFI
ordered for the seizure and sale of the subject school
property for non-payment of real estate taxes and penalties.
Private respondents stated that the college lot and building in
question are not only used for educational purposes of the
college, but also as the permanent residence of the President
and Director, Mr. Pedro V. Borgonia, and his family
including his in-laws and grandchildren; while the ground floor
of the college building is being used and rented by a
commercial establishment.
ISSUE:
Whether or not the lot and building in question are used
exclusively for educational purposes and thus exempted from
paying taxes.
HELD:
The 1935 Philippine Constitution, Art. VI, par. 3 Sec. 22,
expressly grants exemption from realty taxes for
“Cemeteries, churches and parsonages or convents
appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or
educational purposes….
Relative thereto, CA No. 470 as amended by RA No. 409, Sec.
54, paragraph c otherwise known as the Assessment Law,
provides:
The following are exempted from real property tax under
the Assessment Law:
(c) churches and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for
religious, charitable, scientific or educational purposes.
Thus, the use of the second floor of the main building for
residential purposes of the Director and his family, may find
justification under the concept of incidental use, which is
complimentary to the main or primary purpose–educational.
The lease of the first floor, however, by a commercial
establishment cannot be considered incidental to the purpose
of education.
Under the 1935 Constitution, the trial court correctly arrived at
the conclusion that the school building as well as the lot where
it is built, should be taxed, not because the second floor of the
same is being used by the Director and his family for
residential purposes, but because the first floor thereof is being
used for commercial purposes.
CIR v. DLSU; G.R. No. 196596
The Commissioner submits the following arguments:
DLSU's rental income is taxable regardless of how such
income is derived, used or disposed of. DLSU's operations of
canteens and bookstores within its campus even though
exclusively serving the university community do not negate
income tax liability.
Article XIV, Section 4 (3) of the Constitution and Section 30 (H)
of the Tax Code
“the income of whatever kind and character of [a non-
stock and non-profit educational institution] from any of [its]
properties, real or personal, or from any of (its] activities
conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed by this Code.”
The Commissioner posits that a tax-exempt organization like
DLSU is exempt only from property tax but not from
income tax on the rentals earned from property. Thus,
DLSU's income from the leases of its real properties is not
exempt from taxation even if the income would be used for
educational purposes.41
DLSU stresses that Article XIV, Section 4 (3) of the
Constitution is clear that all assets and revenues of non-stock,
non-profit educational institutions used actually, directly and
exclusively for educational purposes are exempt from taxes
and duties.
ISSUE: Whether DLSU's income and revenues
proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes.
RULING:
YES.
The requisites for availing the tax exemption under
Article XIV, Section 4 (3), namely: (1) the taxpayer 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.
A plain reading of the Constitution would show that
Article XIV, Section 4 (3) does not require that the revenues
and income must have also been sourced from educational
activities or activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any
reference to the source of revenues. Thus, so long as the
revenues and income are used actually, directly and
exclusively for educational purposes, then said revenues and
income shall be exempt from taxes and duties.
Thus, when a non-stock, non-profit educational
institution proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted from
income tax, VAT, and LBT. On the other hand, when it also
shows that it uses its assets in the form of real property for
educational purposes, it shall be exempted from RPT.
We further declare that the last paragraph of Section
30 of the Tax Code is without force and effect for being
contrary to the Constitution insofar as it subjects to tax the
income and revenues of non-stock, non-profit educational
institutions used actually, directly and exclusively for
educational purpose. We make this declaration in the exercise
of and consistent with our duty to uphold the primacy of the
Constitution. We stress that our holding here pertains only to
non-stock, non-profit educational institutions and does not
cover the other exempt organizations under Section 30 of the
Tax Code.
For all these reasons, we hold that the income and
revenues of DLSU proven to have been used actually,
directly and exclusively for educational purposes are
exempt from duties and taxes.
c. Votes Required for Tax-Exemption; Sec. 28(4),
Art. VI
JOHN HAY PEOPLE’S ALTERNATIVE COALITION v. LIM;
G.R. No. 119775
On August 16, 1993, BCDA entered into a Memorandum
of Agreement and Escrow Agreement with private respondents
Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD), private corporations
registered under the laws of the British Virgin Islands,
preparatory to the formation of a joint venture for the
development of Poro Point in La Union and Camp John Hay as
premier tourist destinations and recreation centers.
The Baguio City government meanwhile passed a
number of resolutions in response to the actions taken by
BCDA as owner and administrator of Camp John Hay.
The issuance of Proclamation No. 420 spawned the present
petition[17] for prohibition, mandamus and declaratory relief
which was filed on April 25, 1995 challenging, in the main, its
constitutionality or validity as well as the legality of the
Memorandum of Agreement and Joint Venture Agreement
between public respondent BCDA and private
respondents TUNTEX and ASIAWORLD.
Issue: Whether the tax exemptions and other financial
incentives granted to the Subic SEZ under Section 12 of
RA 7227 are applicable to the John Hay SEZ.
NO.
It is the legislative branch which has the inherent power not
only to select the subjects of taxation but also grant
exemptions. Paragraph 4, Section 28 of Article VI of the
Constitution is crystal clear: "No law granting tax exemption
shall be passed without the concurrence of a majority of all the
Members of the Congress."
Hence, it is only the legislature, as limited by the provisions of
the Constitution, which has full power to exempt any person or
corporation or class of property from taxation.
The Constitution may itself provide for specific tax exemptions
or local governments may pass ordinances providing for
exemption from local taxes, but otherwise, it is only the
legislative branch which has the power to grant tax
exemptions, its power to exempt being as broad as its power to
tax.
There is absolutely nothing in RA 7227 which can be
considered a grant of tax exemption in favor of public
respondent BCDA. Rather, the beneficiaries of the tax
exemptions and other incentives in Section 12 (the only
provision in RA 7227 which expressly grants tax exemptions)
are clearly the business enterprises located within the Subic
SEZ.
Consequently, respondents' arguments for a liberal
construction of RA 7227 in favor of tax exemptions and
incentives to business enterprises in the John Hay SEZ must
necessarily fail. As the Court, speaking through Justice
Mendoza in the recent case of PLDT v. city of Davao, has
occasion to stress:
"Along with the police power and eminent domain, TAXATION
is one of the three necessary attributes of sovereignty.
Consequently, statutes in derogation of sovereignty, such as
those containing exemption from taxation, should be strictly
construed in favor of the state. A state cannot be stripped of
this most essential power by doubtful words and of this highest
attribute of sovereignty by ambiguous language."
Necessarily, respondents' arguments, dependent as they are
on a liberal construction of tax exemptions, also fail.
Public respondents' argument that tax exemptions are
"inherent" in the term "special economic zone" stands the
concept on its head and cannot be accepted. The tax exempt
character of an SEZ proceeds from the statutory provisions
expressly conferring such exemptions, not vice versa. The tail
does not wag the dog.
COCONUT OIL REFINERS v. TORRES; G.R. No. 132527
Facts:
On April 3, 1993, President Fidel V. Ramos issued
Executive Order No. 80, which declared, among others, that
Clark shall have all the applicable incentives granted to the
Subic Special Economic and Free Port Zone under Republic
Act No. 7227. On June 10, 1993, the President issued
Executive Order No. 97, Clarifying the Tax and Duty Free
Incentive within the Subic Special Economic Zone Pursuant to
R.A. No. 7227. Nine days after, on June 19, 1993, Executive
Order No. 97-A was issued, further clarifying the Tax and Duty-
Free Privilege within the Subic Special Economic and Free
Port Zone.
Petitioners claim that the assailed issuances
constitute executive legislation, in violation of the rule on
separation of powers. Petitioners argue that the Executive
Department, by allowing through the questioned issuances the
setting up of tax and duty-free shops and the removal of
consumer goods and items from the zones without payment of
corresponding duties and taxes, arbitrarily provided additional
exemptions to the limitations imposed by Republic Act No.
7227.
Issue
Whether or not the assailed issuances are null and
void for being an executive legislation.
Held: NO.
Republic Act No. 7227, and consequently Executive
Order No. 97-A, cannot be said to be distinctively arbitrary
against the welfare of businesses outside the zones. The mere
fact that incentives and privileges are granted to certain
enterprises to the exclusion of others does not render the
issuance unconstitutional for espousing unfair competition.
Said constitutional prohibition cannot hinder the Legislature
from using tax incentives as a tool to pursue its policies.
Suffice it to say that Congress had justifiable reasons
in granting incentives to the private respondents, in
accordance with Republic Act No. 7227s policy of developing
the SSEZ into a self-sustaining entity that will generate
employment and attract foreign and local investment. If
petitioners had wanted to avoid any alleged unfavorable
consequences on their profits, they should upgrade their
standards of quality so as to effectively compete in the market.
In the alternative, if petitioners really wanted the preferential
treatment accorded to the private respondents, they could
have opted to register with SSEZ in order to operate within the
special economic zone.
ORMOC SUGAR v. TREASURER; G.R. No. L-23794
Facts:
The Municipal Board of Ormoc City passed Ordinance No. 4
imposing “on any and all productions of centrifugal sugar milled
at the Ormoc Sugar Company, Inc., in Ormoc City a municipal
tax equivalent to one per centum (1%) per export sale to USA
and other foreign countries.” Payments for said tax were made,
under protest, by Ormoc Sugar Company, Inc. Ormoc Sugar
Company, Inc. filed before the Court of First Instance of Leyte
a complaint against the City of Ormoc as well as its Treasurer,
Municipal Board and Mayor alleging that the ordinance is
unconstitutional for being violative of the equal protection
clause and the rule of uniformity of taxation. The court
rendered a decision that upheld the constitutionality of the
ordinance. Hence, this appeal.
Issue:
Whether or not constitutional limits on the power of taxation,
specifically the equal protection clause and rule of uniformity of
taxation, were infringed?
Held:
Yes. Equal protection clause applies only to persons or things
identically situated and does not bar a reasonable classification
of the subject of legislation, and a classification is reasonable
where 1) it is based upon substantial distinctions; 2) these are
germane to the purpose of the law; 3) the classification applies
not only to present conditions, but also to future conditions
substantially identical to those present; and 4) the classification
applies only to those who belong to the same class. A perusal
of the requisites shows that the questioned ordinance does not
meet them, for it taxes only centrifugal sugar produced and
exported by the Ormoc Sugar Company, Inc. and none other.
At the time the ordinance was enacted, Ormoc Sugar
Company, Inc. Was the only sugar central in the City of Ormoc.
Still, the classification, to be reasonable, should be in terms
applicable to future conditions as well. The taxing ordinance
should not be singular and exclusive as to exclude any
subsequently established sugar central for the coverage of the
tax. As it is now, even if later a similar company is set up, it
cannot be subject to a tax because the ordinance expressly
points only to Ormoc City Sugar Company, Inc. As the entity to
be levied upon.
d. Origination Clause; Sec. 24, Art. VI
TOLENTINO v. SECRETARY; G.R. No. 115455
Facts:
Tolentino et al is questioning the constitutionality of
RA 7716 otherwise known as the Expanded Value Added Tax
(EVAT) Law. Tolentino averred that this revenue bill did not
exclusively originate from the House of Representatives as
required by Section 24, Article 6 of the Constitution. Even
though RA 7716 originated as HB 11197 and that it passed the
3 readings in the HoR, the same did not complete the 3
readings in Senate for after the 1st reading it was referred to
the Senate Ways & Means Committee thereafter Senate
passed its own version known as Senate Bill 1630. Tolentino
averred that what Senate could have done is amend HB 11197
by striking out its text and substituting it w/ the text of SB 1630
in that way “the bill remains a House Bill and the Senate
version just becomes the text (only the text) of the HB”.
Tolentino and co-petitioner Roco [however] even signed the
said Senate Bill.
Issue: Whether or not EVAT originated in the House of
Representatives.
Held:
By a 9-6 vote, the SC rejected the challenge, holding
that such consolidation was consistent with the power of the
Senate to propose or concur with amendments to the version
originated in the HoR. What the Constitution simply means,
according to the 9 justices, is that the initiative must come from
the HoR. Note also that there were several instances before
where Senate passed its own version rather than having the
HoR version as far as revenue and other such bills are
concerned. This practice of amendment by substitution has
always been accepted. The proposition of Tolentino concerns
a mere matter of form. There is no showing that it would make
a significant difference if Senate were to adopt his over what
has been done.
ABAKADA v. ERMITA; G.R. No. 168056
e. Prohibition against Imprisonment for Non-
Payment of Poll Tax; Sec 20, Art. III
Prohibition against imprisonment for non-
payment of poll tax
No person shall be imprisoned for debt or non-
payment of poll tax. [Section 20, Article III,
Constitution]
The non-imprisonment rule applies to non-
payment of poll tax which is punishable only by
a surcharge, but not to other violations like
falsification of community tax certificate and
non-payment of other taxes.
Poll tax is a tax of fixed amount imposed on
residents within a specific territory regardless
of citizenship, business or profession. Example
is community tax.
f. Non-Appropriation for the Benefit of
Any Religion; Sec. 29(2); Art. VI
AGLIPAY v. RUIZ; G.R. No. L-45459
Facts:
Petitioner Aglipay, the head of Phil. Independent Church, filed
a writ of prohibition against respondent Ruiz, the Director of
Post, enjoining the latter from issuing and selling postage
stamps commemorative of the 33rd Intl Eucharistic Congress
organized by the Roman Catholic. The petitioner invokes that
such issuance and selling, as authorized by Act 4052 by the
Phil. Legislature, contemplates religious purpose – for the
benefit of a particular sect or church. Hence, this petition.
Issue:
Whether or not the issuing and selling of commemorative
stamps is constitutional?
Held/Reason:
The Court said YES, the issuing and selling of commemorative
stamps by the respondent does not contemplate any favor
upon a particular sect or church, but the purpose was only ‘to
advertise the Philippines and attract more tourist’ and the
government just took advantage of an event considered of
international importance, thus, not violating the Constitution on
its provision on the separation of the Church and State.
Moreover, the Court stressed that ‘Religious freedom, as a
constitutional mandate is not inhibition of profound reverence
for religion and is not denial of its influence in human affairs’.
Emphasizing that, ‘when the Filipino people ‘implored the aid of
Divine Providence’, they thereby manifested reliance upon Him
who guides the destinies of men and nations. The elevating
influence of religion in human society is recognized here as
elsewhere. In fact, certain general concessions are
indiscriminately accorded to religious sects and
denominations.’
g. Power to Tax of Local Government Units; Sec. 5, Art.
XI
MCIAA v. MARCOS; G.R. No. 120082
FACTS
Mactan Cebu International Airport Authority was created by
virtue of RA 6958 to manage the Mactan International Airport
and the Lahug Airport. Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption from payment of
realty taxes. In Section 14 of its Charter provides that “the
Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions,
agencies and instrumentalities.”
In 1994, however, the Office of the Treasurer of the City of
Cebu demanded payment for realty taxes on several parcels of
land belonging to petitioner. Petitioner objected to such
demand, citing Sec. 14. It asserted that it is an instrumentality
of the government which performs governmental functions,
citing Sec. 133 of the Local Government Code which puts
limitations on the taxing powers of local government units. Sec.
133, LGC provides that the exercise of the taxing powers of
provinces, cities, municipalities and barangays shall not extend
to the levy of... taxes, fees or charges of any kind on the
National government, its agencies and instrumentalities and
local government units.
The Respondent City refused to cancel and set aside the realty
tax account, insisting that the MCIAA is a GOCC whose tax
exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the LGC. Sec. 193 provides that tax
exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including GOCCs except
local water districts, cooperatives duly registered under RA
6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon the effectivity of this
Code. Section 234 meanwhile provides that exemption from
payment of real property tax previously granted to or presently
enjoyed by all persons, whether natural or juridical, including
GOCCs are hereby withdrawn upon the effectivity of the LGC.
Because the City of Cebu was about to issue a warrant of levy
against the properties of MCIAA, the latter was compelled to
pay its tax account under protest. MCIAA likewise filed a
petition for declaratory relief with the RTC of Cebu, contending
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. MCIAA insisted that while it is indeed
a GOCC, it nontheless stands on the same footing as an
agency or instrumentality of the national government by the
very nature of its powers and functions. The City however
maintained that MCIAA is not an instrumentality of the
government but merely a GOCC performing proprietary
functions, and hence, the exemptions granted to it were
deemed withdrawn by virtue of Secs. 193 and 234 of the LGC.
The trial court dismissed the petition. MR denied. Hence this
petition. Petitioner asserts that although it is a GOCC, it is
mandated to perform functions in the same category as an
instrumentality of the government. An instrumentality of the
Government is one created to perform governmental functions
primarily to promote certain aspects of the economic life of the
people. Petitioner further 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 Sec. 133 of the LGC. In Basco v. PAGCOR,
the SC said the local governments have no power to tax
instrumentalities of the National Gov't like PAGCOR, which has
a dual role (its role to regulate gambling casinos is
governmental, placing it in the category of an agency or
instrumentality of the Government which should be exempt
from local taxes. Petitioner thus concludes that there is a
distinction in the LGC between a GOCC performing gov't
functions as against one performing merely proprietary ones,
and it is clear from Secs. 133 and 234, LGC that the legislature
meant to exclude instrumentalities of the national government
from the taxing powers of LGUs.
ISSUE
Whether petitioner is exempted from payment of taxes or not
RULING
No. Taxation is the rule and exemption is the exception. Thus,
the exemption may 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.
The general rule, as laid down in Section 133 of the LGC is
that the taxing powers of LGUs cannot extend to the levy of,
inter alia, “taxes, fees and charges of any kind on the National
Government, its agencies, and instrumentalities, and LGUs.”
However, pursuant to Section 232, provinces, cities and
municipalities in the Metro Manila Area MAY impose real
property taxes except on inter alia, real property owned by the
Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted for
consideration or otherwise, to a taxable person (Sec. 234a).
As to tax exemptions/incentives granted to or presently
enjoyed by natural or juridical persons, including GOCCs,
GENERAL RULE: Tax exemptions or incentives are withdrawn
upon the effectivity of the LGC
EXCEPTION: Those granted to local water districts,
cooperatives duly registered under RA 6938, non-stock and
non-profit hospitals and educ institutions, and unless otherwise
provided in the LGC. This latter proviso could refer to Section
234 enumerating the properties exempt from real property tax.
The last paragraph of Section 234 further qualifies the
retention of the exemption insofar as real property taxes are
concerned by limiting the retention only to those enumerated
therein; all others not included in the enumeration therefore
lost the privilege upon the effectivity of the LGC. Even as to
real property owned by the Rep. 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 a taxable person for
consideration or otherwise.
Since the last paragraph of Section 234 unequivocally
withdrew, upon the effectivity of the LGC, exemptions from
payment of 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
by its charter has been withdrawn.
NPC v. CITY OF CABANATUAN; G.R. No. 149110
Facts:
NAPOCOR, a government-owned and controlled corporation,
is tasked to undertake the “development of hydroelectric
generations of power and the production of electricity from
nuclear, geothermal, and other sources, as well as, the
transmission of electric power on a nationwide basis.”
For many years now, NAPOCOR sells electric power to the
resident Cabanatuan City, posting a gross income of
P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance
No. 165-92, the respondent assessed the petitioner a franchise
tax amounting to P808,606.41, representing 75% of 1% of the
former’s gross receipts for the preceding year.
Petitioner, whose capital stock was subscribed and wholly paid
by the Philippine Government, refused to pay the tax
assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contend that
as a non-profit organization, it is exempted from the payment
of all forms of taxes, charges, duties or fees in accordance with
Sec. 13 of RA 6395, as amended.
The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay the assessed
tax, plus surcharge equivalent to 25% of the amount of tax and
2% monthly interest. Respondent alleged that petitioner’s
exemption from local taxes has been repealed by Sec. 193 of
RA 7160 (Local Government Code). The trial court issued an
order dismissing the case. On appeal, the Court of Appeals
reversed the decision of the RTC and ordered the petitioner to
pay the city government the tax assessment.
Issues:
Whether or not NAPOCOR is excluded from the coverage of
the franchise tax simply because its stocks are wholly owned
by the National Government and its charter characterized is as
a ‘non-profit organization’.
Whether or not NAPOCOR’s exemption from all forms of taxes
is repealed by the provisions of the Local Government Code
(LGC)
Held:
(1) NO. To stress, a franchise tax is imposed based not on the
ownership but on the exercise by the corporation of a privilege
to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and
distinct entity from the National Government. It can sue and be
sued under its own name, and can exercise all the powers of a
corporation under the Corporation Code. To be sure, the
ownership by the National Government of its entire capital
stock does not necessarily imply that petitioner is no engage
din business.
(2) YES. One of the most significant provisions of the LGC is
the removal of the blanket exclusion of instrumentalities and
agencies of the National Government from the coverage of
local taxation. Although as a general rule, LGUs cannot impose
taxes, fees, or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now
admits an exception, i.e. when specific provisions of the LGC
authorize the LGUs to impose taxes, fees, or charges on the
aforementioned entities. The legislative purpose to withdraw
tax privileges enjoyed under existing laws or charter is clearly
manifested by the language used on Sec. 137 and 193
categorically withdrawing such exemption subject only to the
exceptions enumerated. Since it would be tedious and
impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
provided for an express, albeit general, withdrawal of such
exemptions or privileges. No more unequivocal language could
have been used.
MIAA v. CA; G.R. No. 155650
Facts:
MIAA received Final Notices of Real Estate Tax Delinquency
from the City of Parañaque for the taxable years 1992 to 2001.
MIAA’s real estate tax delinquency was estimated at P624
million. The City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport
Lands and Buildings. The Mayor of the City of Parañaque
threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax
delinquency.
MIAA filed a petition sought to restrain the City of Parañaque
from imposing real estate tax on, levying against, and
auctioning for public sale the Airport Lands and Buildings.
The City of Parañaque contended that Section 193 of the Local
Government Code expressly withdrew the tax exemption
privileges of “government-owned and-controlled corporations”
upon the effectivity of the Local Government Code. Thus,
MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax
MIAA argued that Airport Lands and Buildings are owned by
the Republic. The government cannot tax itself. The reason for
tax exemption of public property is that its taxation would not
inure to any public advantage, since in such a case the tax
debtor is also the tax creditor.
Issue:
Whether or not the City of Parañaque can impose real tax, levy
against and auction for public sale the Airport Lands and
Buildings.
Held:
MIAA is Not a Government-Owned or Controlled
Corporation. The Airport Lands and Buildings of MIAA are
property of public dominion and therefore owned by the State
or the Republic of the Philippines. No one can dispute that
properties of public dominion mentioned in Article 420 of the
Civil Code, like “roads, canals, rivers, torrents, ports and
bridges constructed by the State,” are owned by the State. The
term “ports” includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a “port” constructed by the
State.
Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus
owned by the State or the Republic of the Philippines. The
Airport Lands and Buildings are devoted to public use because
they are used by the public for international and domestic
travel and transportation. The fact that the MIAA collects
terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as
properties for public use. The charging of fees to the public
does not determine the character of the property whether it is
of public dominion or not. Article 420 of the Civil Code defines
property of public dominion as one “intended for public use.”
The Court has also ruled that property of public dominion,
being outside the commerce of man, cannot be the subject of
an auction sale. Properties of public dominion, being for public
use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on
execution or auction sale of any property of public dominion is
void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen
if the City of Parañaque can foreclose and compel the auction
sale of the 600-hectare runway of the MIAA for non-payment of
real estate tax.
h. Veto Power of the President; Sec. 27(2), Art. VI
i. Due Process; Sec. 1, Art. III
PEPSI-COLA v. MUNICIPALITY OF TANAUAN; G.R. No. L-
31156
DOCTRINE:
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.
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.
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.
CIR v. CA; G.R. No. 119761
In this case, the court declared that:
In order that there shall be a just enforcement of rules and
regulations, in conformity with the basic element of due
process, the following procedures are hereby prescribed for
the drafting, issuance and implementation of the said Revenue
Tax Issuances:
(1) This Circular shall apply only to (a) Revenue Regulations;
(b) Revenue Audit Memorandum Orders; and (c) Revenue
Memorandum Circulars and Revenue Memorandum Orders
bearing on internal revenue tax rules and regulations.
(2) Except when the law otherwise expressly provides, the
aforesaid internal revenue tax issuances shall not begin to be
operative until after due notice thereof may be fairly presumed.
Due notice of the said issuances may be fairly presumed only
after the following procedures have been taken;
 xxx xxx xxx
(5) Strict compliance with the foregoing procedures is
enjoined. 13
SISON v. ANCHETA; G.R. No. L-59431
Facts: Section 1 of BP Blg 135 amended the Tax Code and
petitioner Antero M. Sison, as taxpayer, alleges that "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-vis those which are imposed upon fixed
income or salaried individual taxpayers. He characterizes said
provision as arbitrary amounting to class legislation,
oppressive and capricious in character. It therefore violates
both the equal protection and due process clauses of the
Constitution as well asof the rule requiring uniformity in
taxation.
Issue: Whether or not the assailed provision violates the equal
protection and due process clauses of the Constitution while
also violating the rule that taxes must be uniform and
equitable.
Held: The petition is without merit.
On due process - it is undoubted that it 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 from abuse of power.
Petitioner alleges arbitrariness but his mere allegation does not
suffice and there must be a factual foundation of such
unconsitutional taint.
On equal protection - it suffices that the laws operate equally
and uniformly on all persons under similar circumstances, both
in the privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and
equitable - this requirement is met when the tax operates with
the same force and effect in every place where the subject
may be found." Also, :the rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly
unattainable." When the problem of classification became of
issue, the Court said: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same
class shall be taxed the same rate. The taxing power has the
authority to make reasonable and natural classifications for
purposes of taxation..." As provided by this Court, where "the
differentation" 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."
REYES v. ALMANZOR; G.R. Nos. L-49839-46
FACTS:
Petitioners JBL Reyes et al. owned a parcel of land in Tondo
which are leased and occupied as dwelling units by tenants
who were paying monthly rentals of not exceeding P300.
Sometimes in 1971 the Rental Freezing Law was passed
prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units where rentals do not exceed
three hundred pesos (P300.00), so that the Reyeses were
precluded from raising the rents and from ejecting the tenants.
In 1973, respondent City Assessor of Manila re-classified and
reassessed the value of the subject properties based on the
schedule of market values, which entailed an increase in the
corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the
reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly
exceeded the annual income derived from their
properties.
They argued that the income approach should have been used
in determining the land values instead
of the comparable sales approach which the City Assessor
adopted.
ISSUE: Is the approach on tax assessment used by the City
Assessor reasonable?
HELD: No. The taxing power has the authority to make a
reasonable and natural classification for purposes of taxation
but the government's act must not be prompted by a 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.
Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws
(then R.A. No. 6359 and P.D. 20) under the principle of social
justice should not now be penalized by the same government
by the imposition of excessive taxes petitioners can ill afford
and eventually result in the forfeiture of their properties.
j. Equal Protection; Sec. 1, Art. III
• Rational Basis Test
• Classification Freeze Provision
SISON v. ANCHETA; G.R. No. L-59431
LUTZ v. ARANETA; G.R. No. L-7859
BRITISH AMERICAN TOBACCO v. CAMACHO
GOMEZ v. PALOMAR; G.R. No. L-23645
TIU v. CA; G.R. No. 127410
JUAN LUNA SUBDIVISION v. SARMIENTO; G.R. No. L-3538
(dili ko sure ani) haha sleepy nko ani
FACTS:
Plaintiff issued to the City Treasurer of Manila checks
amounting for P2,210.52 drawn upon the Philippine Trust
Company.
This check was to be applied to plaintiff’s land tax, the exact
amount of which was yet undetermined. The City after
liberation from Japanese to refund the plaintiff’s deposit or
apply it to such future taxes as might be found due. Plaintiff,
however, claims that the whole amount of the check
contending that taxes during period have been remitted by
Commonwealth Act No. 703.
ISSUE:
Does CA 703 cover taxes paid before its enactment as the
plaintiff maintains and the courts below held, or does it refer,
as the City Treasurer believes, only to taxes which were still
unpaid?
RULING:
The law is clear that it applies to “taxes and penalties due and
payable”, i.e. taxes owed and owing. The remission of
taxes due and payable to the exclusion of taxes already
collected does not constitute unfair discrimination.
The taxpayers who paid their taxes before liberation and those
who had not were not on the same footing on the need of
material relief.
Taxpayers who had been in arrears in their obligation would
have to satisfy their liability with genuine currency, while the
taxes paid during the occupation had been satisfied in
Japanese War Notes, many of them at a time when those
notes were well-nigh worthless. To refund those taxes with
restored currency would unduly enrich many of the payers at a
greater expense to the people at large.
ORMOC SUGAR v. ORMOC CITY; G.R. No. L-23794
FACTS:
The Municipal Board of Ormoc City passed Ordinance No. 4,
imposing "on any and all productions of sugar milled at
petitioner's, municipal tax of 1% per export sale. Petitioner paid
but were under protest.
Petitioner filed before the CFI contending that the ordinance is
unconstitutional for being in violation of the equal protection
clause and the rule of uniformity of taxation, aside from being
an export tax forbidden under Section 2287 of the Revised
Administrative Code. It further alleged that the tax is neither a
production nor a license tax which Ormoc City its charter and
under Section 2 of Republic Act 2264, or the Local Autonomy
Act, is authorized to impose; that it also violates RA 2264
because the tax is on both the sale and export of sugar.
ISSUE: Whether the ordinance is valid.
RULING:
NO. The SC held that it violates the equal protection clause for
it taxes only sugar produced and exported by petitioner and
none other. Even though petitioner, at the time of the
enactment of the ordinance, was the only sugar central in
Ormoc, the classification should have been in terms applicable
to future conditions as well. The taxing ordinance should not be
singular and exclusive as to exclude any subsequently
established sugar central, of the same class as petitioner, for
the coverage of the tax.
Though, petitioner can be refunded, they are not entitled to
interest because the taxes were not arbitrarily collected as the
ordinance provided a sufficient basis to preclude arbitrariness,
the same being then presumed constitutional until declared
otherwise.
k. Religious Freedom & Non-Establishment of
Religion; Sec. 5, Art. III
AMERICAN BIBLE SOCIETY v. CITY OF MANILA; G.R. No. L-
9637
Facts:
American Bible Society 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 City of Manila 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 American Bible
Society has been distributing and selling bibles and/or gospel
portions throughout the Philippines and translating the same
into several Philippine dialect.
City Treasurer of Manila informed American Bible Society that
it was violating several Ordinances for operating without the
necessary permit and license, thereby requiring the corporation
to secure the permit and license fees covering the period from
4Q 1945-2Q 1953 To avoid closing of its business, American
Bible Society paid the City of Manila its permit and license fees
under protest American Bible filed a complaint, questioning the
constitutionality and legality of the Ordinances 2529 and 3000,
and prayed for a refund of the payment made to the City of
Manila. They contended:
They had been in the Philippines since 1899 and were not
required to pay any license fee or sales tax it never made any
profit from the sale of its bibles
City of Manila prayed that the complaint be dismissed,
reiterating the constitutionality of the Ordinances in question
Trial Court dismissed the complaint
American Bible Society appealed to the Court of Appeals
Issue: WON American Bible Society liable to pay sales tax for
the distribution and sale of bibles
Ruling: NO
Under Sec. 1 of Ordinance 3000, one of the ordinance in
question, person or entity engaged in any of the business,
trades or occupation enumerated under Sec. 3 must obtain a
Mayor’s permit and license from the City Treasurer. American
Bible Society’s business is not among those enumerated
However, item 79 of Sec. 3 of the Ordinance provides that all
other businesses, trade or occupation not mentioned, 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.
2 provisions of law that may have bearing on this case:
Chapter 60 of the Revised Administrative Code, the
Municipal Board of the City of Manila is empowered to tax and
fix the license fees on retail dealers engaged in the sale of
books
Sec. 18(o) of RA 409: 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. Further, 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
The only difference between the 2 provisions is the limitation
as to the amount of tax or license fee that a retail dealer has to
pay per annum
As held in Murdock vs. Pennsylvania, The power to impose a
license tax on the exercise of these freedoms provided for in
the Bill of Rights, 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.
Further, the case also mentioned that 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
Under Sec. 27(e) of Commonwealth Act No. 466 or the
National Internal Revenue Code, 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 shall
not be taxed

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 American Bible Society
was engaged in the business or occupation of selling said
"merchandise" for profit
Therefore, the Ordinance cannot be applied for in doing so it
would impair American Bible Society’s free exercise and
enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs.
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
TOLENTINO v. SECRETARY; G.R. No. 115455
l. Freedom of the Press
TOLENTINO v. SECRETARY; G.R. No., 115455
as a general proposition, the press is not exempt from the
taxing power of the State and that what the constitutional
guarantee of free press prohibits are laws which single out the
press or target a group belonging to the press for special
treatment or which in any way discriminate against the press
on the basis of the content of the publication, and R.A. No.
7716 is none of these.
Now it is contended by the PPI that by removing the exemption
of the press from the VAT while maintaining those granted to
others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally
guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that
since the law granted the press a privilege, the law could take
back the privilege anytime without offense to the Constitution.
The reason is simple: by granting exemptions, the State does
not forever waive the exercise of its sovereign prerogative.
m. Non-Impairment of Obligation of Contracts
TOLENTINO v. SECRETARY; G.R. No., 115455
MERALCO v. PROVINCE OF LAGUNA; G.R. No. 131359
VITUG, J.: When RA 7160 – LGU Code was enacted,
enjoining LGUs to create their own sources of revenue and to
levy taxes, the province of Laguna enacted a Provincial
Ordinance imposing 50% tax against 1% of the gross annual
receipts of businesses enjoying a franchise. On the basis of
the ordinance, Provincial Treasurer Benito Balazo sent a
demand letter to MERALCO for the payment of corresponding
tax.
MERALCO paid the tax under protest. A formal claim for
refund was thereafter sent by MERALCO to the Provincial
Treasurer of Laguna claiming that the franchise tax it had paid
and continued to pay to the National Government pursuant to
P.D. 551 already included the franchise tax imposed by the
Provincial Tax Ordinance.
MERALCO, contended that the imposition of a franchise tax
under Sec 2.09 of Laguna Provincial Ordinance No. 01-92
contravened the provisions of Sec 1 of PD 551 which defines a
different percentage of tax (which is 2% of the gross receipts)
for franchise grantees generating, distributing, and selling
electric current for light, heat and power, payable to the
Commissioner of Internal Revenue or his duly authorized
representative.
Such determination is said to be in lieu of all taxes and
assessments of whatever nature imposed by any national or
local authority on earnings, receipts, income and privilege of
generation, distribution and sale of electric current. However,
the claim for refund was denied by Governor Jose D. Lina
relying on a more recent law, i.e. RA 7160 than the old decree
invoked by MERALCO. The RTC further denied a complaint for
refund for the same and upheld the validity of the provincial
ordinance.
ISSUE: W/N the franchise tax imposed under the Ordinance
violates the non-impairment clause and Sec 1 of PD 551; W/N
MERALCO is exempted from taxation under the LGC or Local
Tax Code; thus, should be taxed under PD 551.
RULE:
There is no violation of the non-impairment clause. Franchise
Taxes are beyond the purview of the clause for it is not within
contractual tax exemptions. In fact, The LGC expressly repeals
laws which are inconsistent with it.
Tax exemptions contained in special franchises are not strictly
contractual in nature.
Contractual tax exemptions, in the real sense of the term and
where the non-impairment clause of the Constitution can rightly
be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or
debentures, lawfully entered under enabling laws in which the
government, acting in its private capacity, sheds its cloak of
authority and waives its governmental immunity (Because,
government descends to be an ordinary person being a party
in a contract).
Revocation of this kind of tax exemptions would impair the
obligations of contracts. However, it must not be confused with
tax exemptions granted under franchises. A franchise is in the
nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution.
Article XII, Sec 11, of the 1987 Constitution, like its precursor
provisions is explicit that no franchise for the operation of a
public utility shall be granted except under the condition that
such privilege shall be subject to amendment, alteration or
repeal by Congress as and when the common good so
requires. As for the present, no law or amendment has been
passed to exempt utility-producing businesses from franchise
taxes.
REPUBLIC v. CAGUIOA; G.R. No. 168584
MCIAA v. MARCOS; G.R. No. 120082
CASANOVA v. HORD; G.R. No. 3473
Facts: The Spanish Govt. by virtue of a royal decree granted
the plaintiff certain mines. The plaintiff is now the owner of
those mines. The Collector of Internal Revenue imposed tax on
the properties, contending that they were valid perfected mine
concessions and it falls within the provisions of sec.134 of Act
No. 1189 known as Internal Revenue Act. The plaintiff paid
under protest. He brought an action against the defendant
Collector of Internal Revenue to recover the sum of Php. 9,
600 paid by him as taxes. Judgment was rendered in favor of
the defendant, so the plaintiff appealed.
Issue: Whether or Not Sec. 164 is void or valid.
Held: The deed constituted a contract between the Spanish
Government and the plaintiff. The obligation of which contract
was impaired by the enactment of sec. 134 of the Internal
Revenue Law infringing sec. 5 of the Act of Congress which
provides that “no law impairing the obligation of contracts shall
be enacted”. Sec. 134 of the Internal Revenue Law of 1904 is
void because it impairs the obligation of contracts contained in
the concessions of mine made by the Spanish Government.
Judgment reversed.

n. Judicial Review; Sec. 1, Sec. 5(2)(b), Art. VIII; Sec.

30, Art. VI

‣TOLENTINO v. SECRETARY; G.R. No. 115455

KAPATIRAN v. TAN; G.R. No. 81311

FACTS:

The four consolidated cases questions the validity of the VAT

(Executive Order 273) for being unconstitutional in that its
enactment is not allegedly 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. 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.

ISSUE: Whether VAT is unconstitutional.

RULING:
No. First, the Court held that the President had authority to
issue EO 273 as it was provided in the Provisional constitution
that the President shall have legislative powers.

Second, 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.

Lastly, petitioners also failed to prove that EO 273 is

oppressive, discriminatory, unjust and regressive, in violation
of the equal protection clause. 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. As the Court sees it,
EO 273 satisfies all the requirements of a valid tax.

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.