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Constitutional Law 2

Professor: Atty. Judiel M. Pareja


POWER OF TAXATION

A. Definition and Concept of Taxation


1. Commissioner of Internal Revenue vs. Algue, Inc. , Feb. 17, 1988
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
Principle:
Definition and Concept of Taxation
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.
Facts:
The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the
petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the
years 1958 and 1959. 1
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business
expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that
the said amount had been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees. These were collected by the
Payees for their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Company.
It has been established that the Philippine Sugar Estate Development Company had earlier
appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara,
Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment
Corporation, inducing other persons to invest in it. 14 Ultimately, after its incorporation
largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties. 15 For this sale, Algue received as agent a commission of P126,000.00,
and it was from this commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals. 16
Issue:

Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00
deduction claimed by private respondent Algue as legitimate business expenses in its
income tax returns.
Held:
No.
The Court agree with the respondent court that the amount of the promotional fees was not
excessive. The total commission paid by the Philippine Sugar Estate Development Co. to the
private respondent was P125,000.00. 21After deducting the said fees, Algue still had a
balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion, considering that it was
the payees who did practically everything, from the formation of the Vegetable Oil
Investment Corporation to the actual purchase by it of the Sugar Estate properties.
This finding of the respondent court is in accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as
deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid
or incurred in carrying on any trade or business may be included a reasonable allowance for
salaries or other compensation for personal services actually rendered. The test of deductibility in
the case of compensation payments is whether they are reasonable and are, in fact, payments
purely for service. This test and deductibility in the case of compensation payments is whether
they are reasonable and are, in fact, payments purely for service.

The Court concede the inevitability and indispensability of taxation, however it is a


requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor. For all the awesome power of the tax collector, he
may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the
law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was
filed on time with the respondent court in accordance with Rep. Act No. 1125. And we also
find that the claimed deduction by the private respondent was permitted under the Internal
Revenue Code and should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in
toto, without costs.

2. NPC vs. City of Cabanatuan, April 09, 2003

G.R. No. 149110

April 9, 2003

NATIONAL POWER CORPORATION, petitioner,


vs.
CITY OF CABANATUAN, respondent.
Principle:
Definition and Concept of Taxation
>>>Taxes are the lifeblood of the government, 30 for without taxes, the government can
neither exist nor endure. A principal attribute of sovereignty, 31 the exercise of taxing power
derives its source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good.
>>>The theory behind the exercise of the power to tax emanates from necessity
(Necessity Theory); 32 without taxes, government cannot fulfill its mandate of promoting
the general welfare and well-being of the people.
>>> A franchise is a privilege conferred by government authority, which does not belong to
citizens of the country generally as a matter of common right. 4
>>> A franchise tax is "a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the state." 53 It is not levied on the corporation
simply for existing as a corporation, upon its property 54 or its income,55 but on its exercise of
the rights or privileges granted to it by the government.
>>> As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal provisions. 71
The case:
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals
dated March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power
Corporation (NPC) liable to pay franchise tax to respondent City of Cabanatuan.
Facts:
Petitioner is a government-owned and controlled corporation. 4 For many years now,
petitioner sells electric power to the residents of Cabanatuan City. 7 Pursuant to section 37 of
Ordinance No. 165-92,8 the respondent assessed the petitioner a franchise tax. 9
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no
authority to impose tax on government entities. Petitioner also contended that as a nonprofit organization, it is exempted from the payment of all forms of taxes, charges, duties or
fees.
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City,
demanding that petitioner pay the assessed tax due, plus a surcharge and

interest.13Respondent alleged that petitioner's exemption from local taxes has been repealed
by section 193 of Rep. Act No. 7160,1
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code."

Issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC NON-PROFIT
CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO CONSIDER THAT
SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION TO SECTION 131 APPLIES
ONLY TO PRIVATE PERSONS OR CORPORATIONS ENJOYING A FRANCHISE.
WON NPC a public corporation is liable to pay franchise tax.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION FROM ALL
FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE LOCAL GOVERNMENT
CODE AS THE ENACTMENT OF A LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE
CONSTRUED TO HAVE REPEALED A SPECIAL LAW.
WON NPCs exemption has been repealed by the Local Government Code.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN EXERCISE OF
POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER THE LOCAL
GOVERNMENT CODE."21
WON the Local Government Code prevails over the tax exemption granted by the
legislative as an exercise of police power.
Held:
First Issue: NPC, a public non-profit corporation is liable to pay franchise tax.
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.
To determine whether the petitioner is covered by the franchise tax in question, the
following requisites should concur: (1) that petitioner has a " franchise" in the sense of a
secondary or special franchise; and (2) that it is exercising its rights or privileges under this
franchise within the territory of the respondent city government .
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No.
7395, constitutes petitioner's primary and secondary franchises.
With the powers granted to the petitioner, it eventually had the monopoly in the generation
and distribution of electricity. This monopoly was strengthened with the issuance of Pres.
Decree No. 40,59 nationalizing the electric power industry.

Petitioner also fulfills the second requisite. It is operating within the respondent city
government's territorial jurisdiction pursuant to the powers granted to it by Commonwealth
Act No. 120, as amended. From its operations in the City of Cabanatuan, petitioner realized a
gross income of P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought
to be, subject of the franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government, and its charter
characterized it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by
the corporation of a privilege to do business. The taxable entity is the corporation
which exercises the franchise, and not the individual stockholders. By virtue of its charter,
petitioner was created as a separate and distinct entity from the National Government. It
can sue and be sued under its own name, 61 and can exercise all the powers of a corporation
under the Corporation Code.
To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business.
Petitioner was created to "undertake the development of hydroelectric generation of power
and the production of electricity from nuclear, geothermal and other sources, as well as the
transmission of electric power on a nationwide basis." 66 Pursuant to this mandate, petitioner
generates power and sells electricity in bulk. Certainly, these activities do not partake of the
sovereign functions of the government. They are purely private and commercial
undertakings, albeit imbued with public interest. The public interest involved in its
activities, however, does not distract from the true nature of the petitioner as a commercial
enterprise.
Second Issue: NPCs exemption has been repealed by the Local Government Code.
The power to tax is no longer vested exclusively on Congress; local legislative bodies are
now given direct authority to levy taxes, fees and other charges 34 pursuant to Article X,
section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the Local Governments."

One of the most significant provisions of the LGC is the removal of the blanket exclusion
of instrumentalities and agencies of the national government from the coverage
of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of
any kind on the National Government, its agencies and instrumentalities, this rule now
admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose
taxes, fees or charges on the aforementioned entities.
Third Issue: An exercise of police power through tax exemption did not prevail over the
Local Government Code.

We also do not find merit in the petitioner's contention that its tax exemptions under its
charter subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions
must be shown to exist clearly and categorically, and supported by clear legal
provisions.71 In the case at bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395
exempting from, among others, "all income taxes, franchise taxes and realty taxes to be
paid to the National Government, its provinces, cities, municipalities and other government
agencies and instrumentalities." However, section 193 of the LGC withdrew, subject to
limited exceptions, the sweeping tax privileges previously enjoyed by private and public
corporations. Contrary to the contention of petitioner, section 193 of the LGC is an express,
albeit general, repeal of all statutes granting tax exemptions from local taxes. 72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this Code,
tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural
or juridical, including government-owned or controlled corporations, except local water
districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals
and educational institutions, are hereby withdrawn upon the effectivity of this Code."
(emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing,
act, or consequence excludes all others as expressed in the familiar maxim expressio unius
est exclusio alterius.73 Not being a local water district, a cooperative registered under R.A.
No. 6938, or a non-stock and non-profit hospital or educational institution, petitioner clearly
does not belong to the exception.
Disposition:
Doubtless, the power to tax is the most effective instrument to raise needed revenues to
finance and support myriad activities of the local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court observed in the Mactan case, "the
original reasons for the withdrawal of tax exemption privileges granted to governmentowned or controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarly situated
enterprises."78 With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by
paying taxes or other charges due from them.
IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution
of the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby
AFFIRMED.
SO ORDERED.

B. Theory and Basis of Taxation


3. North Camarines Lumber Co., Inc. v. Collector of Internal Revenue.
G.R. No. L-12353

September 30, 1960

NORTH CAMARINES LUMBER CO., INC., petitioner,


vs.
COLLECTOR OF INTERNAL REVENUE, respondent.

Miguel San Jose and A.B. Christi for petitioner.


Assistant Solicitor General Jose P. Alejandro and Atty. S. D. Paredes for respondent.
Principle:
Theory and Basis of Taxation
Taxes are the lifeblood of the government, and their prompt and certain availability an
imperious need.
The Case:
This is an appeal from the resolution of the Court of Tax Appeals dismissing the petition for
review filed by the petitioner for lack of jurisdiction to try it on the merits, the same having
been filed beyond the 30-day period fixed in Section 11 of Republic Act No. 1125.
Facts:
The petitioner, North Camarines Lumber Co., Inc., is a domestic corporation engaged in the
lumber business. On June 19, 1951 and July 31, 1951, it sold a total of 2,164,863 board feet
of logs to the General Lumber Co., Inc., with the agreement that the latter would assume
responsibility for the payment of the sales tax thereon in the amount of P7,768.51.
However, General Lumber Co., Inc.,, failed to pay the tax liabilities. Therefore, the
respondent Collector, in his letter dated August 30, 1955, required the petitioner to pay the
total amount of P9,598.72 as sales tax and incidental penalties in the sale of logs to the
General Lumber Co., Inc.
The Court, after a preliminary hearing on respondent Collector's motion to dismiss, ruled
that, as the petition was filed beyond the 30-day period prescribed by Section 11 of Republic
Act No. 1125, it has no jurisdiction to try the same. Accordingly, the case was dismissed.
In contending that the Court of Tax Appeals erred, the petitioner points out that Section 7,
and not Section 11, of Republic Act No. 1125 confers and determines the jurisdiction of the
respondent court, and that Section 11 refers merely to the prescriptive period for filing
appeals.
While the petitioner is correct as to the attribute of Section 7, it should be remembered that,
for the respondent court to have jurisdiction over any case, the party seeking redress
must first invoke its exercise in the manner and within the time prescribed by the
law. Thus Section 7, which enumerates the specific cases falling within the jurisdiction of
the Court of Tax Appeals must be read together with Section 11, which fixes the time for
invoking said jurisdiction.1awphl.nt
Issue: WON said jurisdiction invoked by the petitioner is within the period prescribed by
Section 11?
Held:
No.

The respondent court ruled that the time consumed by the petitioner in perfecting its appeal
after deducting the time during which the period for appeal was suspended by a pending
request for reconsideration is as follows:

From September 9, 1955, presumed date of receipt of


decision, to September 12, 1955, the filing of request for
reconsideration..................................................................
...............
3 days
From January 5, 1956, presumed date of receipt of denial
of reconsideration, to January 9, 1956, the filing of the
second
request
for
reconsideration..................................................................
.........
4 days
From February 16, 1956, receipt of denial of second
request for reconsideration, to March 13, 1956, the filing
of
petition
for
review................................................................................
..............
26
days
Total...................................................................................
33
..............
days
As the petitioner had consumed thirty-three days, its appeal was clearly filed out
of time.
It is argued, however, that in computing the 30-day period fixed in Section 11 of Republic Act
No. 1125, the letter of the respondent Collector dated January 30, 1956, denying the
second request for reconsideration, should be considered as the final decision contemplated
in Section 7, and not the letter of demand dated August 30, 1955.
This contention is untenable. We cannot countenance that theory that would make the
commencement of the statutory 30-day period solely dependent on the will of the taxpayer
and place the latter in a position to put off indefinitely and at his convenience the finality of
a tax assessment. Such an absurd procedure would be detrimental to the interest of the
Government, for "taxes are the lifeblood of the government, and their prompt and
certain availability an imperious need." (Bull vs. U.S. 295, U.S. 247).
WHEREFORE, the resolution appealed from is affirmed, with costs. 3m 3 so ordered.

4. Phil. Guaranty Co., Inc. vs. Commissioner of Internal Revenue,


April 30, 1965
G.R. No. L-22074

April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner,


vs.

THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX


APPEALS, respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
Principle:
Theory and Basis of Taxation
The power to tax is an attribute of sovereignty. It is a power emanating from necessity.
It is a necessary burden to preserve the State's sovereignty and a means to give the
citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps
of civil servants to serve, public improvement designed for the enjoyment of the citizenry
and those which come within the State's territory, and facilities and protection which a
government is supposed to provide.
Facts:
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance
contracts, on various dates, with foreign insurance companies not doing business in the
Philippines. Said reinsurance contracts were signed by Philippine Guaranty Co., Inc. in Manila
and by the foreign reinsurers outside the Philippines, except the contract with Swiss
Reinsurance Company, which was signed by both parties in Switzerland.
A proportionate amount of taxes on insurance premiums not recovered from the original
assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed,
in consideration for managing or administering their affairs in the Philippines, to compensate
the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums.
However some premiums were excluded by Philippine Guaranty Co., Inc. from its gross
income when it files its income tax returns for 1953 and 1954. Furthermore, it did not
withhold or pay tax on them. Consequently, per letter dated April 13, 1959, the
Commissioner of Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding
tax on the ceded reinsurance premiums.
Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance
premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to
withholding tax.
Issue:
WON the reinsurance premiums are subject to withholding tax.
Held:
Yes.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from
sources within the Philippines. The word "sources" has been interpreted as the activity,
property or service giving rise to the income.

The foreign insurers' place of business should not be confused with their place of activity.
Section 24 of the Tax Code does not require a foreign corporation to engage in business in
the Philippines in subjecting its income to tax. It suffices that the activity creating the
income is performed or done in the Philippines. What is controlling, therefore, is not the
place of business but the place of activity that created an income.
Considering that the reinsurance premiums in question were afforded protection by the
government and the recipient foreign reinsurers exercised rights and privileges guaranteed
by our laws, such reinsurance premiums and reinsurers should share the burden of
maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the
Commissioner of Internal Revenue requiring no withholding of the tax due on the
reinsurance premiums in question relieved it of the duty to pay the corresponding
withholding tax thereon. This defense of petitioner may free if from the payment of
surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it
certainly would not exculpate if from liability to pay such withholding tax The Government is
not estopped from collecting taxes by the mistakes or errors of its agents. 3
Disposition:
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is
hereby ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00
and P173,153.00, or a total amount of P375,345.00, as withholding tax for the years 1953
and 1954, respectively. If the amount of P375,345.00 is not paid within 30 days from the
date this judgement becomes final, there shall be collected a surcharged of 5% on the
amount unpaid, plus interest at the rate of 1% a month from the date of delinquency to the
date of payment, provided that the maximum amount that may be collected as interest shall
not exceed the amount corresponding to a period of three (3) years. With costs againsts
petitioner.

C. Double Taxation
5. City of Manila vs. Coca-Cola Bottlers Philippines, Inc., August 04,
2009
G.R. No. 181845

August 4, 2009

THE CITY OF MANILA, LIBERTY M. TOLEDO, in her capacity as THE TREASURER OF


MANILA and JOSEPH SANTIAGO, in his capacity as the CHIEF OF THE LICENSE
DIVISION
OF
CITY
OF
MANILA,petitioners,
vs.
COCA-COLA BOTTLERS PHILIPPINES, INC., Respondent.
Principle:
Double Taxation
Double taxation means taxing the same property twice when it should be taxed only once;
that is, "taxing the same person twice by the same jurisdiction for the same
thing." Otherwise described as "direct duplicate taxation," the two taxes must be imposed

on the same subject matter, for the same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period; and the taxes must be of the same kind or
character.1
Facts::
Petitioner City of Manila is a public corporation empowered to collect and assess business
taxes, revenue fees, and permit fees, through its officers, petitioners Toledo and Santiago, in
their capacities as City Treasurer and Chief of the Licensing Division, respectively. On the
other hand, respondent Coca-Cola Bottlers Philippines, Inc. is a corporation engaged in the
business of manufacturing and selling beverages, and which maintains a sales office in the
City of Manila.
Prior to 25 February 2000, respondent had been paying the City of Manila local business
tax only being expressly exempted from the business tax under a tax ordinance (Tax
Ordinance No. 7794).
Petitioner City of Manila subsequently approved on 25 February 2000, another tax ordinance
(Tax Ordinance No. 7988)7 amending certain sections of the previous (Tax Ordinance No.
7794), particularly: (1) Section 14, by increasing the tax rates applicable to certain
establishments operating within the territorial jurisdiction of the City of Manila; and (2)
Section 21, by deleting the proviso exempting them to pay business tax.
Subsequently Tax Ordinance No. 8011 was passed amending Tax Ordinance No. 7988.
Tax Ordinances No. 7988 and No. 8011 were later declared by the Court null and
void (failure to satisfy the requirement under the law that said ordinance be published for
three consecutive days.) in Coca-Cola Bottlers Philippines, Inc. v. City of Manila 8 (Coca-Cola
case) for the following reasons: (1) Tax Ordinance No. 7988 was enacted in contravention of
the provisions of the Local Government Code (LGC) of 1991 and its implementing rules and
regulations;
However, before the Court could declare Tax Ordinance No. 7988 and Tax Ordinance No.
8011 null and void, petitioner City of Manila assessed respondent on the basis of
Section 21 of Tax Ordinance No. 7794, as amended by the aforementioned tax ordinances.
Respondent filed a protest with petitioner Toledo on the ground that the said assessment
amounted to double taxation, as respondent was taxed twice, i.e., under Sections 14
and 21 of Tax Ordinance No. 7794, as amended by Tax Ordinances No. 7988 and No.
8011. Petitioner Toledo did not respond to the protest of respondent.
The petitioner contends that Section 14 of Tax Ordinance No. 7794 imposes local business
tax on manufacturers. On the other hand, the local business tax under Section 21 of Tax
Ordinance No. 7794 is imposed upon persons. Thus, there can be no double taxation when
respondent is being taxed under both Sections 14 and 21 of Tax Ordinance No. 7794, for
under the first, it is being taxed as a manufacturer; while under the second, it is
being taxed as a person selling goods in the course of trade or business subject to excise,
VAT, or percentage tax.

Issue:

WHETHER OR NOT THE ENFORCEMENT OF [SECTION] 21 OF THE [TAX ORDINANCE NO. 7794,
AS AMENDED] CONSTITUTES DOUBLE TAXATION.
Held:
Yes.
Using the direct duplicate taxation test, the Court finds that there is indeed double
taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax
Ordinance No. 7794, since these are being imposed: (1) on the same subject matter the
privilege of doing business in the City of Manila; (2) for the same purpose to make persons
conducting business within the City of Manila contribute to city revenues; (3) by the same
taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within
the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar
year; and (6) of the same kind or character a local business tax imposed on gross sales or
receipts of the business.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is hereby
DENIED. No costs.
SO ORDERED.

D. License versus Tax; LGUs Power to Tax


6. Saldaa vs. City of Iloilo, June 26, 1958
G.R. No. L-10470

June 26, 1958

SERAFIN SALDAA, plaintiff-appellant,


vs.
CITY OF ILOILO, defendant-appellee.
Serafin B. Saldaa for appellant.
City Fiscal Filemon R. Consolacion for appellee.
Principle:
License versus Tax; LGUs Power to Tax
>>> The license represents the permission conceded to do an act, is not supposed to be
imposed for revenue, and is in the main for police purposes. A property tax, on the other
hand, is a tax in the ordinary sense, assessed according to the value of property.
>>> So-called license taxes are of two kinds. The one is a tax for the purpose of revenue.
The other, which is, strictly speaking, not a tax at all but merely an exercise of the police
power, is a fee imposed for the purpose of regulation. But a charge of a fixed sum which
bears no relation to the cost of inspection and which is payable into the general revenue of
the state is a tax rather than an exercise of the police power.
>>> A municipal corporation, unlike a sovereign state, is clothed with no inherent power of
taxation. Its charter must plainly show an intent to confer that power or the corporation

cannot assume it. And the power when granted is to be construed strictissimi juris. Any
doubt or ambiguity arising out of the term used must be resolved against the corporation.
The Case:
Serafin Saldaa is appealing the decision of the Court of First Instance of Iloilo in Civil Case
No. 2236, dismissing his complaint against the City of Iloilo, for the refund of taxes paid by
him under protest, and upholding the legality of Ordinance No. 28, Series of 1946, as
amended by Ordinance No. 30, same series of the defendant City.
Facts:
On May 25, 1946, the defendant City of Iloilo promulgated Ordinance No. 28,
ORDINANCE No. 28
AN ORDINANCE REGULATING THE EXIT OF FOOD SUPPLY AND LABOR ANIMALS AND IMPOSING
PERMIT FEE THEREFOR.
ARTICLE 1. For the purpose of regulating during this state of emergency, the exit of food
supply and labor animals in order to avert shortage of the same in the City of Iloilo, it is strictly
prohibited to send outside of the City of Iloilo, without first obtaining the necessary license
permit from the Mayor, the following:
Large cattle, pigs, goats, sheep or the like;
Domestic fowls, eggs;
Fish, whether fresh, salted or dried;
Milkfish (semilla), bagoon (guinamos, crabs, prawn or the like);
Fruits, such as bananas, melon, papayas or the like.
ART. 2. The City Treasurer shall, for issuance of license permit required in article one hereof,
collect a fee.
Art. 3. It shall be unlawful for any carrier whether land, water, or air, to load any of the
articles mentioned herein which is not provided with the corresponding permit as required by
this ordinance.
Art. 4. Violation of this ordinance shall be punished with a fine of not less than One Hundred
(P100) Pesos, or more than Two Hundred (P200) Pesos, imprisonment of not less than ten (10)
days but not exceeding six (6) months and to suffer subsidiary imprisonment in case of
insolvency to pay the fine.

Under said ordinances, Saldaa had been paying, though under protest, so-called fees on
fish bought in the City of Iloilo and sent by him to Manila by plane, during the period from
September 16, 1946 to December 6, 1946, totalling P1,359.80.
On September 17, 1951, plaintiff commenced the present proceedings by complaint for the
reimbursement to him of the said amount with interest, on the ground that the ordinances in
question were illegal, null and void, having been enacted beyond the powers of the
Municipal Board of the City.
Issue:

WON the licensed fees imposed and collected were in reality taxes.
Held:
Judging from the amount of the fees fixed in the ordinances in question, we do not hesitate
to find and to hold that the so-called fees were in reality taxes for city revenue. The fees
collected would amount to a sizable sum and augment greatly the revenues of the municipal
corporation, way in excess of the cost of inspections and the issuance of the permits.
As correctly argued by the appellant, nowhere in the charter of the defendant City is it
authors to regulate and collect fees or taxes for, the taking out of the city, of animals and
articles listed in the ordinance. On the other hand, a municipal corporation like the
defendant City has no inherent power of taxation. To enact a valid ordinance, the City must
find in its charter the power to do so, for said power cannot be assumed.
Aside from this lack of inherent power of taxation by a municipal corporation, Section 2287
of the Revised Administrative Code provides that municipal revenue obtainable by taxation
shall be derived from such sources only as are expressly authorized by law; and it further
provides, and this is very important, that:
It shall not be in the power of the municipal council to impose a tax in any form
whatever upon goods and merchandise into the municipality, or out of the same, and
any attempt to impose an import or export taxupon such goods in the guise of an
unreasonable charge for wharfage, use of bridges or otherwise, shall be void.
(Emphasis supplied).
Disposition:
In conclusion, we find that the ordinance in question as amended, is ultra vires, enacted
beyond the general powers of a municipal corporation and not authorized by the defendantappellee's charter, and consequently null and void; that the prohibition against taking
animals and articles out of the City of Iloilo without permit of the mayor is in restraint of
trade and a curtailment of the rights of the owners of the said animals and articles to freely
sell and of prospective purchasers to buy and dispose of them without the city limits in the
ordinary course of commerce and trade; that the fees imposed in the said ordinances are in
fact taxes not only unauthorized by the law or the charter of defendant City, but also in
contravention of the provisions of Sections 2287 and 2629 of the Revised Administrative
Code, which prohibit municipal corporations from imposing any tax in any form upon goods
and merchandise carried into or out of the town or City.
In view of the foregoing, the appealed decision is hereby reversed and the City of Iloilo is
hereby ordered to reimburse plaintiff the amount of P1,359.80, with legal interest and costs.
_________________________________________________________________________________________
Chapter 7: TAXATION
Nature
Taxes
- Enforced proportional contributions
- from persons and property
- levied by the State

- by virtue of its sovereignty,


- for the support of government and for all public needs.
Taxation
- Is the method by which taxes are exacted.
- It is apportioned based on peoples ability to pay.
- Equitable sharing
- It derives from the unavoidable obligation of the government to protect the people
and extend them benefits in the form of public projects and services.
- In return it is the reciprocal duty of the people to share the expenses incurred
through the payment of taxes.
- The obligation to pay taxes is not based on contract but from the membership of the
body politic and his enjoyment of benefits available from such membership.
- Non-imprisonment for non-payment of poll tax.
- Imprisonment for non-payment of taxes. Prohibition against imprisonment for debts
cannot be invoked. Taxes are not debts.
Taxes
To raise revenue
Taxation
Unlimited

Licenses
For
regulatory
purposes.
Police power
Limited only as to
cost of regulation

Scope
- Pervasive
- Applied to citizens and aliens, residents and non-residents, income derived within and
outside the Philippines in proper cases.
- Immovable and movable properties, tangible and intangible.
- The power to tax includes the power to destroy.
It is used to implement police power in discouraging and in effect prohibiting certain
things or enterprises inimical to public welfare.
- The power to tax does include the power to destroy as long as the Court sits.
It is used solely for the purpose of raising revenues.
Exercise
- It is inherent to the State.
- It is primarily vested in the legislative body and may be also exercised by the local
legislative bodies (LGUs) by virtue of the Constitution
Article X, Section 5
Each local government unit shall have the power to
revenues and to levy taxes, fees and charges subject
limitations as the Congress may provide, consistent with
autonomy. Such taxes, fees, and charges shall accrue
governments.
-

create its own sources of


to such guidelines and
the basic policy of local
exclusively to the local

Amount to tax, WON to tax, whom or what to tax, for what purposes are subject to
the discretion of the legislature.

Article VI, Sec. 28

1. The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
2. The Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the
Government.
3. Charitable institutions, churches and personages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.
4. No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.
Due Process and Taxation
- In ad valorem tax (tax based on the value of the property), the taxpayer is entitled to
be notified of the assessment proceedings and heard therein for the correct valuation
to be given the property otherwise the ad valorem tax may be increased at the
prejudice of the owner in an ex parte appraisal.
Equal Protection and Taxation
- the rule of taxation should be uniform and equitable
- Uniformity in taxation means that persons of the same class shall be taxed at the
same rate.
- Equality in taxation means that the tax shall be proportional to the relative value of
the property.
- Equitable means that taxes should be apportioned among the people according to
their capacity to pay.
Double Taxation
- There is no provision in the Constitution prohibiting double taxation.
- Direct double taxation
Same subject is taxed twice when it should be taxed only once
For the same purpose
By the same taxing authority
Within the same jurisdiction
For the same taxable period
For the same kind or character of tax
- It cannot be allowed if it violates the equal protection clause.
Public Purpose
- It includes direct and indirect public advantage or benefit.
- It might be enjoyed by private individuals so long as some link to public welfare is
established.
Tax Exemptions
- Could be constitutional or statutory.
- Constitutional
Article VI, Sec. 28 (3)
Charitable institutions, churches and personages or convents appurtenant thereto,
mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes shall
be exempt from taxation.
- It is only applicable to property tax and not to any other tax like donors and income
tax.

Limitation
Article VI, Sec. 28 (4)
No law granting any tax exemption shall be passed without the concurrence of a
majority of all the Members of the Congress.
Tax exemption granted gratuitously it might be revoked at will, with or without
caused.