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Concept, Nature and Characteristics of Taxation and Taxes
What is taxation?
Taxation is the process or means by which the sovereign, through its lawmaking body, raises income to defray the necessary expenses of government. It is a way of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and, therefore, must bear its burdens. As a power, taxation refers to the inherent power of the state to demand enforced contributions for public purpose or purposes.
5. 6. 7.
proportionate in character; levied on persons or property; and levied for public purpose or purposes.
1. Levied by the state which has jurisdiction over the person or property Jurisdiction over the object to be taxed is necessary in order that the tax can be enforced. The taxing power of a state stops at the state boundary lines. It cannot reach over into another jurisdiction to seize upon persons or property for purposes of taxation. 2. An enforced contribution A tax is not a voluntary payment or donation, and its imposition is not dependent upon the will or assent of the person taxed. The principle of representation is satisfied so long as the taxpayers are adequately represented in the legislative body which votes the tax. 3. Levied by the law-making body The power to tax is a legislative power, which under the Constitution, only Congress can exercise through the enactment of tax statutes. Accordingly, the obligation of a tax is a statutory liability. In addition, the power to tax is also granted by the Constitution to local governments, subject to guidelines and limitations provided by law. 4. Generally payable in money Unless qualified by law, the term tax is understood to be a pecuniary burden, which should be discharged alone in the form of legal tender. 5. Proportionate in character A tax is laid by some rule of apportionment according to which persons share the public burden. It is ordinarily based on ability to pay. 6. Levied on persons or property A tax may also be imposed on acts, transactions, rights, or privileges. In each case, however, it is only a person who pays the tax. The property is resorted to for the purpose of ascertaining the amount to be paid and of
What is the purpose of taxation?
The primary purpose of taxation on the part of government is to provide funds or property with which to promote the general welfare and protection of its citizens. In its broadest and most general sense, taxation includes every imposition of charge or burden by the sovereign power upon persons, property, or property rights for the use and support of the government and to enable it to discharge its appropriate functions.
What are taxes?
Taxes are the enforced proportional contributions from persons and property levied by the law-making body of the state by virtue of its sovereignty for the support of the government and all public needs.
What are the essential characteristics of tax?
A tax is: (JEL-MP3)
1. 2. 3. 4.
levied by the state which has jurisdiction over the person or property; an enforced contribution; levied by the law-making body of the state; generally payable in money;
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enforcing payment in case of default of the taxpayer. But not all who pay a tax shoulder the burden of the tax. 7. Levied for public purpose A tax constitutes a charge or burden imposed to provide income for public purposes – the support of the government, the administration of the law, or the payment of public expenses. Revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons.
1. Inherent in soverignty The power of taxation is an incident or attribute of sovereignty, being essential to the existence of every government. It can be exercised by the government even without an express grant by the people through the Constitution. An express grant by the Constitution merely limits the power. 2. Legislative in character The power to tax is exclusively lodged in the legislature and cannot be exercised by the other branches of the government. However, a local legislative body may levy a tax, subject to such limitations as may be provided by law. 3. Subject to constitutional and inherent limitations Most of the limitations on the power to tax are specifically provided in the Constitution or implied therefrom, while the rest are inherent and spring from the nature of the taxing power itself.
What is the basis of the power to tax?
1. The power of taxation proceeds upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses; and that for these means, it has a right to compel all its citizens and property within its limits to contribute. 2. The Benefits-Received Principle - The basis of taxation is found in the reciprocal duties of protection and support between the state and its inhabitants. In return for his contribution, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property. This is the benefits-received principle. One is compensation or consideration for the other: protection for support and support for protection.
What are the aspects of taxation?
The exercise of the power of taxation has two aspects: 1. 2. Levying or imposition of the tax, which is a legislative act (taxation); and Collection of the tax levied, which is essentially administrative in character (tax administration).
Can a person object to payment of taxes on the ground that he receives no personal benefit from the government?
No. Protection in the enjoyment of his rights is a duty owed by the State to every citizen. However, from the contribution received from taxes, the government renders no special or commensurate benefit to any particular property or person. What the taxpayer gets is the enjoyment of the privileges of living in an organized society. What matters in taxation is that the tax imposition is for a public purpose. No particular benefit is necessary.
Taxation + tax administration = the taxation System
What is the extent of the legislative power to tax?
Subject to constitutional and inherent restrictions, the legislature has discretion to determine the following matters: (SPAM)
What is the nature of the power of taxation?
The power of taxation is: (ILL)
1. 2. 3. 4.
1. 2. 3.
inherent in sovereignty; legislative in character; subject to constitutional and inherent limitations.
The subjects to be taxed; The purpose or object of the tax, so long as it is a public purpose; The amount or rate of the tax; and The manner, means, and agencies of collection of the tax.
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As long as a tax is for a public purpose. which introduced the definitions of “mineral” and “manufactured. Taxation may be made as an implement of the police power to promote the general welfare. CIR v. CEPOC claims that the cement cannot be considered a manufactured product and is instead a mineral product exempt from sales tax. Taxes on imports may be increased to protect local industries against foreign competition or decreased to encourage foreign trade. the collection by the BIR or the Bureau of Customs may jeopardize the interest of the Government and/or the taxpayer. Taxes on imported goods may also be used as a bargaining tool by a country by setting tariff rates first at a relatively high level before trade negotiations are entered into with another country to enhance its bargaining power. 2. Taxes may be levied to promote science and invention or to finance educational activities or to improve the efficiency of local police forces in the maintenance of peace and order through grant or subsidy. What are the basic principles of a sound tax system? 1. the CIR has the right to apply the overpayment to CEPOC’s sales tax deficiency. Taxation should be uniform as well as equitable. Taxes may be increased in periods of prosperity to curb spending power and halt inflation or lowered in periods of slump to expand business and ward off depression. the decision cannot be taken to have meant that cement was no longer a manufactured product because such determination was not at issue. There was some confusion because in a previous case. the Court. just. HELD: No. The CTA ordered CIR to refund to CEPOC overpayments made by the latter of ad valorem taxes on cement sold by it. Taxes may be levied to reduce inequalities in wealth and incomes (ex: estate. In such a case. donor’s and income taxes). at any stage of the proceeding may suspend the collection and require the taxpayer to either deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. 5. The exception does not apply in this case. 2. 3.” However. Administrative feasibility – Tax laws should be capable of convenient. CEPOC opposed the CIR. It also means that the revenues should be capable of expanding or contracting annually in response to variations in public expenditures. Sheryl IID 2003 Page 3 . claiming that it had a right to apply the overpayment to another tax liability of CEPOC – sales tax on a manufactured product (the cement). or by the fact that it has a regulatory effect. Taxation can strengthen anemic enterprises or provide incentive to greater production through the grant of tax exemptions or the creation of condition conducive to their growth.What are the non-revenue objectives of taxation? 1. ISSUE: Whether the CIR must refund the overpayment of the ad valorem tax. This is the so-called ability-to-pay principle. Fiscal adequacy – Sources of revenue should be sufficient to meet the demands of public expenditure. Equality or theoretical justice – The tax burden should be in proportion to the taxpayer’s ability to pay. or it discourages or even deters the activities taxed. claiming that the overpayment must be refunded pending the determination of whether the assessed sales tax was proper. The principle applies even though the revenue obtained from the tax appears very negligible or the revenue purpose is only secondary. and effective administration. 4. the government would be paralyzed. It is well settled that cement is a manufactured product. Cebu Portland Cement Co. The CIR opposed the ruling. The assessment of sales tax is enforceable despite its being contested because of the urgency to collect the taxes as the lifeblood of the government. CASES 1. except when in the opinion of the CTA. 3. If the payment of taxes could be postponed by questioning their validity. 6. 7. its validity is not affected by collateral purpose or motives of the legislature. it was said that cement was subject to sales tax prior to the effectivity of RA 1299. The Tax Code provides that no court shall have authority to grant an injunction or restrain the collection of taxes.
as Iloilo is. Sec. authorizing it to sell its land. paid the five family members P75. for its part. However. Inc. 30 of the Tax Code provides that ordinary and necessary expenses incurred during the taxable year in carrying on any trade or business. the amount of the promotional fees was reasonable. including a reasonable allowance for salaries or other compensation for personal services actually rendered are tax-deductible. 3. Commissioner of Internal Revenue v. However. declared this P75. B. factories.000.000 as a deduction from its income tax as a legitimate business expense. The question now is: “is the tax imposed a tax on the registration of motor vehicles?” It is not. Municipal Board of Iloilo Iloilo enacted an ordinance imposing a tax of ½ of 1% on the sale of second hand motor vehicles. the Local Autonomy Act gives municipal boards the authority to enact ordinances for the collection of taxes on any person engages in any occupation or business. Pursuant to this authority. ISSUE: Whether the P75. the government would be paralyzed for lack of the motive power to activate and operate it. For all the awesome power of the tax collector. Algue. the taxpayer has a right to complain to the courts.000. a family corporation. The government. a commission of P125. a car dealer. the LAA prohibits chartered cities. without regard to their property or the occupation or business in which they may be engaged. There is no doubt that the amount of the tax is just. by making the sale of the properties of PSEDC possible. As to subject matter or object: a. the burden in proving the validity of a claimed deduction belongs to the taxpayer. Classifications and Distinctions How are taxes classified? 1. Personal. 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. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary exaction by those in the seat of power. HELD: The tax is valid. that the law has not been observed. Inc. Inc. Algue The Phil. whether citizens or not. PSEDC gave Algue. Algue Inc. he may still be stopped in his tracks if the taxpayer can demonstrate. the P75. For this sale. [Favorite ni Sir] Taxes are what we pay for civilized society. from imposing a tax on the registration of motor vehicles.000 as promotional fees. poll. ISSUE: Whether the tax is valid. considering that the five payees actually performed a service for Algue.000 is tax-deductible as a legitimate business expense of Algue. which he later would have to collect anyway for application to the sales tax assessment. every person who is able to must contribute his share in running the government. it should also be exercised reasonably and in accordance with the prescribed procedure. However. If it is not. Without taxes.. imposed on persons within a specified territory. five members of the family corporation formed the Vegetable Oil Investment Corp. its payment being made a requirement for the registration of the sale is simply a coercive measure justified by the fact that taxes are the lifeblood of government. Inc. Inc. Inc. despite the natural reluctance to surrender part of one’s hard-earned income. The ordinance also provided that the payment of the tax is a condition for the registration of the sale in the Motor Vehicles Office. Hodges. or necessary expense and was merely an attempt to evade payment of taxes. is an idle ritual. Sheryl IID 2003 Page 4 . From this amount. As a result of this sale.000 promotional fee is tax-deductible. Also. C. as its agent. Inc. In this case. Algue. Hodges v. 2. claiming that it was not an ordinary.To require the CIR to refund the overpayment. HELD: Yes. was able to prove that the promotional fees were not fictitious and were in fact paid periodically to the five family members.N. reasonable. The CIR questioned the deduction. or capitation – Tax of a fixed amount. Hence. and induced other persons to invest in it. the burden has been satisfactorily discharged by the taxpayer Algue. Sugar Estate Development Company (PSEDC) appointed Algue. questioned the validity of the tax for having been enacted in excess of authority. earned a net commission of P50. Algue. and oil manufacturing process. The newly formed corporation then purchased the PSEDC properties. Moreover. Inc. as it has here.
in proportion either to its value. There’s no such thing here. Specific – Tax of a fixed amount imposed by the head or number. National – Tax imposed by the national government Municipal or Local – Tax imposed by municipal corporations or local government units. to raise revenue for governmental needs. customs duties) 6. fiscal. falling finally upon the ultimate purchaser of consumer. or other basis to be taxed (Ex: real estate taxes. b. Distinguish between a tax and a toll. (Ex: Corporate and individual income taxes. (Ex: taxes on distilled spirits. As to who bears the burden: a. or in accordance with some other reasonable methods of apportionment. c. excise taxes on automobiles. Property – Tax imposed on property. or the engaging in an occupation. Toll has been defined as a sum of money for the use of something. (Ex: income tax. a regressive system of taxation exists when there are more indirect taxes imposed than direct taxes. of a public nature. estate tax. As to scope (or authority imposing the tax) a. b. 2. receipts.b. As to determination of amount: a. generally applied to the consideration which is paid for the use of a road. General. or revenue – Imposed for general purposes of the government. whether real or personal. or business. Excise – Any tax which does not fall within the classification of a poll tax or a property tax. On the other hand. 5. other %age taxes) Progressive or graduated – The rate increases as the tax base or bracket increases (Ex: income tax. Direct – Demanded from the person who also shoulders the burden of the tax. As to purpose: a. estate tax. bridge of the like. requires no assessment or valuation other than a listing or classification of the objects to be taxed. (Ex: protective tariffs or customs duties on imported goods to enable similar products manufactured locally to compete with imported products). it requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined. b. tax imposed upon goods before they reach the consumer who ultimately pays for it not as tax but as part of the purchase price. VAT. to achieve some social or economic ends irrespective of whether revenue is actually raised or not. nonessential goods. The phrase ad valorem literally means “according to value. donor’s tax) Regressive – The rate decreases as the tax base or bracket increases. profession. most taxes) Sheryl IID 2003 Page 5 . (Ex: business taxes. VAT. the enjoyment of a privilege. VAT. b. The one who bears the burden of the tax is other than the one on whom it is imposed. donor’s tax) Indirect – Demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another. community tax. It is a charge imposed upon the performance of an act. c. b. or by some standard of weight or measurement. such as jewelry and perfume. 3. TAX A demand of sovereignty Paid for the support of the government TOLL A demand of proprietorship Paid for the use of another’s property 4. wines.” (Ex: real estate tax. and he cannot shift the burden to another. customs duties) What is the difference between a regressive tax and a regressive system of taxation? A regressive tax is tax. the taxpayer is directly or primarily liable. As to graduation or rate a. Special or regulatory – Imposed for a special purpose. Proportional – Tax based on a fixed percentage of the amount of the property. the rate of which decreases as the tax base increases. liquors and cigarettes) Ad valorem – Tax of a fixed proportion of the value of the property with respect to which the tax is assessed.
or property being taxed. The amount of tax bears no relation at all to the probable cost of regulating the activity. or the National Government. occupation. Penalty is any sanction imposed as a punishment for violation of law or acts deemed injurious. An exaction may be considered BOTH a tax and a license fee. Personal liability Based on necessity and benefits Has general application SPECIAL ASSESSMENT Levied only on land Not a personal liability of the person assessed. TAX Enforced contribution assessed by sovereign authority to defray public expenses Levied for revenue Exercise of taxing power Generally no limit on the amount of tax that may be imposed Imposed on persons. privileges. TAX Intended to raise revenue May be imposed only by the government PENALTY Designed to regulate conduct May be imposed by the government or private individuals or entities Distinguish between a tax and a special assessment. It makes lawful an act which would otherwise be unlawful. then the exaction is a tax. or a permission or authority to do what is within its terms. 3. A license is in the nature of a special privilege. the fact that incidentally revenue is also obtained does not make the imposition a tax. Ex: car registration fees may be regarded as taxes while they also serve as an instrument of regulation. even if the statute calls it a tax. property. License or permit fee is a charge imposed under the police power for purposes of regulation. But a tax may have only a regulatory purpose. 4. The general rule. The rule is that an exemption from taxation does not include exemption from special assessment. and regulation is merely incidental. Distinguish between tax and a debt. is that the imposition is a tax if its primary purpose is to generate revenue. If the purpose is primarily revenue. Sheryl IID 2003 Page 6 . The power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. If regulation is the primary purpose. a province. may impose a special levy on lands especially benefited by public works or improvements financed by it. TAX Levied on persons. Under the Local Government Code. or if it is at least one of the real and substantial purposes. A charge imposed only on property-owners benefited is a special assessment rather than a tax. his liability is limited only to the land involved Based wholly on benefits Exceptional both as to the time and place Importance of the distinctions between tax and license: 1. however. city.Generally no limit on the amount of tax that may be imposed May be imposed only by the government Amount of toll depends upon the cost of construction or maintenance of the public improvement used May be imposed by the government or private individuals or entities The view has been expressed that the taking of tolls is only another method of taxing the public for the cost of the construction and repair of the improvement for the use of which the toll is charged. acts. Some limitations apply to one and not to the other. TAX DEBT Distinguish between a tax and a license. A license granted by the State is always revocable. or municipality. Special assessment is an enforced proportional contribution from the owners of lands especially or peculiarly benefited by public improvements. property. 2. etc. for the reason that exemption from taxes may not include exemption from license fees. But the power to tax carries with it the power to levy a special assessment. exercise of right or privilege Failure to pay does not necessarily make an act or business illegal LICENSE Legal compensation or reward of an officer for specific services Imposed for regulation Exercise of police power Amount should be limited to the necessary expenses of inspection and regulation Imposed on the right to exercise a privilege only Failure to pay makes the act or business illegal Distinguish between a tax and a penalty.
as well as between those registered in Manila and those registered outside but which occasionally come to Manila. As a rule. the purpose is to raise funds for the repair. and improvement of its streets and bridges. it is actually a license fee. the tax is fixed ad valorem. It is not a tax. or The system or principle of imposing duties on the importation or exportation of goods. while tax refers to the amount imposed. and improvement of the streets and bridges in the city. BUT. it imposes a license tax. The Association of Customs Brokers contends that the ordinance is null and void because it actually imposes a license tax in the guise of a property tax. Duties payable on goods imported or exported. is a liability or obligation. privilege. Association of Customs Brokers Inc. which the municipal corporation may not impose (though it is made to appear as a property tax). Customs duties – Taxes imposed on goods exported from or imported into a country. Tax distinguished from other terms: 1. c. Revenue – Funds or income derived by the government. maintenance. enjoyment of a privilege. The ordinance provided that the rate of the tax would be 1% ad valorem per annum. whether from tax or from whatever source or manner. The ordinance imposes the tax only on those vehicles registered in Manila. except property taxes imposed by a municipal corporation. HELD: The ordinance is null and void for two reasons: First.Based on law Generally cannot be assigned Generally payable in money Generally not subject to set-off Imprisonment is a sanction for nonpayment of tax except poll tax Governed by special prescriptive periods provided for in the tax code Does not draw interest. or act which is taxed. maintenance. it will be considered an excise. or the engaging in an occupation. the ordinance infringes the rule of uniformity of taxation. Second. Subsidy – A pecuniary aid directly granted by the government to an individual or private commercial enterprise deemed beneficial to the public. even if those vehicles which are registered outside the city but which use its streets also contribute equally to the deterioration of the roads and bridges. taking these two laws together. Municipal Board The Municipal Board of Manila passed an ordinance levying a property tax on all motor vehicles operating within the City of Manila. this power is limited by the Motor Vehicles Law. ISSUE: Whether the ordinance is valid. However. Therefore. Internal Revenue – Taxes imposed by the legislature other than duties on imports and exports. The reason for the prohibition is that under the Motor Vehicles Law. without distinguishing between those for hire and for private use. municipal corporations already get proceeds for the purpose of repairing and maintaining their streets and bridges. though a tax may have to be imposed in order to finance it. 2. 5. The Charter of Manila allows its municipal board to tax motor vehicles operating within the City of Manila. except when taxpayer is delinquent Based on contract Assignable May be paid in kind May be the subject of set-off Person cannot be imprisoned for non-payment of debt Governed by ordinary periods of prescription Draws interest when so stipulated or when there is defaults City and shall be expended exclusively for the repair. This is because it exacts the tax upon all motor vehicles operating within the City of Manila. although under the cloak of an ad valorem tax to circumvent the prohibition imposed by the Motor Vehicles Law. However. the City of Manila can impose a property tax on motor vehicles operating within its limits. 4. v. like a debt. even if its amount is determined in proportion to the value of the property used in connection with the occupation. which provides that no fees may be exacted for the operation of any motor vehicle other than those provided in the Motor Vehicles Law. if the tax is really imposed upon the performance of an act. Thus. Revenue refers to the amount collected. CASES 4. Tariff – May be used in any of the following senses: a. The proceeds of the tax shall accrue to the Streets and Bridges Funds of the Sheryl IID 2003 Page 7 . In this case. 3. an ad valorem tax is a property tax. A book of rates containing the names of merchandise with the corresponding duties to be paid for the same. The prohibition aims at preventing a duplication in the imposition of fees for the same purpose. A tax however. b.
one of the real and substantial purposes. the imposition must also bear a reasonable relation to the probable expenses of regulation. PAL v. the higher the volume of items sold. HELD: The registration fee is a tax – PAL is exempt. and development as to require regulation for the protection and promotion of such public interest. Progressive Development Corp. CIR The Central Bank charged margin fees on Esso’s remittances to its head office. the imposition is a tax. while a tax is imposed under the taxing power primarily for purposes of raising revenues. and the higher the volume of goods sold. To be considered a license fee. at least.5. pay for the operating expenses of the administering agency. If the generating of revenue is the primary purpose and regulation is merely incidental. the greater the extent and frequency of supervision and inspection may be required in the interest of the buying public. However. Progressive Development Corp. HELD: It is a license fee. Such basis actually has a reasonable relationship to the probable costs of regulation and supervision of Progressive’s kind of business. The purpose of the law in requiring payment of registration fees is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree. As a necessary business expense? MF are not necessary expenses – they are expenses incurred not in the business but in the disposal of the profits. morals. revenue is also obtained does not make the imposition a tax. QC The City Council of QC passed an ordinance known as the Market Code of QC. Since the purpose of the ordinance is primarily regulation and not revenue generation. but if regulation is the primary purpose. If the purpose of an exaction is revenue or if revenue is. safety. The fee is a police measure whose proceeds are applied to strengthen the country’s international reserves. taking into account not only the costs of direct regulation but also its incidental consequences. Esso claimed that the fees it paid were deductible dint its payment of income tax either as tax or as necessary business expense. by itself. Edu Under its franchise. 7. ISSUE: Whether the registration fee is a regulatory exaction OR a tax from which PAL is exempt. prevention of fraud upon the buying public. Esso Standard Eastern Inc. convert or render the license tax into a prohibited tax on income. which imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC. In this case. v. Tax exemptions are a matter of legislative grace and the one claiming them has the burden of justifying the exemption. etc. the tax is a license fee. PAL is exempt from all taxes except for the payment of 2% of its gross revenue to the National Government. PAL paid the fees under protest and now demands a refund. the fees collected from 1968 to 1979 should not be refunded because PAL’s franchise was repealed during that period. the imposition must relate to an occupation or activity that so engages the public interest in health. then the exaction is properly called a tax. It warrants close supervision and control by the City for the protection of the health of the public by insuring the maintenance of sanitary and hygienic conditions. since ordinarily. v. HELD: The margin fees were NOT deductible. owner and operator of Farmer’s Market. A license fee is imposed in the exercise of the police power primarily for purposes of regulation. filed a petition for prohibition against QC on the ground that the tax imposed by the Market Code was in reality a tax on income. Sheryl IID 2003 Page 8 . As taxes? Margin fees are NOT taxes because they are not imposed as a revenue measure. ISSUE: Whether the supervision fee is an income tax or a license fee. the higher the amount of rentals. The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax does not. the Farmers’ Market is a privately-owned market established for the rendition of service to the general public. which the municipal corporation was prohibited by law to impose. 6. the City shall revoke the permit of the privately-owned market to operate. the fact that incidentally. In case of failure of the owners of the market spaces to pay the tax for three consecutive months. PAL has not been previously paying for registration of its motor vehicles until Land Transportation Commissioner Edu issued a regulation requiring all tax exempt entities to pay registration fees.
Under another ordinance. However. Sheryl IID 2003 Page 9 . temporary. The first part of the ordinance requiring an alien to secure an employment permit is regulatory in character because it involves the exercise of discretion on the part of the Mayor in approving or disapproving the applications. The anchorage fees are not included in this power. the second part which requires the payment of P50 as employee’s fee is not regulatory but a revenue measure. there was a need for funds to suppress possible smuggling activities. Hiu Chiong filed an action to restrain the enforcement of the ordinance and to have it declared null and void for being discriminatory and violative of the rule on uniformity in taxation. The City of Basilan argued that the ordinance was validly enacted in the exercise of the city’s police power and that the fees were for purely regulatory purposes. HELD: The ordinance is null and void. Villegas v. The same amount is being collected from every employed alien. ISSUE: Whether the ordinance is valid. Compania General de Tabacos v. whether he is casual or permanent. or whether he is a lowly employee or a highly paid executive. The anchorage fee was ½ centavo per ton of the vessel for every 24 hours or part thereof. Tabacalera must pay license fees in order to continue enjoying the privilege of selling liquor. City of Basilan The City Council of Basilan enacted an ordinance imposing an anchorage fee on foreign vessels. City of Manila Tabacalera paid for its liquor license and also paid sales tax on its sale of general merchandise. whether permanent. American Mail Lines v. this not being a violation of the rule against double taxation.8. ISSUE: Whether the ordinance is valid. It claims that it made an overpayment and demands a refund of the sales tax paid on the ground that since it already paid the license fees. HELD: The ordinance is null and void. it was no longer bound to pay the sales tax on the liquor. which anchor within its territorial waters. as shown by the need of the Council to enact the amendatory ordinance. docks. 10. levees. part time or full time. HELD: Tabacalera is liable. including liquor. 9. The Mayor argues that the ordinance cannot be declared null and void on the ground that it violates the rule on uniformity of taxation because this rule applies only to purely tax or revenue measures and not to regulatory measures. There is no logic or justification in exacting P50 from aliens who have been cleared for employment. Under on ordinance. such as the ordinance. What is collected for license to sell is a license fee and what is collected on the sale is a sales tax. The former are for raising revenues while the latter are imposed in the exercise of police power for purposes of regulation. Hiu Chiong Tsai Pao Ho The Municipal Board of Manila passed an ordinance prohibiting an alien from being employed or engaging in any position or occupation or business enumerated therein. The Charter of the City of Basilan gives the Council the authority to fix the charges to be paid by all watercraft landing at or using public wharves. The P50 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. or landing places. or for selling the same article. Tabacalera is liable for sales tax on sales of general merchandise. bays and islets. ISSUE: Whether Tabacalera is liable for sales tax on the liquor despite already having paid for its liquor license. It claimed that since the City of Basilan was an island with mountainous coasts and fringed by coves. provided that the maximum charge shall not exceed P75 per day. American Mail Lines et al questioned the validity of the ordinance on the ground that the City of Basilan had no authority to collect anchorage fees from foreign vessels. Taxes are different from license fees. or casual. without first securing an employment permit from the Mayor and paying the P50 permit fee. The obvious purpose of the ordinance is to raise money under the guise of regulation. It is settled that both a license fee and a tax may be imposed on the same business. including liquor.
Republic v. the charter of Philsugin authorized the levy of ten centavos per picul of sugar for five years to be collected from sugar cane planters in the country. Sheryl IID 2003 Page 10 . it must be shown that they were collected as taxes – as a form of revenue. taking into account not only the expense of direct regulation but also incidental expenses. the fees were based on the tonnage of the vessels. and not channeled to another government objective. They contended that their obligation to pay their contributions subsisted only to the limit and extent that they were benefited by the contributions. ISSUE: Whether the creation of the trust fund is violative of the Constitution. Marcos issued PD 1956 creating the Oil Price Stabilization Fund (OPSF). Philsugin then purchased the Insular Sugar Refinery using money from this special fund. In this case. with the earnings accruing to the fund. These circumstances point to the conclusion that the fees were intended for revenue purposes. Osmena v. was created for the purpose of conducting research in and advancing the sugar industry in the country. The main objective was not revenue but to stabilize the price of oil and petroleum products. In order for the funds to fall under the prohibition. The levy for the Philsugin Fund is not so much an exercise of the power of taxation nor the imposition of a special assessment. A portion of the OPSF was taken from collections of ad valorem taxes levied on oil companies. Insular Sugar Refinery had accumulated tremendous losses. Moreover. they were exacted not under the power of taxation.” 12. The Philippine Sugar Institute (Philsugin). while the funds were referred to as taxes. Three sugar centrals refused to continue paying their contributions to the fund on the ground that the purchase of the Insular Sugar Refinery by Philsugin was not authorized by its charter and that the continued operation of the refinery was inimical to their interests. but in the exercise of the police power of the State. The OPSF is actually a special fund. a semi-public corporation. the anchorage fees are not being charged for regulatory purposes. In this case. It is segregated from the general fund. the Legislature found it in the interest of the general welfare to stabilize the sugar industry with the help of the power of taxation. but the exercise of the police power for the general welfare of the entire country. It is therefore an exercise of a sovereign power. Fees for purely regulatory purposes may only be of sufficient amount to include the expenses of issuing the license and the cost of the necessary inspection or police surveillance. which no private citizen may lawfully resist. Petitioner alleges that the creation of the trust fund violates the Constitution since the money collected pursuant to PD 1956 is a special fund. Bacolod-Murcia Milling Co. protection. The proceeds of this levy would go to a special fund to be used exclusively by Philsugin. Araneta in which the Court held that since sugar production is one of the leading industries of our nation. Hence. the revenue generated therefrom shall be treated as a special fund to be used only for the purpose indicated. Orbos Pres. since the levy was merely a special assessment and not a tax. The creation of the trust fund was valid. and while it is placed in what the law refers to as a “trust liability account. if a special tax is collected for a specific purpose. ISSUE: Whether the levy is a special assessment or a revenue measure. This basis of fixing the fees has no reasonable relation to the cost of issuing permits and the cost of inspection or surveillance. which was only P50. HELD: No.Contrary to the claim of the Council. These measures comply with the constitutional description of a “special fund. HELD: It is neither. its promotion. Subsequently. and advancement redound greatly to the general welfare. The EO authorized the investment of the fund in government securities. the OPSF was reclassified into a trust liability account and ordered released from the National Treasury to the Ministry of Energy. and which shall not exceed P75 per day – exceeded even the harbor fee imposed by the National Government. The power to regulate as an exercise of police power does not include the power to impose fees for revenue purposes. Several years later. To carry out these objectives.” the fund nonetheless remain subject to the scrutiny and review of the COA. The decision cited the case of Lutz v. and under the Constitution. They are actually intended for revenue purposes. 11. the fee imposed on foreign vessels – ½ centavo per ton for the first 24 hours. which was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil.
the tax was imposed based on capacity of the sugar centrals to produce. The lower court held that the exaction was invalid because the municipality cannot impose a tax for revenue in the guise of a police measure. the legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Hence. The license fee in this case falls under #3 and is valid. In reality. CA 567 provided for an increase in the existing tax on the manufacture of sugar. Tax compared to a Special Assessment: The purpose of a special assessment is to finance the improvement of particular properties. hence there was no identity of object of taxation]. HELD: The tax is valid. This provision justifies the acquisition of the refinery. and (3) license for revenue. being levied for the aid and support of the sugar industry exclusively. It is primarily an exercise of police power. Walter Lutz. Even if the operations of the refinery suffered from losses. Municipality of Victorias The municipality enacted an ordinance for the levy of license taxes from sugar centrals operating within the municipality. Victorias Milling is not named in the ordinance and should another corporation decide to produce sugar in the area. The defect in the argument of Lutz is his assumption that the tax provided for in CA 567 is a pure exercise of the taxing power. ISSUE: Whether the ordinance was valid. A municipality is authorized to impose three kinds of licenses. which is not a public purpose. The Court takes judicial notice of the fact that sugar production is one of the great industries of our nation. the tax is levied with a regulatory purpose. since there is no better way to carry out this research than to actually operate a refinery. Taxation may be made the implement of the State’s police power. so it was really a license on the occupation or business of sugar centrals and sugar refineries and not on the sugar itself. Hence. [Also. alleging that the tax imposed by CA 567 is unconstitutional. 14. Refusal of a citizen to pay taxes may not be sanctioned because it would impair government functions. Araneta Commonwealth Act No.Moreover. Lutz v. Victorias Milling was assessed 40K (imposed on sugar centrals) + 40K (imposed on sugar refineries). was promulgated in 1940 in response to the imminent threat to the sugar industry by the imposition of export taxes upon sugar as provided in the Tydings-McDuffie Act and the loss of its preferential position in the US market. It just so happens that the company is both. the charter of Philsugin authorizes it to conduct research in the sugar industry in order to find ways to reduce the cost of production and achieve greater efficiency in the industry. HELD: The ordinance was valid. In order to stabilize the sugar industry. the sugar centrals were still benefited by the acquisition. 13. protection. Its promotion. since the funds will be Sheryl IID 2003 Page 11 . 567. It does not matter that the funds raised under the Sugar Stabilization Act should be exclusively spent in aid of the sugar industry. Philsugin’s experience gained from running the refinery is a gain to the industry. There is no double taxation because the company is being taxed for the same object: One tax is on sugar centrals and the other is on sugar refineries. The purpose of an ordinary tax is to provide the Government with revenues needed for the financing of state affairs. the proceeds of which would accrue to the Sugar Adjustment and Stabilization Fund. it will be taxed accordingly. (2) license for restriction or regulation of non-useful occupations or enterprises. Other issues were double taxation and discrimination. and advancement redounds greatly to the general welfare. ISSUE: Whether the tax is unconstitutional because it is not devoted to a public purpose. This still does not constitute expenditure of tax money for private purposes. known as the Sugar Adjustment Act. since it is that very enterprise that is being protected. to provide means for the rehabilitation and stabilization of the threatened sugar industry. with the benefits of the improvement accruing or inuring to the owners thereof who pay the assessment. Victorias Milling v. This would not hold true in the case of a refusal to comply with a special assessment. wanted to recover from the Collector of Internal Revenue the amount paid by the estate as taxes. (1) license for regulation of useful occupations or enterprises. in his capacity as administrator of the Estate of Antonio Ledesma. There is no discrimination despite the fact that the company is the only sugar producing entity in the municipality.
exemption of non-stock. c. d. l. b. Failure to notify will amount to a denial of due process. j. liberty or property must have been done under the authority of a valid law or of the Constitution (substantive due process). The taking of life. there is no infringement of the constitutional guarantee. or corporations belonging to different classes provided all those belonging to one class are treated alike. 1. Inherent limitations (JENI P) a. and the improvement of living and working conditions in sugar mills or plantations. 2. solution of its problems. territorial jurisdiction exemption from taxation of government entities non-delegation of the legislative power to tax Uniformity and Equity in Taxation Sheryl IID 2003 Page 12 . c. 3.used to seek increase of efficiency in sugar production. f. i. and churches from property taxation no imprisonment for non-payment of a poll tax power of the President to veto any particular item or items in a revenue or tariff bill. g. A tax law which denies a taxpayer a fair opportunity to assert his substantial rights before a competent tribunal is invalid as violative of due process. e. firms. charitable. non-profit cemeteries. a. e. international comity levy must be for a public purpose Due Process of Law C. firms. and After compliance with fair and reasonable methods of procedure prescribed by law (procedural due process). b. Where the statute or ordinance in question applies alike to all persons. k. 2. Equal Protection of the Laws Equal protection of the laws means that all persons similarly situated shall be treated alike both as to privileges conferred and liabilities imposed. Constitutional limitations (DECEIVE SCARE) 2. and educational entities. h. non-profit educational institutions from taxation. A tax imposed for a private purpose or beyond the jurisdiction of the government to levy and collect offends due process of law and is null and void. non-impairment of the jurisdiction of the Supreme Court in tax cases concurrence by a majority of all the members of Congress for the passage of a law granting tax exemption no appropriation for religious purposes non-infringement of religious freedom equity and uniformity of taxation 4. or corporations placed in similar situation. or differently to persons. or Inherent limitations – those which restrict the power although not embodied in the Constitution. 2. Procedural due process requires an opportunity to be heard before judgment is rendered. Limitations on the Power of Taxation Limitations on the power of taxation are either: Elements of Due Process: 1. A taxpayer may not be deprived of his property for non-payment of taxes without giving notice to him as required by law of his tax liability as well as of the sale at public auction of the property to satisfy his taxes. An enforcement of such will infringe due process. Constitutional limitations – those found in the Constitution or implied from its provisions. A tax cannot be levied under a law judicially declared invalid. Applied to taxation: 1. What are the limitations on the power of taxation? 1. due process of law equal protection of the laws non-impairment of the obligation of contracts exemption of religious. d.
a tax for a national purpose must be uniform throughout the country. in the light of the taxpayer’s ability to shoulder the burden (usually measured in terms of the size of wealth or property and income. etc. To be taxexempt. The test of the exemption is the use of the property and not the ownership. not equality in amount. The obligation of a contract is impaired when its terms or conditions are changed by law or by a party without the consent of the other.Uniformity in taxation means that all taxable articles or properties of the same class shall be taxed at the same rate. or government orphanage or leprosarium. gross or net) and. Different articles may be taxed at different rates provided that the rate (not necessarily the amount) is uniform on the same class everywhere. For examples. if warranted. the obligation of a contract is impaired when a tax exemption granted contractually by the government is revoked by a later taxing statute. any penal institution. The only penalty for delinquency in the payment of poll tax or community tax is the payment of interest at 24% per annum. Neither does uniformity required that taxes be in strict proportion to the relative value or amount of the subject. the property must be actually. A tax for a city must be uniform throughout the city. or repeal by Congress. with ability to pay as the principal criterion. It does not mean that a person in a municipality must pay the same rate paid by another person in an adjoining municipality. etc is employed in the armed forces. Uniformity implies equality in burden. It is in the nature of a condition or permit for the exercise of the right to disseminate religious beliefs and information. For example. The exception is when the priest. But exemption from taxation provided in a franchise may be revoked without violating the non-impairment clause. non-profit educational institutions Sheryl IID 2003 Page 13 . and transactions are similarly situated. and exclusively used for the purposes mentioned. But the Constitution does not prohibit the imposition of a generally applicable tax on the sale of religious materials by a religious organization. properties. The imposition of license fees on the distribution and sale of bibles not for profit violates the free exercise clause. Prohibition against infringement of religious freedom The Constitution provides that no law shall be made respecting an establishment of religion or prohibiting the exercise thereof. A progressive system of taxation is one whose emphasis is on direct rather than indirect taxation. It also extends to facilities incidental to or reasonably necessary for the accomplishment of said purposes. charitable. Equity in taxation requires that the apportionment of the tax burden be more or less just. thereby weakening the position or rights of the latter. Progressive taxes are allowed. and educational entities The exemption covers only property and not other taxes. property. Prohibition against taxation of religious. alteration. This is because if the same amount of tax were imposed on all persons. on the basis of the benefits he receives from the government. Its cornerstone is ability to pay. The free exercise and enjoyment of religious profession and worship. But a person may be imprisoned for violation of the community tax law other than for nonpayment of the tax (ex: falsification of the community tax certificate) and for non-payment of other taxes if so expressly provided by the pertinent law. shall forever be allowed. they may receive their corresponding compensations for services rendered without violating the constitutional prohibition. and transactions. without discrimination or preference. the result would be even more inequality since not all persons. Prohibition against appropriation for religious purposes This is because taxes con only be levied for a public purposes. directly. The rule requires the uniform application and operation without discrimination of the tax in every place where the subject of it is found. Prohibition against impairment of obligation of contracts Prohibition against taxation of non-stock. since a franchise is always subject to amendment. Prohibition against imprisonment for non-payment of poll tax The Constitution provides that no person shall be imprisoned for debt or non-payment of a poll tax.
directly. amount or rate. Need for concurrence of majority of Congress to grant exemption This is intended to prevent indiscriminate grant of tax exemptions. Thus. and exclusively for educational purposes. or for any of the recognized objects of government. These non-legislative powers include: a. The power to value property pursuant to fixed rules. Non-impairment of the jurisdiction of the Supreme Court The SC has appellate jurisdiction over all cases involving the legality of any tax. or donations must be used actually. Powers that cannot be delegated include the determination of the subjects. this immunity rests upon fundamental principles of government being necessary in order that the functions of government would not be unduly The reason for this rule is that a tax levied for a private purpose constitutes taking of property without due process of law as it is beyond the power of the government to impose. there is really no delegation of legislative power. 2. there must be concurrence of at least one-half plus one of all the members of Congress. and adjustment. Delegation to local governments: This exception is universally recognized for so long a time that its existence has not been disputed even if there is not express grant by the constitution. there are exceptions: 1. Public purpose The term public purpose is synonymous with “governmental purpose. Sheryl IID 2003 Page 14 . an The power to perform the details of computation.” It means a purpose affecting the inhabitants of the state or taxing district as a community and not merely as individuals. c. and agencies of collection of tax. appraisement. b. but the veto shall not affect the item or items to which he does not object. and the delegation of such details. Exemption of government agencies or instrumentalities Agencies and instrumentalities of the government are generally exempt from taxation because it would mean that the government would be taxing itself in order to raise money that it will then pay over to itself. The power to assess and collect the taxes. import or export quotas. means. It is in line with the principle that the power to create municipal corporations for purposes of local self-government carries with it the power to confer the power to tax on such local governments. or tariff bills by the President The Constitution provides that the President shall have the power to veto any particular item or items in an appropriation. Congress may not delegate it to others. Moreover. The tax must be used: 1. property. assets. However. purpose. impost. So strictly speaking. Veto of appropriation. This limitation arises from the doctrine of separation of powers. To approve a grant of tax exemption. since the government is established for public purpose – the promotion of the general welfare – public money can only be spent for the same purpose. or any penalty imposed in relation thereto. Delegation to the President: Congress may authorize the President to impose tariff rates. or toll. the limitation of public purpose is implied in the Constitution. Non-Delegability of Taxing Power The power of taxation is purely legislative. manner. the tax would still be valid provided such is only incidental. revenue. The revenue. Also.Unlike the exemption granted to churches. The purposes to be accomplished by taxation need not be exclusively public. Delegation to administrative agencies: Certain aspects of the taxing process that are not legislative in character may be vested in the administrative. voting separately. Although private individuals are directly benefited. assessment. for the support of the government. 3. 2. 3. revenue or tariff bill. tonnage and wharfage dues and other duties or imposts. Congress cannot take away this power. or to promote the welfare of the community. this covers not just property taxes but also income and donor’s taxes and customs duties.
The right of the legislature to appropriate public funds is correlative with its right to tax. CASES 15. he is entitled. Territorial Jurisdiction A state may not tax property lying outside its borders of lay an excise or privilege tax upon the exercise or enjoyment of a right or privilege derived from the laws of another state and therein exercised and enjoyed. the sovereign equality among states by virtue of which one state cannot exercise its sovereign powers over another. a citizen’s income may be taxed even if he resides abroad as the personal jurisdiction of his government over him remains. ISSUE: Whether the appropriation is valid. Therefore. had offered to donate the property to the municipality of Pasig. private property. International Comity Under international comity (courteous and friendly agreement and interaction between nations). Sec. to the protection of his government. The feeder roads were actually within the Antonio Subdivision. Therefore. which was owned by Jose Zulueta. not upon events occurring after. Hence. he also has the concomitant obligation to provide it support in the form of taxes. although such advantage to individuals might incidentally serve the public. As a citizen of the state. Non-Delegability Pres. This is because tax laws do not operate beyond a country’s territorial limits. 2. there is an implied understanding that the former does not intend to degrade its dignity by placing itself under the jurisdiction of the later. Zulueta executed the deed of donation in favor of the municipality. Subsequently. at the time the law was passed.impeded. so also no appropriation of state funds can be made other than for a public purpose. the appropriation is still invalid. the road was still private property. Exception: A person may be taxed where there is between him and the taxing state a privity of relationship justifying the levy. the OPSF was reclassified into a trust liability account and ordered released from the National Treasury to the Ministry of Energy. Of Public Works: Public Purpose Congress passed an RA appropriating P85K for the construction of Pasig feeder road terminals. 16. This is based on the following grounds: 1. wherever he may be. 3. The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interests as opposed to the furtherance of the advantage of individuals. and the rule of a international law that a foreign government may not be sued without its consent. which was designed to reimburse oil companies for costs increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Property which is wholly and exclusively within the jurisdiction of another state receives none of the protection for which a tax is supposed to be a compensation. making the roads public property. The EO authorized the investment of the fund in government securities. claiming that at the time of the passage and approval of the Act. but the deed of donation was executed only several months after the RA was passed. Thus. property of a foreign state or government may not be taxed by another. Congress appropriated public funds for the construction of feeder roads that were. Zulueta. Osmena v. connected to any government property or main highway. Orbos – Public Purpose. At the time the bill was passed. a member of the Senate of the Philippines. The taxing power must be exercised for public purposes only and not for the advantage of private individuals. The validity of the statute depends upon the powers of Congress at the time of its passage. Marcos issued PD 1956 creating the Oil Price Stabilization Fund (OPSF). with the earnings accruing to the fund. these feeder roads had not yet been constructed and were not Sheryl IID 2003 Page 15 . Exemption of government agencies from taxation also reduces the amount of money to be handled by the government in the course of its operations. before the passage of the Act. The Provincial Governor of Rizal filed an action for declaratory relief and injunction. the usage among states that when one enters the territory of another. Pascual v. the appropriation sought a private purpose and was null and void. Even if subsequently. As the Constitution prohibits taxation except for a public purpose. The subsequent donation could not have cured this nullity. HELD: The appropriation is invalid. A portion of the OPSF was taken from collections of ad valorem taxes.
and (4) in the assessment and collection of certain kinds of taxes. if a special tax is collected for a specific purpose. and under the Constitution. He also alleges that there was undue delegation of legislative taxing power to the ERB in the provision conferring authority upon the ERB to impose additional amounts on petroleum products. The standard is the general policy of the law to protect the consumer by stabilizing and subsidizing petroleum prices. since it is based on volume capacity. Whether MOs 23 and 27 are valid. 2. Pepsi filed an action to declare the Local Autonomy Act and the two ordinances void. MO No. (2) the rule on uniformity of taxation is observed. He also alleges that the ERB was processing unauthorized claims for reimbursements under PD 1956. and while it is placed in what the law refers to as a “trust liability account. Neither is it a specific tax because soft drinks do not fall within the enumeration of items subject to specific tax.” 2. provided that they were not allowed to impose percentage tax on sales and on items already subject to specific tax under the National Internal Revenue Code. 17. The power of taxation may be delegated to local governments in respect of matters of local concern. 2. sale of fuel oil to NAPOCOR) was incurred as a result of the reduction of domestic prices of petroleum products. HELD: 1. Municipality of Tanauan: Delegation to Municipal Corporations Municipal Ordinance No. Municipal Ordinance No. and not channeled to another government objective. These measures comply with the constitutional description of a “special fund. Pepsi claims that RA 2264 is an undue delegation of power. The MOs are valid. they are exacted in the exercise of the police power of the State. Leyte imposes on soft drink producers and manufacturers a tax of 1/16 of a centavo for every bottle of soft drink corked.” the fund nonetheless remain subject to the scrutiny and review of the COA. Pepsi-Cola Bottling Company v.Pres. Whether there was an undue delegation of power in favor of the ERB. the revenue generated therefrom shall be treated as a special fund to be used only for the purpose indicated. HELD: 1. It is segregated from the general fund. The creation of the trust fund was valid. ISSUES: Whether the creation of the trust fund was unconstitutional. The Local Autonomy Act (RA 2264) grants municipalities the authority to impose municipal taxes or fees upon persons engaged in any occupation or business within their jurisdictions. ISSUES: 1. The OPSF is a special fund. except when the taking of property is in the lawful exercise of the taxing power. The delegation of the taxing power to the municipal corporation cannot be assailed either on the ground of double taxation. The rate of the tax is also reasonable and cannot be said to be unfair or oppressive. 27 imposes on soft drinks produced or manufactured within the territorial jurisdiction of the municipality a tax of one centavo on each gallon of volume capacity. not where one tax is imposed by the State and the other by a municipality. since none of these claims (inventory losses. While the funds collected may be referred to as taxes. Sheryl IID 2003 Page 16 . 27 is not a tax on sales but on the produce. Aquino later expanded the coverage of the PD to allow reimbursements in favor of oil companies for cost underrecovery as a result of the decrease in domestic fuel prices. 23 of Tanauan. RA 2264 is not an undue delegation of power. financing charges. (3) either the person or property taxed is within the jurisdiction of the government levying the tax. Double taxation is prohibited only when the taxpayer is taxed twice for the same benefit by the same entity for the same purpose. 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. There was no undue delegation of power because the law provides a sufficient standard by which the authority must be exercised. as when: (1) the tax is for a public purpose. Petitioner alleges that the creation of the trust fund violates the Constitution since the money collected pursuant to PD 1956 is a special fund. Whether RA 2264 constitutes an undue delegation of power. notice and opportunity for hearing are provided.
such as the SSS. which exempts from tax any profit derived by a US national under a contract with the US government in connection with the construction.Municipalities are empowered to impose. Mitsubishi Metal Corp. and in turn. Atlas made interest payments in favor of Mitsubishi totaling P13M. time. the CFI restricted the scope of the exemption only to those properties owned by government agencies and instrumentalities performing governmental or sovereign functions. It invoked the tax exemption provided in the RP-US Military Bases Agreement. For purposes of exemptions in the payment of realty taxes. Subsequently. Thereafter. What is decisive is merely that the properties possessed by the SSS are in fact owned by the government of the Philippines. and defense of the bases. operation. the distinction between government agencies performing constituent and ministrant function is not important. The BIR collected 1. because of the paperwork. It would not serve the main purpose of taxation and would even tend to defeat it.9M was withheld and remitted to the Government. Mitsubishi and Atlas filed a claim for tax credit. they are exempt from realty taxes. SSS v. the interest is not exempt from tax. maintenance. Atlas would sell to Mitsubishi all the copper concentrates produced from the machine for the next 15 years. The application of the NACOCO v.9M be applied against their existing tax liabilities on the ground that the interest earned by Mitsubishi on the loan was exempt from tax. HELD: Yes. an American shipping company. HELD: No. performing proprietary functions like the SSS.: International Comity Atlas Consolidated Mining entered into a Loan and Sales Contract with Mitsubishi. It relied on the case of NACOCO v. It excluded from the coverage of the exemption those performing proprietary functions. It failed to pay realty taxes for three consecutive years. Sea-Land asked for a refund. claiming that it had paid the tax by mistake. 19. ISSUE: Whether the interest is tax-exempt. The SSS is exempt from paying realty taxes. Bacani case is incorrect. Neither can the activity be interpreted as directly related to the defense and security of the Philippine territories. As such. Later. the exception. The City levied upon the property and forfeited it in its favor. ISSUE: Whether Sea-Land falls within the coverage of the tax exemption. The transport or shipment of household goods and effects of US military personnel is not included in the term construction. Sea-Land Services Inc. and defense of the bases. Mitsubishi applied for a loan with Eximbank of Japan so that it could comply with its obligations under the contract. which Sea-Land paid.5% income tax on the income derived by Sea-Land. It is therefore not covered by the exemption. just and uniform taxes. operation. is exempt from payment of real estate taxes. since that case was referring to legal fees and not to realty taxes. CIR v. not only municipal license taxes upon persons engaged in any business or occupation. ISSUE: Whether a government-owned or controlled corporation. Mitsubishi would lend Atlas $20M for the installation of a new concentrator for copper production. Sheryl IID 2003 Page 17 . 20. In ruling that the SSS is not covered by the exemption. When public property is involved. but also to levy for public purposes. exemption is the rule and taxation. Under the Contract. The total amount of both loans was $20M. Bacani in which the Court held that government agencies performing proprietary functions are not exempt from paying legal fees. SSS protested the forfeiture on the ground that the SSS. v. To make such a distinction would have the effect of taking money from one pocket and putting it in another pocket. 18. HELD: No. is exempt from paying realty taxes. maintenance. requesting that the P1. being a government owned and controlled corporation. and expenses that it would entail. City of Bacolod: Exemption of Government instrumentalities from tax The SSS had an office building in Bacolod City. The corresponding 15% tax on the interest in the amount of P1. The Charter of the City of Bacolod provides that lands and buildings owned by the government are exempt from realty taxes. Mitsubishi also applied for a loan with a consortium of Japanese banks. entered into a contract with the US Government for the transport of military household goods and effects of US military personnel assigned to the Subic Naval Base. CA: International Comity Sea-Land.
Marubeni claims that the income derived from the offshore portion should be exempt from tax since it was derived outside of the Philippine jurisdiction. Mitsubishi and Atlas claim that the interest earned from the loan falls under the above exemption because Mitsubishi was merely acting as an agent of Eximbank.5% of the gross value sold by them to the Exchange. controlled. operating in the Philippines. The Exchange claims that the merchants should be exempt from taxes since the revenue law provides that no specific tax shall be collected on any goods sold and delivered directly to the US Army of Navy for their actual use or issue. were separate and distinct. controlled. The Exchange filed an action for prohibition against the CIR for him to desist from collecting the taxes from the merchants. The SC held that Mitsubishi was not a mere agent of Eximbank. They allege that Mitsubishi was merely the conduit between Atlas and Eximbank. Hence. in other words. they do not fall within the exemption. One of the contracts was with the National Development Company (NDC) in connection with the construction of a wharf in Leyte. no Federal agency or instrumentality can be taxed by state authority. the goods are sold to the Exchange for resale to individuals belonging to the Army or Navy. and not to the Army or Navy itself. No agency relationship was established between Eximbank and Mitsubishi. Marubeni: Territorial Jurisdiction Marubeni was a Japanese corporation engaged in the import and export. does not apply. trading. the tax laid upon Philippine merchants who sell to the Exchange does not interfere with the supremacy of the US Government or with the operations of its instrumentality the US Army. HELD: No. The Exchange bought goods. The effect of the tax upon the functions of the Government and the nature of the governmental agency determine finally the extent of the exemption. the exemption that would have been applicable to Eximbank. The other contract was with the Philippine Phosphate Fertilizer Corp (Philfos) for the construction of an ammonia storage complex in Leyte. which is a financing institution owned. soldiers. The transaction between Mitsubishi and Atlas on the one hand. Posadas: International Comity The Thirty-First Infantry Post Exchange was an agency under the control of the US Army. 22. ISSUE: Whether the merchants selling goods to the Exchange are exempt from sales tax. The two contracts were divided into two parts – the offshore portion and the onshore portion. and financed by the Japanese Government. or financed by foreign governments are exempt from tax. and between Mitsubishi and Eximbank on the other. ISSUE: Whether the income of Marubeni is taxable even if it claims that it was earned outside of the Philippines. The reason upon which the rule rests must be the guiding principle to control its operation. It entered into the agreement with Atlas in its own independent capacity. After manufacture. The proceeds derived from the sales were then used for the betterment of the condition of the personnel of the Army. All materials and equipment in the contract under the offshore portion were manufactured and completed in Japan. The tax exemption covers those goods that are sold directly to the US Army or Navy for their actual use or issue. and construction business. and that the ultimate creditor was really Eximbank. Thirty-First Infantry Post Exchange v. The Exchange claims that the taxes imposed on the merchants were driving up the prices of goods sold to it by the merchants. the products are brought to the client complete and ready for use). In the course of its business.The National Internal Revenue Code provides that income received from loans in the Philippines extended by financing institutions owned. It completed two contracts in 1984. these were transported to Leyte and installed to the pier with the use of bolts. The tax does not deprive the Army of the power to serve the Government or hinder the efficient exercise of its power. The rule is that without Congressional consent. to such an extent or in such a manner as to render the tax illegal. In this case. only those agencies through which the Federal Government immediately and directly exercises its sovereign powers are immune from the taxing power of the states. CIR v. and civilian employees of the US Army and their families. such as soap and toiletries. 21. The projects were completed on a “turnkey” basis (a job in which the contractor agrees to complete the work of building and installation to the point of readiness or occupancy. Since the transaction was between Mitsubishi and Atlas. the Exchange purchased goods from merchants in the Philippines. The interest is therefore not exempt from tax. and resold them to officers. The limitations upon the taxing power of the state must receive a practical construction which does not seriously impair the taxing power of the Government imposing the tax. The Collector of Internal Revenue collected from these merchants taxes at the rate of 1. the income from which it did not declare. In this case. Sheryl IID 2003 Page 18 . However.
CA: Equal Protection of the Laws Congress passed RA 7227 which created the Subic Special Economic Zone. He sold his Cadillac to a member of the US Marine Corps at the Clark Air Base in Pampanga. They retain their status as native soil. granting tax and duty incentives to businesses and residents within the area encompassed by the zone. In lieu of taxes.HELD: No. 2. Petitioners outside the “secured area” challenged the constitutionality of this EO for allegedly being violative of their right to equal protection of the laws. The sale is not exempt from income tax because it took place within Philippine territory. thereby justifying a valid and reasonable classification. 4. It was thus reasonable for the President to have delimited the application of some incentives to the confines of the former Subic military base. the materials. the following requisites must be present: 1. and equipment used in the construction projects were all designed. For a valid classification. beyond its jurisdictional power to tax. Hernando: Due Process. However. 3% of the gross income of enterprises operating within the zone shall be remitted to the National Government. A contractor’s tax is in the nature of an excise tax on the exercise of a privilege of selling services or labor. machines. must not be limited to existing conditions only. Reagan later protested on the ground that the sale was made outside Philippine territory. They are still subject to its authority. must be germane to the purpose of the law. 25. the lands covered under the Military Bases Agreement are its object. ISSUE: Whether the sale is exempt from income tax. Province of Abra v. they are therefore not subject to the contractor’s tax. Like property taxes. ISSUE: Whether the EO confining the application of the privileges under RA 7227 within the secured area and excluding the residents of the zone outside the secured area violates the equal protection clause. and 1% to a development fund to be utilized for the development of municipalities outside Olangapo and Subic. the Clark Air Base is still within the jurisdiction of the Philippines for purposes of income tax legislation. Pres. In this case. In this case. The Philippines. They were merely shipped to Leyte and assembled there. engineered and fabricated in Japan. There are real and substantive distinctions between the circumstances obtaining inside and outside the Subic Naval base. Tiu v. its authority may be exercised over its entire domain. Reagan v. These big investors possess the capital necessary to spur economic growth and generate employment opportunities. its laws may as to some persons found within its territory no longer control. The CIR assessed him and he paid the income tax on the amount realized from the sale. being independent and sovereign. it does not follow that such areas become impressed with an alien character. It jurisdiction may be diminished but it does not disappear. some pieces of equipment and supplies were completely designed and engineered in Japan. particularly for the use of big foreign and local investors. 24. While the construction and installation work were completed within the Philippines. HELD: No. it must rest on substantial differences. the purpose of the law is to accelerate the conversion of military reservations into productive areas. Since these services were rendered outside the taxing jurisdiction of the Philippines. If it does. CIR: Territorial Jurisdiction William Reagan was an employee of an American corporation providing technical assistance to the US Air Force in the Philippines. Under certain conditions. Marubeni is not liable for the contractor’s tax. and must apply equally to all members of the same class. 1% to the local government units. any state may submit to a restriction of its sovereign rights. Hence. it cannot be imposed on an occupation or privilege outside the taxing district. It may also allow another power to participate in the exercise of jurisdictional rights over certain portions of its territory. Thus. 3. 23. Ramos later issued an EO specifying a “secured area” area within the zone in which the privileges were operative. Exemption of Religious Institutions Sheryl IID 2003 Page 19 . since it is this specific area which the government intends to transform and develop into a selfsustaining industrial and economic zone. HELD: No. The law provides that no local and national taxes shall be imposed within the zone.
the law merely subjects the press to the same tax burden to which other businesses have already been subject. HELD: Since the law granted the press a privilege. In this case. The censorial motivation of the law was thus evident. Tolentino v. It also claims that VAT. The Philippine Bible Society claims that the imposition of VAT on the sales of its bibles constitutes an infringement of its religious freedom because the tax increases the price of the bibles. circulation was over 20. What the legislature cannot impose upon the press is a license tax. It is imposed on the sale of goods purely for revenue purposes. In this case. Sec. It also claims exemption from the registration fee of P1000. It is unconstitutional because it lays a prior restraint on the exercise of a right. which the buyer did not anticipate at the time he entered into the contract. American Press Co. to follow petitioner’s argument. HELD: A tax on a new subject or an increased tax on an old one does not interfere with a contract or impair its obligation. In order to exempt religious institutions from the payment of real estate taxes. HELD: The resulting burden on the exercise of religious freedom is so incidental as to make it difficult to differentiate it from any other economic imposition that might make the right to disseminate religious doctrines costly. It also claims that the law violates equal protection since the law exempts low-cost housing from VAT but not middle-class housing. CREBA claims that the law impairs the obligations of contracts because the application of the tax to existing contracts of the sale of real property by installment would result in substantial increases in monthly amortizations. The registration fee is really just to pay for the expenses of registration and enforcement of the provisions of the law. of Finance: Religious freedom.The Roman Catholic Bishop of Bangued wanted to be exempted from payment of real estate tax. These papers were critical of a certain senator who controlled the state legislature. The case of Grosjean v. In withdrawing the exemption. the VAT is not a license tax because it is not a tax on the exercise of a privilege or of a constitutional right. By granting exemptions. the State does not forever waive the exercise of its sovereign prerogative. Non-Impairment of Contracts Several parties filed complaints in the Supreme Court questioning the legality of the Expanded VAT (EVAT) Law: 1. the tax was found to be discriminatory because it was imposed only on newspapers whose weekly 2. The Province of Abra filed an action for certiorari against the CFI on the ground that it granted the action for declaratory relief filed by the Roman Catholic Bishop without allowing the Province to answer and without hearing. ISSUE: Whether the judgment of the court granting the exemption to the Roman Catholic Bishop of Bangued is valid. the EVAT Law discriminates against the press. and actually for public purposes. regressive tax. while reducing the volume of sale. actually. 26. The obligation of contracts cannot defeat the rightful authority of the government to tax by virtue of its sovereignty. As to the violation of equal protection. violates the constitutional mandate to provide a progressive system of taxation. Otherwise. to increase the tax on the sale of vestments would be to lay an impermissible burden on the right of the preacher to make a sermon. the law could take back the privilege anytime without offense to the Constitution. He filed an action for declaratory relief in the CFI of Abra. It also contends that it is unconstitutional to tax a constitutionally guaranteed freedom (freedom of the press). the property must be used exclusively. the Court held that there was a substantial distinction between the homeless poor and the Sheryl IID 2003 Page 20 . In this case. The essential attributes of sovereignty. there must be proof of actual and direct use of the property for religious or charitable purposes. Instead of accepting the bare allegation of the bishop that the property was being used exclusively. and directly for religious purposes. which is mainly for regulation. the right of the Province of Abra to procedural due process was violated by the summary judgment granting the exemption. in violation of its right to due process. To be exempted from realty tax. Equal Protection. HELD: The judgment is not valid. 3. The CFI rendered a summary judgment granting the exemption. are read into contracts. Even if PBS is excused from paying taxes on those bibles that it distributes for free. being an indirect. The Philippine Press Institute contends that by removing the exemption of the press from the VAT while maintaining those granted to others. the motivation was not to censor but merely to raise revenues. cited by the PPI is different because in that case. such as the power to tax. directly.000. the judge should have first required proof of these allegations. it still has to pay the registration fee since it also engages in the sale of bibles.
What it simply provides is that Congress shall evolve a progressive system of taxation. ISSUE: Whether there was a violation of equal protection. Sheryl IID 2003 Page 21 . the reason for leaving out the other brands was because there was not enough time to include them. HELD: They are local brands. The SC ruled that the circular was hastily promulgated. The Constitution requires taxation to be uniform and equitable. stating that at the time of the enactment of RA 7654. there was no violation. the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9. 27. imposing a 55% tax on locally manufactured cigarettes bearing a foreign brand. traders and dealers are not. the circular issued by the BIR reclassifying the three brands as foreign brands was aimed precisely at placing them within the scope of RA 7654 and subjecting them to a new tax rate. However.” thereby removing them from the foreign brand category. which means that direct taxes are to be preferred and indirect taxes minimized. similarly situated.” and “More” cigarettes. The three brands were therefore taxed ad valorem as local brands. HELD: No. on the other. like a trader or dealer. Subsequently. is not exempt from the tax. Therefore. In this case. CIR v. 28. are to be treated alike or put on equal footing both in privileges and liabilities. The CTA upheld the stand of Fortune. the CIR classified the brands as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. The sale made by any other person or entity. In issuing the circular. It cannot go beyond providing for the means that can facilitate the implementation of the law. According to Commissioner Chato. on the one hand. VAT provides exemptions in favor of basic goods utilized by the lower income brackets and its burden actually falls more on those goods that consumers from the higher income bracket buy. and copra traders and dealers. In this case. and publication should not have been then ignored. It claims that the memorandum circular is discriminatory and violative of the equal protection clause of the Constitution because while coconut farmers and copra producers are exempt. Initially. ISSUE: Whether the three brands should be taxed as local or as foreign brands. in violation of the rule on uniformity of taxation. hearing. other cigarettes bearing foreign brands were not included within the scope of the circular. Thus. they should not be assessed the 55% tax. Misamis Oriental Association of Coco Traders v. there was a valid classification. CA: Non-delegation. RA 7654 was passed. the BIR issued a circular reclassifying the three brands as foreign brands. of Finance Secretary: Equal Protection The NIRC exempts from VAT the sale of agricultural non-food products in their original state if the sale is made by the primary producer or owner of the land from which the same are produced. The circular might have also infringed on uniformity of taxation. Fortune filed a petition for review with the CTA. and the tax must operate with the same force and effect in every place where the subject may be found. There is a material or substantial difference between coconut farmers and copra producers.” “Hope. After the enactment of RA 7654 but before its effectivity. The rate for cigarettes bearing a local brand was set at 45%. The due requirements of notice. The Philippine Patent Office issued to the corporation certificates of trademark registration over “Champion. but these rules must be merely interpretative in nature. Petitioner is engaged in the buying and selling of copra. A revenue memorandum circular was issued. The BIR may issue rules in the exercise of its quasi-legislative powers. Uniformity in taxation Fortune Tobacco Corp. The Constitution does not forbid the differential treatment of persons so long as there is a reasonable basis for classifying them differently. A certification was presented to show that “Champion” was an original Fortune Tobacco brand. although both sell copra in its original estate. is engaged in the manufacture of different brands of cigarettes. it legislated under its quasilegislative authority. the three brands were still classified as local brands. The former produce and sell copra. reclassifying copra into an agricultural non-food product. all taxable articles or kinds of property of the same class must be taxed at the same rate. Therefore. the tax is not repugnant to the Constitution. Pursuant to RA 7654. the latter merely sell copra. Dept. the Constitution does not prohibit regressive taxes.middle class because the latter can afford to rent houses in the meantime that they cannot yet buy their own. Hence. Fortune Tobacco changed the names as follows: “Hope” to “Hope Luxury” and “More” to “Premium More. Uniformity requires that all subjects or objects of taxation. As to VAT being a regressive tax. but only the 45% tax.5M. the BIR did not simply interpret the law.
at the constant rate of 0% or 10%. HELD: The EO is valid. Tax exemptions have never been deemed violative of the equal protection clause. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. adopting VAT. CIR v. The Legislature has the inherent power not only to select the subjects of taxation but to grant exemptions. unjust. Ancheta: Uniformity BP 135 amended Section 21 of the National Internal Revenue Code. the EO was enacted 2 days before Congress convened. Uniformity means that all property belonging to the same class shall be taxed alike. that it is oppressive. It satisfies all the requirements of a valid tax: it is uniform and equitable. Therefore. in violation of both the equal protection and due process clauses and the rule on uniformity in taxation. All power plants belonging to this particular class were subject to the same 2% tax. Inc: Uniformity and Equality of Taxation Lingayen Gulf was the grantee of a municipal franchise to supply electricity in Pangasinan. It was subject to a 2% franchise tax under the municipal franchise. and regressive. subject to 2% franchise tax. The law merely transferred Lingayen’s power plant from its former class to which it belonged. Therefore. Subsequently. The tax is also equitable because it is imposed only on sales of goods or services by persons engaged in business with an aggregate gross annual sales exceeding 200K. the EO was still within the President’s power to issue. The President had the authority to issue EOs under both the Provisional and 1987 Constitutions until a legislature was convened. or regressive. based on the rate prescribed by the NIRC for franchises like Lingayen. 30.29. which is the susceptibility of the income to the application of generalized rules Sheryl IID 2003 Page 22 . there is a discernible basis of classification. It provided that the tax base for those earning compensation income at fixed rates would be gross income. The amendment provided a different schedule of rates for taxable compensation income and for taxable net income. Sison v. In this case. In this case. ISSUE: Whether the provision violates the rule on uniformity on taxation. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. The distinction is based on material differences in that the activities of customs brokers partake more of a business rather than a profession. The CIR assessed it deficiency franchise tax. Petiitoners contend that EO 273 is unconstitutional on the grounds that the president had no authority to issue it. is valid. discriminatory. sales of marine and farm products and basic food and necessities are not covered by VAT. A tax is uniform when it operates with the same force and effect in every place where the subject of it is found. Petitioner challenges the validity of the amendment on the ground 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 as compared to those which are imposed upon fixed income or salaried individual taxpayers. Customs brokers contend that the EO is also discriminatory because it exempts from VAT services performed in the exercise of one’s profession except customs brokers. unjust. while the base for the income of businesses and professionals would be net income. HELD: No. Small corner sari-sari stores. the rule on uniformity was not violated. 31. Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas v. discriminatory. Lingayen Gulf Electric Power Co. EO 273 is not oppressive. a law was passed granting Lingayen Gulf a legislative franchise to supply electric current to the public. the tax is applied similarly on all goods and services sold to the public. In this case. The CIR claimed that the law was unconstitutional for being violative of the uniformity and equality of taxation clause of the Constitution since other similar franchises were subject to a 5% franchise tax imposed by the Tax Code. adopting the value-added tax (VAT). computed at 5%. which are not exempt. Tan: Uniformity and Equitability. Equal Protection President Aquino issued EO 273. HELD: No. ISSUE: Whether the law violates the rule on uniformity and equality of taxation. He claims that it amounts to class legislation. The rule of uniformity does not call for perfect uniformity or perfect equality. It merely means that all taxable articles of kinds of property of the same class shall be taxed at the same rate. ISSUE: Whether the EO 273.
in the case of professionals in the practice of their calling and businessmen. HELD: The ordinance is null and void. Several owners of tenement houses filed a complaint to declare the ordinance invalid because only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses. The rule on equality and uniformity does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. while continuing the system of net income taxation as regards the professional and business income. while citizens of other cities. These circumstances show that the ordinance is limited in application to those soft drinks brought into the City from Sheryl IID 2003 Page 23 . 32. 33. ISSUE: Whether the ordinance violates the rule on equality and uniformity in taxation. Hiu Chiong Tsai Pao Ho: Uniformity The Municipal Board of Manila passed an ordinance prohibiting an alien from being employed or engaging in any position or occupation or business enumerated therein. City of Butuan: Uniformity The City of Butuan enacted an ordinance imposing on any agent and/or consignee of any entity engaged in selling soft drinks a tax of 10 cents per case of 24 bottles. Villanueva v. equality and uniformity of taxation is accomplished. City of Iloilo: Uniformity The municipal board of Iloilo enacted an ordinance imposing license tax fees on persons engaged in the business of operating tenement houses. There is ample justification for the law to adopt gross system of income taxation to compensation income. ISSUE: Whether the ordinance is valid. 34.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. Pepsi-Cola Bottling Co. whether he is casual or permanent. the tax shall be based on the number of bottles received. However. or whether he is a lowly employee or a highly paid executive. HELD: No. So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated. The obvious purpose of the ordinance is to raise money under the guise of regulation. part time or full time. Moreover. there is no uniformity in the costs or expenses necessary to produce their income. The Mayor argues that the ordinance cannot be declared null and void on the ground that it violates the rule on uniformity of taxation because this rule applies only to purely tax or revenue measures and not to regulatory measures. Hiu Chiong filed an action to restrain the enforcement of the ordinance and to have it declared null and void for being discriminatory and violative of the rule on uniformity in taxation. The P50 fee is unreasonable not only because it is excessive but because it fails to consider valid substantial differences in situation among individual aliens who are required to pay it. This argument is without merit. HELD: The ordinance is null and void. The tax shall be based on any record showing the number of cases received within the month. these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand. the second part which requires the payment of P50 as employee’s fee is not regulatory but a revenue measure. ISSUE: Whether the ordinance is valid. The tax is levied only on those persons who are agents or consignees of another dealer. Villegas v. whether permanent. There is no logic or justification in exacting P50 from aliens who have been cleared for employment. It would not be just 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. or casual. such as the ordinance. not sold. of the Phil. Pepsi filed an action to nullify the ordinance on the ground that it partakes of the nature of an import tax and is highly unjust and discriminatory. As there is practically no overhead expense. The same amount is being collected from every employed alien. without first securing an employment permit from the Mayor and paying the P50 permit fee. by the taxpayer. The first part of the ordinance requiring an alien to secure an employment permit is regulatory in character because it involves the exercise of discretion on the part of the Mayor in approving or disapproving the applications. where their councils do not enact a similar tax ordinance are permitted to escape such imposition. temporary. Taxpayers who are recipients of compensation income are set apart as a class. who must be one engaged in business outside the city. A seller without an agent engaged within the city would not be subject to the tax. v.
This is because it exacts the tax upon all motor vehicles operating within the City of Manila. HELD: The ordinance infringes the rule of uniformity of taxation. without distinguishing between those for hire and for private use. The questioned statute applies uniformly to all banks in the Philippines without distinction and discrimination. Ormoc Sugar was the only sugar central in the city. even if those vehicles which are registered outside the city but which use its streets also contribute equally to the deterioration of the roads and bridges. Yatco: Uniformity Several banks doing business in the Philippines assail the validity of a law imposing a tax on capital. Association of Customs Brokers v. deposits.outside thereof. as well as between those registered in Manila and those registered outside but which occasionally come to Manila. HELD: The ordinance is unconstitutional. When the taxing ordinance was enacted. It is violative of the equal protection clause. They argue that the law is discriminatory and violates the rule of uniformity in taxation. HELD: It is inherent in the power to tax that a state be free to select the subjects of taxation. Inc v. Ormoc Sugar Co. ISSUE: Whether the ordinance is valid. The tax thus partakes of the nature of an import duty. HELD: No. Moreover. which is beyond the authority of the city to impose. 37. 36. case #14. A subsequently established sugar central cannot be subject to tax because the ordinance expressly points to Ormoc Sugar Company Inc as the entity to be levied upon. The ordinance imposes the tax only on those vehicles registered in Manila. while exempting the National City Bank of New York. the tax is discriminatory. Treasurer of Ormoc City: Uniformity and Equal Protection The Municipal Board of Ormoc City passed an ordinance imposing a municipal tax of 1% per export sale of sugar milled at the Ormoc Sugar Company. v. and circulation. supra. that alone could not have the effect of rendering it violative of the rule of Sheryl IID 2003 Page 24 . Alfonso: Equality and Uniformity The City of Manila enacted an ordinance imposing a fee on the price of every admission ticket sold by theaters. Araneta: Uniformity For facts. HELD: No. Inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. while those by local dealers not acting for or on behalf of other merchants would be exempt from the tax. 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. And the lack of uniformity in the result furnishes no ground for complaint. Municipal Board: Uniformity supra. The fact that some places of amusement are not taxed while others are taxed is no argument against the equality and uniformity of the tax imposition. v. If the NCBNY is exempted from its operation because it is a federal instrumentality subject only to the authority of Congress. The plaintiffs argue that the ordinance violated the principle of equality and uniformity of taxation because it did not tax other places of amusement. ISSUE: Whether the ordinance violates the rule on equality and uniformity of taxation. A reasonable classification should be in terms applicable to future conditions as well. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. case #4. violative of the uniformity required by the Constitution. The exemption of an instrumentality of the Federal Government (NCBNY) does not deprive the Commonwealth of the Philippines of the power to tax the competitors of NCBNY. there is no reason why sales thereof by dealers other than agents or consignees of producers or merchants outside the city should be exempt from the tax. Phil. Trust Co. Lutz v. circuses. such as racetracks. 39. and hence. etc. 38. There is no valid classification here because if the purpose of the law were merely to levy a burden upon the sale of soft drinks. ISSUE: Whether the law violates the rule of uniformity in taxation. Ormoc questioned the validity of the ordinance on the ground that it violated the equal protection clause and the rule of uniformity in taxation. The taxing power should not be singular and exclusive as to exclude any subsequent established sugar central from the coverage of the tax. cabarets. 35. Eastern Theatrical Co. since only sales by agents or consignees of outside dealers would be subject to the tax.
because this is hardly attainable. acting in its private capacity. the Province of Misamis Oriental enacted an ordinance levying the ½ of 1% tax on the gross annual receipts of CEPALCO realized within the province of Misamis Oriental. A tax is uniforms when it operates with the same force and effect in every place where the subject is found. The presumption is that special statutes are exceptions to the general law because they pertain to a special charter granted to meet a particular set of conditions and circumstances. In this case. Under the Constitution. The franchise tax imposed under the local tax ordinance pursuant to the Local Tax Code shall be imposed on businesses holding a franchise. The basic rationale for the current rule is to safeguard the viability and self- sufficiency of LGUs by directly granting them general and broad tax powers. On the other hand. CIR CEPALCO was the holder of a legislative franchise under which the 3% franchise tax on its gross earning was “in lieu of all taxes and assessments of whatever authority upon privileges. Meralco v. Churchill v. sheds its cloak of authority and waives its governmental immunity. Concepcion: Uniformity A law was passed imposing an annual tax of P2 per square meter upon electric signs. CEPALCO v. except the 3% tax on its earning. Contractual tax exemptions are those contained in government bonds or debentures. Province of Misamis Oriental v. 43. Local governments do not have the inherent power to tax except to the extent that such power might be delegated to them. ISSUE: Whether the province of Laguna had the power to levy the franchise tax. Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. from which CEPALCO was expressly exempted. Under the now prevailing Constitution. billboards. Pursuant to this. ISSUE: Whether CEPALCO is exempt from paying the provincial franchise tax.” from which the CEPALCO was expressly exempted. earnings. heat. 40. Cagayan Electric Power and Light Company CEPALCO was granted a franchise to operate an electric. The franchise granting the exemption is a special law applicable only to CEPALCO. especially those levied as privilege or occupation taxes. Subsequently. but not from those whose franchises contain the “inlieu-of-all-taxes” proviso. The rule of uniformity does not require taxes to be graded according to the value of the subject upon which they are imposed. while the Local Tax Code is a general tax law.uniformity. Impairment clause Pursuant to the Local Government Code of 1991. but simply a geographical uniformity. or repeal by Congress when the common good so requires. Uniformity does not signify an intrinsic. Petitioners were owners of a billboard constructed on private property in Manila. the P2/sq. The franchise of CEPALCO expressly exempts it from payment of all taxes of whatever authority. lawfully entered into by them under enabling laws in which the government. where there is neither a grant nor a prohibition by statute. Tax exemptions of this kind may not be revoked without impairing the obligations of contracts. income. The franchise imposed a 3% franchise tax which shall be in lieu of all taxes and assessments of whatever authority upon the privileges. the province of Laguna enacted an ordinance imposing on businesses enjoying a franchise a franchise tax of 50% of 1% of gross annual receipts. they assailed the validity of the tax for lack of uniformity because it was not graded according to value and was classified arbitrarily without reasonable ground. and spaces used for posting or displaying temporary signs and all signs displayed on premises not occupied by buildings. the tax power must be deemed to exist although Congress may provide statutory limitations and guidelines. Sheryl IID 2003 Page 25 . alteration. Meralco protested payment on the ground that the franchise tax that it was paying to the National Government already included the franchise tax imposed by the province. light. etc. Contractual tax exemptions should not be confused with tax exemptions granted under franchises. They were taxed P104. meter tax is imposed on every electric sign or billboard wherever found in the Philippines. Province of Laguna: Delegation to LGUs. a franchise partakes of the nature of a grant which is always subject to amendment. etc. The rule of uniformity does not call for perfect uniformity or perfect equality. and power system in Cagayan de Oro. there has been a general delegation of that power in favor of LGUs. ISSUE: Whether the law violates the rule on uniformity. They paid under protest. CEPALCO refused to pay the additional tax. claiming the exemption granted to it under its franchise. earnings. 41. income. HELD: Yes. Subsequently the Local Tax Code was promulgated allowing provinces to impose a tax of ½ of 1% on businesses enjoying franchises. HELD: Yes. 42. HELD: No.
The CIR assessed CEPALCO deficiency income tax for the period June 1968-August 1969. HELD: Yes. on the other. ISSUE: Whether Lealda should pay 5% franchise tax. while the exemption was restored by the subsequent amendment of CEPALCO’s franchise. Julian Anson was granted a franchise to operate an electric light and power plant in Legaspi and Daraga Albay. American Bible Society v. making liable for income tax all corporate taxpayers not specifically exempted under the tax code. Under the decree of the Spanish Government. it was liable to pay only 2% franchise tax. Cassanovas v. it was not a unilateral grant of a privilege by the Spanish Government. reenacting the tax exemption of CEPALCO. there was a binding contract with reciprocal obligations. HELD: Yes. Differentiate this from the two other previous cases: In the CEPALCO cases. It then filed a complaint to declare the municipal ordinances in question unconstitutional for violating the non-establishment and free exercise clause of the Constitution. A State may by contract based on consideration exempt the property of an individual or corporation from taxation either for a specified period or permanently. cannot be amended by the Tax Code. Lealda’s franchise does not contain the same exemption. 45. Lealda paid at first. Such contract can be enforced against the State at the instance of the corporation. or repeal by Congress when the public interest so requires. Lealda Electric Co. v. The law passed in June 1968 had the effect of withdrawing CEPALCO’s exemption from income tax. 46. Anson and his successors-in-interest regularly paid the 2% franchise tax imposed on all franchises. ISSUE: Whether there was a violation of the impairment clause. HELD: No. Congress could impair CEPALCO’s legislative franchise by making it liable for income tax from which it was originally exempted. Hord: Impairment Clause In 1897. the provision is void. The City Treasurer of Manila informed the Society that it was conducting the business of general merchandising without a Mayor’s permit and municipal license. and as such. but later filed a petition for refund contending that under its charter. in violation of Ordinances 3000 and 2529. Hence. the franchises were deemed exempt because the contained the phrase “in lieu of all taxes of any kind levied now or in the future…” There was an express exemption in these cases. In 1946. Cassanovas was granted by the Spanish Government certain mines in Camarines. The constitution provides that a franchise is subject to amendment. franchise companies were subjected to income tax. increasing the franchise tax to 5%. The Internal Revenue Act imposes on all mining concessions granted prior to 1899 a property tax of 100 pesos plus an ad valorem tax of 3% of the actual market value of the output of the mines.In June 1968. From the provisions of the deed. In August 1969. Cassanovas undertook to perform some things with respect to the mining claim in consideration of the privilege. 44. ISSUE: Whether the Society is required to pay the fees under the two ordinances. Cassanovas assails the validity of this provision on the ground that it impairs the obligations of contracts. CIR In 1915. Therefore. ISSUE: Whether CEPALCO enjoyed a tax exemption during the period of June 1968 to August 1969. claiming that it never received any profit from the sale of the materials. And it is equally well settled that the exemption is presumed to be on sufficient consideration. the NIRC was amended. CEPALCO is liable for tax for the period in which there was no exemption. There was a contract between the Spanish Government and the plaintiff. which the State cannot abrogate]. The franchise of Lealda contains an express provision to the effect that the same may be altered or repealed by Congress. Hence. the obligation of which contract was impaired by the Internal Revenue Law. The decree provided that no other taxes except those mentioned shall be imposed upon mining industries. HELD: Sheryl IID 2003 Page 26 . and binds the State if the charter containing it is accepted. Thus. The franchise was transferred to several parties until it was finally sold to Lealda Electric Co. the franchise of CEPALCO was amended. [The important distinction in this case is that there was consideration between both parties for entering into the contract. the mining claim was subject only to at 20 peso property tax and an ad valorem tax of 3%. It argues that the franchise was a private contract between its predecessor-in-interest on one hand and the Government. The Society paid the fees in protest. City of Manila: Free exercise of Religion The American Bible Society was a missionary society engaged in the distribution and sale of bibles in the Philippines. alteration. a law was passed amending the Tax Code.
retail dealers in new merchandise. Hence. The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs. While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively used for educational purposes. HELD: No. such as those engaged in the sale of books. the City of Manila is powerless to license or tax the business of the Society. Ordinance 3000 is also inapplicable to the business of the Society. In this case. its second floor was the permanent residence of the President and Director of the College and his family. cannot be applied to the Society. Ordinance 2529 requires the quarterly payment of license fees based on gross sales from. 47. the Northern Marketing Corporation. Ordinance 3000.” reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Ordinance 2529. except those on which the city is not allowed to impose a license or tax. which does not impose any charge upon the enjoyment of a right granted by the Constitution nor tax the exercise of religious practices. Even if the price asked for the bibles and other religious pamphlets was sometimes a little bit higher than their actual cost. the lease of the first floor to Northern Marketing cannot be considered incidental to the purpose of education. cannot be considered unconstitutional even if applied to the Society. ISSUE: Whether the property was used exclusively for educational purposes. which imposes a license tax on the exercise of the right to sell religious materials. for in doing so. For this reason. the act of selling bibles is purely religious and does not fall under the provisions of the city ordinances. Abra Valley College is not exempt because the property was also being used for commercial purposes. trade. thereby exempting Abra Valley College from payment of tax. The ground floor was being rented to a commercial establishment. Abra Valley College v. The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Those who can tax the exercise of a religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. it cannot mean that the Society was engaged in the business or occupation of selling merchandise for profit. In addition.No. since Ordinance 2529 is not applicable to the Society. or occupation. However. Sheryl IID 2003 Page 27 . The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. On the other hand. Ordinance 3000 requires one to obtain a Mayor’s permit before engaging in any business. among others. Aquino: Exemptions in favor of educational institutions The premises of Abra Valley College were being used for the educational purposes of the college (as classrooms of its high school and college students). While the use of the second floor for residential purposes of the Director and his family may find justification under the concept of incidental use. Any restraint of such right can only be justified on the grounds that there is a clear and present danger of a substantive evil which the State has the right to prevent. the Society is NOT required to pay. which is complimentary to the main or primary purpose.
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