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delegated to local governments in respect of matters of

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


TAXATION LAW I Republic Act No. 2264 emanated from beyond the sphere
of the legislative power to enact and vest in local
governments the power of local taxation.
COURSE OUTLINE

TAXATION i. Inherent

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

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


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

Only the congress has the authority to exercise


i. Power the state’s inherent powers. The State’s local
ii. Process government units, being mere creatures of the
iii. Means National Government, do not possess inherent
powers. But those can be delegated by the
B. Nature national government to its local government
units.
PEPSI-COLA v. MUNICIPALITY OF TANAUAN; G.R. No. L-
31156 a. Local Government Units & Other Political
Subdivisions
Facts:
On February 14, 1963, the plaintiff-appellant, Pepsi- ICARD v. CITY OF BAGUIO; G.R. No. L-1281
Cola Bottling Company of the Philippines, Inc., commenced a
complaint with preliminary injunction before the Court of First
Instance of Leyte for that court to declare Section 2 of Republic Facts:
Act No. 2264.1 otherwise known as the Local Autonomy Act,
unconstitutional as an undue delegation of taxing authority as The City of Baguio has enacted the following
well as to declare Ordinances Nos. 23 and 27, series of 1962, ordinances:
of the municipality of Tanauan, Leyte, null and void.
The Ordinance 23 levies and collects from soft drinks 1. No. 6-v, providing among other things for an amusement tax
producers and manufacturers a tax of one-sixteenth (1/16) of a of P0.20 for every person entering a night club licensed to do
centavo for every bottle of soft drink corked, and Ordinance 27 business in the city;
levies and collects on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of 2. No. 11-V, providing for a property tax on motor vehicles kept
volume capacity. Aside from the undue delegation of authority, and operated in the city; and
appellant contends that it allows double taxation, and that the
subject ordinances are void for they impose percentage or 3. No. 12-V, imposing a graduated license fee on every
specific tax. admission ticket sold by enterprises enumerated in said
On October 7, 1963, the Court of First Instance of ordinance among them, cinematographs.
Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No.
2264] declaring Ordinance Nos. 23 and 27 legal and
Petitioner, a resident of the City of Baguio is holder of
constitutional; ordering the plaintiff to pay the taxes due under
a municipal license for the operation of a night club called "El
the oft the said Ordinances; and to pay the costs."
Club Monaco. As such, he has to pay to the National
From this judgment, the plaintiff Pepsi-Cola Bottling
Government an amusement tax on its total gross receipts
Company appealed to the Court of Appeals, which, in turn,
under section 260 of the Internal Revenue Code, and to the
elevated the case to Us pursuant to Section 31 of the Judiciary
City of Baguio the annual license fee provided for in said
Act of 1948, as amended.
Ordinance No. 6-V. But in addition to said amusement tax and
license fee, he has also been required to pay the amusement
Issue:
tax imposed in that same ordinance which he paid under
Whether or not Section 2, Republic Act No. 2264
protest.
an undue delegation of power, confiscatory and
oppressive?
As owner of a six-passenger automobile for private
use a Chevrolet Ford or Sedan kept and operated in the City of
Baguio, he already paid registration fee under the Revised
Ruling:
Motor Vehicle Law, but pursuant to Ordinance No. 11-V of said
NO. The power of taxation is an essential and
city he would also have to pay in addition an annual property
inherent attribute of sovereignty, belonging as a matter of
tax on the same automobile. He contends that the ordinances
right to every independent government, without being
above mentioned are unjust and ultra vires.
expressly conferred by the people. It is a power that is
The lower court ruled in favor of petitioner.
purely legislative and which the central legislative body
cannot delegate either to the executive or judicial
Issue:
department of the government without infringing upon the
theory of separation of powers. The exception, however,
Is the City of Baguio empowered to levy a property tax on
lies in the case of municipal corporations, to which, said
motor and an amusement tax on night clubs?
theory does not apply. Legislative powers may be
instrumentalities of the National Gov't like PAGCOR, which has
Held: No a dual role (its role to regulate gambling casinos is
governmental, placing it in the category of an agency or
It is settled that a municipal corporation unlike a instrumentality of the Government which should be exempt
sovereign state is clothed with no inherent power of taxation. from local taxes. Petitioner thus concludes that there is a
The charter or statute must plainly show an intent to confer that distinction in the LGC between a GOCC performing gov't
power or the municipality, cannot assume it. And the power functions as against one performing merely proprietary ones,
when granted is to be construed in strictissimi juris. Any doubt and it is clear from Secs. 133 and 234, LGC that the legislature
or ambiguity, that power must be resolved against the meant to exclude instrumentalities of the national government
municipality. from the taxing powers of LGUs.

ISSUE
Whether petitioner is exempted from payment of taxes or not
NPC v. CITY OF CABANATUAN; G.R. No. 149110
RULING
No. Taxation is the rule and exemption is the exception. Thus,
MCIAA v. MARCOS; G.R. No. 120082 the exemption may be withdrawn at the pleasure of the taxing
authority. The only exception to this rule is where the
exemption was granted to private parties based on material
FACTS consideration of a mutual nature, which then becomes
Mactan Cebu International Airport Authority was created by contractual and is thus covered by the non-impairment clause
virtue of RA 6958 to manage the Mactan International Airport of the Constitution.
and the Lahug Airport. Since the time of its creation, petitioner
MCIAA enjoyed the privilege of exemption from payment of The general rule, as laid down in Section 133 of the LGC is
realty taxes. In Section 14 of its Charter provides that “the that the taxing powers of LGUs cannot extend to the levy of,
Authority shall be exempt from realty taxes imposed by the inter alia, “taxes, fees and charges of any kind on the National
National Government or any of its political subdivisions, Government, its agencies, and instrumentalities, and LGUs.”
agencies and instrumentalities.” However, pursuant to Section 232, provinces, cities and
municipalities in the Metro Manila Area MAY impose real
In 1994, however, the Office of the Treasurer of the City of property taxes except on inter alia, real property owned by the
Cebu demanded payment for realty taxes on several parcels of Republic of the Philippines or any of its political subdivisions
land belonging to petitioner. Petitioner objected to such except when the beneficial use thereof has been granted for
demand, citing Sec. 14. It asserted that it is an instrumentality consideration or otherwise, to a taxable person (Sec. 234a).
of the government which performs governmental functions,
citing Sec. 133 of the Local Government Code which puts As to tax exemptions/incentives granted to or presently
limitations on the taxing powers of local government units. Sec. enjoyed by natural or juridical persons, including GOCCs,
133, LGC provides that the exercise of the taxing powers of
provinces, cities, municipalities and barangays shall not extend GENERAL RULE: Tax exemptions or incentives are withdrawn
to the levy of... taxes, fees or charges of any kind on the upon the effectivity of the LGC
National government, its agencies and instrumentalities and
local government units. EXCEPTION: Those granted to local water districts,
cooperatives duly registered under RA 6938, non-stock and
The Respondent City refused to cancel and set aside the realty non-profit hospitals and educ institutions, and unless otherwise
tax account, insisting that the MCIAA is a GOCC whose tax provided in the LGC. This latter proviso could refer to Section
exemption privilege has been withdrawn by virtue of Sections 234 enumerating the properties exempt from real property tax.
193 and 234 of the LGC. Sec. 193 provides that tax The last paragraph of Section 234 further qualifies the
exemptions or incentives granted to or presently enjoyed by all retention of the exemption insofar as real property taxes are
persons, whether natural or juridical, including GOCCs except concerned by limiting the retention only to those enumerated
local water districts, cooperatives duly registered under RA therein; all others not included in the enumeration therefore
6938, non-stock and non-profit hospitals and educational lost the privilege upon the effectivity of the LGC. Even as to
institutions are hereby withdrawn upon the effectivity of this real property owned by the Rep. Of the Philippines or any of its
Code. Section 234 meanwhile provides that exemption from political subdivisions covered by item (a) of the first paragraph
payment of real property tax previously granted to or presently of Section 234, the exemption is withdrawn if the beneficial use
enjoyed by all persons, whether natural or juridical, including of such property has been granted to a taxable person for
GOCCs are hereby withdrawn upon the effectivity of the LGC. consideration or otherwise.
Because the City of Cebu was about to issue a warrant of levy Since the last paragraph of Section 234 unequivocally
against the properties of MCIAA, the latter was compelled to withdrew, upon the effectivity of the LGC, exemptions from
pay its tax account under protest. MCIAA likewise filed a payment of real property taxes granted to natural or juridical
petition for declaratory relief with the RTC of Cebu, contending persons, including government-owned or controlled
that the taxing powers of local government units do not extend corporations, except as provided in the said section, and the
to the levy of taxes or fees of any kind on an instrumentality of petitioner is, undoubtedly, a government-owned corporation, it
the national government. MCIAA insisted that while it is indeed necessarily follows that its exemption from such tax granted it
a GOCC, it nontheless stands on the same footing as an by its charter has been withdrawn.
agency or instrumentality of the national government by the
very nature of its powers and functions. The City however
maintained that MCIAA is not an instrumentality of the ‣ C.N. HODGES v. MUNICIPAL
government but merely a GOCC performing proprietary BOARD; G.R. No. L-18129
functions, and hence, the exemptions granted to it were
deemed withdrawn by virtue of Secs. 193 and 234 of the LGC.
ii. Legislative
The trial court dismissed the petition. MR denied. Hence this
petition. Petitioner asserts that although it is a GOCC, it is Power to Tax is inherently legislative in nature
mandated to perform functions in the same category as an and character because it can only be
instrumentality of the government. An instrumentality of the exercised through the enactment of law.
Government is one created to perform governmental functions
primarily to promote certain aspects of the economic life of the
Legislature determines the coverage, object,
people. Petitioner further contends that being an
instrumentality of the National Government, respondent City of nature, extent and situs.
Cebu has no power nor authority to impose realty taxes upon it
in accordance with Sec. 133 of the LGC. In Basco v. PAGCOR, Taxes are grant of the people who are taxed,
the SC said the local governments have no power to tax and the grant must be made by the immediate
representative of the people, there it must of capital because gross income, unlike net income, is not
remain and be exercised. "realized gain."

The Legislative bodies can enact laws to raise


revenues in the absence of constitutional
ISSUE:
provisions, the constitutional provisions
relating to the power of taxation do not operate 1. WON the imposition of the MCIT on domestic corporations is
as grants of the power of taxation to the unconstitutional
government but instead merely constitute a
limitation upon a power which would otherwise 2. WON RR 9-98 is a deprivation of property without due
be practically without limit. process of law because the MCIT is being imposed and
collected even when there is actually a loss, or a zero or
a. Imposition of Tax negative taxable income

1. Nature (Kind) HELD:


2. Coverage (Subjects)
3. Purpose (Object) 1. NO. MCIT is not violative of due process. The MCIT is not a
tax on capital. The MCIT is imposed on gross income which is
4. Extent (Rate)
arrived at by deducting the capital spent by a corporation in the
5. Situs (Place) sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not being
CREBA v. ROMULO; G.R. No. 160756 taxed.

FACTS: Furthermore, the MCIT is not an additional tax imposition. It is


imposed in lieu of the normal net income tax, and only if the
Chamber of Real Estate and Builders' Associations, Inc. normal income tax is suspiciously low.
(CHAMBER) is questioning the constitutionality of Sec 27 (E)
of RA 8424 and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision The MCIT merely approximates the amount of net income tax
and those involving creditable withholding taxes (CWT). [CWT due from a corporation, pegging the rate at a very much
issues will not be discussed] reduced 2% and uses as the base the corporation’s gross
income.

CHAMBER assails the validity of the imposition of minimum


corporate income tax (MCIT) on corporations and creditable CHAMBER failed to support, by any factual or legal basis, its
withholding tax (CWT) on sales of real properties classified as allegation that the MCIT is arbitrary and confiscatory. It does
ordinary assets. Chamber argues that the MCIT violates the not cite any actual, specific and concrete negative experiences
due process clause because it levies income tax even if there of its members nor does it present empirical data to show that
is no realized gain. the implementation of the MCIT resulted in the confiscation of
their property.

MCIT scheme: (Section 27 (E). [MCIT] on Domestic


Corporations.) Taxation is necessarily burdensome because, by its nature, it
A corporation, beginning on its fourth year of operation, is adversely affects property rights. The party alleging the law’s
assessed an MCIT unconstitutionality has the burden to demonstrate the
of 2% of its gross income when such MCIT is greater than the supposed violations in understandable terms.
normal corporate income tax imposed under Section 27(A)
(Applying the 30% tax
rate to net income). If the regular income tax is higher than the 2. NO. RR 9-98, in declaring that MCIT should be imposed
MCIT, the corporation does not pay the MCIT. whenever such corporation has zero or negative taxable
income, merely defines the coverage of Section 27(E).
Any excess of the MCIT over the normal tax shall be carried
forward and credited against the normal income tax for the This means that even if a corporation incurs a net loss in its
three immediately succeeding taxable years. business operations or reports zero income after deducting its
expenses, it is still subject to an MCIT of 2% of its gross
The Secretary of Finance is hereby authorized to suspend the income. This is consistent with the law which imposes the
imposition of the [MCIT] on any corporation which suffers MCIT on gross income notwithstanding the amount of the net
losses on account of prolonged labor dispute, or because of income.
force majeure, or because of legitimate business reverses. Congress has the power to condition, limit or deny deductions
from gross income in order to arrive at the net that it chooses
The term ‘gross income’ shall mean gross sales less sales to tax. This is because deductions are a matter of legislative
returns, discounts and allowances and cost of goods sold. grace. The assignment of gross income, instead of net income,
"Cost of goods sold" shall include all business expenses as the tax base of the MCIT, taken with the reduction of the tax
directly incurred to produce the merchandise to bring them to rate from 32% to 2%, is not constitutionally objectionable.
their present location and use.

CHAMBER claims that the MCIT under Section 27(E) of RA b. Grant of Exemption
8424 is unconstitutional because it is highly oppressive,
arbitrary and confiscatory which amounts to deprivation of
GOMEZ v. PALOMAR; G.R. No. L-23645
property without due process of law. It explains that gross
income as defined under said provision only considers the cost
of goods sold and other direct expenses; other major FACTS: Petitioner Benjamin Gomez mailed a letter at the post
expenditures, such as administrative and interest expenses office in San Fernando, Pampanga. It did not bear the special
which are equally necessary to produce gross income, were anti-TB stamp required by the RA 1635. It was returned to the
not taken into account. Thus, pegging the tax base of the MCIT petitioner. Petitioner now assails the constitutionality of the
to a corporation’s gross income is tantamount to a confiscation statute claiming that RA 1635 otherwise known as the Anti-TB
Stamp law is violative of the equal protection clause because it
constitutes mail users into a class for the purpose of the tax JOHN HAY PEOPLE’S ALTERNATIVE COALITION v. LIM;
while leaving untaxed the rest of the population and that even G.R. No. 119775
among postal patrons the statute discriminatorily grants
exemptions. The law in question requires an additional 5
centavo stamp for every mail being posted, and no mail shall Facts:
be delivered unless bearing the said stamp.
On August 16, 1993, BCDA entered into a Memorandum
ISSUE: of Agreement and Escrow Agreement with private respondents
Is the Anti-TB Stamp Law unconstitutional, for being allegedly Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
violative of the equal protection clause? Internationale Group, Inc. (ASIAWORLD), private corporations
registered under the laws of the British Virgin Islands,
HELD: preparatory to the formation of a joint venture for the
No. It is settled that the legislature has the inherent power to development of Poro Point in La Union and Camp John Hay as
select the subjects of taxation and to grant exemptions. This premier tourist destinations and recreation centers.
power has aptly been described as "of wide range and
flexibility." Indeed, it is said that in the field of taxation, more The Baguio City government meanwhile passed a
than in other areas, the legislature possesses the greatest number of resolutions in response to the actions taken by
freedom in classification. The reason for this is that BCDA as owner and administrator of Camp John Hay.
traditionally, classification has been a device for fitting tax
programs to local needs and usages in order to achieve an The issuance of Proclamation No. 420 spawned the present
equitable distribution of the tax burden. petition[17] for prohibition, mandamus and declaratory relief
which was filed on April 25, 1995 challenging, in the main, its
The classification of mail users is based on the ability to pay, constitutionality or validity as well as the legality of the
the enjoyment of a privilege and on administrative Memorandum of Agreement and Joint Venture Agreement
convenience. Tax exemptions have never been thought of as between public respondent BCDA and private
raising revenues under the equal protection clause. respondents TUNTEX and ASIAWORLD.

CIR v. LINGAYEN GULF; G.R. No. L-23771 Issue:

FACTS: Whether the tax exemptions and other financial incentives


granted to the Subic SEZ under Section 12 of RA 7227 are
Lingayen Gulf Electric Power operates an electric power plant applicable to the John Hay SEZ.
serving the municipalities of Lingayen and Binmaley,
Pangasinan, pursuant to municipal franchise granted it by the
respective municipal councils. The franchises provided that the Ruling:
grantee shall pay quarterly to the provincial treasury of
Pangasinan 1% of the gross earnings obtained through the NO. As gathered from the earlier-quoted Section 12 of
privilege for the first 20 years (from 1946) and 2% during the R.A. No. 7227, the privileges given to Subic SEZ consist
remaining 15 years of the life of the franchise. In 1955, the BIR principally of exemption from tariff or customs duties, national
assessed and demanded against the company deficiency and local taxes of business entities therein (paragraphs (b) and
franchise taxes and surcharges from the years 1946 to 1954 (c)), free market and trade of specified goods or properties
applying the franchise tax rate of 5% on gross receipts from (paragraph d), liberalized banking and finance (paragraph f),
1948 to 1954. The company asked for a reinvestigation, which and relaxed immigration rules for foreign investors (paragraph
was denied. CTA, however, ruled for Lingayen. Hence, this g). Yet, apart from these, Proclamation No. 420 also makes
petition. available to the John Hay SEZ benefits existing in other laws
such as the privilege of export processing zone-based
ISSUES: businesses of importing capital equipment and raw materials
free from taxes, duties and other restrictions; tax and duty
1. Whether the Court can inquire into the wisdom of the exemptions, tax holiday, tax credit, and other incentives under
franchise the Omnibus Investments Code of 1987;and the applicability to
2. Whether a rate below 5% is violative of the uniformity clause the subject zone of rules governing foreign investments in the
in the Constitution Philippines.

RULING: While the grant of economic incentives may be essential


to the creation and success of SEZs, free trade zones and the
No, the Court does not have the authority to inquire into the like, the grant thereof to the John Hay SEZ cannot be
wisdom of the Act. Charters or special laws granted and sustained. The incentives under R.A. No. 7227
enacted by the legislature are in the nature of private contracts. are exclusive only to the Subic SEZ, hence, the extension of
They do not constitute a part of the machinery of the general the same to the John Hay SEZ finds no support therein.
government. Also, the Court ought not to disturb the ruling of Neither does the same grant of privileges to the John Hay SEZ
the Court of Tax Appeals on the constitutionality of the law in find support in the other laws specified under Section 3 of
question. Proclamation No. 420, which laws were already extant before
the issuance of the proclamation or the enactment of R.A. No.
7227.
No. The legislature has the inherent power not only to select
the subjects of taxation but to grant exemptions. Tax More importantly, the nature of most of the assailed
exemptions have never been deemed violative of the equal privileges is one of tax exemption. It is the legislature, unless
protection clause. Herein, the 5% franchise tax rate provided in limited by a provision of the state constitution, that has full
Section 259 of the Tax Code was never intended to have power to exempt any person or corporation or class of property
universal application. Section 259 expressly allows the from taxation, its power to exempt being as broad as its power
payment of taxes at rates lower than 5% when the charter to tax. Other than Congress, the Constitution may itself provide
granting the franchise precludes the imposition of a higher tax. for specific tax exemptions, or local governments may pass
RA 3843, the law granting the franchise, did not only fix and ordinances on exemption only from local taxes.
specify a franchise tax of 2% on its gross receipts but made it
in lieu of any and all taxes, all laws to the contrary WHEREFORE, the second sentence of Section 3 of
notwithstanding. The company, hence, is not liable for Proclamation No. 420 is hereby declared NULL AND VOID and
deficiency taxes. is accordingly declared of no legal force and effect. Public
respondents are hereby enjoined from implementing the
aforesaid void provision.
Proclamation No. 420, without the invalidated portion,
remains valid and effective.
widest possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the Local
c. Provision of Remedies Tax Code (PD No. 231, July 1, 1973). Unless the amount is so
excessive as to be prohibitive, courts will go slow in writing off
an ordinance as unreasonable. Reluctance should not deter
compliance with an ordinance such as Ordinance No. 27 if the
PEPSI-COLA v. MUNICIPALITY OF TANAUAN; G.R. No. L- purpose of the law to further strengthen local autonomy were
31156 to be realized.
ACCORDINGLY, the constitutionality of Section 2 of
Facts: Republic Act No. 2264, otherwise known as the Local
On February 14, 1963, the plaintiff-appellant, Pepsi- Autonomy Act, as amended, is hereby upheld and Municipal
Cola Bottling Company of the Philippines, Inc., commenced a Ordinance No. 27 of the Municipality of Tanauan, Leyte, series
complaint with preliminary injunction before the Court of First of 1962, re-pealing Municipal Ordinance No. 23, same series,
Instance of Leyte for that court to declare Section 2 of Republic is hereby declared of valid and legal effect. Costs against
Act No. 2264.1 otherwise known as the Local Autonomy Act, petitioner-appellant.
unconstitutional as an undue delegation of taxing authority as
well as to declare Ordinances Nos. 23 and 27, series of 1962, ‣CIR v. FORTUNE TOBACCO; G.R. Nos.
of the municipality of Tanauan, Leyte, null and void. 167274-75
The Ordinance 23 levies and collects from soft drinks
producers and manufacturers a tax of one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked, and Ordinance 27 C. Basis
levies and collects on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of i. Necessity Theory (Principle of Necessity)
volume capacity. Aside from the undue delegation of authority,
appellant contends that it allows double taxation, and that the a. Lifeblood Doctrine
subject ordinances are void for they impose percentage or
specific tax.
The lifeblood theory constitutes the
On October 7, 1963, the Court of First Instance of
theory of taxation, which provides that
Leyte rendered judgment "dismissing the complaint and
the existence of government is a
upholding the constitutionality of [Section 2, Republic Act No.
necessity; that government cannot
2264] declaring Ordinance Nos. 23 and 27 legal and
continue without means to pay its
constitutional; ordering the plaintiff to pay the taxes due under
expenses; and that for these means it
the oft the said Ordinances; and to pay the costs."
has a right to compel its citizens and
From this judgment, the plaintiff Pepsi-Cola Bottling
property within its limits to contribute.
Company appealed to the Court of Appeals, which, in turn,
elevated the case to Us pursuant to Section 31 of the Judiciary
Act of 1948, as amended. PHILIPPINE GUARANTY v. CIR; G.R. No. L-22074

Issue: Petitioner entered into reinsurance contracts, on


Whether or not Section 2, Republic Act No. 2264 various dates, with foreign insurance companies not doing
an undue delegation of power, confiscatory and business in the Philippines. The former agreed to cede to the
oppressive? foreign reinsurers a portion of the premiums on insurance in
Whether or not ordinances Nos. 23 and 27 constitute consideration for the assumption by the latter of liability on an
double taxation and impose percentage or specific taxes? equivalent portion of the risks insured. A proportionate amount
Whether or not Ordinances Nos. 23 and 27 unjust and of taxes on insurance premiums not recovered from the
unfair? original assured were to be paid for by the foreign reinsurers
and they further agreed, in consideration for managing or
Ruling: administering their affairs in the Philippines, to compensate the
NO. The power of taxation is an essential and Philippine Guaranty Co., Inc., in an amount equal to 5% of the
inherent attribute of sovereignty, belonging as a matter of reinsurance premiums. Petitioner ceded to the foreign
right to every independent government, without being reinsurers the premiums in year 1953 and 1954.from its gross
expressly conferred by the people. It is a power that is income when it file its income tax returns. However, CIR
purely legislative and which the central legislative body assessed against petitioner withholding tax on the ceded
cannot delegate either to the executive or judicial reinsurance premiums.
department of the government without infringing upon the
theory of separation of powers. The exception, however, Issue:
lies in the case of municipal corporations, to which, said Whether or not reinsurance premiums ceded to foreign
theory does not apply. Legislative powers may be reinsurers not doing business in the Philippines are subject to
delegated to local governments in respect of matters of withholding tax under Section 53 and 54 of the Tax Code.
local concern. With that, it cannot be said that Section 2 of
Republic Act No. 2264 emanated from beyond the sphere Held:
of the legislative power to enact and vest in local YES
governments the power of local taxation. Sec. 54 of the Tax Code provides that foreign
NO. Undoubtedly, the taxing authority conferred on corporations not engaged in trade or business within the
local governments under Section 2, Republic Act No. 2264, is Philippines and not having any office or place of business here
broad enough as to extend to almost "everything, accepting shall be deducted and withheld a tax at the source, which in
those which are mentioned therein." As long as the text levied this case is the petitioner, equal to twenty-four per centum
under the authority of a city or municipal ordinance is not within thereof, in the same manner as provided in Sec. 53.
the exceptions and limitations in the law, the same comes The power to tax is an attribute of sovereignty. It is a
within the ambit of the general rule, pursuant to the rules power emanating from necessity. It is a necessary burden to
of exclucion attehus and exceptio firmat regulum in cabisus preserve the State's sovereignty and a means to give the
non excepti citizenry an army to resist an aggression, a navy to defend its
NO. The tax of one (P0.01) on each gallon (128 fluid shores from invasion, a corps of civil servants to serve, public
ounces, U.S.) of volume capacity on all softdrinks, produced or improvement designed for the enjoyment of the citizenry and
manufactured, or an equivalent of 1-½ centavos per case, those which come within the State's territory, and facilities and
cannot be considered unjust and unfair. An increase in the tax protection which a government is supposed to provide.
alone would not support the claim that the tax is oppressive, Considering that the reinsurance premiums in question were
unjust and confiscatory. Municipal corporations are allowed afforded protection by the government and the recipient foreign
much discretion in determining the reates of imposable taxes. reinsurers exercised rights and privileges guaranteed by our
This is in line with the constutional policy of according the
laws, such reinsurance premiums and reinsurers should share end of the year, when the books were to be closed, each
the burden of maintaining the state. payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. This
CIR v. ALGUE; G.R. No. L-28896 arrangement was understandable in view of the close
relationship among the persons in the family .
Facts: The amount of the promotional fees was not excessive.
Algue Inc. is a domestic corp engaged in engineering, The total commission paid by the Philippine Sugar
construction and other allied activities Estate Development Co. to Algue Inc. was P125K. After
On Jan. 14, 1965, the corp received a letter from the CIR deducting the said fees, Algue still had a balance of
regarding its delinquency income taxes from 1958-1959, P50,000.00 as clear profit from the transaction. The
amtg to P83,183.85 amount of P75,000.00 was 60% of the total commission.
This was a reasonable proportion, considering that it
A letter of protest or reconsideration was filed by Algue was the payees who did practically everything, from the
Inc on Jan 18 formation of the Vegetable Oil Investment Corporation to
the actual purchase by it of the Sugar Estate properties.
On March 12, a warrant of distraint and levy was Sec. 30 of the Tax Code: allowed deductions in the net
presented to Algue Inc. thru its counsel, Atty. Guevara, income – Expenses - All the ordinary and necessary
who refused to receive it on the ground of the pending expenses paid or incurred during the taxable year in
protest. Since the protest was not found on the records, carrying on any trade or business, including a
a file copy from the corp was produced and given to BIR reasonable allowance for salaries or other compensation
for personal services actually rendered xxx
Agent Reyes, who deferred service of the warrant. On
April 7, Atty. Guevara was informed that the BIR was not
taking any action on the protest and it was only then that the burden is on the taxpayer to prove the validity of the
he accepted the warrant of distraint and levy earlier claimed deduction
In this case, Algue Inc. has proved that the payment of
sought to be served. On April 23, Algue filed a petition
the fees was necessary and reasonable in the light of
for review of the decision of the CIR with the Court of
the efforts exerted by the payees in inducing investors
Tax Appeals
and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new
CIR contentions:
business requiring millions of pesos. Taxes are what we
pay for civilization society. Without taxes, the
the claimed deduction of P75,000.00 was properly
government would be paralyzed for lack of the motive
disallowed because it was not an ordinary reasonable or
power to activate and operate it. Hence, despite the
necessary business expensepayments are fictitious
natural reluctance to surrender part of one's hard earned
because most of the payees are members of the same
income to the taxing authorities, every person who is
family in control of Algue and that there is not enough
able to must contribute his share in the running of the
substantiation of such payments
government. The government for its part, is expected to
respond in the form of tangible and intangible benefits
CTA: 75K had been legitimately paid by Algue Inc. for
intended to improve the lives of the people and enhance
actual services rendered in the form of promotional fees.
their moral and material values. Taxation must be
These were collected by the Payees for their work in the
creation of the Vegetable Oil Investment Corporation of exercised reasonably and in accordance with the
the Philippines and its subsequent purchase of the prescribed procedure. If it is not, then the taxpayer has a
properties of the Philippine Sugar Estate Development right to complain and the courts will then come to his
Company. succor

Issue: W/N the Collector of Internal Revenue correctly CIR v. PINEDA; G.R. L-22734
disallowed the P75,000.00 deduction claimed by Algue
as legitimate business expenses in its income tax FACTS:
returns
Atanasio Pineda died, survived by his wife, Felicisima
Ruling: Bagtas, and 15 children, the eldest of whom is Atty.
Manuel Pineda. Estate proceedings were had in Court
Taxes are the lifeblood of the government and so should so that the estate was divided among and awarded to
be collected without unnecessary hindrance, made in the heirs. Atty Pineda's share amounted to about
accordance with law. P2,500.00. After the estate proceedings were closed, the
BIR investigated the income tax liability of the estate for
RA 1125: the appeal may be made within thirty days the years 1945, 1946, 1947 and 1948 and it found that
after receipt of the decision or ruling challenged . During the corresponding income tax returns were not filed.
the intervening period, the warrant was premature and Thereupon, the representative of the Collector of Internal
could therefore not be served. Revenue filed said returns for the estate issued an
Originally, CIR claimed that the 75K promotional fees to assessment and charged the full amount to the
be personal holding company income, but later on inheritance due to Atty. Pineda who argued that he is
conformed to the decision of CTA. There is no dispute liable only to extent of his proportional share in the
that the payees duly reported their respective shares of inheritance.
the fees in their income tax returns and paid the
corresponding taxes thereon. CTA also found, after ISSUE:
examining the evidence, that no distribution of dividends Can BIR collect the full amount of estate taxes from an
was involved CIR suggests a tax dodge, an attempt to heir's inheritance.
evade a legitimate assessment by involving an
imaginary deduction. Algue Inc. was a family corporation HELD:
where strict business procedures were not applied and Yes. The Government can require Atty. Pineda to pay
immediate issuance of receipts was not required. at the the full amount of the taxes assessed. The reason is that
the Government has a lien on the P2,500.00 received by
him from the estate as his share in the inheritance, for stock does not necessarily imply that petitioner is no engage
unpaid income taxes for which said estate is liable. By din business.
virtue of such lien, the Government has the right to
subject the property in Pineda's possession to satisfy the (2) YES. One of the most significant provisions of the LGC is
the removal of the blanket exclusion of instrumentalities and
income tax assessment. After such payment, Pineda will agencies of the National Government from the coverage of
have a right of contribution from his co-heirs, to achieve local taxation. Although as a general rule, LGUs cannot impose
an adjustment of the proper share of each heir in the taxes, fees, or charges of any kind on the National
distributable estate. All told, the Government has two Government, its agencies and instrumentalities, this rule now
ways of collecting the tax in question. One, by going admits an exception, i.e. when specific provisions of the LGC
after all the heirs and collecting from each one of them authorize the LGUs to impose taxes, fees, or charges on the
the amount of the tax proportionate to the inheritance aforementioned entities. The legislative purpose to withdraw
received; and second, is by subjecting said property of tax privileges enjoyed under existing laws or charter is clearly
the estate which is in the hands of an heir or transferee manifested by the language used on Sec. 137 and 193
categorically withdrawing such exemption subject only to the
to the payment of the tax due. This second remedy is the exceptions enumerated. Since it would be tedious and
very avenue the Government took in this case to collect impractical to attempt to enumerate all the existing statutes
the tax. The Bureau of Internal Revenue should be providing for special tax exemptions or privileges, the LGC
given, in instances like the case at bar, the necessary provided for an express, albeit general, withdrawal of such
discretion to avail itself of the most expeditious way to exemptions or privileges. No more unequivocal language could
collect the tax as may be envisioned in the particular have been used.
provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and
certain availability is an imperious need. VERA v. FERNANDEZ; G.R. No. L-31364

NPC v. CITY OF CABANATUAN; G.R. No. 149110 FACTS: The BIR filed on July 29, 1969 a motion for allowance
of claim and for payment of taxes representing the estate's tax
Facts: deficiencies in 1963 to 1964 in the intestate proceedings of
Luis Tongoy. The administrator opposed arguing that the claim
NAPOCOR, a government-owned and controlled corporation, was already barred by the statute of limitation, Section 2 and
is tasked to undertake the “development of hydroelectric Section 5 of Rule 86 of the Rules of Court which provides that
generations of power and the production of electricity from all claims for money against the decedent, arising from
nuclear, geothermal, and other sources, as well as, the contracts, express or implied, whether the same be due, not
transmission of electric power on a nationwide basis.” due, or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and judgment
For many years now, NAPOCOR sells electric power to the for money against the decedent, must be filed within the time
resident Cabanatuan City, posting a gross income of limited in the notice; otherwise they are barred forever.
P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance
No. 165-92, the respondent assessed the petitioner a franchise ISSUE: Does the statute of non-claims of the Rules of Court
tax amounting to P808,606.41, representing 75% of 1% of the bar the claim of the government for unpaid taxes?
former’s gross receipts for the preceding year.
HELD: No. The reason for the more liberal treatment of claims
Petitioner, whose capital stock was subscribed and wholly paid for taxes against a decedent's estate in the form of exception
by the Philippine Government, refused to pay the tax from the application of the statute of non-claims, is not hard to
assessment. It argued that the respondent has no authority to find. Taxes are the lifeblood of the Government and their
impose tax on government entities. Petitioner also contend that prompt and certain availability are imperious need. (CIR vs.
as a non-profit organization, it is exempted from the payment Pineda, 21 SCRA 105). Upon taxation depends the
of all forms of taxes, charges, duties or fees in accordance with Government ability to serve the people for whose benefit taxes
Sec. 13 of RA 6395, as amended. are collected. To safeguard such interest, neglect or omission
of government officials entrusted with the collection of taxes
The respondent filed a collection suit in the RTC of should not be allowed to bring harm or detriment to the people,
Cabanatuan City, demanding that petitioner pay the assessed in the same manner as private persons may be made to suffer
tax, plus surcharge equivalent to 25% of the amount of tax and individually on account of his own negligence, the presumption
2% monthly interest. Respondent alleged that petitioner’s being that they take good care of their personal affairs. This
exemption from local taxes has been repealed by Sec. 193 of should not hold true to government officials with respect to
RA 7160 (Local Government Code). The trial court issued an matters not of their own personal concern. This is the
order dismissing the case. On appeal, the Court of Appeals philosophy behind the government's exception, as a general
reversed the decision of the RTC and ordered the petitioner to rule, from the operation of the principle of estoppel.
pay the city government the tax assessment.

Issues:
Whether or not NAPOCOR is excluded from the coverage of MCIAA v. MARCOS; G.R. No. 120082
the franchise tax simply because its stocks are wholly owned
by the National Government and its charter characterized is as FACTS
a ‘non-profit organization’. Mactan Cebu International Airport Authority was created by
virtue of RA 6958 to manage the Mactan International Airport
Whether or not NAPOCOR’s exemption from all forms of taxes and the Lahug Airport. Since the time of its creation, petitioner
is repealed by the provisions of the Local Government Code MCIAA enjoyed the privilege of exemption from payment of
(LGC) realty taxes. In Section 14 of its Charter provides that “the
Held: Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions,
(1) NO. To stress, a franchise tax is imposed based not on the agencies and instrumentalities.”
ownership but on the exercise by the corporation of a privilege
to do business. The taxable entity is the corporation which In 1994, however, the Office of the Treasurer of the City of
exercises the franchise, and not the individual stockholders. By Cebu demanded payment for realty taxes on several parcels of
virtue of its charter, petitioner was created as a separate and land belonging to petitioner. Petitioner objected to such
distinct entity from the National Government. It can sue and be demand, citing Sec. 14. It asserted that it is an instrumentality
sued under its own name, and can exercise all the powers of a of the government which performs governmental functions,
corporation under the Corporation Code. To be sure, the citing Sec. 133 of the Local Government Code which puts
ownership by the National Government of its entire capital limitations on the taxing powers of local government units. Sec.
133, LGC provides that the exercise of the taxing powers of
provinces, cities, municipalities and barangays shall not extend GENERAL RULE: Tax exemptions or incentives are withdrawn
to the levy of... taxes, fees or charges of any kind on the upon the effectivity of the LGC
National government, its agencies and instrumentalities and
local government units. EXCEPTION: Those granted to local water districts,
cooperatives duly registered under RA 6938, non-stock and
The Respondent City refused to cancel and set aside the realty non-profit hospitals and educ institutions, and unless otherwise
tax account, insisting that the MCIAA is a GOCC whose tax provided in the LGC. This latter proviso could refer to Section
exemption privilege has been withdrawn by virtue of Sections 234 enumerating the properties exempt from real property tax.
193 and 234 of the LGC. Sec. 193 provides that tax The last paragraph of Section 234 further qualifies the
exemptions or incentives granted to or presently enjoyed by all retention of the exemption insofar as real property taxes are
persons, whether natural or juridical, including GOCCs except concerned by limiting the retention only to those enumerated
local water districts, cooperatives duly registered under RA therein; all others not included in the enumeration therefore
6938, non-stock and non-profit hospitals and educational lost the privilege upon the effectivity of the LGC. Even as to
institutions are hereby withdrawn upon the effectivity of this real property owned by the Rep. Of the Philippines or any of its
Code. Section 234 meanwhile provides that exemption from political subdivisions covered by item (a) of the first paragraph
payment of real property tax previously granted to or presently of Section 234, the exemption is withdrawn if the beneficial use
enjoyed by all persons, whether natural or juridical, including of such property has been granted to a taxable person for
GOCCs are hereby withdrawn upon the effectivity of the LGC. consideration or otherwise.

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

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


enjoyed by natural or juridical persons, including GOCCs, By virtue of a decision of the CTA, as modified on
appeal by the Supreme Court, the CIR was ordered to refund
to Cebu Portland Cement Company the amount of P German Consuls, the defendant “decided that the billboard
359,408.98, representing overpayments of ad valorem taxes complained of was and still offensive to the sight and is
on cement produced and sold by it. When respondent moved otherwise a nuisance.”
for a writ of execution, petitioner opposed on the ground that
the private respondent had an outstanding sales tax liability to Issue
which the judgment debt had already been credited. In fact, it 1. Was the enactment assailed by the plaintiffs was a
was stressed, there was still a balance owing on the sales legitimate exercise of the police power
taxes in the amount of P 4,789,279.85 plus 28% surcharge. of the Government?
The CTA granted the CIR’s motion.
Held:
The CIR claims that the refund should be charged
against the tax deficiency of the private respondent on the Yes. There can be no doubt that the exercise of the police
sales of cement under Section 186 of the Tax Code. His power of the Philippine Government belongs to the Legislature
position is that cement is a manufactured and not a mineral and that this power is limited only by the Acts of Congress and
product and therefore not exempt from sales taxes. The those fundamentals principles which lie at the foundation of all
petitioner also denies that the sales tax assessments have republican forms of government. An Act of the Legislature
already prescribed because the prescriptive period should be which is obviously and undoubtedly foreign to any of the
counted from the filing of the sales tax returns, which had not purposes of the police power and interferes with the ordinary
yet been done by the private respondent. enjoyment of property would, without doubt, be held to be
invalid. But where the Act is reasonably within a proper
Meanwhile, the private respondent disclaims liability consideration of and care for the public health, safety, or
for the sales taxes, on the ground that cement is not a comfort, it should not be disturbed by the courts.
manufactured product but a mineral product. As such, it was
exempted from sales taxes. Also, the alleged sales tax "The power vested in the legislature by the constitution to
deficiency could not as yet be enforced against it because the make, ordain, and establish all manner of wholesome and
tax assessment was not yet final, the same being still under reasonable laws, statutes, and ordinances, either with
protest and still to be definitely resolved on the merits. Besides, penalties or without, not repugnant to the constitution, as they
the assessment had already prescribed, not having been made shall judge to be for the good and welfare of the
within the reglementary five-year period from the filing of the commonwealth, and of the subjects of the same."
tax returns.
"The police power of the State, so far, has not received a full
ISSUE: Whether or not sales tax was properly imposed upon and complete definition. It may be said, however, to be the
private respondent. right of the State, or state functionary, to prescribe regulations
for the good order, peace, health, protection, comfort,
HELD: Yes, because cement has always been considered a convenience and morals of the community, which do not ...
manufactured product and not a mineral product. This matter violate any of the provisions of the organic law."
was extensively discussed and categorically resolved in
Commissioner of Internal Revenue v. Republic Cement "It [the police power] has for its object the improvement of
Corporation, decided on August 10, 1983, stating that cement social and economic conditioned affecting the community at
qua cement was never considered as a mineral product within large and collectively with a view to bring about "he greatest
the meaning of Section 246 of the Tax Code, notwithstanding good of the greatest number."Courts have consistently and
that at least 80% of its components are minerals, for the simple wisely declined to set any fixed limitations upon subjects
reason that cement is the product of a manufacturing process calling for the exercise of this power. It is elastic and is
and is no longer the mineral product contemplated in the Tax exercised from time to time as varying social conditions
Code (i.e.; minerals subjected to simple treatments) for the demand correction."
purpose of imposing the ad valorem tax.
"It may be said in a general way that the police power extends
The argument that the assessment cannot as yet be to all the great public needs. It may be put forth in aid of what
enforced because it is still being contested loses sight of the is sanctioned by usage, or held by the prevailing morality or
urgency of the need to collect taxes as "the lifeblood of the strong and preponderant opinion to be greatly and immediately
government." If the payment of taxes could be postponed by necessary to the public welfare."
simply questioning their validity, the machinery of the state
would grind to a halt and all government functions would be "It is much easier to perceive and realize the existence and
paralyzed. sources of this police power than to mark its boundaries, or to
prescribe limits to its exercise."
That is the reason why, save for the exception in RA
1125 , the Tax Code provides that injunction is not available to ii. Benefits-Protection Theory (Principle of
restrain collection of tax. Thereby, we hold that the respondent Benefits Received)
Court of Tax Appeals erred in its order.
This theory bases the power of the State to demand
FIRST LEPANTO v. CIR; G.R. No. 197117 and receive taxes on the reciprocal duties of support
and protection. The citizen supports the State by
paying the portion from his property that is demanded
CHURCHILL v. RAFFERTY; G.R. No. L-10572
in order that he may, by means thereof, be secured in
the enjoyment of the benefits of an organized society.
Appellees, Francis A. Churchill and Stewart Tait are involved in Thus, the taxpayer cannot question the validity of the
the advertising business, particularly in billboard advertising. tax law on the ground that payment of such tax will
Their billboards located upon private lands in the Province of render him impoverished, or lessen his financial or
Rizal were removed upon complaints and by the orders of the social standing, because the obligation to pay taxes is
defendant Collector of Internal Revenue by virtue of the involuntary and compulsory, in exchange for the
provisions of subsection (b) of section 100 of Act No. 2339. protection and benefits one receives from the
Appellees, in their supplementary complaint challenge the government.
power of the of the Collector of Internal Revenue to remove
any sign, signboard, or billboard upon the ground that the In return for his contribution, the taxpayer receives the
same is offensive to the sight or is otherwise a nuisance and general advantages and protection which the
maintain that the billboards in question “in no sense constitute government affords the taxpayer and his property.
a nuisance and are not deleterious to the health, morals, or One is compensation or consideration for the other;
general welfare of the community, or of any persons.” protection for support and support for protection.
Defendant Collector of Internal Revenue avers that after due
investigation made upon the complaints of the British and
However, it does not mean that only those who are providing for special tax exemptions or privileges, the LGC
able to and do pay taxes can enjoy the privileges and provided for an express, albeit general, withdrawal of such
protection given to a citizen by the government. exemptions or privileges. No more unequivocal language could
have been used.

a. Symbiotic Relationship CIR v. ALGUE; G.R. No. L-28896

NPC v. CITY OF CABANATUAN Facts:


Algue Inc. is a domestic corp engaged in engineering,
Facts: construction and other allied activities
On Jan. 14, 1965, the corp received a letter from the CIR
NAPOCOR, a government-owned and controlled corporation, regarding its delinquency income taxes from 1958-1959,
is tasked to undertake the “development of hydroelectric amtg to P83,183.85
generations of power and the production of electricity from
nuclear, geothermal, and other sources, as well as, the
A letter of protest or reconsideration was filed by Algue
transmission of electric power on a nationwide basis.”
Inc on Jan 18
For many years now, NAPOCOR sells electric power to the
resident Cabanatuan City, posting a gross income of On March 12, a warrant of distraint and levy was
P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance presented to Algue Inc. thru its counsel, Atty. Guevara,
No. 165-92, the respondent assessed the petitioner a franchise who refused to receive it on the ground of the pending
tax amounting to P808,606.41, representing 75% of 1% of the protest. Since the protest was not found on the records,
former’s gross receipts for the preceding year. a file copy from the corp was produced and given to BIR
Petitioner, whose capital stock was subscribed and wholly paid
Agent Reyes, who deferred service of the warrant. On
by the Philippine Government, refused to pay the tax April 7, Atty. Guevara was informed that the BIR was not
assessment. It argued that the respondent has no authority to taking any action on the protest and it was only then that
impose tax on government entities. Petitioner also contend that he accepted the warrant of distraint and levy earlier
as a non-profit organization, it is exempted from the payment sought to be served. On April 23, Algue filed a petition
of all forms of taxes, charges, duties or fees in accordance with for review of the decision of the CIR with the Court of
Sec. 13 of RA 6395, as amended. Tax Appeals
The respondent filed a collection suit in the RTC of
Cabanatuan City, demanding that petitioner pay the assessed CIR contentions:
tax, plus surcharge equivalent to 25% of the amount of tax and
2% monthly interest. Respondent alleged that petitioner’s the claimed deduction of P75,000.00 was properly
exemption from local taxes has been repealed by Sec. 193 of disallowed because it was not an ordinary reasonable or
RA 7160 (Local Government Code). The trial court issued an necessary business expensepayments are fictitious
order dismissing the case. On appeal, the Court of Appeals because most of the payees are members of the same
reversed the decision of the RTC and ordered the petitioner to family in control of Algue and that there is not enough
pay the city government the tax assessment. substantiation of such payments
Issues:
CTA: 75K had been legitimately paid by Algue Inc. for
Whether or not NAPOCOR is excluded from the coverage of actual services rendered in the form of promotional fees.
the franchise tax simply because its stocks are wholly owned These were collected by the Payees for their work in the
by the National Government and its charter characterized is as creation of the Vegetable Oil Investment Corporation of
a ‘non-profit organization’. the Philippines and its subsequent purchase of the
properties of the Philippine Sugar Estate Development
Whether or not NAPOCOR’s exemption from all forms of taxes Company.
is repealed by the provisions of the Local Government Code
(LGC)?
Issue: W/N the Collector of Internal Revenue correctly
Held: disallowed the P75,000.00 deduction claimed by Algue
(1) NO. To stress, a franchise tax is imposed based not on the as legitimate business expenses in its income tax
ownership but on the exercise by the corporation of a privilege returns
to do business. The taxable entity is the corporation which
exercises the franchise, and not the individual stockholders. By Ruling:
virtue of its charter, petitioner was created as a separate and
distinct entity from the National Government. It can sue and be Taxes are the lifeblood of the government and so should
sued under its own name, and can exercise all the powers of a
be collected without unnecessary hindrance, made in
corporation under the Corporation Code. To be sure, the
ownership by the National Government of its entire capital accordance with law.
stock does not necessarily imply that petitioner is no engage
din business. RA 1125: the appeal may be made within thirty days
after receipt of the decision or ruling challenged . During
(2) YES. One of the most significant provisions of the LGC is the intervening period, the warrant was premature and
the removal of the blanket exclusion of instrumentalities and could therefore not be served.
agencies of the National Government from the coverage of
Originally, CIR claimed that the 75K promotional fees to
local taxation. Although as a general rule, LGUs cannot impose
taxes, fees, or charges of any kind on the National be personal holding company income, but later on
Government, its agencies and instrumentalities, this rule now conformed to the decision of CTA. There is no dispute
admits an exception, i.e. when specific provisions of the LGC that the payees duly reported their respective shares of
authorize the LGUs to impose taxes, fees, or charges on the the fees in their income tax returns and paid the
aforementioned entities. The legislative purpose to withdraw corresponding taxes thereon. CTA also found, after
tax privileges enjoyed under existing laws or charter is clearly examining the evidence, that no distribution of dividends
manifested by the language used on Sec. 137 and 193 was involved CIR suggests a tax dodge, an attempt to
categorically withdrawing such exemption subject only to the
evade a legitimate assessment by involving an
exceptions enumerated. Since it would be tedious and
impractical to attempt to enumerate all the existing statutes imaginary deduction. Algue Inc. was a family corporation
where strict business procedures were not applied and
immediate issuance of receipts was not required. at the HELD:
end of the year, when the books were to be closed, each No. It is settled that the legislature has the
payee made an accounting of all of the fees received by
him or her, to make up the total of P75,000.00. This inherent power to select the subjects of taxation
arrangement was understandable in view of the close and to grant exemptions. This power has aptly
relationship among the persons in the family . been described as "of wide range and flexibility."
The amount of the promotional fees was not excessive. Indeed, it is said that in the field of taxation, more
The total commission paid by the Philippine Sugar than in other areas, the legislature possesses the
Estate Development Co. to Algue Inc. was P125K. After greatest freedom in classification. The reason for
deducting the said fees, Algue still had a balance of
this is that traditionally, classification has been a
P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission. device for fitting tax programs to local needs and
This was a reasonable proportion, considering that it usages in order to achieve an equitable
was the payees who did practically everything, from the distribution of the tax burden.
formation of the Vegetable Oil Investment Corporation to
the actual purchase by it of the Sugar Estate properties. The classification of mail users is based on the
Sec. 30 of the Tax Code: allowed deductions in the net ability to pay, the enjoyment of a privilege and on
income – Expenses - All the ordinary and necessary
expenses paid or incurred during the taxable year in
administrative convenience. Tax exemptions
carrying on any trade or business, including a have never been thought of as raising revenues
reasonable allowance for salaries or other compensation under the equal protection clause.
for personal services actually rendered xxx

the burden is on the taxpayer to prove the validity of the LORENZO v. POSADAS; G.R. L-43082
claimed deduction
In this case, Algue Inc. has proved that the payment of FACTS: Thomas Hanley died, leaving a will and a
the fees was necessary and reasonable in the light of considerable amount of real and personal properties.
the efforts exerted by the payees in inducing investors Proceedings for the probate of his will and the settlement and
and prominent businessmen to venture in an distribution of his estate were begun in the CFI of Zamboanga.
experimental enterprise and involve themselves in a new The will was admitted to probate.
business requiring millions of pesos. Taxes are what we The CFI considered it proper for the best interests of the estate
pay for civilization society. Without taxes, the to appoint a trustee to administer the real properties which,
under the will, were to pass to nephew Matthew ten years after
government would be paralyzed for lack of the motive
the two executors named in the will was appointed trustee.
power to activate and operate it. Hence, despite the Moore acted as trustee until he resigned and the plaintiff
natural reluctance to surrender part of one's hard earned Lorenzo herein was appointed in his stead.
income to the taxing authorities, every person who is
able to must contribute his share in the running of the
government. The government for its part, is expected to During the incumbency of the plaintiff as trustee, the defendant
respond in the form of tangible and intangible benefits Collector of Internal Revenue (Posadas) assessed against the
intended to improve the lives of the people and enhance estate an inheritance tax, together with the penalties for
their moral and material values. Taxation must be deliquency in payment. Lorenzo paid said amount under
exercised reasonably and in accordance with the protest, notifying Posadas at the same time that unless the
amount was promptly refunded suit would be brought for its
prescribed procedure. If it is not, then the taxpayer has a recovery. Posadas overruled Lorenzo’s protest and refused to
right to complain and the courts will then come to his refund the said amount. Plaintiff went to court. The CFI
succor dismissed Lorenzo’s complaint and Posadas’ counterclaim.
Both parties appealed to this court.
GOMEZ v. PALOMAR; G.R. No. L-23645

ISSUE:
FACTS:
(e) Has there been delinquency in the payment of the
Petitioner Benjamin Gomez mailed a letter at the inheritance tax?
post office in San Fernando, Pampanga. It did HELD: The judgment of the lower court is accordingly
not bear the special anti-TB stamp required by modified, with costs against the plaintiff in both instances
the RA 1635. It was returned to the petitioner. YES
Petitioner now assails the constitutionality of the The defendant maintains that it was the duty of the executor to
pay the inheritance tax before the delivery of the decedent’s
statute claiming that RA 1635 otherwise known property to the trustee. Stated otherwise, the defendant
as the Anti-TB Stamp law is violative of the equal contends that delivery to the trustee was delivery to the cestui
protection clause because it constitutes mail que trust, the beneficiary in this case, within the meaning of the
first paragraph of subsection (b) of section 1544 of the Revised
users into a class for the purpose of the tax while Administrative Code. This contention is well taken and is
leaving untaxed the rest of the population and sustained. A trustee is but an instrument or agent for the cestui
that even among postal patrons the statute que trust
discriminatorily grants exemptions. The law in
question requires an additional 5 centavo stamp
for every mail being posted, and no mail shall be The appointment of Moore as trustee was made by the trial
delivered unless bearing the said stamp. court in conformity with the wishes of the testator as expressed
in his will. It is true that the word “trust” is not mentioned or
used in the will but the intention to create one is clear. No
ISSUE: Is the Anti-TB Stamp Law particular or technical words are required to create a
unconstitutional, for being allegedly violative of testamentary trust. The words “trust” and “trustee”, though apt
the equal protection clause? for the purpose, are not necessary. In fact, the use of these
two words is not conclusive on the question that a trust is SEC. 1544. When tax to be paid. — The tax fixed in this article
created. ” To constitute a valid testamentary trust there must shall be paid:
be a concurrence of three circumstances: (a) In the second and third cases of the next preceding section,
before entrance into possession of the property.
(b) In other cases, within the six months subsequent to the
death of the predecessor; but if judicial testamentary or
(1) Sufficient words to raise a trust; intestate proceedings shall be instituted prior to the expiration
of said period, the payment shall be made by the executor or
administrator before delivering to each beneficiary his share.
(2) a definite subject; The instant case does[not] fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here
no fiduciary heirs, first heirs, legatee or donee. Under the
subsection, the tax should have been paid before the delivery
(3) a certain or ascertain object; statutes in some jurisdictions
of the properties in question to Moore as trustee.
expressly or in effect so providing.” (b) Should the inheritance tax be computed on the basis of the
value of the estate at the time of the testator’s death, or on its
value ten years later?
There is no doubt that the testator intended to create a trust.
He ordered in his will that certain of his properties be kept If death is the generating source from which the power of the
together undisposed during a fixed period, for a stated estate to impose inheritance taxes takes its being and if, upon
purpose. The probate court certainly exercised sound the death of the decedent, succession takes place and the
judgment in appointmening a trustee to carry into effect the right of the estate to tax vests instantly, the tax should be
provisions of the will measured by the value of the estate as it stood at the time of
the decedent’s death, regardless of any subsequent
contingency value of any subsequent increase or decrease in
As the existence of the trust was already proven, it results that value
the estate which plaintiff represents has been delinquent in the
payment of inheritance tax and, therefore, liable for the
payment of interest and surcharge provided by law in such (c) In determining the net value of the estate subject to tax, is it
cases. proper to deduct the compensation due to trustees?

A trustee, no doubt, is entitled to receive a fair compensation


The delinquency in payment occurred on March 10, 1924, the for his services. But from this it does not follow that the
date when Moore became trustee. On that date trust estate compensation due him may lawfully be deducted in arriving at
vested in him. The interest due should be computed from that the net value of the estate subject to tax. There is no statute in
date. the Philippines which requires trustees’ commissions to be
deducted in determining the net value of the estate subject to
inheritance tax
NOTES: Other issues:
(a) When does the inheritance tax accrue and when must it be
satisfied? (d) What law governs the case at bar? Should the provisions of
The accrual of the inheritance tax is distinct from the obligation Act No. 3606 favorable to the tax-payer be given retroactive
to pay the same. effect?

A statute should be considered as prospective in its operation,


Acording to article 657 of the Civil Code, “the rights to the whether it enacts, amends, or repeals an inheritance tax,
succession of a person are transmitted from the moment of his unless the language of the statute clearly demands or
death.” “In other words”, said Arellano, C. J., “. . . the heirs expresses that it shall have a retroactive effect, . . . .” Act No.
succeed immediately to all of the property of the deceased 3606 itself contains no provisions indicating legislative intent to
ancestor. The property belongs to the heirs at the moment of give it retroactive effect. No such effect can be given the
the death of the ancestor as completely as if the ancestor had statute by this court.
executed and delivered to them a deed for the same before his
death.”

Whatever may be the time when actual transmission of the D. Objectives & Purposes
inheritance takes place, succession takes place in any event at
the moment of the decedent’s death. The time when the heirs
legally succeed to the inheritance may differ from the time i. Revenue
when the heirs actually receive such inheritance. ” Thomas
Hanley having died on May 27, 1922, the inheritance tax ii. Non-Revenue (Sumptuary)
accrued as of the date.

TIO v. VRB; G.R. No. L-75697


From the fact, however, that Thomas Hanley died on May 27,
1922, it does not follow that the obligation to pay the tax arose
as of the date. The time for the payment on inheritance tax is FACTS:
clearly fixed by section 1544 of the Revised Administrative
Code as amended by Act No. 3031, in relation to section 1543
of the same Code. The two sections follow: Herein petitioner filed a petition on September 1, on
his own behalf and purportedly on behalf of other videogram
operators adversely affected assailing the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the
SEC. 1543. Exemption of certain acquisitions and
Videogram Regulatory Board" with broad powers to regulate
transmissions. — The following shall not be taxed:
and supervise the videogram industry (hereinafter briefly
(a) The merger of the usufruct in the owner of the naked title.
referred to as the BOARD). The Decree was promulgated on
(b) The transmission or delivery of the inheritance or legacy by
October 5, 1985 and took effect on April 10, 1986, fifteen (15)
the fiduciary heir or legatee to the trustees.
days after completion of its publication in the Official Gazette.
(c) The transmission from the first heir, legatee, or donee in
favor of another beneficiary, in accordance with the desire of
the predecessor. xx Petitioner's attack on the constitutionality of the DECREE
rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross section 3 levies on the owners or persons in control of the land
receipts payable to the local government is a RIDER and the devoted tot he cultivation of sugarcane and ceded to others for
same is not germane to the subject matter thereof; consideration, on lease or otherwise - "a tax equivalent to the
difference between the money value of the rental or
consideration collected and the amount representing 12 per
2. The tax imposed is harsh, confiscatory, oppressive and/or in
centum of the assessed value of such land. It was alleged that
unlawful restraint of trade in violation of the due process clause
such tax is unconstitutional and void, being levied for the aid
of the Constitution;
and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be
ISSUE: constitutionally levied. The action was dismissed by the CFI
thus the plaintiff appealed directly to the Supreme Court.
Whether or not the imposition of taxes is invalid in the
promulgation of PD NO. 1987
ISSUE:
RULING:
Whether or not the tax imposition in the Commonwealth Act
No. 567 are unconstitutional.
NO. The Constitutional requirement that "every bill shall
embrace only one subject which shall be expressed in the title
thereof" is sufficiently complied with if the title be RULING:
comprehensive enough to include the general purpose which a
statute seeks to achieve. It is not necessary that the title Yes, the Supreme Court held that the fact that sugar
express each and every end that the statute wishes to production is one of the greatest industry of our nation, sugar
accomplish. The requirement is satisfied if all the parts of the occupying a leading position among its export products; that it
statute are related, and are germane to the subject matter gives employment to thousands of laborers in the fields and
expressed in the title, or as long as they are not inconsistent factories; that it is a great source of the state's wealth, is one of
with or foreign to the general subject and title. An act having a the important source of foreign exchange needed by our
single general subject, indicated in the title, may contain any government and is thus pivotal in the plans of a regime
number of provisions, no matter how diverse they may be, so committed to a policy of currency stability. Its promotion,
long as they are not inconsistent with or foreign to the general protection and advancement, therefore redounds greatly to the
subject, and may be considered in furtherance of such subject general welfare. Hence it was competent for the legislature to
by providing for the method and means of carrying out the find that the general welfare demanded that the sugar industry
general object." The rule also is that the constitutional be stabilized in turn; and in the wide field of its police power,
requirement as to the title of a bill should not be so narrowly the law-making body could provide that the distribution of
construed as to cripple or impede the power of legislation. It benefits therefrom be readjusted among its components to
should be given practical rather than technical construction. enable it to resist the added strain of the increase in taxes that
it had to sustain.
Petitioner also submits that the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in restraint The subject tax is levied with a regulatory purpose, to provide
of trade. However, it is beyond serious question that a tax does means for the rehabilitation and stabilization of the threatened
not cease to be valid merely because it regulates, discourages, sugar industry. In other words, the act is primarily a valid
or even definitely deters the activities taxed. The power to exercise of police power.
impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the CALTEX v. COA; G.R. No. 92585
discretion of the authority which exercises it. In imposing a tax,
the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation. FACTS:

The levy of the 30% tax is for a public purpose. It was In 1989, COA sent a letter to Caltex, directing it to remit its
imposed primarily to answer the need for regulating the video collection to the Oil Price Stabilization Fund (OPSF), excluding
industry, particularly because of the rampant film piracy, the that unremitted for the years 1986 and 1988, of the additional
flagrant violation of intellectual property rights, and the
tax on petroleum products authorized under the PD 1956.
proliferation of pornographic video tapes. And while it was also
an objective of the DECREE to protect the movie industry, the Pending such remittance, all of its claims for reimbursement
tax remains a valid imposition. from the OPSF shall be held in abeyance. The grant total of its
unremitted collections of the above tax is P1,287,668,820.
In fine, petitioner has not overcome the presumption of validity Caltex submitted a proposal to COA for the payment and the
which attaches to a challenged statute. We find no clear recovery of claims. COA approved the proposal but prohibited
violation of the Constitution which would justify us in Caltex from further offsetting remittances and reimbursements
pronouncing Presidential Decree No. 1987 as unconstitutional
for the current and ensuing years. Caltex moved for
and void.
reconsideration but was denied. Hence, the present petition.
WHEREFORE, the instant Petition is hereby dismissed.
ISSUE:

Whether the amounts due from Caltex to the OPSF may be


LUTZ v. ARANETA; G.R. No. L-7859
offsetted against Caltex’s outstanding claims from said funds
FACTS:

Appelant in this case Walter Lutz in his capacity as the Judicial RULING:
Administrator of the intestate of the deceased Antonio Jayme
Ledesma, seeks to recover from the Collector of the Internal No. Taxation is no longer envisioned as a measure merely to
Revenue the total sum of fourteen thousand six hundred sixty raise revenue to support the existence of government. Taxes
six and forty cents (P 14, 666.40) paid by the estate as taxes,
may be levied with a regulatory purpose to provide means for
under section 3 of Commonwealth Act No. 567, also known as
the Sugar Adjustment Act, for the crop years 1948-1949 and the rehabilitation and stabilization of a threatened industry
1949-1950. Commonwealth Act. 567 Section 2 provides for an which is affected with public interest as to be within the police
increase of the existing tax on the manufacture of sugar on a power of the State.
graduated basis, on each picul of sugar manufacturer; while PD 1956, as amended by EO 137, explicitly provides that the
source of OPSF is taxation. A taxpayer may not offset taxes respondent claimed for refund in the amount of Php150, 193.
due from the claims he may have against the government.
Taxes cannot be subject of compensation because the Issue:
government and taxpayer are not mutually creditors and Whether or not the 20% discount granted by the respondent to
debtors of each other and a claim for taxes is not such a debt, qualified senior citizens may be claimed as tax credit or as
demand,, contract or judgment as is allowed to be set-off. deduction from gross sales
Hence, COA decision is affirmed except that Caltex’s claim for
reimbursement of underrecovery arising from sales to the Ruling:
National Power Corporation is allowed. “Tax credit” is explicitly provided for in Sec4 of RA 7432. The
discount given toSenior citizens is a tax credit, not a deduction
from the gross sales of the establishment concerned. The tax
PAL v. EDU; G.R. No. L-41383 credit that is contemplated under this Act is a form of
justcompensation, not a remedy for taxes that were
FACTS: erroneously or illegally assessed andcollected. In the same
The Philippine Airlines (PAL) is a corporation engaged in the vein, prior payment of any tax liability is a pre-condition before
air transportation business under a legislative franchise, Act ataxable entity can benefit from tax credit. The credit may be
No. 42739. Under its franchise, PAL is exempt from the availed of upon payment, ifany. Where there is no tax liability
payment of taxes.
or where a private establishment reports a net loss forthe
Sometime in 1971, however, Land Transportation
Commissioner Romeo F. Elevate (Elevate) issued a regulation period, the tax credit can be availed of and carried over to the
pursuant to Section 8, Republic Act 4136, otherwise known as next taxable year.
the Land and Transportation and Traffic Code, requiring all tax
exempt entities, among them PAL to pay motor vehicle
registration fees. CARLOS SUPERDRUG v. DSWD; G.R. No. 166494
Despite PAL's protestations, Elevate refused to
register PAL's motor vehicles unless the amounts imposed FACTS:
under Republic Act 4136 were paid. PAL thus paid, under Petitioners are domestic corporations and proprietors operating
protest, registration fees of its motor vehicles. After paying pharmacies in the Philippines.Public respondents, on the other
under protest, PAL through counsel, wrote a letter dated May hand, include the DSWD, DOH, DOF, DOJ, and the DILG,
19,1971, to Land Transportation Commissioner Romeo Edu specifically tasked to monitor the drugstores’ compliance with
(Edu) demanding a refund of the amounts paid. Edu denied the the law; promulgate the implementing rules and regulations for
request for refund. Hence, PAL filed a complaint against Edu the effective implementation of the law; and prosecute and
and National Treasurer UbaldoCarbonell (Carbonell). revoke the licenses of erring drugstore establishments.

The trial court dismissed PAL's complaint. PAL


appealed to the Court of Appeals which in turn certified the On 2004, R.A. No. 9257, amending R.A. No. 7432, was signed
case to the Supreme Court. into law by President Gloria Macapagal-Arroyo, otherwise
known as the “Expanded Senior Citizens Act of 2003.” Sec.
ISSUE: 4(a) of the Act states that:

Whether or not motor vehicle registration fees are considered


SEC. 4. Privileges for the Senior Citizens. – The senior citizens
as taxes.
shall be entitled to the following:
RULING:
(a) the grant of twenty percent (20%) discount from all
They are taxes. Taxes are for revenue, whereas fees establishments relative to the utilization of services in hotels
are exactions for purposes of regulation and inspection, and and similar lodging establishments, restaurants and recreation
are for that reason limited in amount to what is necessary to centers, and purchase of medicines in all establishments for
cover the cost of the services rendered in that connection. It is the exclusive use or enjoyment of senior citizens, including
the object of the charge, and not the name, that determines funeral and burial services for the death of senior citizens;
whether a charge is a tax or a fee. The money collected under Petitioners assail the said Act because it allegedly constitutes
the Motor Vehicle Law is not intended for the expenditures of deprivation of private property and compelling drugstore
the Motor Vehicle Law is not intended for the expenditures of owners and establishments to grant the discount will result in a
the Motor Vehicles Office but accrues to the funds for the loss of profit and capital.
construction and maintenance of public roads, streets and
bridges. As the fees are not collected for regulatory purposes
as an incident to the enforcement of regulations governing the ISSUE:
operation of motor vehicles on public highways, but to provide Whether Sec. 4(a) of the “Expanded Senior Citizens Act of
revenue with which the Government is to construct and 2003” is constitutional.
maintain public highways for everyone’s use, they are veritable
taxes, not merely fees. PAL is, thus, exempt from paying such
fees, except for the period between June 27, 1968 to April 9, HELD:
1979, where its tax exception in the franchise was repealed. Yes. The law is a legitimate exercise of police power which,
similar to the power of eminent domain, has general welfare for
its object.The State, in promoting the health and welfare of a
CIR v. CENTRAL LUZON DRUG; G.R. No. 159647 special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government
Facts: program. The Senior Citizens Act was enacted primarily to
This is a petition for review under Rule 45 of Rules of Court maximize the contribution of senior citizens to nation-building,
and to grant benefits and privileges to them for their
seeking the nullification of CA decision granting respondent’s improvement and well-being as the State considers them an
claim for tax equal to the amount of the 20% that it extended to integral part of our society.
senior citizens on the latter’s purchases pursuant to Senior
Citizens Act.Respondent deducted the total amount of
Police power has been described as “the most essential,
Php219,778 from its gross income for the taxable year 1995 insistent and the least limitable of powers, extending as it does
whereby respondent did not pay tax for that year reporting a to all the great public needs.” For this reason, when the
net loss of Php20,963 in its corporate income tax. In 1996, conditions so demand as determined by the legislature,
claiming that the Php219,778 should be applied as a tax credit, property rights must bow to the primacy of police power
because property rights, though sheltered by due process, ii. Property
must yield to general welfare.
iii. Privilege

MANILA MEMORIAL v. SECRETARY; G.R. No. 175356


F. Characteristics
FACTS:
RA 7432 was passed into law (amended by RA 9257), granting i. Attribute of Sovereignty
senior citizens 20% discount on certain establishments.
ii. Legislative in Character
To implement the tax provisions of RA 9257, the Secretary of
Finance and the DSWD issued its own Rules and Regulations.
iii. Territorial in Operation
Hence, this petition.
iv. Comprehensive
Petitioners are not questioning the 20% discount granted to
senior citizens but are only assailing the constitutionality of the v. Plenary
tax deduction scheme prescribed under RA 9257 and the
implementing rules and regulations issued by the DSWD and
the DOF. vi. Unlimited

Petitioners posit that the tax deduction scheme contravenes vii. Supreme
Article III, Section 9 of the Constitution, which provides that:
"private property shall not be taken for public use without just
compensation." CHURCHILL v. CONCEPCION; G.R. No. L-75697

Respondents maintain that the tax deduction scheme is a Section 100 of Act No. 2339, imposed an annual tax
legitimate exercise of the State’s police power. of P4 per square meter upon "electric signs, billboards, and
spaces used for posting or displaying temporary signs, and all
ISSUE: signs displayed on premises not occupied by buildings." This
section was subsequently amended by Act No. 2432, by
Whether the legally mandated 20% senior citizen discount is reducing the tax on such signs, billboards, etc., to P2 per
an exercise of police power or eminent domain. square meter or fraction thereof. The taxes imposed by Act No.
2432, as amended, were ratified by the Congress of the United
RULING: States.
Francis A. Churchill and Stewart Tait, copartners
The 20% senior citizen discount is an exercise of police doing business under the firm name and style of the Mercantile
power. Advertising Agency, owners of a sign or billboard containing an
area of 52 square meters constructed on private property in the
It may not always be easy to determine whether a challenged city of Manila were taxes thereon was P104. The tax was paid
governmental act is an exercise of police power or eminent under protest and the plaintiffs having exhausted all their
domain. The judicious approach, therefore, is to look at the administrative remedies instituted the present action under
nature and effects of the challenged governmental act and section 140 of Act No. 2339 against the Collector of Internal
decide on the basis thereof. Revenue to recover back the amount thus paid. From a
judgment dismissing the complaint upon the merits, with costs,
The 20% discount is intended to improve the welfare of senior the plaintiffs appealed.
citizens who, at their age, are less likely to be gainfully
employed, more prone to illnesses and other disabilities, and, Issue:
thus, in need of subsidy in purchasing basic commodities. It
serves to honor senior citizens who presumably spent their WON the statute and the tax imposed is void for lack of
lives on contributing to the development and progress of the uniformity; constitutes double taxation.
nation.
Ruling:
In turn, the subject regulation affects the pricing, and, hence,
the profitability of a private establishment. No. Sec. 5 of the Philippine Bill declared “that the rule
of taxation in said Islands shall be uniform”.
The subject regulation may be said to be similar to, but with
substantial distinctions from, price control or rate of return on Uniformity in taxation means that all taxable articles or
investment control laws which are traditionally regarded as kinds of property, of the same class, shall be taxed at the same
police power measures. rate. It does not mean that lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities, and luxuries,
The subject regulation differs there from in that (1) the discount shall all be assessed at the same rate. Different articles may
does not prevent the establishments from adjusting the level of be taxed at different amounts, provided the rate is uniform on
prices of their goods and services, and (2) the discount does the same class everywhere, with all people, and at all times.
not apply to all customers of a given establishment but only to The statute under consideration imposes a tax of P2
the class of senior citizens. Nonetheless, to the degree per square meter or fraction thereof upon every electric sign,
material to the resolution of this case, the 20% discount may bill-board, etc., wherever found in the Philippine Islands. Or in
be properly viewed as belonging to the category of price other words, "the rule of taxation" upon such signs is uniform
regulatory measures which affect the profitability of throughout the Islands.
establishments subjected thereto. On its face, therefore, the
subject regulation is a police power measure.
The rule, which we have just quoted from the
Philippine Bill, does not require taxes to be graded according
to the value of the subject or subjects upon which they are
imposed, especially those levied as privilege or occupation
E. Object taxes. We can hardly see wherein the tax in question
constitutes double taxation. The fact that the land upon which
the billboards are located is taxed at so much per unit and the
i. Person billboards at so much per square meter does not constitute
"double taxation."
expenses from gross sales. Clearly, the capital is not being
CREBA VS ROMUULO taxed.

FACTS:
Furthermore, the MCIT is not an additional tax imposition. It is
Chamber of Real Estate and Builders' Associations, Inc. imposed in lieu of the normal net income tax, and only if the
(CHAMBER) is questioning the constitutionality of Sec 27 (E) normal income tax is suspiciously low.
of RA 8424 and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision
and those involving creditable withholding taxes (CWT). [CWT The MCIT merely approximates the amount of net income tax
issues will not be discussed] due from a corporation, pegging the rate at a very much
reduced 2% and uses as the base the corporation’s gross
income.
CHAMBER assails the validity of the imposition of minimum
corporate income tax (MCIT) on corporations and creditable
withholding tax (CWT) on sales of real properties classified as CHAMBER failed to support, by any factual or legal basis, its
ordinary assets. Chamber argues that the MCIT violates the allegation that the MCIT is arbitrary and confiscatory. It does
due process clause because it levies income tax even if there not cite any actual, specific and concrete negative experiences
is no realized gain. of its members nor does it present empirical data to show that
the implementation of the MCIT resulted in the confiscation of
their property.
MCIT scheme: (Section 27 (E). [MCIT] on Domestic
Corporations.)
A corporation, beginning on its fourth year of operation, is Taxation is necessarily burdensome because, by its nature, it
assessed an MCIT adversely affects property rights. The party alleging the law’s
of 2% of its gross income when such MCIT is greater than the unconstitutionality has the burden to demonstrate the
normal corporate income tax imposed under Section 27(A) supposed violations in understandable terms.
(Applying the 30% tax
rate to net income). If the regular income tax is higher than the
MCIT, the corporation does not pay the MCIT. 2. NO. RR 9-98, in declaring that MCIT should be imposed
whenever such corporation has zero or negative taxable
income, merely defines the coverage of Section 27(E).
Any excess of the MCIT over the normal tax shall be carried
forward and credited against the normal income tax for the
three immediately succeeding taxable years. This means that even if a corporation incurs a net loss in its
business operations or reports zero income after deducting its
expenses, it is still subject to an MCIT of 2% of its gross
The Secretary of Finance is hereby authorized to suspend the income. This is consistent with the law which imposes the
imposition of the [MCIT] on any corporation which suffers MCIT on gross income notwithstanding the amount of the net
losses on account of prolonged labor dispute, or because of income.
force majeure, or because of legitimate business reverses.
Congress has the power to condition, limit or deny deductions
from gross income in order to arrive at the net that it chooses
The term ‘gross income’ shall mean gross sales less sales to tax. This is because deductions are a matter of legislative
returns, discounts and allowances and cost of goods sold. grace. The assignment of gross income, instead of net income,
"Cost of goods sold" shall include all business expenses as the tax base of the MCIT, taken with the reduction of the tax
directly incurred to produce the merchandise to bring them to rate from 32% to 2%, is not constitutionally objectionable.
their present location and use.

CHAMBER claims that the MCIT under Section 27(E) of RA


8424 is unconstitutional because it is highly oppressive, G. Scope
arbitrary and confiscatory which amounts to deprivation of
property without due process of law. It explains that gross i. Comprehensive
income as defined under said provision only considers the cost
of goods sold and other direct expenses; other major
expenditures, such as administrative and interest expenses ii. Unlimited
which are equally necessary to produce gross income, were
not taken into account. Thus, pegging the tax base of the MCIT iii. Plenary
to a corporation’s gross income is tantamount to a confiscation
of capital because gross income, unlike net income, is not
"realized gain."
H. Power to Destroy

The power of taxation is sometime also called the power to


ISSUE:
destroy. Therefore, it should be exercised with caution to
1. WON the imposition of the MCIT on domestic corporations is minimize injury to the proprietary rights of a taxpayer. It must
unconstitutional
be exercised fairly, equally and uniformly, lest the tax collector
kills the ‘hen that lays the golden egg.’ And, in order to
2. WON RR 9-98 is a deprivation of property without due
process of law because the MCIT is being imposed and maintain the general public’s trust and confidence in the
collected even when there is actually a loss, or a zero or government, this power must be used justly and not
negative taxable income
treacherously.

HELD:
Cases:
1. NO. MCIT is not violative of due process. The MCIT is not a
Roxas vs. CTA, 23 SCRA 276- The power of taxation includes
tax on capital. The MCIT is imposed on gross income which is
arrived at by deducting the capital spent by a corporation in the the power to destroy if it is used validly as an implement of the
sale of its goods, i.e., the cost of goods and other direct police power of the state. If it is used solely for the purpose of
raising revenue, it does not include the power to destroy.
petitioner‘s claim for refund has already been included as part
and parcel of the P172,477.00 which the petitioner
Standard Oil Co. vs. Posadas, 55 Phil 715- While ordinarily the automatically applied as tax credit for the succeeding taxable
government does not tax its own political subdivisions or its year 1990. Petitioner filed a Motion for Reconsideration which
was denied by respondent Court on March 10,1994.Petitioner
other entities, it may, however, do so by providing for it filed a Petition for Review dated April 3, 1994with the Courtof
explicitly. Appeals.

i. Marshall Dictum Resolving the twin issues of whether petitioner is entitled to a


refund of P54,104.00 representing creditable taxes withheld in
1989 and whether petitioner applied such creditable taxes
McCULLOCH v. MARYLAND; 17 U.S. (4 Wheat.) 316 withheld to its 1990income tax liability, the appellate court held
that petitioner is not entitled to a refund because it had already
Facts: The United States Congress incorporated a bank, the elected to apply the total amount of P172,447.00, which
Bank of the United States; and established a branch in the includes the P54,104.00 refund claimed, against its income tax
liability for 1990. The appellate court elucidated on the reason
State of Maryland. The State of Maryland, in turn, through its
for its dismissal of petitioner‘s claim
legislature, imposed a tax upon the bank. for refund.

Issue: Issue:

Whether or not the alleged excess taxes paid by a corporation


Whether the State of Maryland can tax a federal bank.
during a taxable year should be refunded or credited against its
tax liabilities for the succeeding year
Held:
Ruling:
The Government of the United States, though limited in its
No. The petition must be denied. As a matter of principle, it is
powers, is supreme. Its laws, when made in pursuance of the
not advisable for this Court to set aside the conclusion reached
Constitution, form the supreme law of the land, “anything in the by an agency such as the CTA which is, by the very nature of
Constitution or laws of any State, to the contrary, not its functions, dedicated exclusively to the study and
withstanding.” Among the enumerated powers of the consideration of tax problems and has necessarily developed
government are to lay and collect taxes; to regulate commerce; an expertise on the subject, unless there has been an abuse or
improvident exercise of its authority.
to declare and conduct a war; and to raise and support armies
and navies. Still, the power of taxation is retained by the This interdiction finds particular application in this case since
States. It is not abridged by the grant of a similar power to the the CTA, after careful consideration of the merits of the
Government of the Union. It is to be concurrently exercised by Commissioner of Internal Revenue‘s motion for
the two governments. Consistently with a fair construction of reconsideration, reconsidered its earlier decision which
ordered the latter to refund the amount of P54,104.00 to
the Constitutions:
petitioner.
e power to tax involves the power to destroy; the power to
destroy may defeat and render useless the power to create; Its resolution cannot be successfully assailed based, as it is,
and there is a plain repugnance in conferring on one on the pertinent laws as applied to the facts.
government a power to control the constitutional measures of
Petitioner‘s 1989 tax return indicates an aggregate creditable
another, which other, with respect to those very measures, is
tax of P172,477.00, representing its 1988 excess credit of
declared to be supreme over that whcih exerts the control. P146,026.00 and 1989 creditable tax of P54,104.00 less tax
due for 1989, which it elected to apply as tax credit for the
Taxation does not necessarily and unavoidably destroy. To succeeding taxable year.According to petitioner, it successively
carry it to the excess of destruction would be an abuse, and utilized this amount when it obtained refunds in CTA Case No.
4439 and CTA Case No. 4528 and applied its1990 tax liability,
would banish that confidence which is essential to all
leaving a balance of P54,104.00, the amount subject of the
government. Hence, the States have no power to retard, instant claim for refund. The confusion as to petitioner‘s
impede, burden, or in any manner control, the operations of the entitlement to a refund could altogether have been avoided
constitutional laws enacted by Congress to carry into execution had it presented its tax return for 1990. Such return would have
the powers vested in the general government. The law passed shown whether petitioner actually applied its 1989 tax credit of
P172,477.00, which includes the P54,104.00 creditable taxes
by the legislature of Maryland, imposing a tax on the Bank of
withheld for 1989subject of the instant claim for refund, against
the United States, is unconstitutional and void. its 1990 tax liability as it had elected in its 1989 return, or at
least, whether petitioner‘s tax credit of P172,477.00 was
PASEO REALTY v. CA; G.R. No. 119286 applied to its approved refunds as it claims.

Facts: As clearly shown from the above-quoted provisions, in case


the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on
Paseo Realty and Development Corporation, a domestic
its final adjustment return maybe credited against the
corporation engaged in the lease of two parcels of land at
estimated quarterly income tax liabilities for the taxable
Paseo de Roxas in Makati City. On April 16, 1990, petitioner
filed its Income Tax Return for the calendaryear1989 declaring quarters of the succeeding year.The carrying forward of any
excess or overpaid income tax for a given taxable year is
a gross income of P1,855,000.00, deductions of
limited to the succeeding taxable year only.
P1,775,991.00, net income of P79,009.00, anincome tax due
thereon in the amount of P27,653.00, prior year‘s excess credit
Taxation is a destructive power which interferes with the
of P146,026.00, and creditable taxes withheld in 1989 of
personal and property rights of the people and takes from
P54,104.00 or a total tax credit of P200,130.00 and credit
them a portion of their property for the support of the
balance of P172,477.00.
government. And since taxes are what we pay for civilized
society, or are the lifeblood of the nation, the law frowns
In a resolution dated October 21, 1993 Respondent
against exemptions from taxation and statutes granting
Courtreconsidered its decision of July 29, 1993 and dismissed
tax exemptions are thus construed strictissimi juris
the petition for review, stating that it has overlooked the fact
against the taxpayer and liberally in favor of the taxing
that the petitioner‘s 1989 Corporate Income Tax Return (Exh.
authority. A claim of refund or exemption from tax
A ) indicated that the amount of P54,104.00 subject of
payments must be clearly shown and be based on
language in the law too plain to be mistaken. Else wise 2. Yes. Section 194 of the Tax Code, in considering as real
stated, taxation is the rule,exemption therefrom is the estate dealers owners of real estate receiving rentals of at
exception. least P3,000.00 a year, does not provide any qualification as to
the persons paying the rentals. The law, which states:

"Real estate dealer" includes any person engaged in


ROXAS v. CTA; G.R. No. L-25043
the business of buying, selling, exchanging, leasing or renting
property on his own account as principal and holding himself
Facts: out as a full or part-time dealer in real estate or as an owner of
Antonio, Eduardo and Jose Roxas, brothers and at rental property or properties rented or offered to rent for an
the same time partners of the Roxas y Compania, inherited aggregate amount of three thousand pesos or more a year
from their grandparents several properties namely: xxx”. is too clear and explicit to admit construction. The
findings of the Court of Tax Appeals or, this point is sustained.
(1) Agricultural lands with a total area of 19,000 hectares,
situated in the municipality of Nasugbu, Batangas province;
TIO v. VRB; G.R. No. L-75697
(2) A residential house and lot located at Wright St., Malate,
Manila; and
FACTS:
(3) Shares of stocks in different corporations.
Herein petitioner filed a petition on
The tenants who have all been tilling the lands in
Nasugbu for generations expressed their desire to purchase September 1, on his own behalf and purportedly on
the farmland. The tenants, however, did not have enough behalf of other videogram operators adversely
funds, so the Roxases agreed to a purchase by installment. affected assailing the constitutionality of
Presidential Decree No. 1987 entitled "An Act
During their bachelor days the Roxas brothers lived in
the residential house at Wright St., Malate, Manila, which they
Creating the Videogram Regulatory Board" with
inherited from their grandparents. After Antonio and Eduardo broad powers to regulate and supervise the
got married, they resided somewhere else leaving only Jose in videogram industry (hereinafter briefly referred to
the old house. In fairness to his brothers, Jose paid to Roxas y as the BOARD). The Decree was promulgated on
Cia. rentals for the house in the sum of P8,000.00 a year. October 5, 1985 and took effect on April 10, 1986,
The CIR demanded from Roxas y Cia the payment of fifteen (15) days after completion of its publication
real estate dealer’s tax and tax for dealers of securities in the Official Gazette.
@P150.00 each plus P10.00 compromise penalty for late
payment. The assessment was based on the fact that Roxas y Petitioner's attack on the constitutionality of
Cia. received house rentals from Jose Roxas in the amount of
P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of the DECREE rests on the following grounds:
a real estate who derives a yearly rental income therefrom in
the amount of P3,000.00 or more is considered a real estate 1. Section 10 thereof, which imposes a tax of 30%
dealer and is liable to pay the corresponding fixed tax. on the gross receipts payable to the local
Subsequently, the CIR demanded from the brothers government is a RIDER and the same is not
the payment of deficiency income taxes resulting from the sale germane to the subject matter thereof;
of the farmlands to its tenants, 100% of the profits derived
therefrom was taxed. The brothers protested the assessment 2. The tax imposed is harsh, confiscatory,
but the same was denied. On appeal, the Court of Tax Appeals
sustained the assessment. Hence, this petition. oppressive and/or in unlawful restraint of trade in
violation of the due process clause of the
Constitution;
Issue:

1. Is the gain derived from the sale of the Nasugbu farm lands ISSUE:
an ordinary gain, hence 100% taxable?
Whether or not the imposition of taxes is invalid in
2. Is Roxas y Cia. liable for the payment of the fixed tax on real
the promulgation of PD NO. 1987
estate dealers?

RULING:
Ruling:

1. No. It should be borne in mind that the sale of the NO. The Constitutional requirement that "every bill
farmlands to the very farmers who tilled them for generations shall embrace only one subject which shall be
was not only in consonance with, but more in obedience to the expressed in the title thereof" is sufficiently
request and pursuant to the policy of our Government to complied with if the title be comprehensive enough
allocate lands to the landless.
to include the general purpose which a statute
In order to maintain the general public’s trust and seeks to achieve. It is not necessary that the title
confidence in the Government this power must be used justly express each and every end that the statute wishes
and not treacherously. It does not conform with the sense of to accomplish. The requirement is satisfied if all the
justice for the Government to persuade the taxpayer to lend it a parts of the statute are related, and are germane to
helping hand and later on penalize him for duly answering the
urgent call. the subject matter expressed in the title, or as long
as they are not inconsistent with or foreign to the
In fine, Roxas cannot be considered a real estate general subject and title. An act having a single
dealer and is not liable for 100% of the sale. Pursuant to general subject, indicated in the title, may contain
Section 34 of the Tax Code, the lands sold to the farmers are
capital assets and the gain derived from the sale thereof is
any number of provisions, no matter how diverse
capital gain, taxable only to the extent of 50%. they may be, so long as they are not inconsistent
with or foreign to the general subject, and may be
considered in furtherance of such subject by
providing for the method and means of carrying out
the general object." The rule also is that the (WON there is a transgression of both the equal protection and
due process clauses of the Constitution as well as of the rule
constitutional requirement as to the title of a bill requiring uniformity in taxation)
should not be so narrowly construed as to cripple or
impede the power of legislation. It should be given Held: No. Petition dismissed
practical rather than technical construction.
The need for more revenues is rationalized by the
government's role to fill the gap not done by public enterprise
Petitioner also submits that the thirty percent in order to meet the needs of the times. It is better equipped to
(30%) tax imposed is harsh and oppressive, administer for the public welfare.
confiscatory, and in restraint of trade. However, it is
The power to tax, an inherent prerogative, has to be availed of
beyond serious question that a tax does not cease to assure the performance of vital state functions. It is the
to be valid merely because it regulates, source of the bulk of public funds.
discourages, or even definitely deters the activities
taxed. The power to impose taxes is one so The power to tax is an attribute of sovereignty and the
unlimited in force and so searching in extent, that strongest power of the government. There are restrictions,
however, diversely affecting as it does property rights, both the
the courts scarcely venture to declare that it is due process and equal protection clauses may properly be
subject to any restrictions whatever, except such as invoked, as petitioner does, to invalidate in appropriate cases a
rest in the discretion of the authority which revenue measure. If it were otherwise, taxation would be a
exercises it. In imposing a tax, the legislature acts destructive power.
upon its constituents. This is, in general, a sufficient The petitioner failed to prove that the statute ran counter to the
security against erroneous and oppressive Constitution. He used arbitrariness as basis without a factual
taxation. foundation. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection
clauses are invoked, considering that they are not fixed rules
The levy of the 30% tax is for a public purpose. It but rather broad standards, there is a need for proof of such
was imposed primarily to answer the need for persuasive character as would lead to such a conclusion.
regulating the video industry, particularly because
of the rampant film piracy, the flagrant violation of It is undoubted that the due process clause may be invoked
where a taxing statute is so arbitrary that it finds no support in
intellectual property rights, and the proliferation of
the Constitution. An obvious example is where it can be shown
pornographic video tapes. And while it was also an to amount to the confiscation of property. That would be a clear
objective of the DECREE to protect the movie abuse of power.
industry, the tax remains a valid imposition.
It has also been held that where the assailed tax measure is
beyond the jurisdiction of the state, or is not for a public
In fine, petitioner has not overcome the purpose, or, in case of a retroactive statute is so harsh and
presumption of validity which attaches to a unreasonable, it is subject to attack on due process grounds.
challenged statute. We find no clear violation of the
Constitution which would justify us in pronouncing For equal protection, the applicable standard to determine
whether this was denied in the exercise of police power or
Presidential Decree No. 1987 as unconstitutional eminent domain was the presence of the purpose of hostility or
and void.WHEREFORE, the instant Petition is unreasonable discrimination.
hereby dismissed.
It suffices then that the laws operate equally and uniformly on
all persons under similar circumstances or that all persons
must be treated in the same manner, the conditions not being
SISON v. ANCHETA; G.R. No. L-59431 different, both in the privileges conferred and the liabilities
Facts: imposed. Favoritism and undue preference cannot be allowed.
Petitioners challenged the constitutionality of Section 1 of For the principle is that equal protection and security shall be
Batas Pambansa Blg. 135. It amended given to every person under circumstances, which if not
Section 21 of the National Internal Revenue Code of 1977, identical are analogous. If law be looks upon in terms of
which provides for rates of tax on citizens or residents on (a) burden or charges, those that fall within a class should be
taxable compensation income, (b) taxable net income, (c) treated in the same fashion, whatever restrictions cast on
royalties, prizes, and other winnings, (d) interest from bank some in the group equally binding on the rest.
deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) The equal protection clause is, of course, inspired by the noble
dividends and share of individual partner in the net profits of concept of approximating the ideal of the laws's benefits being
taxable partnership, (f) adjusted gross income. available to all and the affairs of men being governed by that
serene and impartial uniformity, which is of the very essence of
Petitioner as taxpayer alleged that "he would be unduly the idea of law.
discriminated against by the imposition of higher rates of tax
upon his income arising from the exercise of his profession vis- The equality at which the 'equal protection' clause aims is not a
a-vis those which are imposed upon fixed income or salaried disembodied equality. The Fourteenth Amendment enjoins 'the
individual taxpayers." He characterizes the above section as equal protection of the laws,' and laws are not abstract
arbitrary amounting to class legislation, oppressive and propositions. They do not relate to abstract units A, B and C,
capricious in character. but are expressions of policy arising out of specific difficulties,
addressed to the attainment of specific ends by the use of
For petitioner, therefore, there is a transgression of both the specific remedies. The Constitution does not require things
equal protection and due process clauses of the Constitution which are different in fact or opinion to be treated in law as
as well as of the rule requiring uniformity in taxation. though they were the same.

The OSG prayed for dismissal of the petition due to lack of Lutz v Araneta- it is inherent in the power to tax that a state be
merit. free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling
Issue: Whether the imposition of a higher tax rate on taxable out of one particular class for taxation, or exemption infringe no
net income derived from business or profession than on constitutional limitation.
compensation is constitutionally infirm.
Petitioner- kindred concept of uniformity- Court- Philippine The statute under consideration imposes a tax of P2
Trust Company- The rule of uniformity does not call for perfect per square meter or fraction thereof upon every electric sign,
uniformity or perfect equality, because this is hardly attainable bill-board, etc., wherever found in the Philippine Islands. Or in
other words, "the rule of taxation" upon such signs is uniform
Equality and uniformity in taxation means that all taxable throughout the Islands.
articles or kinds of property of the same class shall be taxed at The rule, which we have just quoted from the
the same rate. The taxing power has the authority to make Philippine Bill, does not require taxes to be graded according
reasonable and natural classifications for purposes of taxation to the value of the subject or subjects upon which they are
imposed, especially those levied as privilege or occupation
There is quite a similarity then to the standard of equal taxes. We can hardly see wherein the tax in question
protection for all that is required is that the tax "applies equally constitutes double taxation. The fact that the land upon which
to all persons, firms and corporations placed in similar the billboards are located is taxed at so much per unit and the
situation" billboards at so much per square meter does not constitute
"double taxation."
There was a difference between a tax rate and a tax base.
There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same
CREBA v. ROMULO
time reducing the applicable tax rate.

The discernible basis of classification is the susceptibility of the I. Limitations


income to the application of generalized rules removing all
deductible items for all taxpayers within the class and fixing a
set of reduced tax rates to be applied to all of them. As there is ‣CIR v. ALGUE; G.R. No. L-28896 (NABALIK
practically no overhead expense, these taxpayers are not NA NI NACASE )
entitled to make deductions for income tax purposes because
they are in the same situation more or less. ROXAS v. CTA; G.R. No. L-25043
Taxpayers who are recipients of compensation income are set
apart as a class. Antonio, Eduardo and Jose Roxas, brothers and at
the same time partners of the Roxas y Compania, inherited
On the other hand, in the case of professionals in the practice from their grandparents several properties namely:
of their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. It would (1) Agricultural lands with a total area of 19,000 hectares,
not be just then to disregard the disparities by giving all of them situated in the municipality of Nasugbu, Batangas province;
zero deduction and indiscriminately impose on all alike the
same tax rates on the basis of gross income. (2) A residential house and lot located at Wright St., Malate,
Manila; and
There was a lack of a factual foundation, the forcer of doctrines
on due process and equal protection, and he reasonableness (3) Shares of stocks in different corporations.
of the distinction between compensation and taxable net
income of professionals and businessmen not being a dubious The tenants who have all been tilling the lands in
classification. Nasugbu for generations expressed their desire to purchase
the farmland. The tenants, however, did not have enough
funds, so the Roxases agreed to a purchase by installment.
CHURCHILL v. CONCEPCION
During their bachelor days the Roxas brothers lived in
the residential house at Wright St., Malate, Manila, which they
Section 100 of Act No. 2339, imposed an annual tax inherited from their grandparents. After Antonio and Eduardo
of P4 per square meter upon "electric signs, billboards, and got married, they resided somewhere else leaving only Jose in
spaces used for posting or displaying temporary signs, and all the old house. In fairness to his brothers, Jose paid to Roxas y
signs displayed on premises not occupied by buildings." This Cia. rentals for the house in the sum of P8,000.00 a year.
section was subsequently amended by Act No. 2432, by
reducing the tax on such signs, billboards, etc., to P2 per The CIR demanded from Roxas y Cia the payment of
square meter or fraction thereof. The taxes imposed by Act No. real estate dealer’s tax and tax for dealers of securities
2432, as amended, were ratified by the Congress of the United @P150.00 each plus P10.00 compromise penalty for late
States. payment. The assessment was based on the fact that Roxas y
Francis A. Churchill and Stewart Tait, copartners Cia. received house rentals from Jose Roxas in the amount of
doing business under the firm name and style of the Mercantile P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of
Advertising Agency, owners of a sign or billboard containing an a real estate who derives a yearly rental income therefrom in
area of 52 square meters constructed on private property in the the amount of P3,000.00 or more is considered a real estate
city of Manila were taxes thereon was P104. The tax was paid dealer and is liable to pay the corresponding fixed tax.
under protest and the plaintiffs having exhausted all their
administrative remedies instituted the present action under Subsequently, the CIR demanded from the brothers
section 140 of Act No. 2339 against the Collector of Internal the payment of deficiency income taxes resulting from the sale
Revenue to recover back the amount thus paid. From a of the farmlands to its tenants, 100% of the profits derived
judgment dismissing the complaint upon the merits, with costs, therefrom was taxed. The brothers protested the assessment
the plaintiffs appealed. but the same was denied. On appeal, the Court of Tax Appeals
sustained the assessment. Hence, this petition.
Issue: WON the statute and the tax imposed is void for lack of
uniformity; constitutes double taxation.
Issue:
Ruling:
No. Sec. 5 of the Philippine Bill declared “that the rule 1. Is the gain derived from the sale of the Nasugbu farm lands
of taxation in said Islands shall be uniform”. an ordinary gain, hence 100% taxable?
Uniformity in taxation means that all taxable articles or 2. Is Roxas y Cia. liable for the payment of the fixed
kinds of property, of the same class, shall be taxed at the same tax on real estate dealers?
rate. It does not mean that lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities, and luxuries, Ruling:
shall all be assessed at the same rate. Different articles may
be taxed at different amounts, provided the rate is uniform on 1. No. It should be borne in mind that the sale of the
the same class everywhere, with all people, and at all times. farmlands to the very farmers who tilled them for generations
was not only in consonance with, but more in obedience to the
request and pursuant to the policy of our Government to Yes. The taking to be valid must be for public use. There was a
allocate lands to the landless. time when it was felt that a literal meaning should be attached
In order to maintain the general public’s trust and to such a requirement. Whatever project is undertaken must be
confidence in the Government this power must be used justly for the public to enjoy, as in the case of streets or parks.
and not treacherously. It does not conform with the sense of Otherwise, expropriation is not allowable. It is not so any more.
justice for the Government to persuade the taxpayer to lend it a As long as the purpose of the taking is public, then the power
helping hand and later on penalize him for duly answering the of eminent domain comes into play. As just noted, the
urgent call. constitution in at least two cases, to remove any doubt,
In fine, Roxas cannot be considered a real estate determines what public use is. One is the expropriation of
dealer and is not liable for 100% of the sale. Pursuant to lands to be subdivided into small lots for resale at cost to
Section 34 of the Tax Code, the lands sold to the farmers are individuals. The other is the transfer, through the exercise of
capital assets and the gain derived from the sale thereof is this power, of utilities and other private enterprise to the
capital gain, taxable only to the extent of 50%. government. It is accurate to state then that at present
whatever may be beneficially employed for the general welfare
2. Yes. Section 194 of the Tax Code, in considering as real satisfies the requirement of public use.
estate dealers owners of real estate receiving rentals of at
least P3,000.00 a year, does not provide any qualification as to
PLANTERS PRODUCTS v. FERTIPHIL; G.R. No. 166006
the persons paying the rentals. The law, which states:
"Real estate dealer" includes any person engaged in
the business of buying, selling, exchanging, leasing or renting FACTS:
property on his own account as principal and holding himself
out as a full or part-time dealer in real estate or as an owner of President Ferdinand Marcos, exercising his legislative powers,
rental property or properties rented or offered to rent for an issued LOI No. 1465 which provided, among others, for the
aggregate amount of three thousand pesos or more a year imposition of a capital recovery component (CRC) on the
xxx”. is too clear and explicit to admit construction. The domestic sale of all grades of fertilizers which resulted in
findings of the Court of Tax Appeals or, this point is sustained. having Fertiphil paying P 10/bag sold to the Fertilizer and
Perticide Authority (FPA).

FPA remits its collection to Far East Bank and Trust Company
i. Inherent Limitations who applies to the payment of corporate debts of Planters
Products Inc. (PPI)
a. Public Purpose
After the Edsa Revolution, FPA voluntarily stopped the
imposition of the P10 levy. Upon return of democracy, Fertiphil
The proceeds of the tax must be used a. for the support of the demanded a refund but PPI refused. Fertiphil filed a complaint
for collection and damages against FPA and PPI with the RTC
State or b. for some recognized objects of government or
on the ground that LOI No. 1465 is unjust, unreaonable
directly to promote the welfare of the community. oppressive, invalid and unlawful resulting to denial of due
process of law.
Cases: FPA answered that it is a valid exercise of the police power of
Pascual vs. Sec. of Public Works, 110 Phil 331- The legislature the state in ensuring the stability of the fertilizing industry in the
country and that Fertiphil did NOT sustain damages since the
is without power to appropriate public revenues for anything
burden imposed fell on the ultimate consumers.
but a public purpose.
Valentin Tio vs. Videogram Regulatory Board, 151 SCRA 208- RTC and CA favored Fertiphil holding that it is an exercise of
the power of taxation ad is as such because it is NOT for
The public purpose of a tax may legally exist even if the motive public purpose as PPI is a private corporation.
which impelled the legislature to impose the tax was to favor
one industry over another. ISSUE:

W/N Fertiphil has locus standi


PASCUAL v. SECRETARY; G.R. No. L-10405
LUTZ v. ARANETA W/N LOI No. 1465 is an invalid exercise of the power of
CALTEX v. COA; G.R. No. 92585 taxation rather the police power
GOMEZ v. PALOMAR
TIO v. VRB; G.R. No. L-75697 Held:

(MANOSCA v. CA; G.R. No. 106440) 1. Yes. In private suits, locus standi requires a litigant to be a
"real party in interest" or party who stands to be benefited or
Facts: injured by the judgment in the suit. In public suits, there is the
right of the ordinary citizen to petition the courts to be freed
Petitioners inherited a piece of land when the parcel was
ascertained by the NHI to have been the birth site of Felix Y. from unlawful government intrusion and illegal official action
Manalo, the founder of Iglesia Ni Cristo, it passed Resolution subject to the direct injury test or where there must be
No. 1, declaring the land to be a national historical landmark. personal and substantial interest in the case such that he has
Petitioners moved to dismiss the complaint on the main thesis sustained or will sustain direct injury as a result. Being a mere
that the intended expropriation was not for a public purpose procedural technicality, it has also been held that locus standi
and, incidentally, that the act would constitute an application of
public funds, directly or indirectly, for the use, benefit, or may be waived in the public interest such as cases of
support of Iglesia ni Cristo, a religious entity, contrary to the transcendental importance or with far-reaching implications
provision of Section 29(2), Article VI, of the 1987 Constitution. whether private or public suit, Fertiphil has locus standi.

Issue: 2. As a seller, it bore the ultimate burden of paying the levy


Whether or not the expropriation of the land whereat Manalo which made its products more expensive and harm its
was born is valid and constitutional. business. It is also of paramount public importance since it
involves the constitutionality of a tax law and use of taxes for
Held: public purpose.
3. Yes. Police power and the power of taxation are inherent Held: Yes.
powers of the state but distinct and have different tests for
1. On date of effectivity
validity. Police power is the power of the state to enact the CIR claims Marubeni is disqualified from the tax
legislation that may interfere with personal liberty on property amnesty because it falls under the exception in Sec 4b of EO
in order to promote general welfare. While, the power of 41:
taxation is the power to levy taxes as to be used for public
purpose. The main purpose of police power is the regulation of “Sec. 4. Exceptions.—The following taxpayers may
not avail themselves of the amnesty herein granted: xxx
a behavior or conduct, while taxation is revenue generation. b) Those with income tax cases already filed in Court as of the
The lawful subjects and lawful means tests are used to effectivity hereof;”
determine the validity of a law enacted under the police Petitioner argues that at the time respondent filed for income
power. The power of taxation, on the other hand, is tax amnesty on Oct 30, 1986, a case had already been filed
circumscribed by inherent and constitutional limitations. and was pending before the CTA and Marubeni therefore fell
under the exception. However, the point of reference is the
date of effectivity of EO 41 and that the filing of income tax
In this case, it is for purpose of revenue. But it is a robbery for cases must have been made before and as of its effectivity.
the State to tax the citizen and use the funds generation for a
private purpose. Public purpose does NOT only pertain to EO 41 took effect on Aug 22, 1986. The case
those purpose which are traditionally viewed as essentially questioning the 1985 deficiency was filed with CTA on Sept 26,
1986. When EO 41 became effective, the case had not yet
governmental function such as building roads and delivery of
been filed. Marubeni does not fall in the exception and is thus,
basic services, but also includes those purposes designed to not disqualified from availing of the amnesty under EO 41 for
promote social justice. Thus, public money may now be used taxes on income and branch profit remittance.
for the relocation of illegal settlers, low-cost housing and urban
or agrarian reform. The difficulty herein is with respect to the contractor’s
tax assessment (business tax) and respondent’s availment of
the amnesty under EO 64, which expanded EO 41’s coverage.
b. Territoriality When EO 64 took effect on Nov 17, 1986, it did not provide for
exceptions to the coverage of the amnesty for business, estate
CIR v. MARUBENI; G.R. No. 137377 and donor’s taxes. Instead, Section 8 said EO provided that:

“Section 8. The provisions of Executive Orders Nos.


Facts:
41 and 54 which are not contrary to or inconsistent with this
amendatory Executive Order shall remain in full force and
effect.”
CIR assails the CA decision which affirmed CTA,
Due to the EO 64 amendment, Sec 4b cannot be construed to
ordering CIR to desist from collecting the 1985 deficiency
refer to EO 41 and its date of effectivity. The general rule is
income, branch profit remittance and contractor’s taxes from
that an amendatory act operates prospectively. It may not be
Marubeni Corp after finding the latter to have properly availed
given a retroactive effect unless it is so provided expressly or
of the tax amnesty under EO 41 & 64, as amended.
by necessary implication and no vested right or obligations of
contract are thereby impaired.
Marubeni, a Japanese corporation, engaged in
general import and export trading, financing and construction, 2. On situs of taxation
is duly registered in the Philippines with Manila branch office.
Marubeni contends that assuming it did not validly
CIR examined the Manila branch’s books of accounts for fiscal
avail of the amnesty, it is still not liable for the deficiency tax
year ending March 1985, and found that respondent had
because the income from the projects came from the “Offshore
undeclared income from contracts with NDC and Philphos for Portion” as opposed to “Onshore Portion”. It claims all
construction of a wharf/port complex and ammonia storage materials and equipment in the contract under the
complex respectively. “Offshore Portion” were manufactured and completed in
Japan, not in the Philippines, and are therefore not subject
On August 27, 1986, Marubeni received a letter from to Philippine taxes.
CIR assessing it for several deficiency taxes. CIR claims that
the income respondent derived were income from Philippine CIR argues that since the two agreements are turn-
sources, hence subject to internal revenue taxes. On Sept key, they call for the supply of both materials and services to
1986, respondent filed 2 petitions for review with CTA: the first, the client, they are contracts for a piece of work and are
questioned the deficiency income, branch profit remittance and indivisible. The situs of the two projects is in the Philippines,
contractor’s tax assessments and second questioned the and the materials provided and services rendered were all
deficiency commercial broker’s assessment. done and completed within the territorial jurisdiction of the
Philippines. Accordingly, respondent’s entire receipts from the
On Aug 2, 1986, EO 41 declared a tax amnesty for contracts, including its receipts from the Offshore Portion,
unpaid income taxes for 1981-85, and that taxpayers who constitute income from Philippine sources. The total gross
wished to avail this should on or before Oct 31, 1986. receipts covering both labor and materials should be subjected
Marubeni filed its tax amnesty return on Oct 30, 1986. to contractor’s tax (a tax on the exercise of a privilege of selling
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include services or labor rather than a sale on products).
estate and donor’s taxes under Title 3 and business tax under Marubeni, however, was able to sufficiently prove in trial that
Chap 2, Title 5 of NIRC, extended the period of availment to not all its work was performed in the Philippines because some
Dec 15, 1986 and stated those who already availed amnesty of them were completed in Japan (and in fact subcontracted) in
under EO 41 should file an amended return to avail of the new accordance with the provisions of the contracts. All services for
benefits. Marubeni filed a supplemental tax amnesty return on the design, fabrication, engineering and manufacture of the
Dec 15, 1986. materials and equipment under Japanese Yen Portion I were
CTA found that Marubeni properly availed of the tax amnesty made and completed in Japan. These services were
and deemed cancelled the deficiency taxes. CA affirmed on rendered outside Philippines’ taxing jurisdiction and are
appeal. therefore not subject to contractor’s tax. Petition denied.

Issue: REAGAN v. CIR; G.R. No. L-26379


Facts:
W/N Marubeni is exempted from paying tax
RULING:
William Reagan is a US citizen assigned at Clark Air
No. Where the risk insured against and certain incidents of the
Base to help provide technical assistance to the US Air Force
contract are to be attended in the Philippines such as
(USAF). In April 1960 Reagan imported a 1960 Cadillac car payment of dividends when received in cash, the Philippines
valued at $6,443.83. Two months later, he got permission to may impose tax regardless whether the contract is executed
sell the same car provided that he would sell the car to a US abroad. Under such circumstances, substantial elements of the
citizen or a member of the USAF. He sold it to Willie Johnson, contract may be said to be so situated in the Philippines as to
give its government the power to tax. Even if it be assumed
Jr. for $6,600.00 as shown by a Bill of Sale. CIR assessed his
that the tax imposed upon the insured will ultimately be passed
income of the said sale as taxable, rendering him liable for
on to the insurer, thus constituting an indirect tax upon the
income tax in the sum of P2,979.00. Reagan paid the foreign corporation, by stipulations of its contract, has
assessed tax but at the same time he sought for a refund subjected itself to the taxing jurisdiction of the Philippines.
because he claims that he is exempt. He questioned the
assessed tax because the sale is executed on a “foreign soil”, After all, the Government of the Philippines, by protecting the
the transaction having taken place at the Clark Field Air Base. properties insured, benefits the foreign corporation. It is
thus reasonable that the latter should pay a just contribution
Petitioner contends that the base is outside Philippine territory
therefor.
and therefore beyond the jurisdictional power to tax.

c. Non-Delegation

(i) Delegation to the President


Issue:
Flexible Tariff Clause; Sec. 28(2), Art. VI
Whether or not the said income tax of P2,979.00 was
legally collected by respondent for petitioner. 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
Held: the framework of the national development program of the
Government.

YES.
(ii) Delegation to LGUs

The said foreign military bases are not to be Article X, Section 5. Each local government unit shall
considered a foreign soil or territory for purposes of income tax have the power to create its own sources of revenues
legislation. Philippine jurisdictional rights including the power to and to levy taxes, fees and charges subject to such
tax are preserved. The Philippines is independent and guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such
sovereign, its authority may be exercised over its entire
taxes, fees, and charges shall accrue exclusively to the
domain. There is no portion thereof that is beyond its power. local governments.
Within its limits, its decrees are supreme, its commands
paramount. Its laws govern therein, and everyone to whom it (ii) Tax Issuances
applies must submit to its terms. That is the extent of its
Legislative Rule
jurisdiction, both territorial and personal. On the other hand,
Interpretative Rule
there is nothing in the Military Bases Agreement that lends
support to Reagan’s assertion. CIR v. FORTUNE TOBACCO; G.R. Nos. 167274-75

We thus manifest fealty to a pronouncement made ABAKADA v. ERMITA; G.R. No. 168056
time and time again that the law does not look with favor on tax
FACTS:
exemptions and that he who would seek to be thus privileged RA 9337, an act amending certain sections of the National
must justify it by words too plain to be mistaken and too Internal Revenue Code of 1997, is questioned by petitioners
for being unconstitutional. Procedural issues raised by
categorical to be misinterpreted.
petitioners are the legality of the bicameral proceedings,
exclusive origination of revenue measures and the power of
the Senate concomitant thereto. Also, an issue was raised with
MERALCO v. YATCO; G.R. No. 45697 regard to the undue delegation of legislative power to the
President to increase the rate of value-added tax to 12%.
Petitioners also argue that the increase to 12%, as well as the
FACTS:
70% limitation on the creditable input tax, the 60- month
Meralco entered into an insurance contract with a new york amortization on the purchase or importation of capital goods
based insurance company. Yatco, the Commissioner of exceeding P1,000,000.00, and the 5% final withholding tax by
Internal Revenue, levied taxes on the premium paid. Meralco government agencies, is arbitrary, oppressive, and
paid under protest alleging that the Philippines had no confiscatory, and that it violates the constitutional principle on
progressive taxation, among others.
jurisdiction.

ISSUE:
Issues:
Whether the CIR exceeded his powers in taxing Meralco’s paid Whether or not there is a violation of Article VI, Section 24 of
premium the Constitution.
Whether or not there is undue delegation of legislative power in
violation of Article VI Sec 28(2) of the Constitution. The Philippines renounces war as an instrument
of national policy, adopts the generally accepted
Whether or not there is a violation of the due process and principles of international law as part of the law of
equal protection of the Constitution.
the land and adheres to the policy of peace,
Ruling: equality, justice, freedom, cooperation, and amity
No, the revenue bill exclusively originated in the House of with all nations.
Representatives, the Senate was acting within its constitutional
power to introduce amendments to the House bill when it ii. Government Exemption
included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, and excise and franchise
taxes. BOARD OF ASSESSMENT APPEALS v. CTA; G.R. No.
18125
No, there is no undue delegation of legislative power but only
of the discretion as to the execution of a law. This is FACTS:
constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job National Waterworks and Sewerage Authority (NWSA), a
must be done, who must do it, and what is the scope of his public corporation owned by the Government of the Philippines
authority; in our complex economy that is frequently the only as well as all property comprising waterworks and sewerage
way in which the legislative process can go forward. In this systems placed under it, took over the Cabuyao-Sta. Rosa-
case, it is not a delegation of legislative power but a delegation Biñan Waterworks System in 1956. It was assessed by the
of ascertainment of facts upon which enforcement and Provincial Assessor of Laguna, for purposes of real estate
administration of the increased rate under the law is taxes, on the real properties owned by Cabuyao Waterworks.
contingent. The respondent protested claiming it is exempted from the
payment of real estate taxes in view of the nature and kind of
No, the power of the State to make reasonable and natural said property and functions and activities of petitioner. The
classifications for the purposes of taxation has long been petitioner denied the protest arguing that such real properties
established. Whether it relates to the subject of taxation, the are subject to real estate tax because although said properties
kind of property, the rates to be levied, or the amounts to be belong to the Republic of the Philippines, the same holds it, not
raised, the methods of assessment, valuation and collection, in its governmental, political or sovereign capacity, but in a
the State’s power is entitled to presumption of validity. As a private, proprietary or patrimonial character, which, allegedly,
rule, the judiciary will not interfere with such power absent a is not covered by the exemption contained in section 3(a) of
clear showing of unreasonableness, discrimination, or Republic Act No. 470.
arbitrariness.
ISSUE:

Are the real properties owned by the respondent public


corporation subject to real estate tax?
i. International Comity
HELD:
Under Section 2, Article II of our Constitution, the Philippines
"adopts the generally accepted principles of international law No. Republic Act No. 470 makes no distinction between
as part of the law of the land, and adheres to the policy of property held in a sovereign, governmental or political capacity
and those possessed in a private, proprietary or patrimonial
peace, equality, justice, freedom, cooperation, and amity with
character. And where the law does not distinguish neither may
all nations." One principle of international law which has we, unless there are facts and circumstances clearly showing
attained wide recognition is the principle of Sovereign Equality that the lawmaker intended the contrary, but no such facts and
Among States. circumstances have been brought to our attention. Indeed, the
noun "property" and the verb "owned" used in said section 3(a)
strongly suggest that the object of exemption is considered
According to this principle, "states are juridically equal, enjoy
more from the view point of dominion, than from that of
the same rights, and have equal capacity in their exercise. The domain.
rights of each one do not depend upon the power which it Moreover, taxes are financial burdens imposed for the
possesses to assure its exercise, but upon the simple fact of its purpose of raising revenues with which to defray the cost of the
existence as a person under international law." operation of the Government, and a tax on property of the
Government, whether national or local, would merely have the
effect of taking money from one pocket to put it in another
This principle, in turn, finds its roots in the rule of par in parem pocket. Hence, it would not serve, in the final analysis, the
non habet imperium, where even the strongest state cannot main purpose of taxation. What is more, it would tend to defeat
assume jurisdiction over another state, no matter how weak, or it, on account of the paper work, time and consequently,
question the validity of its acts in so far as they are made to expenses it would entail.
take effect within its own territory. All states, including the
smallest and least influential, are also entitled to their dignity MACEDA v. MACARAIG; G.R. No. 88291 (31 May 1991)
and the protection of their honor and reputation.
FACTS:
Commonwealth Act 120 created NAPOCOR as a public
To illustrate: If a tax law is passed imposing taxes on the corporation to undertake the development of hydraulic power
income of foreign ambassadors or imposing real property tax and the production of power from other sources. RA 358
upon foreign embassies, this is NOT a valid law because the granted NAPOCOR tax and duty exemption privileges. RA
6395 revised the charter of the NAPOCOR, tasking it to carry
imposition is in violation of the universal principles of
out the policy of the national electrification and provided in
international law. Under international laws, foreign embassies detail NAPOCOR’s tax exceptions. PD 380 specified that
are considered extensions of the territoriality of the foreign NAPOCOR’s exemption includes all taxes, etc. imposed
states; to impose taxes upon them would be tantamount to an “directly or indirectly.” PD 938 dated May 27, 1976 further
exercise of jurisdiction over these foreign states amended the aforesaid provision by integrating the tax
exemption in general terms under one paragraph.
1. Doctrine of Sovereign Equality of the States ISSUE:
Whether or not NPC has ceased to enjoy indirect tax and duty
2. Sec. 2, Art. II, Constitution
exemption with the enactment of PD 938 on May 27, 1976 And improvement s made by the occupants is not exempted
which amended PD 380 issued on January 11, 1974 from payment of tax.
On their second claim, PPA is liable for business tax for the
RULING: lease of their buildings to private corporations. During pre-trial,
No, it is still exempt. they did not refute the claims of the city of Iloilo that they are
NAPOCOR is a non-profit public corporation created for the engage in business nor did they present proof of exemption
general good and welfare, and wholly owned by the from tax.
government of the Republic of the Philippines. From the very
beginning of the corporation’s existence, NAPOCOR enjoyed PPA admitted that their act of leasing is not necessarily for
preferential tax treatment “to enable the corporation to pay the government function of administering ports but for
indebtedness and obligation” and effective implementation of convenience. Therefore, any income or profit generated by the
the policy enunciated in Section 1 of RA 6395. entity, even without any intention of realizing profit is still
subject to business tax. What matters is that PPA leased its
From the preamble of PD 938, it is evident that the provisions properties to private entities and from which PPA earned
of PD 938 were not intended to be interpreted liberally so as to substantial income.
enhance the tax exempt status of NAPOCOR.

It is recognized that the rule on strict interpretation does not


apply in the case of exemptions in favor of government political
subdivision or instrumentality. In the case of property owned by (i) Doctrine of Supremacy of the National
the state or a city or other public corporations, the express Government Over the Local Governments
exception should not be construed with the same degree of
strictness that applies to exemptions contrary to the policy of
the state, since as to such property “exception is the rule and BASCO v. PAGCOR; G.R. No. 91649
taxation the exception.”
The Local governments have no power to tax
(PPA v. CITY OF ILOILO; G.R. No. 109791) instrumentalities of the National Government. PAGCOR is
a government owned or controlled corporation with an original
FACTS: charter, PD 1869. All of its shares of stocks are owned by the
PPA is created und PD 857 and under Section 25 of its National Government. In addition to its corporate powers (Sec.
charter, PPA is exempted from paying real property tax. 3, Title II, PD 1869) it also exercises regulatory powers thus:
PPA is engaged in the business of arrastre and stevedoring
and leasing of real estate. Also, it owns a warehouse for its
operation. On June 11, 1984, PD 1931 withdrew all tax Sec. 9. Regulatory Power. — The Corporation shall maintain a
exemptions privileges granted to GOCC. Registry of the affiliated entities, and shall exercise all the
Thus, the city of Iloilo seeks to collect from PPA business tax powers, authority and the responsibilities vested in the
and real property tax from the last quarter of 1984 up to the Securities and Exchange Commission over such affiliating
year 1986. entities mentioned under the preceding section, including, but
However, PPA claims the ff not limited to amendments of Articles of Incorporation and By-
Laws, changes in corporate term, structure, capitalization and
The City of Iloilo cannot collect real property taxes from PPA other matters concerning the operation of the affiliated entities,
because the warehouse is part of the port. Under Sec 420 of the provisions of the Corporation Code of the Philippines to the
Civil Code, ports are part of public dominion. contrary notwithstanding, except only with respect to original
incorporation.
PPA is not subject to business tax because they are not
engage in business. Their leasing of its property was not PAGCOR has a dual role, to operate and to regulate gambling
motivated by profit but duly to manage and control port casinos. The latter role is governmental, which places it in the
operations. category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should
ISSUE: be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control
Whether or not Philippine Ports Authority is exempt from the by a mere Local government.
payment of real property tax and business tax.
The states have no power by taxation or otherwise, to retard,
RULING:
impede, burden or in any manner control the operation of
constitutional laws enacted by Congress to carry into execution
NO. The records show that the theory of petitioner before the
the powers vested in the federal government. (MC Culloch v.
trial court was different from that of the present petition.
Marland, 4 Wheat 316, 4 L Ed. 579)
Initially, it argued that as a government-owned corporation, it is
exempt from paying real property taxes by virtue of its specific
exemption in its charter, Section 40 of the Real Property Tax This doctrine emanates from the "supremacy" of the National
Code and Executive Order No. 93. Subsequently, in the Government over local governments.
memorandum it filed with the trial court, it omitted its earlier
argument and changed its theory by alleging that it is a Justice Holmes, speaking for the Supreme Court, made
government instrumentality, which, according to applicable reference to the entire absence of power on the part of the
jurisprudence, may not be taxed by the local government. States to touch, in that way (taxation) at least, the
PPA cannot claim that their warehouse is a public dominion instrumentalities of the United States (Johnson v. Maryland,
because such theory is different from the theory they adopted 254 US 51) and it can be agreed that no state or political
and decided by the lower court. subdivision can regulate a federal instrumentality in such a way
as to prevent it from consummating its federal responsibilities,
Thus, PPA is bound by its admission of ownership of the or even to seriously burden it in the accomplishment of them.
warehouse. It is therefore liable to pay real property tax. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis
Also, under Sec 420 of the CC, the ports mentioned are those supplied)
“constructed by the state”. Thus, PPA should prove that its port
was constructed by the state in order to conclude that such
Otherwise, mere creatures of the State can defeat National
property is a public dominion. However, PPA failed to prove
policies thru extermination of what local authorities may
such.
perceive to be undesirable activities or enterprise using the
power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US
Also, granting that its port is a public dominion, its warehouse
42).
which they constructed is considered to be an improvement.
The power to tax which was called by Justice Marshall as the
"power to destroy" (Mc Culloch v. Maryland, supra) cannot be The Court has also ruled that property of public dominion,
allowed to defeat an instrumentality or creation of the very being outside the commerce of man, cannot be the subject of
entity which has the inherent power to wield it.
an auction sale. Properties of public dominion, being for public
use, are not subject to levy, encumbrance or disposition
through public or private sale. Any encumbrance, levy on
MIAA v. CA; G.R. No. 155650 execution or auction sale of any property of public dominion is
void for being contrary to public policy. Essential public
Facts: services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen
MIAA received Final Notices of Real Estate Tax Delinquency if the City of Parañaque can foreclose and compel the auction
from the City of Parañaque for the taxable years 1992 to 2001. sale of the 600-hectare runway of the MIAA for non-payment of
MIAA’s real estate tax delinquency was estimated at P624 real estate tax.
million. The City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport
MCIAA v. MARCOS; G.R. No. 120082
Lands and Buildings. The Mayor of the City of Parañaque
threatened to sell at public auction the Airport Lands and
Mactan Cebu International Airport Authority (MCIAA) was
Buildings should MIAA fail to pay the real estate tax
created by virtue of Republic Act 6958. Since the time of its
delinquency. creation, MCIAA enjoyed the privilege of exemption from
payment of realty taxes in accordance with Section 14 of its
MIAA filed a petition sought to restrain the City of Parañaque Charter. However on 11 October 1994, the Office of the
from imposing real estate tax on, levying against, and Treasurer of Cebu, demanded for the payment of realty taxes
on several parcels of land belonging to the petitioner.
auctioning for public sale the Airport Lands and Buildings.
Petitioner objected to such demand for payment as baseless
The City of Parañaque contended that Section 193 of the Local and unjustified and asserted that it is an instrumentality of the
Government Code expressly withdrew the tax exemption government performing governmental functions, which puts
privileges of “government-owned and-controlled corporations” limitations on the taxing powers of local government units.
upon the effectivity of the Local Government Code. Thus,
The City refused to cancel and set aside petitioner’s realty tax
MIAA cannot claim that the Airport Lands and Buildings are account, insisting that the MCIAA is a government controlled
exempt from real estate tax corporation whose tax exemption privilege has been withdrawn
by virtue of Sections 193 and 234 of the Local Government
MIAA argued that Airport Lands and Buildings are owned by Code (LGC), and not an instrumentality of the government but
merely a government owned corporation performing
the Republic. The government cannot tax itself. The reason for
proprietary functions. MCIAA paid its tax account “under
tax exemption of public property is that its taxation would not protest” when City is about to issue a warrant of levy against
inure to any public advantage, since in such a case the tax the MCIAA’s properties.
debtor is also the tax creditor.
MCIAA filed a Petition of Declaratory Relief with the RTC
contending that the taxing power of local government units do
Issue:
not extend to the levy of taxes or fees on an instrumentality of
the national government. It contends that by the nature of its
Whether or not the City of Parañaque can impose real tax, levy powers and functions, it has the footing of an agency or
against and auction for public sale the Airport Lands and instrumentality of the national government; which claim the City
Buildings. rejects. The trial court dismissed the petition, citing that close
reading of the LGC provides the express cancellation and
withdrawal of tax exemptions of Government Owned and
Held: Controlled Corporations.

MIAA is Not a Government-Owned or Controlled ISSUE: Whether the MCIAA is exempted from realty taxes.
Corporation. The Airport Lands and Buildings of MIAA are
RULING:
property of public dominion and therefore owned by the State
or the Republic of the Philippines. No one can dispute that Tax statutes are construed strictly against the government and
properties of public dominion mentioned in Article 420 of the liberally in favor of the taxpayer. But since taxes are paid for
Civil Code, like “roads, canals, rivers, torrents, ports and civilized society, or are the lifeblood of the nation, the law
bridges constructed by the State,” are owned by the State. The frowns against exemptions from taxation and statutes granting
tax exemptions are thus construed strictissimi juris against the
term “ports” includes seaports and airports. The MIAA Airport
taxpayer and liberally in favor of the taxing authority.
Lands and Buildings constitute a “port” constructed by the A claim of exemption from tax payments must be clearly shown
State. and based on language in the law too plain to be mistaken.
Taxation is the rule, exemption therefrom is the exception.
Under Article 420 of the Civil Code, the MIAA Airport Lands However, if the grantee of the exemption is a political
subdivision or instrumentality, the rigid rule of construction
and Buildings are properties of public dominion and thus
does not apply because the practical effect of the exemption is
owned by the State or the Republic of the Philippines. The merely to reduce the amount of money that has to be handled
Airport Lands and Buildings are devoted to public use because by the government in the course of its operations.
they are used by the public for international and domestic
travel and transportation. The fact that the MIAA collects Further, since taxation is the rule and exemption therefrom the
exception, the exemption may be withdrawn at the pleasure of
terminal fees and other charges from the public does not
the taxing authority. The only exception to this rule is where the
remove the character of the Airport Lands and Buildings as exemption was granted to private parties based on material
properties for public use. The charging of fees to the public consideration of a mutual nature, which then becomes
does not determine the character of the property whether it is contractual and is thus covered by the non-impairment clause
of public dominion or not. Article 420 of the Civil Code defines of the Constitution.
property of public dominion as one “intended for public use.”
MCIAA is a “taxable person” under its Charter (RA 6958), exception applies only if the beneficial use of real property
and was only exempted from the payment of real property owned by the Republic is given to a taxable entity.
taxes. The grant of the privilege only in respect of this tax
is conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property Finally, the Airport Lands and Buildings of MIAA are properties
tax. devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the
Since Republic Act 7160 or the Local Government Code (LGC) State or the Republic.
expressly provides that “All general and special laws, acts, city
charters, decrees [sic], executive orders, proclamations and As properties of public dominion owned by the Republic, there
administrative regulations, or part of parts thereof which are is no doubt whatsoever that the Airport Lands and Buildings
inconsistent with any of the provisions of this Code are hereby are expressly exempt from real estate tax under Section 234(a)
repealed or modified accordingly.” of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not
With that repealing clause in the LGC, the tax exemption subject to execution or foreclosure sale.
provided for in RA 6958 had been expressly repealed by the
provisions of the LGC. Therefore, MCIAA has to pay the Petitioner’s properties that are actually, solely and exclusively
assessed realty tax of its properties effective after January 1, used for public purpose, consisting of the airport terminal
1992 until the present. building, airfield, runway, taxiway and the lots on which they
are situated, EXEMPT from real property tax imposed by the
City of Lapu-Lapu.
MCIAA v. CITY OF LAPU-LAPU; G.R. No. 181756
VOID all the real property tax assessments, including the
additional tax for the special education fund and the penalty
MIAA is not a government-owned or controlled corporation interest, as well as the final notices of real property tax
under Section 2(13) of the Introductory Provisions of the delinquencies, issued by the City of Lapu-Lapu on petitioner’s
Administrative Code because it is not organized as a stock or properties, except the assessment covering the portions that
non-stock corporation. Neither is MIAA a government-owned or petitioner has leased to private parties.
controlled corporation under Section 16, Article XII of the 1987
Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality NULL and VOID the sale in public auction of 27 of petitioner’s
vested with corporate powers and performing essential public properties and the eventual forfeiture and purchase of the said
services pursuant to Section 2(10) of the Introductory properties by respondent City of Lapu-Lapu. We likewise
Provisions of the Administrative Code. declare VOID the corresponding Certificates of Sale of
Delinquent Property issued to respondent City of Lapu-Lapu.
As a government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of the ii. Constitutional Limitations
Local Government Code. The exception to the exemption in
Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such
a. Uniformity and Equality of Taxation; Sec. 28(1), Art.
VI

The rule of taxation shall be uniform and equitable (Sec.28 The law, however, may validly further classify such property
(1), Art.III, 1987 Constitution). according to their assessed value and levy different rates, and
consequently, different amounts of tax on the basis of such
The tax is uniform when it operates with the same force and value;
effect in every place where the subject of it is found.
"Uniformity" means all property belonging to the same class Section 28 (c), Article VI of the Constitution provides that “the
shall be taxed alike. It does not signify an intrinsic, but simply a rule of taxation shall be uniform and equitable.”
geographic, uniformity (Churchill & Tait vs. Conception, 34
Phil. 969). Uniformity does not require the same treatment; it The concept of uniformity in taxation implies that all taxable
simply requires reasonable basis for classification. articles or properties of the same class shall be taxed at the
same rate. It requires the uniform application and operation,
without discrimination, of the tax in every place where the
Application subject of the tax is found. It does not, however, require
absolute identity or equality under all circumstances, but
In the following cases, the uniformity requirement is not subject to reasonable classification.
violated:
The concept of equity in taxation requires that the
(a) Where a statute imposes a tax of P2.50 a square meter or apportionment of the tax burden be, more or less, just in the
fraction thereof on every billboard or sign anywhere in the light of the taxpayer’s ability to shoulder the tax burden and, if
country (Churchill vs. Concepcion, 10 Phil.381 1908.) warranted, on the basis of the benefits received from the
government. Its cornerstone is the taxpayer’s ability to pay.
(b) Where a license tax is imposed upon hotels and the
amount required to be paid is graduated by the number of
CHURCHILL v. CONCEPCION; G.R. No. 11572 – billboards
rooms which may be devoted to the accommodation of the
public (St. Louis vs. Bircher,7 Mo. App.169; US vs. Sumulong,
30 Phil.381 1915.) FACTS:
Section 100 of Act 2339 imposed an annual tax of P4 per
(c) Where those with different incomes are made to pay square meter upon electric signs, billboards, and spaces used
different rates of tax because in this case the incomes are for posting or displaying temporary signs, and all signs
considered as belonging to different classes; displayed on premises not occupied by buildings. The section
was amended by Act 2432, reducing the tax to P2 per square
(d) Where residential houses, regardless of their assessed
value, are considered for purposes of taxation as belonging to meter. Francis A. Churchill and Stewart Tait, co-partners in
one class (i.e., residential property and made subject to the Mercantile Advertising Agency, owned a billboard to which they
same rate (e.g., 2% of assessed value) but different amounts were taxes at P104. The tax was paid under protest. Churchill
of tax depending on their value; and Tait instituted the action to recover the amount.
SISON v. ANCHETA; G.R. No. L-59431 - compensation and
ISSUE: business income
Is the statute and the tax imposed void for lack of uniformity? Facts: Section 1 of BP Blg 135 amended the Tax Code and
petitioner Antero M. Sison, as taxpayer, alleges that "he would
RULING: be unduly discriminated against by the imposition of higher
No, the tax is valid. rates of tax upon his income arising from the exercise of his
profession vis-a-vis those which are imposed upon fixed
Uniformity in taxation means that all taxable articles or kinds of income or salaried individual taxpayers. He characterizes said
property, of the same class, shall be taxed at the same rate. It provision as arbitrary amounting to class legislation,
does not mean that all lands, chattels, securities, incomes, oppressive and capricious in character. It therefore violates
occupations, franchises, privileges, necessities, and luxuries both the equal protection and due process clauses of the
shall all be assessed at the same rate. Different articles may Constitution as well asof the rule requiring uniformity in
be taxed at different amounts provided the rate is uniform on taxation.
the same class everywhere, with all people, at all times.
Herein, the Act imposes a tax of P2 per square meter or a
fraction thereof upon every electric sign, billboard, etc.
Issue: Whether BP 135 violates the due process and equal
Wherever found in the Philippine Islands. The rule of taxation
protection clauses, and the rule on uniformity in taxation.
upon such signs is uniform throughout the islands. The rule
does not require taxes to be graded according to the value of
the subjects upon which they are imposed, especially those Held:
levied as privilege or occupation taxes.
There is a need for proof of such persuasive character as
would lead to a conclusion that there was a violation of the due
PHILIPPINE TRUST COMPANY v. YATCO; G.R. Nos. L-
process and equal protection clauses. Absent such showing,
46255, 46256, 46259 and 46277 - banks, exemption gov’t the presumption of validity must prevail. Equality and uniformity
instrumentality in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural
classifications for purposes of taxation.
A tax is considered uniform when it operates with the same
force and effect in every place where the subject may be
found. (State v. Railroad Tax Cases, 92 U.S. 575, 595, 612, 23 Where the differentitation conforms to the practical dictates of
Law. ed. 363, 373.) Section 1499 of the Revised Administrative justice and equity, similar to the standards of equal protection,
Code, as amended, applies uniformly to, and operates on, all it is not discriminatory within the meaning of the clause and is
banks in the Philippines without distinction and discrimination, therefore uniform.
and if the National City Bank of New York is exempted from its
operation because it is a federal instrumentality subject only to
the authority of Congress, that alone could have the effect of Taxpayers may be classified into different categories, such as
rendering it violative of the rule of uniformity. recipients of compensation income as against professionals.
Recipients of compensation income are not entitled to
make deductions for income tax purposes as there is no
In every well-regulated and enlightened state or government, practically no overhead expense, while professionals and
certain descriptions of property and also certain institutions are businessmen have no uniform costs or expenses
exempt from taxation, but these exemptions have never been necessaryh to produce their income. There is ample
regarded as disturbing the rules of taxation, even where the
justification to adopt the gross system of income taxation to
fundamental law had ordained that it should be uniform. (Des
compensation income, while continuing the system of net
Moines Bank v. Fairweather, 263 U.S. 103,118). The rule of income taxation as regards professional and business income.
uniformity does not call for perfect uniformity or perfect
equality, because this is hardly
attainable.chanroblesvirtualawlibrary chanrobles virtual law
library VILLEGAS v. HIU TSIONG TSAI PAO HO; G.R. No. L-29646)

It is vaguely argued that section 1499 of the Revised


Administrative Code was declared unconstitutional by the
Supreme Court of the United States insofar as the National Facts: The Municipal Board of Manila enacted Ordinance 6537
City Bank of New York was concerned. This is an error. In requiring aliens (except those employed in the diplomatic and
Posadas v. National City Bank, 296 U.S. 499, 80 Law. ed. 352, consular missions of foreign countries, in technical assistance
it was held that the National City Bank of New York in the programs of the government and another country, and
Philippines was established by virtue of section 25 of the members of religious orders or congregations) to procure the
Federal Reserve Act of 1913, which authorized the requisite mayor’s permit so as to be employed or engage in
establishment of branches of national banking associations in trade in the City of Manila. The permit fee is P50, and the
foreign countries or dependencies of the United States," and penalty for the violation of the ordinance is 3 to 6 months
that the Philippines being a possession and dependency of the imprisonment or a fine of P100 to P200, or both.
United States, the rule laid down in Domenech v. National City
Bank, 294 U.S. 199, 204, 79 Law. ed. 857, 861, 55 S. Ct. 366,
that "a dependency may not tax its sovereign," must be Issue: Whether the ordinance imposes a regulatory fee or a
considered controlling. tax.

There was no declaration, either express or implied, that Held: The ordinance’s purpose is clearly to raise money under
section 1499 is unconstitutional and the guise of regulation by exacting P50 from aliens who have
void.chanroblesvirtualawlibrary chanrobles virtual law li brar y

been cleared for employment. The amount is unreasonable


and excessive because it fails to consider difference in
situation among aliens required to pay it, i.e. being casual,
permanent, part-time, rank-and-file or executive.
EASTERN THEATRICAL v. ALFONSO; G.R. No. L-1104 - fee
on ticket - not all amusement places The Ordinance was declared invalid as it is arbitrary,
oppressive and unreasonable, being applied only to aliens who
are thus deprived of their rights to life, liberty and property and
therefore violates the due process and equal protection 22-2003 and 6-2003 on the ground that they discriminate
clauses of the Constitution. Further, the ordinance does not lay against new brands of cigarettes in violation of the equal
down any criterion or standard to guide the Mayor in the protection and uniformity provisions of the Constitution
exercise of his discretion, thus conferring upon the mayor
arbitrary and unrestricted powers. RTC: Dismissed

While petitioner's appeal was pending, RA 9334 amending


Sec. 145 of the 1997 NIRC among other took effect on January
CIR v. LINGAYEN GULF; G.R. No. L-23771 - franchises 2% 1, 2005 which in effect increased petitioners excise tax to
and 5% P25/pack

Petitioner filed a Motion to Admit attached supplement and a


FACTS: supplement to the petition for review assailing the
Lingayen Gulf Electric Power operates an electric power plant constitutionality of RA 9334 and praying a downward
serving the municipalities of Lingayen and Binmaley, classification of Lucky Strike products at the bracket taxable at
Pangasinan, pursuant to municipal franchise granted it by the P 8.96/pack since existing brands are still taxed based on their
respective municipal councils. The franchises provided that the price as of October 1996 eventhough they are equal or higher
than petitioner's product price.
grantee shall pay quarterly to the provincial treasury of
Pangasinan 1% of the gross earnings obtained through the Philip Morris Philippines Manufacturing Incorporated, Fortune
privilege for the first 20 years (from 1946) and 2% during the Tobacco Corp., Mighty Corp. and JT International Intervened.
remaining 15 years of the life of the franchise. In 1955, the BIR
assessed and demanded against the company deficiency Fortune Tobacco claimed that the CTA should have the
franchise taxes and surcharges from the years 1946 to 1954 exclusive appellate jurisdiction over the decision of the BIR in
applying the franchise tax rate of 5% on gross receipts from tax disputes
1948 to 1954. The company asked for a reinvestigation, which
Issue:
was denied. CTA, however, ruled for Lingayen. Hence, this
petition. W/N RA 9334 of the classification freeze provision is
unconstitutional for violating the equal protection and
Issue: uniformity provisions of the Constitution

Whether a rate below 5% is violative of the uniformity clause in Ruling:


the Constitution
No. In Sison Jr. v. Ancheta, the court held that "xxx It suffices
RULING:
then that the laws operate equally and uniformly on all persons
No. The legislature has the inherent power not only to select under similar circumstances or that all persons must be treated
the subjects of taxation but to grant exemptions. Tax in the same manner, the conditions not being different, both in
exemptions have never been deemed violative of the equal the privileges conferred and the liabilities imposed. If the law
protection clause. Herein, the 5% franchise tax rate provided in be looked upon in tems of burden on charges, those that fall
Section 259 of the Tax Code was never intended to have within a class should be treated in the same fashion, whatever
universal application. Section 259 expressly allows the restrictions cast on some in the group equally binding on the
payment of taxes at rates lower than 5% when the charter
rest. xxx" Thus, classification if rational in character is
granting the franchise precludes the imposition of a higher tax.
RA 3843, the law granting the franchise, did not only fix and allowable. In Lutz v. Araneta: "it is inherent in the power to tax
specify a franchise tax of 2% on its gross receipts but made it that a state be free to select the subjects of taxation, and it has
in lieu of any and all taxes, all laws to the contrary been repeatedly held that 'inequalities which result from a
notwithstanding. The company, hence, is not liable for singling out of one particular class for taxation, or exemption
deficiency taxes. infringe no constitutional limitation"
SC previously held: "Equality and uniformity in taxation means
that all taxable articles or kinds of property of the same class
(i) Classification Freeze Provision shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for
BRITISH AMERICAN TOBACCO v. CAMACHO; G.R. No. purposes of taxation"
163583
Under the the rational basis test, a legislative classification, to
June 2001, petitioner British American Tobacco introduced and survive an equal protection challenge, must be shown to
sold Lucky Strike, Lucky Strike Lights and Lucky Strike
rationally further a legitimate state interest. The classifications
Menthol Lights cigarettes w/ SRP P 9.90/pack - Initial
assessed excise tax: P 8.96/pack (Sec. 145 [c]) must be reasonable and rest upon some ground of difference
having a fair and substantial relation to the object of the
February 17, 2003: RR 9-2003: Periodic review every 2 years legislation
or earlier of the current net retail price of new brands and
variants thereof for the purpose of the establishing and A legislative classification that is reasonable does not offend
updating their tax classification the constitutional guaranty of the equal protection of the laws.
The classification is considered valid and reasonable provided
March 11, 2003: RMO 6-2003: Guidelines and procedures in
establishing current net retail prices of new brands of that: (1) it rests on substantial distinctions; (2) it is germane to
cigarettes and alcohol products the purpose of the law; (3) it applies, all things being equal, to
both present and future conditions; and (4) it applies equally to
August 8, 2003: RR 22-2003: Implement the revised tax all those belonging to the same class.
classification of certain new brands introduced in the market
after January 1, 1997 based on the survey of their current net Moreover, petitioner failed to clearly demonstrate the exact
retail prices. This increased the excise tax to P13.44 since the
average net retail price is above P 10/pack. This cause extent of such impact as the price is not the only factor that
petitioner to file before the RTC of Makati a petition for affects competition.
injunction with prayer for issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction sought to enjoin the (ii) Progressive System of Taxation
implementation of Sec. 145 of the NIRC, RR No. 1-97, 9-2003,
TOLENTINO v. SECRETARY; G.R. No. 115455 (25 August of the privilege of receiving the properties (Phipps vs. Com. of
1994; 30 October 1995) Int. Rec. 91 F 2d 627). Manifestly, gift tax is not within the
ACTS: exempting provisions of the section just mentioned. A gift
The value-added tax (VAT) is levied on the sale, barter or tax is not a property tax, but an excise tax imposed on the
exchange of goods and properties as well as on the sale or transfer of property by way of gift inter vivos, the imposition of
exchange of services. RA 7716 seeks to widen the tax base of which on property used exclusively for religious purposes,
the existing VAT system and enhance its administration by does not constitute an impairment of the Constitution.
amending the National Internal Revenue Code (NIRC).
Herein, various petitioners seek to declare RA 7166 as As well observed by the learned respondent Court, the
unconstitutional. One of the reasons is that it violates Article VI, phrase "exempt from taxation," as employed in the
Section 28 (1) which provides that “the rule of taxation shall be Constitution (supra) should not be interpreted to mean
uniform and equitable. The Congress shall evolve a exemption from all kinds of taxes. And there being no
progressive system of taxation.” clear, positive or express grant of such privilege by law, in
favor of petitioner, the exemption herein must be denied.
ISSUE:
Whether RA 7166 violates the principle of progressive system
of taxation
CIR v. CA and YMCA; G.R. No. 124043
FACTS:
RULING:
No. Lacking empirical data on which to base any conclusion Young Men’s Christian Association of the Philippines, Inc. is a
regarding these arguments, any discussion whether the VAT is non-stock, non-profit institution which conducts various
regressive in the sense that it will hit the poor and middle programs and activities that are beneficial to the public,
income group in society harder than it will the rich is largely an especially the young people, pursuant to its religious,
educational and charitable objectives.
academic exercise.
In 1980, the private respondent earned, among others an
Regressivity is not a negative standard for courts to enforce. income from the leasing out of a portion of its premises to
“Evolve a progressive system of taxation” is a directive to small shop owners, like restaurants and canteen operators and
Congress. These provisions are placed in the Constitution as parking fees collected from non-members.
moral incentives to legislation, not as judicially enforceable
CIR issued an assessment to private respondent for deficiency
rights. income tax, deficiency expanded withholding taxes on rentals
and professional fees and deficiency withholding tax on wages
. Private respondent protested the assessment. CIR denied the
claims of YMCA considering that it was no engaged in the
business of operating or contracting parking lot as it is only for
b. Exemption of Properties Actually, Directly, and
members with stickers. The rentals and parking fees were only
Exclusively Used for Religious, Charitable, and enough to cover the costs of operation and maintenance.
Educational Purposes; Sec. 28(3), Art. VI
CIR elevated the case to the CA who decided in favor of CIR,
LLADOC v. CIR; G.R. No. L-19201 reversing the CTA decision. YMCA asked for reconsideration,
which CA granted. CTA decision now affirmed.
Facts: Sometime in 1957, M.B. Estate Inc., of Bacolod City,
CIR then filed motion for reconsideration which was denied by
donated 10,000.00 pesos in cash to Fr. Crispin Ruiz, the parish CA.
priest of Victorias, Negros Occidental, and predecessor of Fr.
Lladoc, for the construction of a new Catholic church in the ISSUE:
locality. The donated amount was spent for such purpose. WON the income derived from the rentals of real property
owned by YMCA (a welfare, educational and charitable non-
profit corporation) is subject to income tax under NIRC and the
On March 3, 1958, the donor M.B. Estate filed the donor's gift
constitution.
tax return. Under date of April 29, 1960. Commissioner of
Internal Revenue issued an assessment for the donee's gift tax HELD:
against the Catholic Parish of Victorias of which petitioner was
the parish priest. YES. The exemption claimed by YMCA is expressly
disallowed by the very wording of the last paragraph of the
then section 27 of the NIRC which mandates that the income
of exempt organizations (such as the YMCA) from any of their
Issue: Whether or not the imposition of gift tax despite the fact
properties, real or personal, be subject to the tax imposed by
the Fr. Lladoc was not the Parish priest at the time of donation, the same Code. The last paragraph of said section
Catholic Parish priest of Victorias did not have juridical unequivocally subjects to tax the rent income of the YMCA
personality as the constitutional exemption for religious from its real property. Thus the Court is duty-bound to abide
purpose is valid. strictly by its literal meaning and to refrain from resorting to any
convoluted attempt at construction.
Section 22 (3), Art. VI of the Constitution of the Philippines,
The CA committed reversible error when it allowed on
exempts from taxation cemeteries, churches and parsonages
reconsideration, the tax exemption claimed by YMCA on
or convents, appurtenant thereto, and all lands, buildings, and income it derived from renting out its real property, on the
improvements used exclusively for religious purposes. The solitary but unconvincing ground that the said income is not
exemption is only from the payment of taxes assessed on such collected for profit byt is merely incidental to its operation. The
properties enumerated, as property taxes, as contra law does not make a distinction. The rental income is taxable
distinguished from excise taxes. regardless of whence such income is derived and how it is
used or disposed of. Where the law does not distinguish,
neither should we.
In the present case, what the Collector assessed was a
donee's gift tax; the assessment was not on the properties On YMCA’s argument that the constitution gives tax exemption
themselves. It did not rest upon general ownership; it was an on charitable institutions, the Court is not persuaded. Justice
excise upon the use made of the properties, upon the exercise Hilario Davide, Jr., stressed during the Concom debates that
“…what is exempted is not the institution itself…; those
exempted from real estate taxes are lands, buildings and case, its use is limited to the necessities of the priest, which
improvements actually, directly and exclusively used for comes under exemption.
religious charitable or education purposes.” Father Joaquin
Bernas adhered to the same view (in short, only property As regards to the lot which formerly was the cemetery, while it
taxes). is no longer used as such, neither is it used for commercial
purposes and according to the evidence, is now being used as
YMCA is only exempt from payment of property tax, but not a lodging house by the people who participate in religion
income tax on the rentals from its property. Laws allowing tax festivities, which constitutes an incidental use in religious
exemptions are construed strictissimi juris as taxes are the functions, which also comes within the exemption.
lifeblood of the government.
The judgment appealed from is reversed in all its part and it is
held that both lots are exempt from land tax and the
ADDITIONAL: For YMCA to be granted the exemption it defendants are ordered to refund to plaintiff whatever was paid
claims, it must prove with substantial evidence that 1) it falls as such tax, without any special pronouncement as to cost. So
under the classification non-stock, non-profit educational Ordered.
institution; and 2) the income it seeks to be exempted from
taxation is used actually, directly and exclusively for
educational purposes. Such was not proven by the YMCA.
LUNG CENTER v. QUEZON CITY; G.R. No. 144104
Sec. 27 of the NIRC (NOW SEC. 26) provides:
The Petitioner is a non-stock, non-profit entity which
Exemptions from tax on corporations- the following owns a parcel of land in Quezon City. Erected in the middle of
organizations shall not be taxed under this title in respect to the aforesaid lot is a hospital known as the Lung Center of the
income received by them as such- Philippines. The ground floor is being leased to a canteen,
medical professionals whom use the same as their private
(g) Civic league organization not organized for profit but clinics, as well as to other private parties. The right portion of
operated exclusively for the promotion of social welfare the lot is being leased for commercial purposes to the Elliptical
(h) club organized and operated exclusively for pleasure, Orchids and Garden Center. The petitioner accepts paying
recreation, and other non-profittable purposes, no part of the and non-paying patients. It also renders medical services to
net income of which inures to the benefit of any private out-patients, both paying and non-paying. Aside from its
stockholder or member income from paying patients, the petitioner receives annual
subsidies from the government.
xxx Petitioner filed a Claim for Exemption from realty
taxes amounting to about Php4.5 million, predicating its claim
Notwithstanding the provisions in the preceding paragraphs, as a charitable institution. The city assessor denied the Claim.
the income of whatever kind and character of the foregoing When appealed to the QC-Local Board of Assessment, the
organization from any of their properties, real or personal, or same was dismissed. The decision of the QC-LBAA was
from any of their activities conducted for profit, regardless of affirmed by the Central Board of Assessment Appeals, despite
the disposition made of such income, shall be subject to the the Petitioners claim that 60% of its hospital beds are used
tax imposed under this code. exclusively for charity.
Issue:
The CA decision is reversed. Whether or not the Petitioner is entitled to exemption
from realty taxes notwithstanding the fact that it admits paying
clients and leases out a portion of its property for commercial
BISHOP OF NUEVA SEGOVIA v. PROVINCIAL BOARD; G.R.
purposes.
No. L-27588
Held:
The Court held that the petitioner is indeed a
FACTS: charitable institution based on its charter and articles of
incorporation. As a general principle, a charitable institution
The Roman Catholic Apostolic Church represented by the does not lose its character as such and its exemption from
Bishop of Nueva Segovia, possessed and owned a parcel of taxes simply because it derives income from paying patients,
land in the municipality of San Nicolas, Ilocos Norte, 4 sides of whether out-patient or confined in the hospital, or receives
which face the public streets. On south side is the church yard, subsidies from the government, so long as the money received
the convent and an adjacent lot used as vegetable garden. At is devoted or used altogether to the charitable object which it is
the center is the rest of the yard and the church on the north is intended to achieve; and no money inures to the private benefit
an old cemetery with two of its walls still standing, and a of the persons managing or operating the institution.
portion were formally stood a tower. Despite this, the Court held that the portions of real
As required by the Provincial Board, plaintiff paid under protest property that are leased to private entities are not exempt from
on July 3, 1925 the land tax on the lot adjoining the convent real property taxes as these are not actually, directly and
which formerly was the cemetery. Plaintiff filed action for exclusively used for charitable purposes. (strictissimi juris)
recovery of sum paid by to the Provincial Board by way of land Moreover, P.D. No. 1823 only speaks of tax exemptions as
tax, alleging that the collection of tax is illegal. The Lower Court regards to:
absolved the Provincial Board and declared that the tax
 income and gift taxes for all donations, contributions,
collected on the lot was legal. Both parties appealed from this
judgment. endowments and equipment and supplies to be
imported by authorized entities or persons and by the
Board of Trustees of the Lung Center of the
ISSUE: WON Plaintiff is exempted in the payment of land Philippines for the actual use and benefit of the Lung
tax? Center; and

 taxes, charges and fees imposed by the Government


HELD: YES.
or any political subdivision or instrumentality thereof
The exemption from payment of land tax of a convent refers to with respect to equipment purchases (expression
the home of the party who resides over the church and who unius est exclusion alterius / expressium facit cessare
has to take care of himself in order to discharge his duties. It is tacitum).
therefore include not only the land actually occupied by the
church, but also the adjacent ground destined for the ordinary
and incidental uses of the occupant. Except in large cities
where density of the population and the development of
commerce require the use of larger tracts of land for buildings, ABRA VALLEY COLLEGE v. AQUINO; G.R. No. L-39086
a vegetable garden belongs to a house and in the present
FACTS: DLSU stresses that Article XIV, Section 4 (3) of the
Abra Valley College is an educational corporation and Constitution is clear that all assets and revenues of non-stock,
institution of higher learning in Bangued, Abra. In 1974, the CFI non-profit educational institutions used actually, directly and
ordered for the seizure and sale of the subject school exclusively for educational purposes are exempt from taxes
property for non-payment of real estate taxes and penalties. and duties.
Private respondents stated that the college lot and building in
question are not only used for educational purposes of the ISSUE: Whether DLSU's income and revenues
college, but also as the permanent residence of the President proved to have been used actually, directly and exclusively for
and Director, Mr. Pedro V. Borgonia, and his family educational purposes are exempt from duties and taxes.
including his in-laws and grandchildren; while the ground floor
of the college building is being used and rented by a RULING:
commercial establishment.
YES.
The requisites for availing the tax exemption under
ISSUE: Article XIV, Section 4 (3), namely: (1) the taxpayer falls under
Whether or not the lot and building in question are used the classification non-stock, non-profit educational
exclusively for educational purposes and thus exempted from institution; and (2) the income it seeks to be exempted from
paying taxes. taxation is used actually, directly and exclusively for
educational purposes.

HELD: A plain reading of the Constitution would show that


The 1935 Philippine Constitution, Art. VI, par. 3 Sec. 22, Article XIV, Section 4 (3) does not require that the revenues
expressly grants exemption from realty taxes for and income must have also been sourced from educational
“Cemeteries, churches and parsonages or convents activities or activities related to the purposes of an educational
appurtenant thereto, and all lands, buildings, and institution. The phrase all revenues is unqualified by any
improvements used exclusively for religious, charitable or reference to the source of revenues. Thus, so long as the
educational purposes…. revenues and income are used actually, directly and
exclusively for educational purposes, then said revenues and
Relative thereto, CA No. 470 as amended by RA No. 409, Sec. income shall be exempt from taxes and duties.
54, paragraph c otherwise known as the Assessment Law,
provides: Thus, when a non-stock, non-profit educational
The following are exempted from real property tax under institution proves that it uses its revenues actually, directly, and
the Assessment Law: exclusively for educational purposes, it shall be exempted from
(c) churches and parsonages or convents appurtenant thereto, income tax, VAT, and LBT. On the other hand, when it also
and all lands, buildings, and improvements used exclusively for shows that it uses its assets in the form of real property for
religious, charitable, scientific or educational purposes. educational purposes, it shall be exempted from RPT.

We further declare that the last paragraph of Section


30 of the Tax Code is without force and effect for being
Thus, the use of the second floor of the main building for contrary to the Constitution insofar as it subjects to tax the
residential purposes of the Director and his family, may find income and revenues of non-stock, non-profit educational
justification under the concept of incidental use, which is institutions used actually, directly and exclusively for
complimentary to the main or primary purpose–educational. educational purpose. We make this declaration in the exercise
The lease of the first floor, however, by a commercial of and consistent with our duty to uphold the primacy of the
establishment cannot be considered incidental to the purpose Constitution. We stress that our holding here pertains only to
of education. non-stock, non-profit educational institutions and does not
cover the other exempt organizations under Section 30 of the
Tax Code.
Under the 1935 Constitution, the trial court correctly arrived at
the conclusion that the school building as well as the lot where For all these reasons, we hold that the income and
it is built, should be taxed, not because the second floor of the revenues of DLSU proven to have been used actually,
same is being used by the Director and his family for directly and exclusively for educational purposes are
residential purposes, but because the first floor thereof is being exempt from duties and taxes.
used for commercial purposes.

c. Votes Required for Tax-Exemption; Sec. 28(4),


CIR v. DLSU; G.R. No. 196596
Art. VI

The Commissioner submits the following arguments:


DLSU's rental income is taxable regardless of how such JOHN HAY PEOPLE’S ALTERNATIVE COALITION v. LIM;
income is derived, used or disposed of. DLSU's operations of G.R. No. 119775
canteens and bookstores within its campus even though
exclusively serving the university community do not negate On August 16, 1993, BCDA entered into a Memorandum
income tax liability. of Agreement and Escrow Agreement with private respondents
Tuntex (B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
Article XIV, Section 4 (3) of the Constitution and Section 30 (H) Internationale Group, Inc. (ASIAWORLD), private corporations
of the Tax Code registered under the laws of the British Virgin Islands,
“the income of whatever kind and character of [a non- preparatory to the formation of a joint venture for the
stock and non-profit educational institution] from any of [its] development of Poro Point in La Union and Camp John Hay as
properties, real or personal, or from any of (its] activities premier tourist destinations and recreation centers.
conducted for profit regardless of the disposition made of such The Baguio City government meanwhile passed a
income, shall be subject to tax imposed by this Code.” number of resolutions in response to the actions taken by
BCDA as owner and administrator of Camp John Hay.
The Commissioner posits that a tax-exempt organization like
DLSU is exempt only from property tax but not from The issuance of Proclamation No. 420 spawned the present
income tax on the rentals earned from property. Thus, petition[17] for prohibition, mandamus and declaratory relief
DLSU's income from the leases of its real properties is not which was filed on April 25, 1995 challenging, in the main, its
exempt from taxation even if the income would be used for constitutionality or validity as well as the legality of the
educational purposes.41 Memorandum of Agreement and Joint Venture Agreement
between public respondent BCDA and private consumer goods and items from the zones without payment of
respondents TUNTEX and ASIAWORLD. corresponding duties and taxes, arbitrarily provided additional
exemptions to the limitations imposed by Republic Act No.
7227.
Issue: Whether the tax exemptions and other financial
incentives granted to the Subic SEZ under Section 12 of Issue
RA 7227 are applicable to the John Hay SEZ. Whether or not the assailed issuances are null and
void for being an executive legislation.
NO.
Held: NO.
It is the legislative branch which has the inherent power not
only to select the subjects of taxation but also grant Republic Act No. 7227, and consequently Executive
exemptions. Paragraph 4, Section 28 of Article VI of the Order No. 97-A, cannot be said to be distinctively arbitrary
Constitution is crystal clear: "No law granting tax exemption against the welfare of businesses outside the zones. The mere
shall be passed without the concurrence of a majority of all the fact that incentives and privileges are granted to certain
Members of the Congress." enterprises to the exclusion of others does not render the
issuance unconstitutional for espousing unfair competition.
Hence, it is only the legislature, as limited by the provisions of Said constitutional prohibition cannot hinder the Legislature
the Constitution, which has full power to exempt any person or from using tax incentives as a tool to pursue its policies.
corporation or class of property from taxation.
Suffice it to say that Congress had justifiable reasons
The Constitution may itself provide for specific tax exemptions in granting incentives to the private respondents, in
or local governments may pass ordinances providing for accordance with Republic Act No. 7227s policy of developing
exemption from local taxes, but otherwise, it is only the the SSEZ into a self-sustaining entity that will generate
legislative branch which has the power to grant tax employment and attract foreign and local investment. If
exemptions, its power to exempt being as broad as its power to petitioners had wanted to avoid any alleged unfavorable
tax. consequences on their profits, they should upgrade their
standards of quality so as to effectively compete in the market.
There is absolutely nothing in RA 7227 which can be In the alternative, if petitioners really wanted the preferential
considered a grant of tax exemption in favor of public treatment accorded to the private respondents, they could
respondent BCDA. Rather, the beneficiaries of the tax have opted to register with SSEZ in order to operate within the
exemptions and other incentives in Section 12 (the only special economic zone.
provision in RA 7227 which expressly grants tax exemptions)
are clearly the business enterprises located within the Subic
SEZ.

Consequently, respondents' arguments for a liberal ORMOC SUGAR v. TREASURER; G.R. No. L-23794
construction of RA 7227 in favor of tax exemptions and Facts:
incentives to business enterprises in the John Hay SEZ must
necessarily fail. As the Court, speaking through Justice The Municipal Board of Ormoc City passed Ordinance No. 4
Mendoza in the recent case of PLDT v. city of Davao, has imposing “on any and all productions of centrifugal sugar milled
occasion to stress: at the Ormoc Sugar Company, Inc., in Ormoc City a municipal
tax equivalent to one per centum (1%) per export sale to USA
"Along with the police power and eminent domain, TAXATION and other foreign countries.” Payments for said tax were made,
is one of the three necessary attributes of sovereignty. under protest, by Ormoc Sugar Company, Inc. Ormoc Sugar
Consequently, statutes in derogation of sovereignty, such as Company, Inc. filed before the Court of First Instance of Leyte
those containing exemption from taxation, should be strictly a complaint against the City of Ormoc as well as its Treasurer,
construed in favor of the state. A state cannot be stripped of Municipal Board and Mayor alleging that the ordinance is
this most essential power by doubtful words and of this highest unconstitutional for being violative of the equal protection
attribute of sovereignty by ambiguous language." clause and the rule of uniformity of taxation. The court
rendered a decision that upheld the constitutionality of the
Necessarily, respondents' arguments, dependent as they are ordinance. Hence, this appeal.
on a liberal construction of tax exemptions, also fail.
Issue:
Public respondents' argument that tax exemptions are
"inherent" in the term "special economic zone" stands the Whether or not constitutional limits on the power of taxation,
concept on its head and cannot be accepted. The tax exempt specifically the equal protection clause and rule of uniformity of
character of an SEZ proceeds from the statutory provisions taxation, were infringed?
expressly conferring such exemptions, not vice versa. The tail
does not wag the dog. Held:

Yes. Equal protection clause applies only to persons or things


COCONUT OIL REFINERS v. TORRES; G.R. No. 132527 identically situated and does not bar a reasonable classification
of the subject of legislation, and a classification is reasonable
Facts: where 1) it is based upon substantial distinctions; 2) these are
On April 3, 1993, President Fidel V. Ramos issued germane to the purpose of the law; 3) the classification applies
Executive Order No. 80, which declared, among others, that not only to present conditions, but also to future conditions
Clark shall have all the applicable incentives granted to the substantially identical to those present; and 4) the classification
Subic Special Economic and Free Port Zone under Republic applies only to those who belong to the same class. A perusal
Act No. 7227. On June 10, 1993, the President issued of the requisites shows that the questioned ordinance does not
Executive Order No. 97, Clarifying the Tax and Duty Free meet them, for it taxes only centrifugal sugar produced and
Incentive within the Subic Special Economic Zone Pursuant to exported by the Ormoc Sugar Company, Inc. and none other.
R.A. No. 7227. Nine days after, on June 19, 1993, Executive At the time the ordinance was enacted, Ormoc Sugar
Order No. 97-A was issued, further clarifying the Tax and Duty- Company, Inc. Was the only sugar central in the City of Ormoc.
Free Privilege within the Subic Special Economic and Free Still, the classification, to be reasonable, should be in terms
Port Zone. applicable to future conditions as well. The taxing ordinance
should not be singular and exclusive as to exclude any
Petitioners claim that the assailed issuances subsequently established sugar central for the coverage of the
constitute executive legislation, in violation of the rule on tax. As it is now, even if later a similar company is set up, it
separation of powers. Petitioners argue that the Executive cannot be subject to a tax because the ordinance expressly
Department, by allowing through the questioned issuances the
setting up of tax and duty-free shops and the removal of
points only to Ormoc City Sugar Company, Inc. As the entity to Petitioner Aglipay, the head of Phil. Independent Church, filed
be levied upon. a writ of prohibition against respondent Ruiz, the Director of
Post, enjoining the latter from issuing and selling postage
stamps commemorative of the 33rd Intl Eucharistic Congress
d. Origination Clause; Sec. 24, Art. VI organized by the Roman Catholic. The petitioner invokes that
such issuance and selling, as authorized by Act 4052 by the
Phil. Legislature, contemplates religious purpose – for the
TOLENTINO v. SECRETARY; G.R. No. 115455 benefit of a particular sect or church. Hence, this petition.

Issue:
Facts: Whether or not the issuing and selling of commemorative
Tolentino et al is questioning the constitutionality of stamps is constitutional?
RA 7716 otherwise known as the Expanded Value Added Tax
(EVAT) Law. Tolentino averred that this revenue bill did not Held/Reason:
exclusively originate from the House of Representatives as The Court said YES, the issuing and selling of commemorative
required by Section 24, Article 6 of the Constitution. Even stamps by the respondent does not contemplate any favor
though RA 7716 originated as HB 11197 and that it passed the upon a particular sect or church, but the purpose was only ‘to
3 readings in the HoR, the same did not complete the 3 advertise the Philippines and attract more tourist’ and the
readings in Senate for after the 1st reading it was referred to government just took advantage of an event considered of
the Senate Ways & Means Committee thereafter Senate international importance, thus, not violating the Constitution on
passed its own version known as Senate Bill 1630. Tolentino its provision on the separation of the Church and State.
averred that what Senate could have done is amend HB 11197 Moreover, the Court stressed that ‘Religious freedom, as a
by striking out its text and substituting it w/ the text of SB 1630 constitutional mandate is not inhibition of profound reverence
in that way “the bill remains a House Bill and the Senate for religion and is not denial of its influence in human affairs’.
version just becomes the text (only the text) of the HB”. Emphasizing that, ‘when the Filipino people ‘implored the aid of
Tolentino and co-petitioner Roco [however] even signed the Divine Providence’, they thereby manifested reliance upon Him
said Senate Bill. who guides the destinies of men and nations. The elevating
influence of religion in human society is recognized here as
Issue: Whether or not EVAT originated in the House of elsewhere. In fact, certain general concessions are
Representatives. indiscriminately accorded to religious sects and
denominations.’
Held:
By a 9-6 vote, the SC rejected the challenge, holding
that such consolidation was consistent with the power of the
g. Power to Tax of Local Government Units; Sec. 5, Art.
Senate to propose or concur with amendments to the version
originated in the HoR. What the Constitution simply means, XI
according to the 9 justices, is that the initiative must come from
the HoR. Note also that there were several instances before MCIAA v. MARCOS; G.R. No. 120082
where Senate passed its own version rather than having the FACTS
HoR version as far as revenue and other such bills are Mactan Cebu International Airport Authority was created by
concerned. This practice of amendment by substitution has virtue of RA 6958 to manage the Mactan International Airport
always been accepted. The proposition of Tolentino concerns and the Lahug Airport. Since the time of its creation, petitioner
a mere matter of form. There is no showing that it would make MCIAA enjoyed the privilege of exemption from payment of
a significant difference if Senate were to adopt his over what realty taxes. In Section 14 of its Charter provides that “the
has been done. Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions,
agencies and instrumentalities.”
ABAKADA v. ERMITA; G.R. No. 168056
In 1994, however, the Office of the Treasurer of the City of
Cebu demanded payment for realty taxes on several parcels of
e. Prohibition against Imprisonment for Non- land belonging to petitioner. Petitioner objected to such
Payment of Poll Tax; Sec 20, Art. III demand, citing Sec. 14. It asserted that it is an instrumentality
of the government which performs governmental functions,
Prohibition against imprisonment for non- citing Sec. 133 of the Local Government Code which puts
payment of poll tax limitations on the taxing powers of local government units. Sec.
133, LGC provides that the exercise of the taxing powers of
provinces, cities, municipalities and barangays shall not extend
No person shall be imprisoned for debt or non-
to the levy of... taxes, fees or charges of any kind on the
payment of poll tax. [Section 20, Article III, National government, its agencies and instrumentalities and
Constitution] local government units.

The non-imprisonment rule applies to non- The Respondent City refused to cancel and set aside the realty
payment of poll tax which is punishable only by tax account, insisting that the MCIAA is a GOCC whose tax
a surcharge, but not to other violations like exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the LGC. Sec. 193 provides that tax
falsification of community tax certificate and
exemptions or incentives granted to or presently enjoyed by all
non-payment of other taxes. persons, whether natural or juridical, including GOCCs except
local water districts, cooperatives duly registered under RA
Poll tax is a tax of fixed amount imposed on 6938, non-stock and non-profit hospitals and educational
residents within a specific territory regardless institutions are hereby withdrawn upon the effectivity of this
of citizenship, business or profession. Example Code. Section 234 meanwhile provides that exemption from
payment of real property tax previously granted to or presently
is community tax.
enjoyed by all persons, whether natural or juridical, including
GOCCs are hereby withdrawn upon the effectivity of the LGC.
f. Non-Appropriation for the Benefit of
Any Religion; Sec. 29(2); Art. VI Because the City of Cebu was about to issue a warrant of levy
against the properties of MCIAA, the latter was compelled to
AGLIPAY v. RUIZ; G.R. No. L-45459 pay its tax account under protest. MCIAA likewise filed a
petition for declaratory relief with the RTC of Cebu, contending
that the taxing powers of local government units do not extend
Facts: to the levy of taxes or fees of any kind on an instrumentality of
the national government. MCIAA insisted that while it is indeed necessarily follows that its exemption from such tax granted it
a GOCC, it nontheless stands on the same footing as an by its charter has been withdrawn.
agency or instrumentality of the national government by the
very nature of its powers and functions. The City however NPC v. CITY OF CABANATUAN; G.R. No. 149110
maintained that MCIAA is not an instrumentality of the
government but merely a GOCC performing proprietary Facts:
functions, and hence, the exemptions granted to it were
deemed withdrawn by virtue of Secs. 193 and 234 of the LGC. NAPOCOR, a government-owned and controlled corporation,
is tasked to undertake the “development of hydroelectric
The trial court dismissed the petition. MR denied. Hence this generations of power and the production of electricity from
petition. Petitioner asserts that although it is a GOCC, it is nuclear, geothermal, and other sources, as well as, the
mandated to perform functions in the same category as an transmission of electric power on a nationwide basis.”
instrumentality of the government. An instrumentality of the
Government is one created to perform governmental functions For many years now, NAPOCOR sells electric power to the
primarily to promote certain aspects of the economic life of the resident Cabanatuan City, posting a gross income of
people. Petitioner further contends that being an P107,814,187.96 in 1992. Pursuant to Sec. 37 of Ordinance
instrumentality of the National Government, respondent City of No. 165-92, the respondent assessed the petitioner a franchise
Cebu has no power nor authority to impose realty taxes upon it tax amounting to P808,606.41, representing 75% of 1% of the
in accordance with Sec. 133 of the LGC. In Basco v. PAGCOR, former’s gross receipts for the preceding year.
the SC said the local governments have no power to tax
instrumentalities of the National Gov't like PAGCOR, which has Petitioner, whose capital stock was subscribed and wholly paid
a dual role (its role to regulate gambling casinos is by the Philippine Government, refused to pay the tax
governmental, placing it in the category of an agency or assessment. It argued that the respondent has no authority to
instrumentality of the Government which should be exempt impose tax on government entities. Petitioner also contend that
from local taxes. Petitioner thus concludes that there is a as a non-profit organization, it is exempted from the payment
distinction in the LGC between a GOCC performing gov't of all forms of taxes, charges, duties or fees in accordance with
functions as against one performing merely proprietary ones, Sec. 13 of RA 6395, as amended.
and it is clear from Secs. 133 and 234, LGC that the legislature
meant to exclude instrumentalities of the national government The respondent filed a collection suit in the RTC of
from the taxing powers of LGUs. Cabanatuan City, demanding that petitioner pay the assessed
tax, plus surcharge equivalent to 25% of the amount of tax and
ISSUE 2% monthly interest. Respondent alleged that petitioner’s
Whether petitioner is exempted from payment of taxes or not exemption from local taxes has been repealed by Sec. 193 of
RA 7160 (Local Government Code). The trial court issued an
RULING order dismissing the case. On appeal, the Court of Appeals
No. Taxation is the rule and exemption is the exception. Thus, reversed the decision of the RTC and ordered the petitioner to
the exemption may be withdrawn at the pleasure of the taxing pay the city government the tax assessment.
authority. The only exception to this rule is where the
exemption was granted to private parties based on material Issues:
consideration of a mutual nature, which then becomes Whether or not NAPOCOR is excluded from the coverage of
contractual and is thus covered by the non-impairment clause the franchise tax simply because its stocks are wholly owned
of the Constitution. by the National Government and its charter characterized is as
a ‘non-profit organization’.
The general rule, as laid down in Section 133 of the LGC is
that the taxing powers of LGUs cannot extend to the levy of, Whether or not NAPOCOR’s exemption from all forms of taxes
inter alia, “taxes, fees and charges of any kind on the National is repealed by the provisions of the Local Government Code
Government, its agencies, and instrumentalities, and LGUs.” (LGC)
However, pursuant to Section 232, provinces, cities and Held:
municipalities in the Metro Manila Area MAY impose real
property taxes except on inter alia, real property owned by the (1) NO. To stress, a franchise tax is imposed based not on the
Republic of the Philippines or any of its political subdivisions ownership but on the exercise by the corporation of a privilege
except when the beneficial use thereof has been granted for to do business. The taxable entity is the corporation which
consideration or otherwise, to a taxable person (Sec. 234a). exercises the franchise, and not the individual stockholders. By
virtue of its charter, petitioner was created as a separate and
As to tax exemptions/incentives granted to or presently distinct entity from the National Government. It can sue and be
enjoyed by natural or juridical persons, including GOCCs, sued under its own name, and can exercise all the powers of a
corporation under the Corporation Code. To be sure, the
GENERAL RULE: Tax exemptions or incentives are withdrawn ownership by the National Government of its entire capital
upon the effectivity of the LGC stock does not necessarily imply that petitioner is no engage
din business.
EXCEPTION: Those granted to local water districts,
cooperatives duly registered under RA 6938, non-stock and (2) YES. One of the most significant provisions of the LGC is
non-profit hospitals and educ institutions, and unless otherwise the removal of the blanket exclusion of instrumentalities and
provided in the LGC. This latter proviso could refer to Section agencies of the National Government from the coverage of
234 enumerating the properties exempt from real property tax. local taxation. Although as a general rule, LGUs cannot impose
The last paragraph of Section 234 further qualifies the taxes, fees, or charges of any kind on the National
retention of the exemption insofar as real property taxes are Government, its agencies and instrumentalities, this rule now
concerned by limiting the retention only to those enumerated admits an exception, i.e. when specific provisions of the LGC
therein; all others not included in the enumeration therefore authorize the LGUs to impose taxes, fees, or charges on the
lost the privilege upon the effectivity of the LGC. Even as to aforementioned entities. The legislative purpose to withdraw
real property owned by the Rep. Of the Philippines or any of its tax privileges enjoyed under existing laws or charter is clearly
political subdivisions covered by item (a) of the first paragraph manifested by the language used on Sec. 137 and 193
of Section 234, the exemption is withdrawn if the beneficial use categorically withdrawing such exemption subject only to the
of such property has been granted to a taxable person for exceptions enumerated. Since it would be tedious and
consideration or otherwise. impractical to attempt to enumerate all the existing statutes
providing for special tax exemptions or privileges, the LGC
Since the last paragraph of Section 234 unequivocally provided for an express, albeit general, withdrawal of such
withdrew, upon the effectivity of the LGC, exemptions from exemptions or privileges. No more unequivocal language could
payment of real property taxes granted to natural or juridical have been used.
persons, including government-owned or controlled
corporations, except as provided in the said section, and the
petitioner is, undoubtedly, a government-owned corporation, it
MIAA v. CA; G.R. No. 155650 void for being contrary to public policy. Essential public
Facts: services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen
MIAA received Final Notices of Real Estate Tax Delinquency if the City of Parañaque can foreclose and compel the auction
from the City of Parañaque for the taxable years 1992 to 2001. sale of the 600-hectare runway of the MIAA for non-payment of
MIAA’s real estate tax delinquency was estimated at P624 real estate tax.
million. The City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport
Lands and Buildings. The Mayor of the City of Parañaque h. Veto Power of the President; Sec. 27(2), Art. VI
threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax i. Due Process; Sec. 1, Art. III
delinquency.
PEPSI-COLA v. MUNICIPALITY OF TANAUAN; G.R. No. L-
MIAA filed a petition sought to restrain the City of Parañaque 31156
from imposing real estate tax on, levying against, and
auctioning for public sale the Airport Lands and Buildings. DOCTRINE:

The City of Parañaque contended that Section 193 of the Local municipalities may be permitted to tax subjects which for
Government Code expressly withdrew the tax exemption reasons of public policy the State has not deemed wise to tax
privileges of “government-owned and-controlled corporations” for more general purposes.
upon the effectivity of the Local Government Code. Thus,
This is not to say though that the constitutional injunction
MIAA cannot claim that the Airport Lands and Buildings are
against deprivation of property without due process of law may
exempt from real estate tax
be passed over under the guise of the taxing power, except
when the taking of the property is in the lawful exercise of the
MIAA argued that Airport Lands and Buildings are owned by
taxing power, as when (1) the tax is for a public purpose; (2)
the Republic. The government cannot tax itself. The reason for
the rule on uniformity of taxation is observed; (3) either the
tax exemption of public property is that its taxation would not person or property taxed is within the jurisdiction of the
inure to any public advantage, since in such a case the tax government levying the tax; and (4) in the assessment and
debtor is also the tax creditor. collection of certain kinds of taxes notice and opportunity for
hearing are provided.
Issue:
Due process is usually violated where the tax imposed is for a
Whether or not the City of Parañaque can impose real tax, levy private as distinguished from a public purpose; a tax is
against and auction for public sale the Airport Lands and imposed on property outside the State, i.e., extraterritorial
Buildings. taxation; and arbitrary or oppressive methods are used in
assessing and collecting taxes.
Held:
But, a tax does not violate the due process clause, as applied
MIAA is Not a Government-Owned or Controlled to a particular taxpayer, although the purpose of the tax will
Corporation. The Airport Lands and Buildings of MIAA are result in an injury rather than a benefit to such taxpayer.
property of public dominion and therefore owned by the State
or the Republic of the Philippines. No one can dispute that Due process does not require that the property subject to the
properties of public dominion mentioned in Article 420 of the tax or the amount of tax to be raised should be determined by
judicial inquiry, and a notice and hearing as to the amount of
Civil Code, like “roads, canals, rivers, torrents, ports and
the tax and the manner in which it shall be apportioned are
bridges constructed by the State,” are owned by the State. The
generally not necessary to due process of law.
term “ports” includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a “port” constructed by the
State.
CIR v. CA; G.R. No. 119761
Under Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and thus In this case, the court declared that:
owned by the State or the Republic of the Philippines. The
Airport Lands and Buildings are devoted to public use because In order that there shall be a just enforcement of rules and
regulations, in conformity with the basic element of due
they are used by the public for international and domestic
process, the following procedures are hereby prescribed for
travel and transportation. The fact that the MIAA collects the drafting, issuance and implementation of the said Revenue
terminal fees and other charges from the public does not Tax Issuances:
remove the character of the Airport Lands and Buildings as
properties for public use. The charging of fees to the public (1) This Circular shall apply only to (a) Revenue Regulations;
does not determine the character of the property whether it is (b) Revenue Audit Memorandum Orders; and (c) Revenue
of public dominion or not. Article 420 of the Civil Code defines Memorandum Circulars and Revenue Memorandum Orders
bearing on internal revenue tax rules and regulations.
property of public dominion as one “intended for public use.”

(2) Except when the law otherwise expressly provides, the


The Court has also ruled that property of public dominion, aforesaid internal revenue tax issuances shall not begin to be
being outside the commerce of man, cannot be the subject of operative until after due notice thereof may be fairly presumed.
an auction sale. Properties of public dominion, being for public
use, are not subject to levy, encumbrance or disposition Due notice of the said issuances may be fairly presumed only
through public or private sale. Any encumbrance, levy on after the following procedures have been taken;
execution or auction sale of any property of public dominion is
xxx xxx xxx of the comparable sales approach which the City Assessor
adopted.
(5) Strict compliance with the foregoing procedures is
ISSUE: Is the approach on tax assessment used by the City
enjoined. 13
Assessor reasonable?

HELD: No. The taxing power has the authority to make a


SISON v. ANCHETA; G.R. No. L-59431 reasonable and natural classification for purposes of taxation
but the government's act must not be prompted by a spirit of
Facts: Section 1 of BP Blg 135 amended the Tax Code and hostility, or at the very least discrimination that finds no
petitioner Antero M. Sison, as taxpayer, alleges that "he would support in reason. It suffices then that the laws operate equally
be unduly discriminated against by the imposition of higher and uniformly on all persons under similar circumstances or
rates of tax upon his income arising from the exercise of his that all persons must be treated in the same manner, the
profession vis-a-vis those which are imposed upon fixed conditions not being different both in the privileges conferred
income or salaried individual taxpayers. He characterizes said and the liabilities imposed.
provision as arbitrary amounting to class legislation,
oppressive and capricious in character. It therefore violates Consequently, it stands to reason that petitioners who are
both the equal protection and due process clauses of the burdened by the government by its Rental Freezing Laws
Constitution as well asof the rule requiring uniformity in (then R.A. No. 6359 and P.D. 20) under the principle of social
taxation. justice should not now be penalized by the same government
by the imposition of excessive taxes petitioners can ill afford
Issue: Whether or not the assailed provision violates the equal and eventually result in the forfeiture of their properties.
protection and due process clauses of the Constitution while
also violating the rule that taxes must be uniform and
equitable.
j. Equal Protection; Sec. 1, Art. III
Held: The petition is without merit.
On due process - it is undoubted that it may be invoked where
a taxing statute is so arbitrary that it finds no support in the • Rational Basis Test
Constitution. An obvious example is where it can be shown to
• Classification Freeze Provision
amount to the confiscation of property from abuse of power.
Petitioner alleges arbitrariness but his mere allegation does not
suffice and there must be a factual foundation of such SISON v. ANCHETA; G.R. No. L-59431
unconsitutional taint. LUTZ v. ARANETA; G.R. No. L-7859
BRITISH AMERICAN TOBACCO v. CAMACHO
On equal protection - it suffices that the laws operate equally GOMEZ v. PALOMAR; G.R. No. L-23645
and uniformly on all persons under similar circumstances, both TIU v. CA; G.R. No. 127410
in the privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and
equitable - this requirement is met when the tax operates with JUAN LUNA SUBDIVISION v. SARMIENTO; G.R. No. L-3538
the same force and effect in every place where the subject (dili ko sure ani) haha sleepy nko ani
may be found." Also, :the rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly FACTS:
unattainable." When the problem of classification became of Plaintiff issued to the City Treasurer of Manila checks
issue, the Court said: "Equality and uniformity in taxation
amounting for P2,210.52 drawn upon the Philippine Trust
means that all taxable articles or kinds of property of the same
class shall be taxed the same rate. The taxing power has the Company.
authority to make reasonable and natural classifications for
purposes of taxation..." As provided by this Court, where "the This check was to be applied to plaintiff’s land tax, the exact
differentation" complained of "conforms to the practical dictates amount of which was yet undetermined. The City after
of justice and equity" it "is not discriminatory within the liberation from Japanese to refund the plaintiff’s deposit or
meaning of this clause and is therefore uniform."
apply it to such future taxes as might be found due. Plaintiff,
however, claims that the whole amount of the check
contending that taxes during period have been remitted by
REYES v. ALMANZOR; G.R. Nos. L-49839-46 Commonwealth Act No. 703.

FACTS: ISSUE:
Does CA 703 cover taxes paid before its enactment as the
Petitioners JBL Reyes et al. owned a parcel of land in Tondo
which are leased and occupied as dwelling units by tenants plaintiff maintains and the courts below held, or does it refer,
who were paying monthly rentals of not exceeding P300. as the City Treasurer believes, only to taxes which were still
Sometimes in 1971 the Rental Freezing Law was passed unpaid?
prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units where rentals do not exceed RULING:
three hundred pesos (P300.00), so that the Reyeses were
precluded from raising the rents and from ejecting the tenants.
The law is clear that it applies to “taxes and penalties due and
In 1973, respondent City Assessor of Manila re-classified and payable”, i.e. taxes owed and owing. The remission of
reassessed the value of the subject properties based on the taxes due and payable to the exclusion of taxes already
schedule of market values, which entailed an increase in the collected does not constitute unfair discrimination.
corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the The taxpayers who paid their taxes before liberation and those
reassessments made were "excessive, unwarranted, who had not were not on the same footing on the need of
inequitable, confiscatory and unconstitutional"
considering that the taxes imposed upon them greatly material relief.
exceeded the annual income derived from their Taxpayers who had been in arrears in their obligation would
properties. have to satisfy their liability with genuine currency, while the
taxes paid during the occupation had been satisfied in
They argued that the income approach should have been used Japanese War Notes, many of them at a time when those
in determining the land values instead notes were well-nigh worthless. To refund those taxes with
restored currency would unduly enrich many of the payers at a
greater expense to the people at large. Trial Court dismissed the complaint

American Bible Society appealed to the Court of Appeals


ORMOC SUGAR v. ORMOC CITY; G.R. No. L-23794
Issue: WON American Bible Society liable to pay sales tax for
FACTS: the distribution and sale of bibles

The Municipal Board of Ormoc City passed Ordinance No. 4, Ruling: NO


imposing "on any and all productions of sugar milled at
petitioner's, municipal tax of 1% per export sale. Petitioner paid Under Sec. 1 of Ordinance 3000, one of the ordinance in
but were under protest. question, person or entity engaged in any of the business,
trades or occupation enumerated under Sec. 3 must obtain a
Petitioner filed before the CFI contending that the ordinance is Mayor’s permit and license from the City Treasurer. American
unconstitutional for being in violation of the equal protection Bible Society’s business is not among those enumerated
clause and the rule of uniformity of taxation, aside from being
an export tax forbidden under Section 2287 of the Revised However, item 79 of Sec. 3 of the Ordinance provides that all
Administrative Code. It further alleged that the tax is neither a other businesses, trade or occupation not mentioned, except
production nor a license tax which Ormoc City its charter and those upon which the City is not empowered to license or to
under Section 2 of Republic Act 2264, or the Local Autonomy tax P5.00
Act, is authorized to impose; that it also violates RA 2264
because the tax is on both the sale and export of sugar. Therefore, the necessity of the permit is made to depend upon
the power of the City to license or tax said business, trade or
ISSUE: Whether the ordinance is valid. occupation.

RULING: 2 provisions of law that may have bearing on this case:

NO. The SC held that it violates the equal protection clause for Chapter 60 of the Revised Administrative Code, the
it taxes only sugar produced and exported by petitioner and Municipal Board of the City of Manila is empowered to tax and
none other. Even though petitioner, at the time of the fix the license fees on retail dealers engaged in the sale of
enactment of the ordinance, was the only sugar central in books
Ormoc, the classification should have been in terms applicable
to future conditions as well. The taxing ordinance should not be Sec. 18(o) of RA 409: to tax and fix the license fee on dealers
singular and exclusive as to exclude any subsequently in general merchandise, including importers and indentors,
established sugar central, of the same class as petitioner, for except those dealers who may be expressly subject to the
the coverage of the tax. payment of some other municipal tax. Further, Dealers in
general merchandise shall be classified as (a) wholesale
Though, petitioner can be refunded, they are not entitled to dealers and (b) retail dealers. For purposes of the tax on retail
interest because the taxes were not arbitrarily collected as the dealers, general merchandise shall be classified into four main
ordinance provided a sufficient basis to preclude arbitrariness, classes: namely (1) luxury articles, (2) semi-luxury articles, (3)
the same being then presumed constitutional until declared essential commodities, and (4) miscellaneous articles. A
otherwise. separate license shall be prescribed for each class but where
commodities of different classes are sold in the same
establishment, it shall not be compulsory for the owner to
secure more than one license if he pays the higher or highest
rate of tax prescribed by ordinance. Wholesale dealers shall
k. Religious Freedom & Non-Establishment of pay the license tax as such, as may be provided by ordinance
Religion; Sec. 5, Art. III
The only difference between the 2 provisions is the limitation
as to the amount of tax or license fee that a retail dealer has to
AMERICAN BIBLE SOCIETY v. CITY OF MANILA; G.R. No. L-
pay per annum
9637
As held in Murdock vs. Pennsylvania, The power to impose a
Facts: license tax on the exercise of these freedoms provided for in
the Bill of Rights, is indeed as potent as the power of
American Bible Society is a foreign, non-stock, non-profit, censorship which this Court has repeatedly struck down. It is
religious, missionary corporation duly registered and doing not a nominal fee imposed as a regulatory measure to defray
business in the Philippines through its Philippine agency the expenses of policing the activities in question. It is in no
established in Manila in November, 1898 City of Manila is a way apportioned. It is flat license tax levied and collected as a
municipal corporation with powers that are to be exercised in condition to the pursuit of activities whose enjoyment is
conformity with the provisions of Republic Act No. 409, known guaranteed by the constitutional liberties of press and religion
as the Revised Charter of the City of Manila American Bible and inevitably tends to suppress their exercise. That is almost
Society has been distributing and selling bibles and/or gospel uniformly recognized as the inherent vice and evil of this flat
portions throughout the Philippines and translating the same license tax.
into several Philippine dialect.
City Treasurer of Manila informed American Bible Society that Further, the case also mentioned that the power to tax the
it was violating several Ordinances for operating without the exercise of a privilege is the power to control or suppress its
necessary permit and license, thereby requiring the corporation enjoyment. Those who can tax the exercise of this religious
to secure the permit and license fees covering the period from practice can make its exercise so costly as to deprive it of the
4Q 1945-2Q 1953 To avoid closing of its business, American resources necessary for its maintenance. Those who can tax
Bible Society paid the City of Manila its permit and license fees the privilege of engaging in this form of missionary evangelism
under protest American Bible filed a complaint, questioning the can close all its doors to all those who do not have a full purse
constitutionality and legality of the Ordinances 2529 and 3000,
and prayed for a refund of the payment made to the City of Under Sec. 27(e) of Commonwealth Act No. 466 or the
Manila. They contended: National Internal Revenue Code, Corporations or
associations organized and operated exclusively for religious,
They had been in the Philippines since 1899 and were not charitable, . . . or educational purposes, . . .: Provided,
required to pay any license fee or sales tax it never made any however, That the income of whatever kind and character from
profit from the sale of its bibles any of its properties, real or personal, or from any activity
conducted for profit, regardless of the disposition made of such
City of Manila prayed that the complaint be dismissed, income, shall be liable to the tax imposed under this Code shall
reiterating the constitutionality of the Ordinances in question not be taxed
Such determination is said to be in lieu of all taxes and
The price asked for the bibles and other religious pamphlets assessments of whatever nature imposed by any national or
was in some instances a little bit higher than the actual cost of local authority on earnings, receipts, income and privilege of
the same but this cannot mean that American Bible Society generation, distribution and sale of electric current. However,
was engaged in the business or occupation of selling said the claim for refund was denied by Governor Jose D. Lina
"merchandise" for profit relying on a more recent law, i.e. RA 7160 than the old decree
invoked by MERALCO. The RTC further denied a complaint for
Therefore, the Ordinance cannot be applied for in doing so it refund for the same and upheld the validity of the provincial
would impair American Bible Society’s free exercise and ordinance.
enjoyment of its religious profession and worship as well as its
rights of dissemination of religious beliefs. ISSUE: W/N the franchise tax imposed under the Ordinance
violates the non-impairment clause and Sec 1 of PD 551; W/N
Wherefore, and on the strength of the foregoing MERALCO is exempted from taxation under the LGC or Local
considerations, We hereby reverse the decision appealed Tax Code; thus, should be taxed under PD 551.
from, sentencing defendant return to plaintiff the sum of
P5,891.45 unduly collected from it RULE:

There is no violation of the non-impairment clause. Franchise


Taxes are beyond the purview of the clause for it is not within
TOLENTINO v. SECRETARY; G.R. No. 115455
contractual tax exemptions. In fact, The LGC expressly repeals
laws which are inconsistent with it.
l. Freedom of the Press
Tax exemptions contained in special franchises are not strictly
TOLENTINO v. SECRETARY; G.R. No., 115455 contractual in nature.

Contractual tax exemptions, in the real sense of the term and


as a general proposition, the press is not exempt from the where the non-impairment clause of the Constitution can rightly
taxing power of the State and that what the constitutional be invoked, are those agreed to by the taxing authority in
guarantee of free press prohibits are laws which single out the contracts, such as those contained in government bonds or
press or target a group belonging to the press for special debentures, lawfully entered under enabling laws in which the
treatment or which in any way discriminate against the press government, acting in its private capacity, sheds its cloak of
on the basis of the content of the publication, and R.A. No. authority and waives its governmental immunity (Because,
7716 is none of these. government descends to be an ordinary person being a party
in a contract).
Now it is contended by the PPI that by removing the exemption
of the press from the VAT while maintaining those granted to Revocation of this kind of tax exemptions would impair the
others, the law discriminates against the press. At any rate, it is obligations of contracts. However, it must not be confused with
averred, "even nondiscriminatory taxation of constitutionally tax exemptions granted under franchises. A franchise is in the
guaranteed freedom is unconstitutional." nature of a grant which is beyond the purview of the non-
impairment clause of the Constitution.
With respect to the first contention, it would suffice to say that
Article XII, Sec 11, of the 1987 Constitution, like its precursor
since the law granted the press a privilege, the law could take
provisions is explicit that no franchise for the operation of a
back the privilege anytime without offense to the Constitution.
public utility shall be granted except under the condition that
The reason is simple: by granting exemptions, the State does
such privilege shall be subject to amendment, alteration or
not forever waive the exercise of its sovereign prerogative.
repeal by Congress as and when the common good so
requires. As for the present, no law or amendment has been
passed to exempt utility-producing businesses from franchise
taxes.
m. Non-Impairment of Obligation of Contracts
REPUBLIC v. CAGUIOA; G.R. No. 168584
TOLENTINO v. SECRETARY; G.R. No., 115455 MCIAA v. MARCOS; G.R. No. 120082
MERALCO v. PROVINCE OF LAGUNA; G.R. No. 131359
CASANOVA v. HORD; G.R. No. 3473
VITUG, J.: When RA 7160 – LGU Code was enacted,
enjoining LGUs to create their own sources of revenue and to Facts: The Spanish Govt. by virtue of a royal decree granted
levy taxes, the province of Laguna enacted a Provincial the plaintiff certain mines. The plaintiff is now the owner of
Ordinance imposing 50% tax against 1% of the gross annual those mines. The Collector of Internal Revenue imposed tax on
receipts of businesses enjoying a franchise. On the basis of the properties, contending that they were valid perfected mine
the ordinance, Provincial Treasurer Benito Balazo sent a
concessions and it falls within the provisions of sec.134 of Act
demand letter to MERALCO for the payment of corresponding
tax. No. 1189 known as Internal Revenue Act. The plaintiff paid
under protest. He brought an action against the defendant
MERALCO paid the tax under protest. A formal claim for Collector of Internal Revenue to recover the sum of Php. 9,
refund was thereafter sent by MERALCO to the Provincial 600 paid by him as taxes. Judgment was rendered in favor of
Treasurer of Laguna claiming that the franchise tax it had paid the defendant, so the plaintiff appealed.
and continued to pay to the National Government pursuant to
P.D. 551 already included the franchise tax imposed by the
Provincial Tax Ordinance. Issue: Whether or Not Sec. 164 is void or valid.

MERALCO, contended that the imposition of a franchise tax


under Sec 2.09 of Laguna Provincial Ordinance No. 01-92 Held: The deed constituted a contract between the Spanish
contravened the provisions of Sec 1 of PD 551 which defines a Government and the plaintiff. The obligation of which contract
different percentage of tax (which is 2% of the gross receipts) was impaired by the enactment of sec. 134 of the Internal
for franchise grantees generating, distributing, and selling
Revenue Law infringing sec. 5 of the Act of Congress which
electric current for light, heat and power, payable to the
Commissioner of Internal Revenue or his duly authorized provides that “no law impairing the obligation of contracts shall
representative. be enacted”. Sec. 134 of the Internal Revenue Law of 1904 is
void because it impairs the obligation of contracts contained in
the concessions of mine made by the Spanish Government.
Judgment reversed.

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


30, Art. VI

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

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

FACTS:

The four consolidated cases questions the validity of the VAT


(Executive Order 273) for being unconstitutional in that its
enactment is not allegedly within the powers of the President;
that the VAT is oppressive, discriminatory, regressive, and
violates the due process and equal protection clauses and
other provisions of the 1987 Constitution.

The Solicitor General prays for the dismissal of the petitions on


the ground that the petitioners have failed to show justification
for the exercise of its judicial powers. He also questions the
legal standing of the petitioners who, he contends, are merely
asking for an advisory opinion from the Court, there being no
justiciable controversy for resolution.

ISSUE: Whether VAT is unconstitutional.

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

Second, petitioners have failed to show that EO 273 was


issued capriciously and whimsically or in an arbitrary or
despotic manner by reason of passion or personal hostility. It
appears that a comprehensive study of the VAT had been
extensively discussed by this framers and other government
agencies involved in its implementation, even under the past
administration.

Lastly, petitioners also failed to prove that EO 273 is


oppressive, discriminatory, unjust and regressive, in violation
of the equal protection clause. Petitioners merely rely upon
newspaper articles which are actually hearsay and have
evidentiary value. To justify the nullification of a law. there must
be a clear and unequivocal breach of the Constitution, not a
doubtful and argumentative implication. As the Court sees it,
EO 273 satisfies all the requirements of a valid tax.

In any event, if petitioners seriously believe that the adoption


and continued application of the VAT are prejudicial to the
general welfare or the interests of the majority of the people,
they should seek recourse and relief from the political
branches of the government. The Court, following the time-
honored doctrine of separation of powers, cannot substitute its
judgment for that of the President as to the wisdom, justice and
advisability of the adoption of the VAT. The Court can only look
into and determine whether or not EO 273 was enacted and
made effective as law, in the manner required by, and
consistent with, the Constitution, and to make sure that it was
not issued in grave abuse of discretion amounting to lack or
excess of jurisdiction; and, in this regard, the Court finds no
reason to impede its application or continued implementation.