TITLE FACTS
RULING
TAXATION
Title Facts
PLANTERS PRODUCTS, Petitioner PPI and private respondent
INC., Petitioner, Fertiphil are private corporations
vs. incorporated under Philippine laws. They
F E R T I P H I L are both engaged in the importation and
CORPORATION, distribution of fertilizers, pesticides and
Respondent. agricultural chemicals. On June 3, 1985,
then President Ferdinand Marcos,
exercising his legislative powers, issued
LOI No. 1465 which provided, among
others, for the imposition of a capital
C A P I T A L recovery component (CRC) on the
RECOVERY domestic sale of all grades of fertilizers
in the Philippines. Pursuant to the LOI,
COMPONENT Fertiphil paid ₱10 for every bag of fertilizer
it sold in the domestic market to the
Fertilizer and Pesticide Authority (FPA).
FPA then remitted the amount collected to
the Far East Bank and Trust Company, the
depositary bank of PPI. After the 1986
Edsa Revolution, FPA voluntarily stopped
the imposition of the ₱10 levy. With the
return of democracy, Fertiphil demanded
from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to
accede to the demand.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
Contention
Petitioner
PPI argues that Fertiphil has no
locus standi to question the
constitutionality of LOI No. 1465
because it does not have a
"personal and substantial
interest in the case or will
sustain direct injury as a result
of its enforcement." It asserts
that Fertiphil did not suffer any
damage from the CRC
imposition because "incidence
of the levy fell on the ultimate
consumer or the farmers
themselves, not on the seller
fertilizer company."
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Respondent
Fertiphil counters that the LOI is
unconstitutional because it was enacted
to give benefit to a private company. The
levy was imposed to pay the corporate debt
of PPI. Fertiphil also argues that, even if the
LOI is enacted under the police power, it is
still unconstitutional because it did not
promote the general welfare of the people
or public interest.
Ruling
We agree with the RTC that the imposition of the levy
was an exercise by the State of its taxation power. While
it is true that the power of taxation can be used as an
implement of police power, the primary purpose of the
levy is revenue generation. If the purpose is
primarily revenue, or if revenue is, at least, one of
the real and substantial purposes, then the exaction
is properly called a tax. The ₱10 levy under LOI No.
1465 is too excessive to serve a mere regulatory
purpose. The levy, no doubt, was a big burden on the
seller or the ultimate consumer. It increased the price of
a bag of fertilizer by as much as five percent. A plain
reading of the LOI also supports the conclusion that
the levy was for revenue generation. The LOI
expressly provided that the levy was imposed "until
adequate capital is raised to make PPI viable." An
inherent limitation on the power of taxation is public
purpose. Taxes are exacted only for a public
purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.
The reason for this is simple. The power to tax exists
for the general welfare; hence, implicit in its power
is the limitation that it should be used only for a
public purpose. The LOI is still unconstitutional even if
enacted under the police power; it did not promote
public interest.
 TITLE FACTS
RULING
N AT I O N A L P O W E R Petitioner is a government-owned and
CORPORATION, petitioner, controlled corporation created under
vs. Commonwealth Act No. 120, as amended.
CITY OF CABANATUAN, It is tasked to undertake the
respondent. "development of hydroelectric
generations of power and the
production of electricity from nuclear,
geothermal and other sources, as well
SECONDARY as, the transmission of electric power
OR SPECIAL on a nationwide basis." Concomitant to
its mandated duty, petitioner has, among
FRANCHISE others, the power to construct, operate
and maintain power plants, auxiliary
TAX plants, power stations and substations
for the purpose of developing hydraulic
power and supplying such power to the
inhabitants. For many years now,
petitioner sells electric power to the
residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992.
Pursuant to section 37 of Ordinance No.
165-92, the respondent assessed the
petitioner a franchise tax amounting to
P808,606.41, representing 75% of 1% of
the latter's gross receipts for the preceding
year. Petitioner, whose capital stock was
subscribed and paid wholly by the
Philippine Government, refused to pay the
tax assessment. The respondent filed a
collection suit in the Regional Trial Court
of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a
surcharge equivalent to 25% of the
amount of tax, and 2% monthly interest.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
It argued that the respondent
has no authority to impose tax
on government entities.
Petitioner also contended that
as a non-profit organization, it
is exempted from the payment
of all forms of taxes, charges,
duties or fees in accordance
with sec. 13 of Rep. Act No.
6395 (exemption of non-profit
organizations from paying
taxes).
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Respondent alleged that petitioner's
exemption from local taxes has been
repealed by section 193 of Rep. Act No.
7160 (petitioner's exemption from local
taxes has been repealed by LGC).
Taxes are the lifeblood of the government, for without
taxes, the government can neither exist nor endure. A
principal attribute of sovereignty, the exercise of
taxing power derives its source from the very
existence of the state whose social contract with its
citizens obliges it to promote public interest and
common good. The theory behind the exercise of
the power to tax emanates from necessity; without
taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the
people. In the case at bar, section 151 in relation to
section 137 of the LGC clearly authorizes the
respondent city government to impose on the
petitioner the franchise tax in question. In its specific
sense, a franchise may refer to a general or primary
franchise, or to a special or secondary franchise. The
former relates to the right to exist as a corporation,
by virtue of duly approved articles of incorporation,
or a charter pursuant to a special law creating the
corporation. The right under a primary or general
franchise is vested in the individuals who compose the
corporation and not in the corporation itself. On the
other hand, the latter refers to the right or privileges
conferred upon an existing corporation such as the
right to use the streets of a municipality to lay pipes
of tracks, erect poles or string wires. In section 131
(m) of the LGC, Congress unmistakably defined a
franchise in the sense of a secondary or special
franchise. This is to avoid any confusion when the word
franchise is used in the context of taxation. As
commonly used, a franchise tax is "a tax on the privilege
of transacting business in the state and exercising
corporate franchises granted by the state." It is not
levied on the corporation simply for existing as a
corporation, upon its property or its income, but on
its exercise of the rights or privileges granted to it
by the government. Hence, a corporation need not pay
franchise tax from the time it ceased to do business and
exercise its franchise. It is within this context that the
phrase "tax on businesses enjoying a franchise" in
section 137 of the LGC should be interpreted and
understood. Verily, to determine whether the petitioner is
covered by the franchise tax in question, the following
 TITLE FACTS
RULING
VISAYAS GEOTHERMAL Petitioner Visayas Geothermal Power
P O W E R C O M PA N Y , Company (VGPC) is a special limited
Petitioner, partnership duly organized and existing
vs. under Philippine Laws with its principal
COMMISSIONER OF office at Milagro, Ormoc City, Province of
INTERNAL REVENUE, Leyte. It is principally engaged in the
Respondent. business of power generation through
geothermal energy and the sale of
generated power to the Philippine
National Oil Company (PNOC), pursuant
REFUND OF to the Energy Conversion Agreement.
2005 VAT VGPC filed with the Bureau of Internal
Revenue (BIR)its Original Quarterly VAT
Returns for the first to fourth quarters of
taxable year 2005 on April 25, 2005, July
NO ESTOPPEL 25, 2005, October 25, 2006, and January
20, 2006, respectively. On December 6,
AGAINST GOV’T 2006, it filed an administrative claim for
refund for the amount of 14,160,807.95
with the BIR District Office No. 89 of
Ormoc City on the ground that it was
entitled to recover excess and
unutilized input VAT payments for the
four quarters of taxable year 2005,
pursuant to Republic Act (R.A.) No. 9136,
which treated sales of generated power
subject to VAT to a zero percent (0%) rate
starting June 26, 2001.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Petitioner VGPC argues that The petitioner’s argument that the CIR should have
respondent CIR is estopped been estopped from questioning the jurisdiction of the
from questioning the jurisdiction CTA after actively participating in the proceedings before
of the CTA and Aichi cannot be the CTA Second Division deserves scant consideration.
indiscriminately applied to all It is a well-settled rule that the government cannot be
VAT refund cases. estopped by the mistakes, errors or omissions of its
agents. It has been specifically held that estoppel does
not apply to the government, especially on matters of
taxation. Taxes are the nation’s lifeblood through which
government agencies continue to operate and with
which the State discharges its functions for the welfare
of its constituents. Thus, the government cannot be
estopped from collecting taxes by the mistake,
negligence, or omission of its agents. Upon taxation
depends the ability of the government to serve the
people for whose benefit taxes are collected. To
safeguard such interest, neglect or omission of
government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment
to the people.

Nearly one month later, on January 3,

2007, while its administrative claim was
pending, VGPC filed its judicial claim via a
petition for review with the CTA praying for
a refund or the issuance of a tax credit
certificate in the amount of 14,160,807.95,
covering the four quarters of taxable year
2005.

The CTA En Banc explained that although

VGPC seasonably filed its administrative
claim within the two-year prescriptive
period, its judicial claim filed with the CTA
Second Division was prematurely filed
 TITLE FACTS
RULING
CHAMBER OF REAL Petitioner is an association of real estate
ESTATE AND BUILDERS' developers and builders in the Philippines.
ASSOCIATIONS, INC., Petitioner assails the validity of the
Petitioner, imposition of minimum corporate
vs. income tax (MCIT) on corporations and
THE HON. EXECUTIVE creditable withholding tax (CWT) on
SECRETARY ALBERTO sales of real properties classified as
ROMULO, THE HON. ordinary assets. Under the MCIT
ACTING SECRETARY OF scheme, a corporation, beginning on its
FINANCE JUANITA D. fourth year of operation, is assessed an
AMATONG, and THE HON. MCIT of 2% of its gross income when
COMMISSIONER OF such MCIT is greater than the normal
INTERNAL REVENUE corporate income tax imposed under
GUILLERMO PARAYNO, Section 27(A). If the regular income tax is
JR., Respondents. higher than the MCIT, the corporation does
not pay the MCIT. Any excess of the MCIT
over the normal tax shall be carried
forward and credited against the normal
MCIT AND CWT income tax for the three immediately
succeeding taxable years.
Meanwhile, respondent Secretary, upon
recommendation of respondent CIR,
promulgated RR 2-98 implementing certain
provisions of RA 8424 involving the
withholding of taxes. Under Section
2.57.2(J) of RR No. 2-98, income
payments from the sale, exchange or
transfer of real property, other than capital
assets, by persons residing in the
Philippines and habitually engaged in the
real estate business were subjected to
CWT.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Petitioner argues that the MCIT The MCIT on domestic corporations is a new concept
violates the due process introduced by RA 8424 to the Philippine taxation system.
clause because it levies It came about as a result of the perceived inadequacy of
income tax even if there is no the self-assessment system in capturing the true income
realized gain. Petitioner of corporations. It was devised as a relatively simple
contends that these revenue and effective revenue-raising instrument compared
regulations are contrary to law to the normal income tax which is more difficult to
for two reasons: first, they ignore control and enforce. It is a means to ensure that
the different treatment by RA everyone will make some minimum contribution to
8424 of ordinary assets and the support of the public sector. Congress intended
capital assets and second, to put a stop to the practice of corporations which,
respondent Secretary of while having large turn-overs, report minimal or
Finance has no authority to negative net income resulting in minimal or zero
collect CWT, much less, to income taxes year in and year out, through under-
base the CWT on the gross declaration of income or over-deduction of
selling price or fair market expenses otherwise called tax shelters. The primary
value of the real properties purpose of any legitimate business is to earn a profit.
classified as ordinary assets. Continued and repeated losses after operations of a
corporation or consistent reports of minimal net income
render its financial statements and its tax payments
suspect. The MCIT serves to put a cap on such tax
shelters. As a tax on gross income, it prevents tax
evasion and minimizes tax avoidance schemes
achieved through sophisticated and artful
manipulations of deductions and other stratagems.
Since the tax base was broader, the tax rate was
lowered. Taxes are the lifeblood of the government.
Without taxes, the government can neither exist nor
endure. The exercise of taxing power derives its source
from the very existence of the State whose social
contract with its citizens obliges it to promote public
interest and the common good. The MCIT is imposed on
gross income which is arrived at by deducting the capital
spent by a corporation in the sale of its goods, i.e., the
cost of goods and other direct expenses from gross
sales. Clearly, the capital is not being taxed.
The taxes withheld are in the nature of advance tax
payments by a taxpayer in order to extinguish its
possible tax obligation. They are installments on the
annual tax which may be due at the end of the
taxable year. The sale of land and/or building classified
as ordinary asset and other real property (other than
 TITLE FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
RULING
COMMISSIONER OF Enron, a domestic corporation registered
INTERNAL REVENUE, with the Subic Bay Metropolitan Authority
Petitioners, as a freeport enterprise, filed its annual
vs. income tax return for the year 1996 on
ENRON SUBIC April 12, 1997. It indicated a net loss of
POWERCORPORATION, P7,684,948. Subsequently, the Bureau
Respondents. of Internal Revenue, through a
preliminary five-day letter, informed it of
a proposed assessment of an alleged
P2,880,817.25 deficiency income tax.
Enron disputed the proposed deficiency
assessment in its first protest letter. On
May 26, 1999, Enron received from the
CIR a formal assessment notice requiring
it to pay the alleged deficiency income tax
of P2,880,817.25 for the taxable year
1996. Due to the non-resolution of its
protest within the 180-day period, Enron
filed a petition for review in the Court of
Tax Appeals (CTA).
 TITLE FACTS
RULING
COMMISSIONER OF Respondent is engaged in the business of
INTERNAL REVENUE, sub-contracting work for service
Petitioner, contractors engaged in petroleum
vs. operations in the Philippines. During the
UNITED SALVAGE AND taxable years in question, it had entered
TOWAGE (PHILS.), INC., into various contracts and/or sub-contracts
Respondent. with several petroleum service contractors
for the supply of service vessels. In the
course of respondent’s operations,
petitioner found respondent liable for
deficiency income tax, withholding tax,
PANs NOT value-added tax (VAT) and documentary
VALID stamp tax (DST) for taxable years
1992,1994, 1997 and 1998. Particularly,
petitioner, through BIR officials, issued
demand letters with attached assessment
notices for withholding tax on
compensation (WTC) and expanded
L A P S E D withholding tax (EWT) for taxable years
PRESCRIPTIVE 1992, 1994 and 1998. During the
pendency of the proceedings, USTP
PERIOD moved to withdraw the aforesaid Petition
because it availed of the benefits of the
Tax Amnesty Program under Republic Act
(R.A.) No. 9480. Consequently, the case
was submitted for decision covering
the remaining issue on deficiency EWT
and WTC, respectively, for taxable years
1992, 1994 and 1998.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
Petitioner implores unto this
Court that technical rules of
evidence should not be
strictly applied in the interest
of substantial justice,
considering that the mandate of
the CTA explicitly provides that
its proceedings shall not be
governed by the technical rules
of evidence.
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
On February 21, 2003, USTP appealed by
way of Petition for Review before the Court
in action alleging, among others, that the
Notices of Assessment are bereft of any
facts, law, rules and regulations or
jurisprudence; thus, the assessments are
void and the right of the government to
assess and collect deficiency taxes from it
has prescribed on account of the failure to
issue a valid notice of assessment within
the applicable period.
The CTA-Special First Division held that the Preliminary
Assessment Notices (PANs) for deficiency EWT for
taxable years 1994 and 1998 were not formally
offered, hence, the Court shall neither consider the
same as evidence nor rule on their validity.
Nevertheless, the CTA-Special First Division declared
that the right of petitioner to collect the deficiency EWT
and WTC, respectively, for taxable year 1992 had
already lapsed pursuant to Section 203 of the Tax Code.
Under Section 828 of Republic Act (R.A.) No. 1125, the
CTA is categorically described as a court of record.
As such, it shall have the power to promulgate rules and
regulations for the conduct of its business, and as may
be needed, for the uniformity of decisions within its
jurisdiction. Thus, no evidentiary value can be given the
pieces of evidence submitted by the BIR, as the rules on
documentary evidence require that these documents
must be formally offered before the CTA. The evidence
may, therefore, be admitted provided the following
requirements are present: (1) the same must have
been duly identified by testimony duly recorded; and
(2) the same must have been incorporated in the
records of the case. In the case at bar, petitioner
categorically admitted that it failed to formally offer
the PANs as evidence. Worse, it advanced no
justifiable reason for such fatal omission. Instead, it
merely alleged that the existence and due execution of
the PANs were duly tackled by petitioner’s witnesses.
We hold that such is not sufficient to seek exception
from the general rule requiring a formal offer of
evidence, since no evidence of positive identification of
such PANs by petitioner’s witnesses was presented.
Hence, we agree with the CTA En Banc’s observation
that the 1994 and 1998 PANs for EWT deficiencies were
not duly identified by testimony and were not
incorporated in the records of the case, as required by
jurisprudence. The advice of tax deficiency, given by the
CIR to an employee of Enron, as well as the preliminary
five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual
bases of the assessment. Nevertheless, as correctly
held by the CTA En Banc, the Preliminary Collection
Letter for deficiency taxes for taxable year 1992 was
 TITLE
RULING
JOSE B. L. REYES and
EDMUNDO A. REYES,
petitioners,
vs.
PEDRO ALMANZOR,
VICENTE ABAD SANTOS,
JOSE ROÑO, in their
capacities as appointed and
Acting Members of the
CENTRAL BOARD OF
ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS,
ROMULO M. DEL
ROSARIO, RAUL C.
FLORES, in their capacities
as appointed and Acting
Members of the BOARD OF
ASSESSMENT APPEALS
of Manila; and NICOLAS
CATIIL in his capacity as
City Assessor of
Manila,respondents.
RENTAL & expected, entailed an increase in the
EJECTION
FACTS
Petitioners J.B.L. Reyes, Edmundo and
Milagros Reyes are owners of parcels of
land situated in Tondo and Sta. Cruz
Districts, City of Manila, which are leased
and entirely occupied as dwelling sites by
tenants. Said tenants were paying monthly
rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On October 12,
1972, Presidential Decree No. 20
amended R.A. No. 6359 by making
absolute the prohibition to increase
monthly rentals below P300.00 and by
indefinitely suspending the
aforementioned provision of the Civil
Code, excepting leases with a definite
period. Consequently, the Reyeses,
petitioners herein, were precluded from
raising the rentals and from ejecting the
tenants. In 1973, respondent City
Assessor of Manila re-classified and
reassessed the value of the subject
properties based on the schedule of
market values duly reviewed by the
Secretary of Finance. The revision, as
corresponding tax rates prompting
petitioners to file a Memorandum of
Disagreement with the Board of Tax
Assessment Appeals. The crux of the
controversy is in the method used in
tax assessment of the properties in
question.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
They averred that the
reassessments made were
"excessive, unwarranted,
inequitable, confiscatory and
unconstitutional" considering
that the taxes imposed upon
them greatly exceeded the
annual income derived from
their properties. They argued
that the income approach
should have been used in
determining the land values
instead of the comparable
sales approach which the City
Assessor adopted. Petitioners
maintain that the "Income
Approach" method would have
been more realistic for in
disregarding the effect of the
restrictions imposed by P.D. 20
on the market value of the
properties affected, respondent
Assessor of the City of Manila
unlawfully and unjustifiably set
increased new assessed values
at levels so high and successive
that the resulting annual real
estate taxes would admittedly
exceed the sum total of the
yearly rentals paid or payable by
the dweller tenants under P.D.
20.
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
On the other hand, while respondent Board
of Tax Assessment Appeals admits in its
decision that the income approach is used
in determining land values in some
vicinities, it maintains that when income is
affected by some sort of price control, the
same is rejected in the consideration and
study of land values as in the case of
properties affected by the Rent Control Law
for they do not project the true market
value in the open market.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution,
then enforced, the rule of taxation must not only be
uniform, but must also be equitable and progressive.
Ironically, in the case at bar, not even the factors
determinant of the assessed value of subject
properties under the "comparable sales approach"
were presented by the public respondents, namely:
(1) that the sale must represent a bonafide arm's
length transaction between a willing seller and a
willing buyer and (2) the property must be
comparable property (Rollo, p. 27). Nothing can
justify or support their view as it is of judicial notice
that for properties covered by P.D. 20 especially
during the time in question, there were hardly any
willing buyers. As a general rule, there were no
takers so that there can be no reasonable basis for
the conclusion that these properties were
comparable with other residential properties not
burdened by P.D. 20. Verily, taxes are the lifeblood of
the government and so should be collected without
unnecessary hindrance. However, such collection
should be made in accordance with law as any
arbitrariness will negate the very reason for government
itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers
so that the real purpose of taxations, which is the
promotion of the common good, may be achieved.
Consequently, it stands to reason that petitioners who
are burdened by the government by its Rental Freezing
Laws (then R.A. No. 6359 and P.D. 20) under the
principle of social justice should not now be penalized
by the same government by the imposition of excessive
taxes petitioners can ill afford and eventually result in
the forfeiture of their properties.
 TITLE FACTS
RULING
CHAMBER OF REAL Petitioner is an association of real estate
ESTATE AND BUILDERS' developers and builders in the Philippines.
ASSOCIATIONS, INC., Petitioner assails the validity of the
Petitioner, imposition of minimum corporate income
vs. tax (MCIT) on corporations and creditable
THE HON. EXECUTIVE withholding tax (CWT) on sales of real
SECRETARY ALBERTO properties classified as ordinary assets.
ROMULO, THE HON. Under the MCIT scheme, a corporation,
ACTING SECRETARY OF beginning on its fourth year of operation, is
FINANCE JUANITA D. assessed an MCIT of 2% of its gross
AMATONG, and THE HON. income when such MCIT is greater than
COMMISSIONER OF the normal corporate income tax imposed
INTERNAL REVENUE under Section 27(A).4 If the regular
GUILLERMO PARAYNO, income tax is higher than the MCIT, the
JR., Respondents. corporation does not pay the MCIT. Any
excess of the MCIT over the normal tax
shall be carried forward and credited
against the normal income tax for the three
MCIT AND CWT immediately succeeding taxable years.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Petitioner argues that the MCIT As a general rule, the power to tax is plenary and
violates the due process clause unlimited in its range, acknowledging in its very nature
because it levies income tax no limits, so that the principal check against its abuse is
even if there is no realized gain. to be found only in the responsibility of the legislature
Petitioner contends that these (which imposes the tax) to its constituency who are to
revenue regulations are contrary pay it. Nevertheless, it is circumscribed by constitutional
to law for two reasons: first, they limitations. At the same time, like any other statute, tax
ignore the different treatment by legislation carries a presumption of constitutionality.
RA 8424 of ordinary assets and Petitioner is correct in saying that income is distinct from
capital assets and second, capital. Income means all the wealth which flows into
respondent Secretary of Finance the taxpayer other than a mere return on capital. Capital
has no authority to collect CWT, is a fund or property existing at one distinct point in time
much less, to base the CWT on while income denotes a flow of wealth during a definite
the gross selling price or fair period of time. Income is gain derived and severed from
market value of the real capital. For income to be taxable, the following
properties classified as ordinary requisites must exist:
assets. (1) there must be gain;
(2) the gain must be realized or received and
(3) the gain must not be excluded by law or treaty
from taxation.
Certainly, an income tax is arbitrary and confiscatory if it
taxes capital because capital is not income. In other
words, it is income, not capital, which is subject to
income tax. However, the MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived
at by deducting the capital spent by a corporation in the
sale of its goods, i.e., the cost of goods and other direct
expenses from gross sales. Clearly, the capital is not
being taxed.
Furthermore, the MCIT is not an additional tax
imposition. It is imposed in lieu of the normal net income
tax, and only if the normal income tax is suspiciously
low. The MCIT merely approximates the amount of net
income tax due from a corporation, pegging the rate at a
very much reduced 2% and uses as the base the
corporation’s gross income.
The sale of land and/or building classified as ordinary
asset and other real property (other than land and/or
building treated as capital asset), regardless of the
classification thereof, all of which are located in the
Philippines, shall be subject to the [CWT].
 TITLE
RULING
WALTER LUTZ, as Judicial
Administrator of the Intestate
Estate of the deceased
Antonio Jayme Ledesma,
plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as
the Collector of Internal
Revenue, defendant-
appellee.
S U G A R
INDUSTRY
FACTS
This case was initiated in the Court of First
Instance of Negros Occidental to test the
legality of the taxes imposed by
Commonwealth Act No. 567, otherwise
known as the Sugar Adjustment Act.
Plaintiff, Walter Lutz, in his capacity as
Judicial Administrator of the Intestate
Estate of Antonio Jayme Ledesma, seeks
to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by
the estate as taxes, under section 3 of the
Act, for the crop years 1948-1949 and
1949-1950; alleging that such tax is
unconstitutional and void, being levied for
the aid and support of the sugar
industry exclusively, which in plaintiff's
opinion is not a public purpose for
which a tax may be constitutionally
levied.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
The basic defect in the plaintiff's Analysis of the Act, and particularly of section 6
position is his assumption that (heretofore quoted in full), will show that the tax is
the tax provided for in levied with a regulatory purpose, to provide means
Commonwealth Act No. 567 is a for the rehabilitation and stabilization of the
pure exercise of the taxing threatened sugar industry. In other words, the act is
power. primarily an exercise of the police power. This Court
can take judicial notice of the fact that sugar production
is one of the great industries of our nation, sugar
occupying a leading position among its export products;
that it gives employment to thousands of laborers in
fields and factories; that it is a great source of the state's
wealth, is one of the important sources of foreign
exchange needed by our government, and is thus
pivotal in the plans of a regime committed to a
policy of currency stability. Its promotion,
protection and advancement, therefore redounds
greatly to the general welfare. Hence it was
competent for the legislature to find that the general
welfare demanded that the sugar industry should be
stabilized in turn; and in the wide field of its police
power, the lawmaking body could provide that the
distribution of benefits therefrom be readjusted among
its components to enable it to resist the added strain of
the increase in taxes that it had to sustain. From the
point of view we have taken it appears of no moment
that the funds raised under the Sugar Stabilization Act,
now in question, should be exclusively spent in aid of
the sugar industry, since it is that very enterprise that is
being protected.
The decision appealed from is affirmed, with costs
against appellant
 TITLE FACTS
RULING
PLANTERS PRODUCTS, Petitioner PPI and private respondent
INC., Petitioner, Fertiphil are private corporations
vs. incorporated under Philippine laws.3 They
F E R T I P H I L are both engaged in the importation and
CORPORATION, distribution of fertilizers, pesticides and
Respondent. agricultural chemicals. On June 3, 1985,
then President Ferdinand Marcos,
exercising his legislative powers, issued
LOI No. 1465 which provided, among
others, for the imposition of a capital
C A P I T A L recovery component (CRC) on the
RECOVERY domestic sale of all grades of fertilizers in
the Philippines. Pursuant to the LOI,
COMPONENT Fertiphil paid ₱10 for every bag of fertilizer
it sold in the domestic market to the
Fertilizer and Pesticide Authority (FPA).
FPA then remitted the amount collected to
the Far East Bank and Trust Company, the
depositary bank of PPI. After the 1986
Edsa Revolution, FPA voluntarily stopped
the imposition of the ₱10 levy. With the
return of democracy, Fertiphil demanded
from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to
accede to the demand.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
PPI argues that Fertiphil has no
locus standi to question the
constitutionality of LOI No. 1465
because it does not have a
"personal and substantial
interest in the case or will
sustain direct injury as a result
of its enforcement." It asserts
that Fertiphil did not suffer any
damage from the CRC
imposition because "incidence of
the levy fell on the ultimate
consumer or the farmers
themselves, not on the seller
fertilizer company."
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Fertiphil counters that the LOI is
unconstitutional because it was enacted to
give benefit to a private company. The levy
was imposed to pay the corporate debt of
PPI. Fertiphil also argues that, even if the
LOI is enacted under the police power, it is
still unconstitutional because it did not
promote the general welfare of the people
or public interest.
We agree with the RTC that the imposition of the levy
was an exercise by the State of its taxation power. While
it is true that the power of taxation can be used as an
implement of police power,41 the primary purpose of the
levy is revenue generation. If the purpose is primarily
revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly
called a tax. The ₱10 levy under LOI No. 1465 is too
excessive to serve a mere regulatory purpose. The levy,
no doubt, was a big burden on the seller or the ultimate
consumer. It increased the price of a bag of fertilizer by
as much as five percent.45 A plain reading of the LOI
also supports the conclusion that the levy was for
revenue generation. The LOI expressly provided that the
levy was imposed "until adequate capital is raised to
make PPI viable." An inherent limitation on the power of
taxation is public purpose. Taxes are exacted only for a
public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.
46 The reason for this is simple. The power to tax exists
for the general welfare; hence, implicit in its power is the
limitation that it should be used only for a public
purpose. The LOI is still unconstitutional even if
enacted under the police power; it did not promote
public interest.
 TITLE FACTS
RULING
SOUTHERN CROSS Petitioner Southern Cross Cement
CEMENT CORPORATION, Corporation ("Southern Cross") is a
petitioner, domestic corporation engaged in the
vs. business of cement manufacturing,
THE PHILIPPINE CEMENT production, importation and exportation. Its
MANUFACTURERS CORP., principal stockholders are Taiheiyo Cement
THE SECRETARY OF THE Corporation and Tokuyama Corporation,
DEPARTMENT OF TRADE purportedly the largest cement
& I N D U S T R Y, T H E manufacturers in Japan. Private
S E C R E TA RY O F T H E respondent Philippine Cement
DEPARTMENT OF Manufacturers Corporation ("Philcemcor")
FINANCE, and THE is an association of domestic cement
COMMISSIONER OF THE manufacturers. It has eighteen (18)
BUREAU OF CUSTOMS, members, per Record. While Philcemcor
respondents. heralds itself to be an association of
domestic cement manufacturers, it
appears that considerable equity
holdings, if not controlling interests in
at least twelve (12) of its member-
corporations, were acquired by the
PROVISIONAL & three largest cement manufacturers in
DEFINITIVE the world, namely Financiere Lafarge
S.A. of France, Cemex S.A. de C.V. of
MEASURE Mexico, and Holcim Ltd. of Switzerland.
After preliminary investigation, the Bureau
of Import Services of the DTI, determined
that critical circumstances existed justifying
the imposition of provisional measures. On
7 November 2001, the DTI issued an
Order, imposing a provisional measure
equivalent to Twenty Pesos and Sixty
Centavos (P20.60) per forty (40)
kilogram bag on all importations of gray
Portland cement for a period not
exceeding two hundred (200) days from
the date of issuance by the Bureau of
Customs (BOC) of the implementing
Customs Memorandum Order. The Tariff
Commission, on 19 November 2001,
received a request from the DTI for a
formal investigation to determine whether
or not to impose a definitive safeguard
measure on imports of gray Portland
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
On 22 May 2001, respondent Department
of Trade and Industry ("DTI") accepted an
application from Philcemcor, alleging that
the importation of gray Portland cement
in increased quantities has caused
declines in domestic production,
capacity utilization, market share, sales
and employment; as well as caused
depressed local prices. Accordingly,
Philcemcor sought the imposition at first of
provisional, then later, definitive safeguard
measures on the import of cement pursuant
to the SMA. Philcemcor filed the application
in behalf of twelve (12) of its member-
companies.
Rep. Act No. 9282, enacted on 30 March 2004,
expressly vests unto the CTA jurisdiction over
"[d]ecisions of the Secretary of Trade and Industry, in
case of nonagricultural product, commodity or article xxx
involving xxx safeguard measures under Republic Act
No. 8800, where either party may appeal the decision to
impose or not to impose said duties." Section 5 plainly
evinces legislative intent to restrict the DTI
Secretary's power to impose a general safeguard
measure by preconditioning such imposition on a
positive determination by the Tariff Commission.
Such legislative intent should be given full force and
effect, as the executive power to impose definitive
safeguard measures is but a delegated power, the
power of taxation, by nature and by command of the
fundamental law, being a preserve of the legislature.
This delegation of the taxation power by the
legislative to the executive is authorized by the
Constitution itself. At the same time, the Constitution
also grants the delegating authority (Congress) the right
to impose restrictions and limitations on the taxation
power delegated to the President. The restrictions and
limitations imposed by Congress take on the mantle of a
constitutional command, which the executive branch is
obliged to observe.
WHEREFORE, the petition is GRANTED. The assailed
Decision of the Court of Appeals is DECLARED NULL
AND VOID and SET ASIDE. The Decision of the DTI
Secretary dated 25 June 2003 is also DECLARED NULL
AND VOID and SET ASIDE. No Costs.
 TITLE FACTS
RULING
PHILIPPINE AIRLINES, The disputed registration fees were
INC., plaintiff-appellant, imposed by the appellee, Commissioner
vs. Romeo F. Elevate pursuant to Section 8,
ROMEO F. EDU in his Republic Act No. 4136, otherwise known
capacity as Land as the Land Transportation and Traffic
Tr a n s p o r t a t i o n Code. Under its franchise, PAL is
Commissioner, and exempt from the payment of taxes.
UBALDO CARBONELL, in Sometime in 1971, however, appellee
his capacity as National Commissioner Romeo F. Edu issued a
Treasurer, defendants- regulation requiring all tax exempt entities,
appellants. among them PAL to pay motor vehicle
registration fees. PAL wrote to
Commissioner Edu demanding a refund
of the amounts paid, invoking the ruling
in Calalang v. Lorenzo where it was
M O T O R held that motor vehicle registration fees
VEHICHLE are in reality taxes from the payment of
which PAL is exempt by virtue of its
REGISTRATION legislative franchise. Appellee Edu
denied the request.
FEES
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Appellee Romeo F. Edu in his capacity as
LTC Commissioner, and LOI Carbonell in
his capacity as National Treasurer, filed a
motion to dismiss alleging that the
complaint states no cause of action. In
support of the motion to dismiss,
defendants repatriation the ruling in
Republic v. Philippine Rabbit Bus Lines,
Inc., (supra) that registration fees of motor
vehicles are not taxes, but regulatory fees
imposed as an incident of the exercise of
the police power of the state. They
contended that while Act 4271 exempts
PAL from the payment of any tax except
two per cent on its gross revenue or
earnings, it does not exempt the plaintiff
from paying regulatory fees, such as
motor vehicle registration fees.
Today, the matter is governed by Rep. Act 4136 [1968]),
otherwise known as the Land Transportation Code and
BP Blg. 43, 74 and 398. It appears clear from the
above provisions that the legislative intent and
purpose behind the law requiring owners of vehicles
to pay for their registration is mainly to raise funds
for the construction and maintenance of highways
and to a much lesser degree, pay for the operating
expenses of the administering agency. If the
purpose is primarily revenue, or if revenue is, at
least, one of the real and substantial purposes, then
the exaction is properly called a tax (Umali, Id.) Such
is the case of motor vehicle registration fees. It is quite
apparent that vehicle registration fees were originally
simple exceptional. Intended only for rigidly purposes in
the exercise of the State's police powers. Over the
years, however, as vehicular traffic exploded in number
and motor vehicles became absolute necessities without
which modem life as we know it would stand still,
Congress found the registration of vehicles a very
convenient way of raising much needed revenues.
Without changing the earlier deputy of registration
payments as "fees," their nature has become that of
"taxes." In view of the foregoing, we rule that motor
vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic
Code are actually taxes intended for additional
revenues of government even if one fifth or less of the
amount collected is set aside for the operating expenses
of the agency administering the program.
 TITLE FACTS
RULING
ANGELES UNIVERSITY Petitioner Angeles University Foundation
FOUNDATION, Petitioner, (AUF) is an educational institution
vs. established on May 25, 1962 and was
CITY OF ANGELES, converted into a non-stock, non-profit
JULIET G. QUINSAAT, in education foundation under the provisions
her capacity as Treasurer of of Republic Act (R.A.) No. 60554 on
Angeles City and ENGR. December 4, 1975. Sometime in August
DONATO N. DIZON, in his 2005, petitioner filed with the Office of the
capacity as Acting Angeles City Building Official an application for a
C i t y B u i l d i n g O ff i c i a l , building permit for the construction of
Respondents. an 11-storey building of the Angeles
University Foundation Medical Center in
its main campus located at MacArthur
BUILDING Highway, Angeles City, Pampanga. Said
PERMIT office issued a Building Permit Fee
Assessment. Petitioner paid in protest but
later filed action for refund.
FRANCIS A. CHURCHILL Section 100 of Act No. 2339 imposed an
and STEWART TAIT, ET annual tax of P4 per square meter upon
AL, plaintiffs-appellants, "electric signs, billboards, and spaces
vs. used for posting or displaying temporary
VENANCIO CONCEPCION, signs, and all signs displayed on premises
as Acting Collector of not occupied by buildings." Subsequently
Internal Revenue, amended by Act No. 2432 reducing the
defendant-appellee. tax on such signs, billboards, etc., to P2
per square meter or fraction thereof.
Francis A. Churchill and Stewart Tait,
copartners doing business, owners of a
BILLBOARDS sign or billboard containing an area of 52
square meters constructed on private
property in the city of Manila and exposed
to public view, were taxes thereon P104.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
Petitioner claimed that it is
exempt from the payment of
the building permit and
locational clearance fees,
citing legal opinions rendered
by the Department of Justice
(DOJ). Petitioner also reminded
the respondents that they have
previously issued building
permits acknowledging such
exemption from payment of
building permit fees on the
construction of petitioner’s 4-
storey AUF Information
Technology Center building and
the AUF Professional Schools.
It alleged that the tax in question
is unconstitutional because "the
law herein complained of was
enacted for the sole purpose of
destroying billboards and
advertising business depending
on the use of signs or
billboards."
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Respondents asserted that the claim of
petitioner cannot be granted because its
structures are not among those mentioned
in Sec. 209 of the National Building Code
as exempted from the building permit fee.
Respondents argued that R.A. No. 6055
should be considered repealed on the basis
of Sec. 2104 of the National Building Code.
Since the disputed assessments are
regulatory in nature, they are not taxes from
which petitioner is exempt. As to the real
property taxes imposed on petitioner’s
property located in Marisol Village,
respondents pointed out that said premises
will be used as a school dormitory which
cannot be considered as a use exclusively
for educational activities.
Under the 1973 and 1987 Constitutions and Rep. Act
No. 7160 in order to be entitled to the exemption, the
petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY,
DIRECTLY and EXCLUSIVELY used for charitable
purposes. What is meant by actual, direct and
exclusive use of the property for charitable purposes is
the direct and immediate and actual application of the
property itself to the purposes for which the charitable
institution is organized. It is not the use of the income
from the real property that is determinative of whether
the property is used for tax-exempt purposes.
A tax is uniform when it operates with the same
force and effect in every place where the subject of
it is found. The statute under consideration imposes
a tax of P2 per square meter or fraction thereof upon
every electric sign, bill-board, etc., wherever found
in the Philippine Islands. Or in other words, "the rule
of taxation" upon such signs is uniform throughout
the Islands. The rule, which we have just quoted from
the Philippine Bill, does not require taxes to be graded
according to the value of the subject or subjects upon
which they are imposed, especially those levied as
privilege or occupation taxes.
For the foregoing reasons, the judgment appealed from
is affirmed, with costs against the appellants. So
ordered.
 TITLE FACTS
RULING
RUFINO R. TAN, petitioner, These two consolidated special civil
vs. actions for prohibition challenge, in G.R.
RAMON R. DEL ROSARIO, No. 109289, the constitutionality of
JR., as SECRETARY OF Republic Act No. 7496, also commonly
FINANCE & JOSE U. ONG, known as the Simplified Net Income
as COMMISSIONER OF Taxation Scheme ("SNIT"), amending
INTERNAL REVENUE, certain provisions of the National Internal
respondents. Revenue Code. On the basis of the
language of the law, it would be difficult to
accept petitioner's view that the
amendatory law should be considered as
S E L F - having now adopted a gross income,
EMPLOYED & instead of as having still retained the net
income, taxation scheme. The allowance
PROFESSIONAL for deductible items, it is true, may have
significantly been reduced by the
S questioned law in comparison with that
which has prevailed prior to the
a m e n d m e n t ; l i m i t i n g , h o w e v e r,
allowable deductions from gross
income is neither discordant with, nor
opposed to, the net income tax
concept. The fact of the matter is still that
various deductions, which are by no
means inconsequential, continue to be
well provided under the new law.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Petitioner contends that the title Petitioner intimates that Republic Act No. 7496
of House Bill No. 34314, desecrates the constitutional requirement that taxation
progenitor of Republic Act No. "shall be uniform and equitable" in that the law would
7496, is a misnomer or, at least, now attempt to tax single proprietorships and
deficient for being merely professionals differently from the manner it imposes the
entitled, "Simplified Net Income tax on corporations and partnerships. The contention
Taxation Scheme for the Self- clearly forgets, however, that such a system of income
Employed and Professionals taxation has long been the prevailing rule even prior to
Engaged in the Practice of their Republic Act No. 7496. Uniformity of taxation, like the
Profession" kindred concept of equal protection, merely requires that
all subjects or objects of taxation, similarly situated, are
to be treated alike both in privileges and liabilities.
Uniformity does not forfend classification as long as: (1)
the standards that are used therefor are substantial
and not arbitrary, (2) the categorization is germane
to achieve the legislative purpose, (3) the law
applies, all things being equal, to both present and
future conditions, and (4) the classification applies
equally well to all those belonging to the same
class. What may instead be perceived to be apparent
from the amendatory law is the legislative intent to
increasingly shift the income tax system towards the
schedular approach in the income taxation of individual
taxpayers and to maintain, by and large, the present
global treatment on taxable corporations. We certainly
do not view this classification to be arbitrary and
inappropriate. Having arrived at this conclusion, the plea
of petitioner to have the law declared unconstitutional for
being violative of due process must perforce fail.
 TITLE
RULING
CITY OF CEBU and/or
CITY COUNCIL OF THE
CITY OF CEBU, composed
of Hon. FLORENCIO S.
UROT, RAYMUNDO A.
CRYSTAL, BIENVENIDO B.
T U D T U D , J O S E V.
C U E N C O , PA B L O U .
ABELLA, GEORGE M.
BALADJAY, ARTURO L.
ABELLANA, JESUS S.
GABUYA and MARIO R.
VELOSO, petitioners,
vs.
H O N . I N T E R M E D I AT E
APPELLATE COURT, HON.
CESAR VIRATA and HON.
PEDRO M. ALMANZOR, in
their capacities as Secretary
a n d A c t i n g S e c r e t a r y,
respectively, Department of
Finance, respondents.
FACTS
Pursuant to Presidential Decree No. 231,
known as the Local Tax Code, the City
Council of Cebu passed Ordinances I and
II which were approved by the Mayor. The
ordinances were submitted to the
respondents Secretary and Acting
Secretary of Finance for review. After
review, said respondents ordered the
suspension of some provisions with the
corresponding reasons: a) Violative of
uniformity of taxation, unauthorized,
fees are excessive, all in violation of PD
231; and tax was withdrawn by P.D. No.
426.
Whether or not the respondent
Intermediate Appellate Court is correct in-
1. interpreting the provisions of the Local
Tax Code (PD 231, as amended) in
relation to section 57 and section 65
of the City Tax Ordinance No. 1;
2. holding that Food and Drugs fees
under Sec. 74 (Q) of City Tax
Ordinance No. 1 violates the provision
of Sec. 35 of the Local Tax Code and
the same is oppressive and
unreasonable.
3. holding that the sheriff's storage fees
under sec. 74 (R) of the City Tax
Ordinance in question is confiscatory.
4. interpreting and applying the provision
of sec. 5 (K) of the Local Tax Code
and sec. 2 (of the same code) in
relation to Sec. 102 of the City Tax
Ordinance No. 1 of the City of Cebu
which imposed an inspection fee of
three (3) centavos for every kilo of fish
sold within the city of Cebu.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
1. Cebu City will have a higher rate of amusement tax
than Cebu province. This disparity in rates is
precisely what is proscribed by the second
paragraph of section 23 earlier quoted. The said
section speaks of "uniform for the city and the
province or municipality." Hence, what is required
is uniformity of amusement taxes between the
province and the city; not uniformity of the
rates on the same subject.
2. As correctly observed by respondent Court, the law
(Section 36) contemplates a single fee for the
issuance of a permit to engage in any business or
occupation. But Sec. 74 (Q) of Tax Ordinance No. 1
imposes another permit fee on foods and drugs
establishments. As a result, the taxpayer will have
to pay another permit fee for conducting the same
business in the same city. Such multiple
imposition of permit fees is unreasonable and
oppressive and is definitely not sanctioned by
the Local Tax Code.
3. As illustrated by respondent court in its assailed
decision, quoting the observation of the trial court, a
typewriter with a fair market value of P3,000.00 will
have to pay a sheriff's storage fee of P5.00 a day.
Thus, it would take only 600 days, or less than two
years, for the typewriter to completely eat up its
value on account of storage fees. Being excessive
and confiscatory, the suspension of the
imposition of storage fees by the lower court
was correct.
4. The aforequoted provision prohibits a local
government from imposing an inspection fee on
agricultural products and fish is an agricultural
product. Contrary to the claim of petitioners, under
Section 102 of City Ordinance No. 1 a fisherman
selling his fish within the city has to pay the
inspection fee of P0.03 for every kilo of fish sold.
Furthermore, the imposition of the tax will definitely
restrict the free flow of fresh fish to Cebu City
because the price of fish will have to increase.
 TITLE FACTS
RULING
MANILA RACE HORSE This action was instituted for a declaratory
TRAINERS ASSOCIATION, relief by the Manila Race Horses Trainers
I N C . , a n d J U A N T. Association, Inc., a non-stock corporation
SORDAN, plaintiffs- duly organized and existing under and by
appellants, virtue of the laws of the Philippines, who
vs. allege that they are owners of boarding
MANUEL DE LA FUENTE, stables for race horses and that their
defendant-appellee. rights as such are affected by
Ordinance No. 3065 of the City of Manila
approved on July 1, 1947. They made the
HORSE STABLE Mayor of Manila defendant and prayed
that said ordinance be declared invalid as
violative of the Philippine Constitution.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
First, it is maintained that the It is plain from the text of the whole ordinance that the
ordinance under consideration is number of horses is used in the assessment purely as a
a tax on race horses as distinct method of fixing an equitable and practical distribution of
from boarding stables. It is the burden imposed by the measure. Far from being
argued that by section 2 the obnoxious, the method is fair and just. It is but fair and
basis of the license fees "is the just that for a boarding stable where only one horse is
number of race horses kept or maintained proportionately less amount should be
maintained in the boarding exacted than for a stable where more horses are kept
stables to be paid by the and from which greater income is derived. From the
maintainers at the rate of P10.00 viewpoint of economics and public policy the taxing of
a year for each race horse;" that boarding stables for race horses to the exclusion of
"the fee is increased boarding stables for horses dedicated to other purposes
correspondingly P10 for each is not indefensible. The owners of boarding stables
additional race horse maintained for race horses and, for that matter, the race horse
or fed in the stable;" and that "by owners themselves, who in the scheme of shifting
the same token, an empty stable may carry the taxation burden, are a class by
for race horse pays no license themselves and appropriately taxed where owners
fee at all." of other kinds of horses are taxed less or not at all,
considering that equity in taxation is generally
conceived in terms of ability to pay in relation to the
benefits received by the taxpayer and by the public
from the business or property taxed. Race horses are
devoted to gambling if legalized, their owners derive fat
income and the public hardly any profit from horse
racing, and this business demands relatively heavy
police supervision.
We are of the opinion that the trial court committed no
error and the judgment is affirmed with costs against the
plaintiff-appellants.
 TITLE
RULING
BRITISH AMERICAN
TOBACCO, petitioner,
vs.
JOSE ISIDRO N.
CAMACHO, in his capacity
as Secretary of the
Department of Finance and
GUILLERMO L. PARAYNO,
JR., in his capacity as
Commissioner of the Bureau
of Internal Revenue,
respondents.
Philip Morris Philippines
Manufacturing, Inc., fortune
tobacco, corp., MIGHTY
CORPORATION, and JT
InTERNATIONAL, S.A.,
respondents-in-intervention.
OLD AND NEW
B R A N D S
EXCISE TAX
FACTS
This petition for review assails the validity
of: (1) Section 145 of the National Internal
Revenue Code (NIRC), as recodified by
Republic Act (RA) 8424; (2) RA 9334,
which further amended Section 145 of the
NIRC on January 1, 2005; (3) Revenue
Regulations Nos. 1-97, 9-2003, and
22-2003; and (4) Revenue Memorandum
Order No. 6-2003. Petitioner argues that
the said provisions are violative of the
equal protection and uniformity clauses
of the Constitution. Paragraph (c) of
Section 145 provides for four tiers of tax
rates based on the net retail price per pack
of cigarettes. As such, new brands of
cigarettes shall be taxed according to
their current net retail price while
existing or "old" brands shall be taxed
based on their net retail price as of
October 1, 1996. In June 2001, petitioner
British American Tobacco introduced into
the market Lucky Strike Filter, Lucky Strike
Lights and Lucky Strike Menthol Lights
cigarettes, with a suggested retail price of
P9.90 per pack. Pursuant to Sec. 145 (c)
quoted above, the Lucky Strike brands
were initially assessed the excise tax at
P8.96 per pack. While the petition was
pending, RA 9334 took effect on
January 1, 2005. Under RA 9334, the
excise tax due on petitioner’s products
was increased to P25.00 per pack. In the
implementation thereof, respondent
Commissioner assessed petitioner’s
importation of 911,000 packs of Lucky
Strike cigarettes at the increased tax rate
of P25.00 per pack, rendering it liable for
taxes in the total sum of P22,775,000.00.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
Said petition sought to enjoin the
implementation of Section 145
of the NIRC, Revenue
Regulations Nos. 1-97, 9-2003,
22-2003 and Revenue
Memorandum Order No. 6-2003
on the ground that they
discriminate against new brands
of cigarettes, in violation of the
equal protection and uniformity
provisions of the Constitution.
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Respondent Secretary of Finance filed a
Motion to Dismiss, contending that the
petition is premature for lack of an actual
controversy or urgent necessity to justify
judicial intervention.
We come now to the issue of whether petitioner is
estopped from assailing the authority of the
Commissioner of Internal Revenue. Fortune Tobacco
raises this objection by pointing out that when petitioner
requested the Commissioner for a ruling that its Lucky
Strike Soft Pack cigarettes was a "new brand" rather
than a variant of an existing brand, and thus subject to a
lower specific tax rate, petitioner executed an
undertaking to comply with the procedures under
existing regulations for the assessment of deficiency
internal revenue taxes.
We shall refer to the whole mechanism and philosophy
of the assailed law which freezes the tax classification of
a cigarette brand based on its current net retail price
and which, thus, produced different classes of brands
based on the time of their introduction in the market
(starting with the brands in Annex "D" since they were
the first brands so classified as of October 1, 1996) as
the classification freeze provision. A legislative
classification that is reasonable does not offend the
constitutional guaranty of the equal protection of the
laws. The classification is considered valid and
reasonable provided that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the
law; (3) it applies, all things being equal, to both present
and future conditions; and (4) it applies equally to all
those belonging to the same class. The first, third and
fourth requisites are satisfied.
Concededly, the finding that the assailed law seems to
derogate, to a limited extent, one of its avowed
objectives (i.e. promoting fair competition among the
players in the industry) would suggest that, by
Congress’s own standards, the current excise tax
system on sin products is imperfect. But, certainly, we
cannot declare a statute unconstitutional merely
because it can be improved or that it does not tend
to achieve all of its stated objectives. In fine,
petitioner may have valid reasons to disagree with the
policy decision of Congress and the method by which
the latter sought to achieve the same. But its remedy is
with Congress and not this Court.
 TITLE FACTS
RULING
C. PEREZ RUBIO, plaintiff- In pursuance of express authority, the
appellee, Philippine Legislature enacted an Income
vs. Tax Law on March 7, 1919, by placing Act
COLLECTOR OF No. 2833 on the statute books. The law
INTERNAL REVENUE, levied a flat rate on the incomes of
defendant-appellant. corporations and a graduated rate on
the incomes of individuals. Among other
things, it provided that "the taxable net
income of a person shall include gains,
profits, and income derived from" various
sources including "dividends . . . or gains,
profits and income derived from any
source whatever" (sec. 2 [a]). Then in
section 25 (a) of the law, the Legislature
included the following: "The term
"dividends' "as used in this Law shall be
held to mean any distribution made or
ordered to be made by a corporation, joint-
stock company, association, or insurance
company, out of its earnings or profits
accrued since March first, nineteen
hundred and thirteen, and payable to its
shareholders, whether in cash or in stock
of the corporation, joint-stock company,
association, or insurance company. Stock
dividend shall be considered income, to
the amount of the earnings or profits
distributed. The Corporation Law, as
ratified by the Congress, authorizes a
corporation to issue stock for "profits
earned by it but not distributed among its
stockholders or members."
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
In the Warner, Barnes & Co. case, the higher court had
to deal with a corporation which was subject to a flat tax
rate under the Income Tax Law. It was definitely held (1)
that the provision of the Philippine statute was
"substantially like that . . . which was held invalid in
Eisner vs. Macomber;" (2) that the decision in Eisner vs.
Macomber was not controlling; (3) that, as to
corporations, "the rule of uniformity was not
transgressed;" (4) that the title of the Philippine Income
Tax Law was sufficient; and (5) that, although a stock
dividend is a "form of property," nevertheless the
Philippine Legislature may lay a tax upon the advantage
resulting to recipients from the allotment of stock
dividends.
In the Menzi case, the court had before it an individual
who had received a dividend in stock. This court had
held that, as stock dividends do not constitute income,
the tax is on property and that therefore the specified
graduated rates violate the rule of uniformity. The higher
court dismissed the point with this observation: "But the
record does not disclose the rate at which the tax was
assessed or show any facts to support the suggestion
that the required equality was lacking. In other respects,
this case is the same as No.251."
 TITLE FACTS
RULING
EUSEBIO VILLANUEVA, On September 30, 1946 the municipal
ET AL., plaintiff-appellee, board of Iloilo City enacted Ordinance 86,
vs. imposing license tax fees as follows: (1)
CITY OF ILOILO, tenement house (casa de vecindad),
defendants-appellants. P25.00 annually; (2) tenement house,
partly or wholly engaged in or
dedicated to business in the streets of
J.M. Basa, Iznart and Aldeguer, P24.00
per apartment; (3) tenement house,
TENEMENT partly or wholly engaged in business in
R E A L any other streets, P12.00 per apartment.
The validity and constitutionality of this
PROPERTY TAX ordinance were challenged by the spouses
Eusebio Villanueva and Remedies Sian
Villanueva, owners of four tenement
houses containing 34 apartments. On
January 15, 1960 the municipal board of
Iloilo City, believing, obviously, that with
the passage of Republic Act 2264,
otherwise known as the Local Autonomy
Act, it had acquired the authority or power
to enact an ordinance similar to that
previously declared by this Court as ultra
vires, enacted Ordinance 11, series of
1960. In Iloilo City, the appellees Eusebio
Villanueva and Remedios S. Villanueva
are owners of five tenement houses,
aggregately containing 43 apartments,
while the other appellees and the same
Remedios S. Villanueva are owners of ten
apartments. Each of the appellees'
apartments has a door leading to a street
and is rented by either a Filipino or
Chinese merchant. The first floor is utilized
as a store, while the second floor is used
as a dwelling of the owner of the store.
Eusebio Villanueva owns, likewise,
apartment buildings for rent in Bacolod,
Dumaguete City, Baguio City and Quezon
City, which cities, according to him, do not
impose tenement or apartment taxes.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
The appellees strongly maintain It is our view, contrary to the appellees' contention, that
that it is a "property tax" or "real the tax in question is not a real estate tax. Obviously, the
estate tax," and not a "tax on appellees confuse the tax with the real estate tax within
persons engaged in any the meaning of the Assessment Law, which, although
occupation or business or not applicable to the City of Iloilo, has counterpart
exercising privileges," or a provisions in the Iloilo City Charter. A real estate tax is a
license tax, or a privilege tax, or direct tax on the ownership of lands and buildings or
an excise tax. other improvements thereon, not specially exempted,
and is payable regardless of whether the property is
used or not, although the value may vary in accordance
with such factor.
It is our view that both assertions are undeserving of
extended attention. This Court has already ruled that
tenement houses constitute a distinct class of
property. It has likewise ruled that "taxes are
uniform and equal when imposed upon all property
of the same class or character within the taxing
authority." The fact, therefore, that the owners of other
classes of buildings in the City of Iloilo do not pay the
taxes imposed by the ordinance in question is no
argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity
violated by the fact that tenement taxes are not imposed
in other cities, for the same rule does not require that
taxes for the same purpose should be imposed in
different territorial subdivisions at the same time. So
long as the burden of the tax falls equally and
impartially on all owners or operators of tenement
houses similarly classified or situated, equality and
uniformity of taxation is accomplished. The plaintiffs-
appellees, as owners of tenement houses in the City of
Iloilo, have not shown that the tax burden is not equally
or uniformly distributed among them, to overthrow the
presumption that tax statutes are intended to operate
uniformly and equally.
ACCORDINGLY, the judgment a quo is reversed, and,
the ordinance in question being valid, the complaint is
hereby dismissed. No pronouncement as to costs.
 TITLE
RULING
JOSE B. L. REYES and
EDMUNDO A. REYES,
petitioners,
vs.
PEDRO ALMANZOR,
VICENTE ABAD SANTOS,
JOSE ROÑO, in their
capacities as appointed and
Acting Members of the
CENTRAL BOARD OF
ASSESSMENT APPEALS;
TERESITA H. NOBLEJAS,
ROMULO M. DEL
ROSARIO, RAUL C.
FLORES, in their capacities
as appointed and Acting
Members of the BOARD OF
ASSESSMENT APPEALS
of Manila; and NICOLAS
CATIIL in his capacity as
City Assessor of
Manila,respondents.
FACTS
Petitioners J.B.L. Reyes, Edmundo and
Milagros Reyes are owners of parcels of
land situated in Tondo and Sta. Cruz
Districts, City of Manila, which are leased
and entirely occupied as dwelling sites by
tenants. Said tenants were paying monthly
rentals not exceeding three hundred pesos
(P300.00) in July, 1971. On July 14, 1971,
the National Legislature enacted Republic
Act No. 6359 prohibiting for one year from
its effectivity, an increase in monthly
rentals of dwelling units or of lands on
which another's dwelling is located, where
such rentals do not exceed three hundred
pesos (P300.00) a month but allowing an
increase in rent by not more than 10%
thereafter. The said Act also suspended
paragraph (1) of Article 1673 of the Civil
Code for two years from its effectivity
thereby disallowing the ejectment of
lessees upon the expiration of the usual
legal period of lease. On October 12,
1972, Presidential Decree No. 20
amended R.A. No. 6359 by making
absolute the prohibition to increase
monthly rentals below P300.00 and by
indefinitely suspending the aforementioned
provision of the Civil Code, excepting
leases with a definite period.
Consequently, the Reyeses, petitioners
herein, were precluded from raising the
rentals and from ejecting the tenants. In
1973, respondent City Assessor of Manila
re-classified and reassessed the value of
the subject properties based on the
schedule of market values duly reviewed
by the Secretary of Finance. The revision,
as expected, entailed an increase in the
corresponding tax rates prompting
petitioners to file a Memorandum of
Disagreement with the Board of Tax
Assessment Appeals. The crux of the
controversy is in the method used in tax
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
They averred that the
reassessments made were
"excessive, unwarranted,
inequitable, confiscatory and
unconstitutional" considering
that the taxes imposed upon
them greatly exceeded the
annual income derived from
their properties. They argued
that the income approach should
have been used in determining
the land values instead of the
comparable sales approach
which the City Assessor
adopted. Petitioners maintain
that the "Income Approach"
method would have been more
realistic for in disregarding the
effect of the restrictions imposed
by P.D. 20 on the market value
of the properties affected,
respondent Assessor of the City
of Manila unlawfully and
unjustifiably set increased new
assessed values at levels so
high and successive that the
resulting annual real estate
taxes would admittedly exceed
the sum total of the yearly
rentals paid or payable by the
dweller tenants under P.D. 20.
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
On the other hand, while respondent Board
of Tax Assessment Appeals admits in its
decision that the income approach is used
in determining land values in some
vicinities, it maintains that when income is
affected by some sort of price control, the
same is rejected in the consideration and
study of land values as in the case of
properties affected by the Rent Control Law
for they do not project the true market value
in the open market.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution,
then enforced, the rule of taxation must not only be
uniform, but must also be equitable and progressive.
Ironically, in the case at bar, not even the factors
determinant of the assessed value of subject properties
under the "comparable sales approach" were presented
by the public respondents, namely: (1) that the sale
must represent a bonafide arm's length transaction
between a willing seller and a willing buyer and (2) the
property must be comparable property (Rollo, p. 27).
Nothing can justify or support their view as it is of judicial
notice that for properties covered by P.D. 20 especially
during the time in question, there were hardly any willing
buyers. As a general rule, there were no takers so that
there can be no reasonable basis for the conclusion that
these properties were comparable with other residential
properties not burdened by P.D. 20. Verily, taxes are the
lifeblood of the government and so should be collected
without unnecessary hindrance. However, such
collection should be made in accordance with law as
any arbitrariness will negate the very reason for
government itself It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and
the taxpayers so that the real purpose of taxations,
which is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue
Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands
to reason that petitioners who are burdened by the
government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice
should not now be penalized by the same government
by the imposition of excessive taxes petitioners can ill
afford and eventually result in the forfeiture of their
properties.
 TITLE FACTS
RULING
COMMISSIONER OF Under our tax laws, manufacturers of
INTERNAL REVENUE, cigarettes are subject to pay excise taxes
Petitioner, on their products. Prior to January 1, 1997,
vs. the excises taxes on these products were
FORTUNE TOBACCO in the form of ad valorem taxes (tax
CORPORATION, based on the value of transaction or of
Respondent. property, added to the value thereof such
as VAT), pursuant to Section 142 of the
1977 National Internal Revenue Code.
Beginning January 1, 1997, Republic Act
No. (RA) 82403 took effect and a shift
from ad valorem to specific taxes was
made. The specific tax from any brand
of cigarettes within the next three (3)
years of effectivity of this Act shall not
be lower than the tax [which] is due
from each brand on October 1, 1996:
Provided, however, That in cases where
the specific tax rates imposed in
paragraphs (1), (2), (3) and (4)
hereinabove will result in an increase in
excise tax of more than seventy percent
(70%), for a brand of cigarette, the
increase shall take effect in two tranches:
fifty percent (50%) of the increase shall be
effective in 1997 and one hundred percent
(100%) of the increase shall be effective in
1998. The rates of specific tax on cigars
and cigarettes under paragraphs (1), (2),
(3) and (4) hereof, shall be increased by
twelve percent (12%) on January 1, 2000.
Pursuant to these laws, respondent
Fortune Tobacco Corporation (Fortune
Tobacco) paid in advance excise taxes for
the year 2003 in the amount of ₱11.15
billion, and for the period covering January
1 to May 31, 2004 in the amount of ₱4.90
billion. In June 2004, Fortune Tobacco
filed an administrative claim for tax refund
with the CIR for erroneously and/or illegally
collected taxes in the amount of ₱491
million.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
The CIR posits that the inclusion
of the proviso in Section 1 of RR
17-99 was made to carry into
effect the law’s intent and is well
within the scope of his delegated
legislative authority. He claims
t h a t t h e C TA’s s t r i c t
interpretation of the law ignored
Congress’ intent "to increase the
collection of excise taxes by
increasing specific tax rates on
‘sin’ products." He cites portions
of the Senate’s deliberation on
House Bill No. 7198 (the
precursor of RA 8240) that
conveyed the legislative intent to
increase the excise taxes being
paid.
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Fortune Tobacco’s claim for refund of
overpaid excise taxes is based primarily on
what it considers as an "unauthorized
administrative legislation" on the part of the
CIR. Specifically, it assails the proviso in
Section 1 of RR 17-99 that requires the
payment of the "excise tax actually being
paid prior to January 1, 2000" if this amount
is higher than the new specific tax rate, i.e.,
the rates of specific taxes imposed in 1997
for each category of cigarette, plus 12%. It
claimed that by including the proviso, the
CIR went beyond the language of the law
and usurped Congress’ power.
Uniformity in taxation requires that all subjects or objects
of taxation, similarly situated, are to be treated alike both
in privileges and liabilities. This requirement, however, is
unwittingly violated when the proviso in Section 1 of RR
17-99 is applied in certain cases. Although the brands
all belong to the same category, the proviso in Section
1, RR 17-99 authorized the imposition of different (and
grossly disproportionate) tax rates (see column [D]). It
effectively extended the qualification stated in the third
paragraph of Section 145(c) of the 1997 Tax Code that
was supposed to apply only during the transition period:
The excise tax from any brand of cigarettes within the
next three (3) years from the effectivity of R.A. No. 8240
shall not be lower than the tax, which is due from each
brand on October 1, 1996.
In the process, the CIR also perpetuated the unequal
tax treatment of similar goods that was supposed to be
cured by the shift from ad valorem to specific taxes.
This bill serves as a catch-up measure as government
attempts to collect additional revenues due it since
2001. Modifications are necessary indeed to capture the
loss proceeds and prevent further erosion in revenue
base. x x x. As it is, it plugs a major loophole in the
ambiguity of the law as evidenced by recent disputes
resulting in the government being ordered by the courts
to refund taxpayers. This bill clarifies that the excise tax
due on the products shall not be lower than the tax due
as of the date immediately prior to the effectivity of the
act or the excise tax due as of December 31, 1999. This
remark notwithstanding, the final version of the bill that
became RA 9334 contained no provision similar to the
proviso in Section 1 of RR 17-99 that imposed the tax
due as of December 31, 1999 if this tax is higher than
the new specific tax rates. Thus, it appears that despite
its awareness of the need to protect the increase of
excise taxes to increase government revenue, Congress
ultimately decided against adopting the "higher tax rule.
WHEREFORE, in view of the foregoing, the petition is
DENIED. The decision dated July 12, 2007 and the
resolution dated October 4, 2007 of the Court of Tax
Appeals in CTA E.B. No. 228 are AFFIRMED. No
 TITLE FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
RULING
ARTURO M. TOLENTINO, These are motions seeking It is contended, for the reasons Equality and uniformity of taxation means that all taxable
petitioner, reconsideration of our decision dismissing already noted, that R.A. No. articles or kinds of property of the same class be taxed
vs. the petitions filed in these cases for the 7716 also violates Art. VI, §28(1) at the same rate. The taxing power has the authority to
T H E S E C R E TA RY O F declaration of unconstitutionality of R.A. which provides that "The rule of make reasonable and natural classifications for
FINANCE and THE No. 7716, otherwise known as the taxation shall be uniform and purposes of taxation. To satisfy this requirement it is
COMMISSIONER OF Expanded Value-Added Tax Law. equitable. The Congress shall enough that the statute or ordinance applies equally to
INTERNAL REVENUE, evolve a progressive system of all persons, forms and corporations placed in similar
respondents. taxation." situation. The CREBA claims that the VAT is regressive.
A similar claim is made by the Cooperative Union of the
Philippines, Inc. (CUP), while petitioner Juan T. David
argues that the law contravenes the mandate of
Congress to provide for a progressive system of taxation
because the law imposes a flat rate of 10% and thus
places the tax burden on all taxpayers without regard to
their ability to pay. The Constitution does not really
prohibit the imposition of indirect taxes which, like
the VAT, are regressive. What it simply provides is that
Congress shall "evolve a progressive system of
taxation." The constitutional provision has been
interpreted to mean simply that "direct taxes are . . . to
be preferred [and] as much as possible, indirect taxes
should be minimized." Indeed, the mandate to
Congress is not to prescribe, but to evolve, a
progressive tax system. Resort to indirect taxes
should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid
them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the
law minimizes the regressive effects of this imposition
by providing for zero rating of certain transactions, while
granting exemptions to other transactions.
 TITLE FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
RULING
NURSERY CARE The City of Manila assessed and collected The petitioners point out that The respondents counter, however, that Petitioners obstinately ignore the exempting proviso
CORPORATION; taxes from the individual petitioners although Section 21 of the double taxation did not occur from the in Section 21 of Tax Ordinance No. 7794, to their
SHOEMART, INC.; STAR pursuant to Section 15 (Tax on Revenue Code of Manila was imposition and collection of the tax pursuant own detriment. Said exempting proviso was precisely
APPLIANCE CENTER, Wholesalers, Distributors, or Dealers) and not itself unconstitutional or to Section 21 of the Revenue Code of included in said section so as to avoid double taxation.
INC.; H&B, INC.; Section 17 (Tax on Retailers) of the invalid, its enforcement against Manila; that the taxes imposed pursuant to The Court finds that there is indeed double taxation if
SUPPLIES STATION, INC.; Revenue Code of Manila. At the same the petitioners constituted Section 21 were in the concept of indirect respondent is subjected to the taxes under both
and HARDWARE time, the City of Manila imposed additional double taxation because the taxes upon the consumers of the goods and Sections 14 and 21 of Tax Ordinance No. 7794, since
W O R K S H O P, I N C . , taxes upon the petitioners pursuant to local business taxes under services sold by a business establishment; these are being imposed: (1) on the same subject
Petitioners, Section 21 of the Revenue Code of Section 15 and Section 17 of the and that the petitioners did not exhaust their matter – the privilege of doing business in the City of
vs. Manila, as amended, as a condition for the Revenue Code of Manila were administrative remedies by first appealing to Manila; (2) for the same purpose – to make persons
ANTHONY ACEVEDO, in renewal of their respective business already being paid by them. the Secretary of Justice to challenge the conducting business within the City of Manila contribute
his capacity as THE licenses for the year 1999. By letter dated They contend that the proviso in constitutionality or legality of the tax to city revenues; (3) by the same taxing authority –
TREASURER OF MANILA; March 1, 1999, the petitioners formally Section 21 exempted all ordinance. petitioner City of Manila; (4) within the same taxing
and THE CITY OF MANILA, requested the Office of the City Treasurer registered businesses in the City jurisdiction – within the territorial jurisdiction of the City
Respondents. for the tax credit or refund of the local of Manila from paying the tax of Manila; (5) for the same taxing periods – per
business taxes paid under protest. imposed under Section 21; and calendar year; and (6) of the same kind or character –
However, then City Treasurer Anthony that the exemption was more in a local business tax imposed on gross sales or receipts
Acevedo (Acevedo) denied the request. accord with Section 143 of the of the business.
Local Government Code, the S P A J P K
MANILA CITY law that vested in the municipal Firstly, because Section 21 of the Revenue Code of
TAXATION and city governments the power
to impose business taxes.
Manila imposed the tax on a person who sold goods and
services in the course of trade or business based on a
S
certain percentage ofhis gross sales or receipts in the
P
preceding calendar year, while Section 15 and Section
A
17 likewise imposed the tax on a person who sold goods
J
and services in the course of trade or business but only
P
identified such person with particularity, namely, the
K
wholesaler, distributor or dealer (Section 15), and the
retailer (Section 17), all the taxes – being imposed on
the privilege of doing business in the City of Manila in
order to make the taxpayers contribute to the city’s
revenues – were imposed on the same subject matter
and for the same purpose. Secondly, the taxes were
imposed by the same taxing authority (the City of
Manila) and within the same jurisdiction in the same
taxing period (i.e., per calendar year). Thirdly, the taxes
were all in the nature of local business taxes.

WHEREFORE, the Court GRANTS the petition for

review on certiorari; REVERSES and SETS ASIDE the
resolutions promulgated on June 18, 2007 and
November 14, 2007 in CA-G.R. SP No. 72191; and
DIRECTS the City of Manila to refund the payments
 TITLE FACTS
RULING
AIR CANADA, Petitioner, An offline international air carrier selling
vs. passage tickets in the Philippines, through
COMMISSIONER OF a general sales agent, is a resident
INTERNAL REVENUE, foreign corporation doing business in
Respondent. the Philippines. As such, it is taxable
under Section 28(A)(l), and not Section
28(A)(3) of the 1997 National Internal
Revenue Code, subject to any applicable
O F F L I N E tax treaty to which the Philippines is a
CARRIER signatory. Pursuant to Article 8 of the
Republic of the Philippines-Canada Tax
Treaty, Air Canada may only be
imposed a maximum tax of 1 ½% of its
gross revenues earned from the sale of
its tickets in the Philippines. As an off-
line carrier, [Air Canada] does not have
flights originating from or coming to the
Philippines [and does not] operate any
airplane [in] the Philippines[.]" On July 1,
1999, Air Canada engaged the services of
Aerotel Ltd., Corp. (Aerotel) as its general
sales agent in the Philippines. Aerotel
" s e l l s [ A i r C a n a d a ’s ] p a s s a g e
documents in the Philippines." For the
period ranging from the third quarter of
2000 to the second quarter of 2002, Air
Canada, through Aerotel, filed quarterly
and annual income tax returns and paid
the income tax on Gross Philippine
Billings.
In the Decision dated August 26, 2005, the
Court of Tax Appeals En Banc affirmed the
findings of the First Division. The En Banc
ruled that Air Canada is subject to tax as a
resident foreign corporation doing
business in the Philippines since it sold
airline tickets in the Philippines.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
Petitioner claims that the
general provision imposing the
regular corporate income tax on
resident foreign corporations
provided under Section 28(A)(1)
of the 1997 National Internal
Revenue Code does not apply
to "international carriers," which
are especially classified and
taxed under Section 28(A)(3).
Petitioner states that the
income it derived from the
sale of airline tickets in the
Philippines was income from
services and not income from
sales of personal property.
Accordingly, applying the
principle on the situs of taxation
in taxation of services, petitioner
claims that its income derived
"from services rendered outside
the Philippines [was] not subject
to Philippine income taxation."
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Respondent maintains that petitioner is
subject to the 32% corporate income tax as
a resident foreign corporation doing
business in the Philippines. Respondent
further contends that petitioner is not
entitled to its claim for refund because the
amount of ₱5,185,676.77 it paid as tax from
the third quarter of 2000 to the second
quarter of 2001 was still short of the 32%
income tax due for the period.
At the outset, we affirm the Court of Tax Appeals’ ruling
that petitioner, as an offline international carrier with no
landing rights in the Philippines, is not liable to tax on
Gross Philippine Billings. Under the foregoing
provision, the tax attaches only when the carriage of
persons, excess baggage, cargo, and mail
originated from the Philippines in a continuous and
uninterrupted flight, regardless of where the
passage documents were sold. Not having flights to
and from the Philippines, petitioner is clearly not
liable for the Gross Philippine Billings tax. Petitioner,
an offline carrier, is a resident foreign corporation for
income tax purposes. Petitioner falls within the
definition of resident foreign corporation under
Section 28(A)(1) of the 1997 National Internal
Revenue Code, thus, it may be subject to 32% tax on
its taxable income. There is no specific criterion as to
what constitutes "doing" or "engaging in" or "transacting"
business. Each case must be judged in the light of its
peculiar environmental circumstances. The term implies
a continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of
acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of
commercial gain or for the purpose and object of the
business organization." Further, petitioner was issued
by the Civil Aeronautics Board an authority to operate as
an offline carrier in the Philippines for a period of five
years, or from April 24, 2000 until April 24, 2005.
Petitioner is, therefore, a resident foreign
corporation that is taxable on its income derived
from sources within the Philippines. Petitioner’s
income from sale of airline tickets, through Aerotel, is
income realized from the pursuit of its business activities
in the Philippines. However, the application of the
regular 32% tax rate under Section 28(A)(1) of the
1997 National Internal Revenue Code must consider
the existence of an effective tax treaty between the
Philippines and the home country of the foreign air
carrier. The apparent rationale for doing away with
double taxation is to encourage the free flow of goods
and services and the movement of capital,
technology and persons between countries,
 TITLE FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
RULING
COMMISSIONER OF For the calendar year 1995, [respondent] Petitioner claims that although [Respondent] alleges that the total gross We agree with petitioner. The 5% GRT is included
INTERNAL REVENUE, seasonably filed its Quarterly Percentage the 20% FWT on respondent’s receipts in the amount of under "Title V. Other Percentage Taxes" of the Tax
petitioner, Tax Returns reflecting gross receipts interest income was not actually ₱1,474,691,693.44 included the sum of Code and is not subject to withholding. The banks
vs. (pertaining to 5% [Gross Receipts Tax] received by respondent because ₱350,807,875.15 representing gross and non-bank financial intermediaries liable therefor
S O L I D B A N K rate) in the total amount of it was remitted directly to the receipts from passive income which was shall, under Section 125(a)(1), file quarterly returns on
CORPORATION, ₱1,474,691,693.44 with corresponding government, the fact that the already subjected to 20% final withholding the amount of gross receipts and pay the taxes due
respondent. gross receipts tax payments in the sum of amount redounded to the bank’s tax. thereon within twenty (20) days after the end of each
₱73,734,584.60. benefit makes it part of the taxable quarter. The 20% FWT, on the other hand, falls
taxable gross receipts in under Section 24(e)(1)19 of "Title II. Tax on Income." It
computing the 5% GRT. is a tax on passive income, deducted and withheld
at source by the payor-corporation and/or person as
F I N A L withholding agent pursuant to Section 50, and paid in
WITHHOLDING the same manner and subject to the same conditions as
provided for in Section 51. In our withholding tax
TAX & GROSS system, possession is acquired by the payor as the
withholding agent of the government, because the
RECEIPTS TAX taxpayer ratifies the very act of possession for the
government. There is thus constructive receipt. The
processes of bookkeeping and accounting for interest
on deposits and yield on deposit substitutes that are
subjected to FWT are indeed -- for legal purposes --
tantamount to delivery, receipt or remittance.

No. double taxation. First, the taxes herein are imposed

on two different subject matters. The subject matter of
the FWT is the passive income generated in the
form of interest on deposits and yield on deposit
substitutes, while the subject matter of the GRT is
the privilege of engaging in the business of banking.
Second, although both taxes are national in scope
because they are imposed by the same taxing authority
-- the national government under the Tax Code -- and
operate within the same Philippine jurisdiction for the
same purpose of raising revenues, the taxing periods
they affect are different. The FWT is deducted and
withheld as soon as the income is earned, and is
paid after every calendar quarter in which it is
earned. On the other hand, the GRT is neither
deducted nor withheld, but is paid only after every
taxable quarter in which it is earned. Third, these two
taxes are of different kinds or characters. The FWT is
an income tax subject to withholding, while the GRT
is a percentage tax not subject to withholding.
 TITLE FACTS
RULING
A S I A T R U S T On separate dates in February 2000,
DEVELOPMENT BANK, Asiatrust Development Bank, Inc.
INC., Petitioners, (Asiatrust) received from the
vs. Commissioner of Internal Revenue (CIR)
COMMISSIONER OF three Formal Letters of Demand (FLD) with
INTERNAL REVENUE, Assessment Notices for deficiency internal
Respondents revenue taxes in the amounts of
P131,909,161.85, P83,012,265.78, and
₱l44,012,918.42 for fiscal years ending
June 30, 1996, 1997, and 1998,
NO APPROVED respectively. Asiatrust filed before the CTA
TAX ABATEMENT a Petition for Review praying for the
cancellation of the tax assessments for
APPLICATION deficiency income tax, documentary stamp
tax (DST) - regular, DST - industry issue,
final withholding tax, expanded withholding
tax, and fringe benefits tax issued against
it by the CIR.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
Asiatrust contends that the CTA
En Banc erred in affirming the
assessment for deficiency final
withholding tax for fiscal year
ending June 30, 1998
considering that it already
availed of the Tax Abatement
Program as evidenced by the
Certification issued by the
BIR, the letter issued by RDO
Nacar, and the BIR Tax
Payment Deposit Slips.
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
The CIR, however, points out that the BIR
Certification relied upon by Asiatrust does
not cover fiscal year ending June 30, 1998.
And even if the letter issued by RDO Nacar
and the BIR Tax Payment Deposit Slips
were admitted in evidence, the result would
still be the same as these are not
sufficient to prove that Asiatrust validly
availed of the Tax Abatement Program.
In this case, Asiatrust failed to present a termination
letter from the BIR. Instead, it presented a Certification
issued by the BIR to prove that it availed of the Tax
Abatement Program and paid the basic tax. It also
attached copies of its BIR Tax Payment Deposit Slips
and a Jetter issued by RDO Nacar. These documents,
however, do not prove that Asiatrust's application
for tax abatement has been approved. If at all, these
documents only prove Asiatrust's payment of basic
taxes, which is not a ground to consider its deficiency
tax assessment closed and terminated.
Since no termination letter has been issued by the BIR,
there is no reason for the Court to consider as closed
and terminated the tax assessment on Asiatrust's final
withholding tax for fiscal year ending June 30, 1998.
Asiatrust's application for tax abatement will be deemed
approved only upon the issuance of a termination letter,
and only then will the deficiency tax assessment be
considered closed and terminated. However, in case
Asiatrust's application for tax abatement is denied, any
payment made by it would be applied to its outstanding
tax liability. For this reason, Asiatrust's allegation of
double taxation must also fail.
 TITLE
RULING
THE CITY OF MANILA,
LIBERTY M. TOLEDO, in
her capacity as THE
TREASURER OF MANILA
and JOSEPH SANTIAGO,
in his capacity as the CHIEF
OF THE LICENSE
DIVISION OF CITY OF
MANILA, petitioners,
vs.
COCA-COLA BOTTLERS
PHILIPPINES, INC.,
Respondent.
SECTIONS 14 &
21
FACTS
Prior to 25 February 2000, respondent
had been paying the City of Manila local
business tax only under Section 14 of
Tax Ordinance No. 7794, being
expressly exempted from the business
tax under Section 21 of the same tax
ordinance. Petitioner City of Manila
subsequently approved on 25 February
2000, Tax Ordinance No. 7988, amending
certain sections of Tax Ordinance No.
7794. Tax Ordinances No. 7988 and No.
8011 were later declared by the Court null
and void in Coca-Cola Bottlers Philippines,
Inc. v. City of Manila. However, before the
Court could declare Tax Ordinance No.
7988 and Tax Ordinance No. 8011 null and
void, petitioner City of Manila assessed
respondent on the basis of Section 21 of
Tax Ordinance No. 7794, as amended by
the aforementioned tax ordinances, for
deficiency local business taxes, penalties,
and interest, in the total amount of
₱18,583,932.04, for the third and fourth
quarters of the year 2000. Respondent
filed a protest with petitioner Toledo on the
ground that the said assessment
amounted to double taxation, as
respondent was taxed twice, i.e., under
Sections 14 and 21 of Tax Ordinance No.
7794, as amended by Tax Ordinances No.
7988 and No. 8011.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Double taxation means taxing the same property twice
when it should be taxed only once; that is, "taxing the
same person twice by the same jurisdiction for the same
thing." It is obnoxious when the taxpayer is taxed twice,
when it should be but once. Otherwise described as
"direct duplicate taxation," the two taxes must be
imposed on the same subject matter, for the same
purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and the taxes
must be of the same kind or character. Using the
aforementioned test, the Court finds that there is indeed
double taxation if respondent is subjected to the taxes
under both Sections 14 and 21 of Tax Ordinance No.
7794, since these are being imposed: (1) on the same
subject matter – the privilege of doing business in the
City of Manila; (2) for the same purpose – to make
persons conducting business within the City of Manila
contribute to city revenues; (3) by the same taxing
authority – petitioner City of Manila; (4) within the
same taxing jurisdiction – within the territorial
jurisdiction of the City of Manila; (5) for the same
taxing periods – per calendar year; and (6) of the
same kind or character – a local business tax imposed
on gross sales or receipts of the business.
WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is hereby DENIED. No
costs.
 TITLE FACTS
RULING
COMMISIONER OF A novel question, one of importance and
INTERNAL REVENUE, significance, is before this Court in this
petitioner, petition for the review of a decision of the
vs. Court of Tax Appeals. For the first time, the
A. D. GUERRERO, Special Ordinance appended to the Constitution
Administrator, in substitution calls for interpretation, having been
of NATHANIEL I. GUNN, as invoked to justify a claim for refund of
Administrator of the Estate taxes by the estate of an American
of the late PAUL I. GUNN, national, who in his life-time was engaged
respondent. in the air transportation business. More
specifically, the issue is whether or not
Section 142 of the National Internal
Revenue Code allowing Filipinos a refund
RECIPROCITY of 50 percentum of the specific tax paid on
ON 50% aviation oil, could be availed of by citizens
of the United States and all forms of
REFUND FOR business enterprises owned or controlled
directly by them in view of the privilege
AMERICAN under the Ordinance to operate public
utilities "in the same manner as to, and
CITIZENS under the same conditions imposed upon,
citizens of the Philippines or corporations
or associations owned or controlled by
citizens of the Philippines."
The Commissioner of Internal Revenue,
now petitioner before this Court, denied
the claim for refund in the sum of
P2,441.93 filed by the administrator of the
estate of Paul I. Gunn, thereafter
substituted by the present respondent A.
D. Guerrero as special administrator under
the above section of the National Internal
Revenue Code. The deceased operated
an air transportation business under
the business name and style of
Philippine Aviation Development.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
His estate, it was claimed, "was
entitled to the same rights and
privileges as Filipino citizens
operating public utilities
including privileges in the
matter of taxation."
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
The Commissioner of Internal Revenue
disagreed, ruling that such partial
exemption from the gasoline tax was not
included under the terms of the Ordinance
and that in accordance with the statute, to
be entitled to its benefits, there must be a
showing that the United States of which the
deceased was a citizen granted a similar
exemption to Filipinos.
At the time then when the Ordinance took effect in April,
1947, the strict rule against tax exemption was
undisputed and indisputable. Such being the case, it
would be a plain departure from the terms of the
Ordinance to predicate a tax exemption where none was
intended. If the language of the Ordinance applies to tax
refund or exemption, then the Court of Tax Appeals
should be sustained. It does not, however. Its terms are
clear. Standing alone, without any franchise to supply
that omission, it affords no warrant for the claim here
made. While good faith, no less than adherence to the
categorical wording of the Ordinance, requires that all
the rights and privileges thus granted to Americans
and business enterprises owned and controlled by
them be respected, anything further would not be
warranted. Nothing less will suffice, but anything more
is not justified. This conclusion has reinforcement that
comes to it from another avenue of approach, the
historical background of the Ordinance. Early in 1945,
liberation primarily through the efforts of the American
forces under General MacArthur, assisted by Filipino
guerrillas, heralded the dawn, awaited so long and so
anxiously, ending the dark night of the Japanese
Occupation, which was only partly mitigated by a show
of cooperation on the part of some Filipino leaders of
stature and eminence. The toll in the destruction of the
property and the loss of lives was heavy; the price the
Filipinos paid was high. There was thus a clear need of
help from the United States. American aid was
forthcoming but on terms proposed by her government
and later on accepted by the Philippines. One such
condition expressly set forth in the Philippine Trade Act
of 1946 passed by the Congress of the United States
was that: "The disposition, exploitation, development,
and utilization of all agricultural, timber, and mineral
lands of the public domain, waters, minerals, coal,
petroleum, and other mineral oils, all forces and sources
of potential energy, and other natural resources of the
Philippines, and the operation of public utilities, shall, if
open to any person, be open to citizens of the United
States and to all forms of business enterprises owned or
controlled directly or indirectly, by United States
citizens." The Ordinance thus came into being at a
 TITLE FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
RULING
SEA-LAND SERVICE, INC., Sea-Land Service Incorporated (SEA- Under Article XII (4) of the RP-US Military Bases
petitioner, LAND), an American international shipping Agreement, the Philippine Government agreed to
vs. company licensed by the Securities and exempt from payment of Philippine income tax nationals
COURT OF APPEALS and Exchange Commission to do business in of the United States, or corporations organized under
COMMISSIONER OF the Philippines entered into a contract with the laws of the United States, residents in the United
INTERNAL REVENUE, the United States Government to States in respect of any profit derived under a contract
respondents. transport military household goods and made in the United States with the Government of the
effects of U.S. military personnel United States in connection with the construction,
assigned to the Subic Naval Base. From maintenance, operation and defense of the bases. It is
the aforesaid contract, SEA-LAND derived obvious that the transport or shipment of household
R P - U S an income for the taxable year 1984 goods and effects of U.S. military personnel is not
MILITARY amounting to P58,006,207.54. During the
taxable year in question, SEA-LAND filed
included in the term "construction, maintenance,
operation and defense of the bases." Neither could
B A S E S with the Bureau of Internal Revenue (BIR) the performance of this service to the U.S.
the corresponding corporate Income Tax government be interpreted as directly related to the
AGREEMENT Return (ITR) and paid the income tax defense and security of the Philippine territories.
due thereon of 1.5% as required in
Section 25 (a)(2) of the National Internal WHEREFORE, the Court DENIES the petition for lack of
Revenue Code (NIRC) in relation to merit.
Article 9 of the RP-US Tax Treaty,
amounting to P870,093.12. Claiming that it
paid the aforementioned income tax by
mistake, a written claim for refund was
filed with the BIR on 15 April 1987.
However, before the said claim for refund
could be acted upon by public respondent
Commissioner of Internal Revenue,
petitioner-appellant filed a petition for
review with the CTA docketed as CTA
Case No. 4149, to judicially pursue its
claim for refund and to stop the running of
the two-year prescriptive period under the
then Section 243 of the NIRC.
 TITLE FACTS
RULING
COMMISSIONER OF Petitioner, as the Commissioner of the
INTERNAL REVENUE, Bureau of Internal Revenue (BIR), is
Petitioner, responsible for the assessment and
vs. collection of all national internal revenue
PHILIPPINE AIRLINES, taxes, fees, and charges, including the
INC., Respondent. 10% Overseas Communications Tax
(OCT), imposed by Section 120 of the
National Internal Revenue Code (NIRC) of
1997. For the period January to
ALL-INCLUSIVE December 2001, the Philippine Long
EXEMPTION Distance Telephone Company (PLDT)
collected from respondent the 10% OCT
on the amount paid by the latter for
overseas telephone calls it had made
through the former. In all, PLDT collected
from respondent the amount of
₱202,471.18 as OCT for 2001.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
Petitioner contends that
according to well-established
doctrine, a tax refund, which is
in the nature of a tax exemption,
should be construed strictissimi
juris against the taxpayer.
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
Respondent filed with the BIR an The language used in Section 13 of Presidential Decree
administrative claim for refund of the No. 1590, granting respondent tax exemption, is clearly
₱202,471.18 OCT it alleged to have all-inclusive. The basic corporate income tax or
erroneously paid in 2001. In a letter dated 4 franchise tax paid by respondent shall be "in lieu of all
April 2003, addressed to petitioner, Ma. other taxes, duties, royalties, registration, license, and
Stella L. Diaz (Diaz), the Assistant Vice- other fees and charges of any kind, nature, or
President for Financial Planning & Analysis description imposed, levied, established, assessed or
of respondent, explained that the claim collected by any municipal, city, provincial, or national
for refund of respondent was based on authority or government agency, now or in the future x x
its franchise, Section 13 of Presidential x," except only real property tax. Even a meticulous
Decree No. 1590, which granted it (1) the
option to pay either the basic corporate
examination of Presidential Decree No. 1590 will not
reveal any provision therein limiting the tax exemption of
income tax on its annual net taxable respondent to final withholding tax on interest income or
income or the two percent franchise tax excluding from said exemption the OCT. Notably, PAL
on its gross revenues, whichever was was owned and operated by the government at the
lower; and (2) the exemption from all time the franchise was last amended. It can
other taxes, duties, royalties, reasonably be contemplated that PD 1590 sought to
registration, license and other fees and assist the finances of the government corporation in
charges imposed by any municipal, city, the form of lower taxes. When the respondent
provincial or national authority or operates at a loss (as in the instant case), no taxes are
government agency, now or in the future, due; in this [sic] instances, it has a lower tax liability than
except only real property tax. Also that provided by Subsection (b).
invoking BIR Ruling No. 97-947 dated 13
April 1994, Diaz maintained that, other than When the claim for refund has clear legal basis and is
being liable for basic corporate income tax sufficiently supported by evidence, as in the present
or the franchise tax, whichever was lower, case, then the Court shall not hesitate to grant the
respondent was clearly exempted from all same.
other taxes, including OCT, by virtue of the
"in lieu of all taxes" clause in Section 13
of Presidential Decree No. 1590.
Respondent alleged in its Petition that per
its computation, reflected in its annual
income tax return, it incurred a net loss in
2001 resulting in zero basic corporate
income tax liability, which was necessarily
lower than the franchise tax due on its
gross revenues. Respondent argued that in
opting for the basic corporate income tax,
regardless of whether or not it actually paid
any amount as tax, it was already entitled to
the exemption from all other taxes granted
to it
 TITLE FACTS
RULING
PHILIPPINE LONG PLDT is a holder of a legislative franchise
DISTANCE TELEPHONE under Act No. 3436, as amended, to
C O M PA N Y, I N C . , render local and international
Petitioners, telecommunications services. On August
vs. 24, 1991, the terms and conditions of its
PROVINCE OF LAGUNA franchise were consolidated under
and MANUEL E. Republic Act No. 7082, Section 12 of
LEYCANO, JR., in his which embodies the so-called "in-lieu-of-all
capacity as the Provincial taxes" clause, whereunder PLDT shall
Treasurer of the Province of pay a franchise tax equivalent to three
Laguna, Respondents. percent (3%) of all its gross receipts,
which franchise tax shall be "in lieu of
(GR No. 151899) all taxes". Meanwhile, or on January 1,
1992, Republic Act No. 7160, otherwise
known as the Local Government Code,
took effect. Section 137 of the Code, in
EXEMPTION relation to Section 151 thereof, grants
provinces and other local government
FROM REG & units the power to impose local
franchise tax on businesses enjoying a
REQ OF NTC franchise. By Section 193 of the same
Code, all tax exemption privileges then
enjoyed by all persons, whether natural or
juridicial, save those expressly mentioned
therein, were withdrawn, necessarily
including those taxes from which PLDT is
exempted under the "in-lieu-of-all taxes"
clause in its charter. Prior thereto,
Congress, aiming to level the playing field
among telecommunication companies,
enacted Republic Act No. 7925, otherwise
known as the Public Telecommunications
Policy Act of the Philippines, which took
effect on March 16, 1995. To achieve the
legislative intent, Section 23 thereof, also
known as the "most-favored treatment"
clause, provides for an equality of
treatment in the telecommunications
industry.
PETITIONER/PLAINTIFF/APELLANT’S CONTENTION
RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
The tax exemption must be expressed in the statute in
clear language that leaves no doubt of the intention of
the legislature to grant such exemption. And, even if it is
granted, the exemption must be interpreted in
strictissimi juris against the taxpayer and liberally in
favor of the taxing authority.
There is also a need to promote a level playing field
in the telecommunications industry. New entities
must be granted protection against dominant carriers
through the encouragement of equitable access charges
and equal access clauses in interconnection
agreements and the strict policing of predatory pricing
by dominant carriers. Equal access should be granted to
all operators connecting into the interexchange network.
There should be no discrimination against any
carrier in terms of priorities and/or quality of
services. Nor does the term ‘exemption’ in § 23 of
R.A. No. 7925 mean tax exemption. The term refers
to exemption from certain regulations and
requirements imposed by the National
Telecommunications Commission (NTC). For
instance, R.A. No. 7925, § 17 provides: ‘The
Commission shall exempt any specific
telecommunications service from its rate or tariff
regulations if the service has sufficient competition to
ensure fair and reasonable rates or tariffs.’ Another
exemption granted by the law in line with its policy of
deregulation is the exemption from the requirement of
securing permits from the NTC every time a
telecommunications company imports equipment.
Indeed, both in their nature and in their effect there is no
difference between tax exemption and tax exclusion.
Exemption is an immunity or privilege; it is freedom from
a charge or burden to which others are subjected.
Exclusion, on the other hand, is the removal of
otherwise taxable items from the reach of taxation, e.g.,
exclusions from gross income and allowable deductions.
Exclusion is thus also an immunity or privilege which
frees a taxpayer from a charge to which others are
subjected. Consequently, the rule that tax exemption
should be applied in strictissimi juris against the
 TITLE
RULING
PHILIPPINE LONG
DISTANCE TELEPHONE
C O M PA N Y, I N C . ,
Petitioners,
vs.
CITY OF BACOLOD,
FLORENTINO T. GUANCO,
in his capacity as the City
Treasurer of Bacolod City,
and ANTONIO G. LACZI, in
his capacity as the City
Legal Officer of Bacolod
City, Respondents.
GR No. 149179
FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
In August 1995, the City of Bacolod,
invoking its authority under Section 137, in
relation to Section 151 and Section 193,
supra, of the Local Government Code,
made an assessment on PLDT for the
payment of franchise tax due the City.
Complying therewith, PLDT began paying
the City franchise tax from the year 1994
until the third quarter of 1998, at which
time the total franchise tax it had paid the
City already amounted to ₱2,770,696.37.
On June 2, 1998, the Department of
Finance through its Bureau of Local
Government Finance (BLGF), issued a
ruling to the effect that as of March 16,
1995, the effectivity date of the Public
Telecommunications Policy Act of the
Philippines (Rep. Act. No. 7925), PLDT,
among other telecommunication
companies, became exempt from local
franchise tax. It appears that RA 7082
further amending ACT No. 3436 which
granted to PLDT a franchise to install,
operate and maintain a telephone system
throughout the Philippine Islands was
approved on August 3, 1991. Section 12 of
said franchise, likewise, contains the ‘in
lieu of all taxes’ proviso. On the basis of
the aforequoted Section 23 of RA 7925,
PLDT as a telecommunications franchise
holder becomes automatically covered by
the tax exemption provisions of RA 7925,
which took effect on March 16, 1995. The
controversy came to a head-on when,
sometime in 1999, PLDT applied for the
issuance of a Mayor’s Permit but the City
of Bacolod withheld issuance thereof
pending PLDT’s payment of its franchise
tax liability in the following amounts: (1)
₱358,258.30 for the fourth quarter of
1998; and (b) ₱1,424,578.10 for the year
1999, all in the aggregate amount of
₱1,782,836.40, excluding surcharges and
 TITLE FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
RULING
E S S O S T A N D A R D Claim for the refund of P722.84 paid in Petitioner's ground: The Petitioner is engaged in the industry of processing
EASTERN, INC., petitioner- 1956 as special import tax on pump parts imported articles "consist of gasoline, and manufacturing lubricating oil, grease and
appellant, imported by petitioner. equipment and spare parts for tin containers. Petitioner owns gasoline stations with
vs. its own exclusive use and pumps, which are leased to and operated by gasoline
ACTING COMMISSIONER therefore were exempt from dealers. It sells gasoline to these dealers. The pump
OF CUSTOMS, respondent- special import tax", by the parts imported by petitioner in 1956 were intended,
appellee. terms of Section 6, Republic Act installed and actually used by gasoline dealers in
1394. pumping gasoline from under around tanks into
customers' motor vehicles. These pump parts, in
PUMP PARTS other words, are used in the sale at retail of gasoline
— not by petitioner but by lessees of gasoline
stations. In this factual environment, it is quite evident
that the pump parts are not used in petitioner's industry
of processing gasoline, or manufacturing lubricating oil,
grease and tin containers.

The drive of petitioner's argument is that marketing of its

gasoline product "is corollary to or incidental to its
industrial operations." But this contention runs smack
against the familiar rules that exemption from taxation is
not favored, and that exemptions in tax statutes are
never presumed. Which are but statements in
adherence to the ancient rule that exemptions from
taxation are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority.
Tested by this precept, we cannot indulge in expansive
construction and write into the law an exemption not
therein set forth. Rather, we go by the reasonable
assumption that where the State has granted in express
terms certain exemptions, those are the exemptions to
be considered, and no more. Since the law states that,
to be tax exempt, equipment and spare parts should be
"for the use of industries", the coverage herein should
not be enlarged to include equipment and spare parts
for use in dispensing gasoline at retail. In comparable
factual backdrop, this Court has held that tax exemption
in connection with the manufacture of asbestos roof
does not extend to the installation thereof. Upon the
facts and the law, we vote to affirm the decision of the
Court of Tax Appeals under review. Costs against
petitioner. So ordered.
 TITLE FACTS PETITIONER/PLAINTIFF/APELLANT’S CONTENTION RESPONDENT/DEFENDANT/APPELLEE’S CONTENTION
RULING