Secretary v.

Lazatin GR 159647 April 15, 2005

Facts:

Secretary of Finance Purisima signed RR 2-2012, a revenue regulation in response to the reports
of smuggling of petroleum and petroleum products. This imposes a VAT and Excise Tax on the
importation of these products brought into the Philippines, including Freeport and Economic Zones
(FEZs). It then allows a refund of any VAT or Excise Tax paid if the taxpayer proves the use of these
petroleum products for the locators’ registered activity. Lazatin, in his capacity as first district
representative of Pampanga, challenged the validity of RR 2-2012 contending that it contravenes the tax
exempt status RA 9400 (The Bases Conversion and Development Act) granted to the Clark Special
Economic Zone and Clark Freeport Zone. These zones are separate customs territories and allow tax and
duty free exempt status of raw materials.

Issue:

Whether RR 2-2012 is a valid tax regulation

Ruling:

No. The Supreme Court declared RR 2-2012 unconstitutional because it illegally imposes taxes upon the
FEZ enterprises which, by law, enjoy a tax exempt status, and it effectively amends the law. The power to
interpret tax is not absolute. The rule is that: Regulations may not be enlarge, restrict, alter or go beyond
the law they administer. To limit the tax free exempt status by requiring them to pay with a
corresponding refund clearly runs counter to the legislative intent to create a port where there is a free
flow of goods.