II.

Characteristics of taxation:
1. comprehensive
2. Unlimited

d. Tio v. Videogram Regulatory Board 151 SCRA 208

Facts: The case is a petition filed by Tio on behalf of videogram operators adversely affected by
Presidential Decree No. 1987, “An ActCreating the Videogram Regulatory Board"
with broad powers to regulate and supervise the videogram industry. A month after the
promulgation of the said Presidential Decree, the amended the National Internal Revenue Code
provided that:

"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette,
ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax."

"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any

provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the
purchase price or rental rate, as the case may be, for every sale, lease or disposition of a
videogram containing a reproduction of any motion picture or audiovisual program.”

“Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the
other fifty percent (50%) shall accrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.”

The rationale behind the tax provision is to curb the proliferation and unregulated circulation of
videograms including, among others, videotapes, discs, cassettes or any technical improvement
or variation thereof, have greatly prejudiced the operations of movie houses and theaters. Such
unregulated circulation have caused a sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement
and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in
government revenues.

Videogram(s) establishments collectively earn around P600 Million per annum from rentals,
sales and disposition of videograms, and these earnings have not been subjected to tax, thereby
depriving the Government of approximately P180 Million in taxes each year. The unregulated
activities of videogram establishments have also affected the viability of the movie industry.

Petitioner argues that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory,
and in restraint of trade.

Issue: Whether Presidential Decree No. 1987 is invalid because the thirty percent (30%) tax
imposed is harsh and oppressive, confiscatory, and in restraint of trade.
Held:
No. A tax does not cease to be valid merely because it regulates, discourages, or even definitely
deters the activities taxed. The power to impose taxes is one so unlimited in force and so
searching in extent, that the courts scarcely venture to declare that it is subject to any
restrictions whatever, except such as rest in the discretion of the authority which exercises
it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted
by the realization that earnings of videogram establishments of around P600 million per annum
have not been subjected to tax, thereby depriving the Government of an additional source of
revenue. It is an end-user tax, imposed on retailers for every videogram they make available for
public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry
which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that
is imposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of pornographic video tapes. And
while it was also an objective of the DECREE to protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation". Taxation has been
made the implement of the state's police power.

6. Subject to Constitution and inherent limitations

a. inherent limitation

iii. exemption of government

41. MIAA v. Pasay City GR. No. 163072, 02 April 2009

Facts:
Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy
Aquino International Airport (NAIA) Complex under Executive Order No. 903. Approximately
600 hectares of land, including the runways, the airport tower, and other airport buildings, were
transferred to MIAA. The NAIA Complex is located along the border between Pasay City and
Parañaque City.

MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the
taxable years 1992 to 2001. The City Mayor of Pasay threatened to sell at public auction the
NAIA Pasay properties if the delinquent real property taxes remain unpaid. MIAA filed with the
Court of Appeals a petition for prohibition and injunction with prayer for preliminary injunction
or temporary restraining order. The petition sought to enjoin the City of Pasay from imposing
real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties.
The Court of Appeals held that as a government-owned corporation, MIAA’s tax exemption
under Section 21 of EO 903 has already been withdrawn upon the effectivity of the Local
Government Code in 1992. Hence, this petition.

ISSUE: Whether the local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings.

RULING:

No. MIAA is a government instrumentality vested with corporate powers and performing
essential public services pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. As a government instrumentality, MIAA is not subject to any kind of
tax by local governments under Section 133(o) of the Local Government Code. The
exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a
taxable entity under the Local Government Code. Such exception applies only if the beneficial
use of real property owned by the Republic is given to a taxable entity.

The Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the
Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.

The term "ports x x x constructed by the State" includes airports and seaports. The Airport
Lands and Buildings of MIAA are intended for public use, and at the very least intended for
public service. Whether intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public dominion, the Airport
Lands and Buildings are owned by the Republic and thus exempt from real estate tax
under Section 234(a) of the Local Government Code.
b. Constitutional limitation
viii. Tax exemption of properties for religious, charitable, and education purposes

5. CIR v. St. Luke’s Medical Center GR. No. 195909 and 195960, 26 September 2012

Facts:
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-profit
corporation. The Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes
amounting comprised of deficiency income tax, value-added tax, withholding tax on
compensation and expanded withholding tax.

St. Luke's filed an administrative protest with the BIR against the deficiency tax assessments.
The BIR did not act on the protest within the 180-day period under Section 228 of the NIRC.
Thus, St. Luke's appealed to the CTA.

The BIR argued before the CTA the 10% preferential tax rate on the income of proprietary non-
profit hospitals, should be applicable to St. Luke's because it "is a new provision intended to
amend the exemption on non-profit hospitals that were previously categorized as non-stock, non-
profit corporations. The BIR claimed that St. Luke's was actually operating for profit in 1998
because only 13% of its revenues came from charitable purposes. Moreover, the hospital's board
of trustees, officers and employees directly benefit from its profits and assets.

St. Luke's contended that the BIR should not consider its total revenues, because its free services
to patients was 65.20% of its 1998 operating income and claimed that its income does not inure
to the benefit of any individual. St. Luke’s maintained that it is a non-stock and non-profit
institution for charitable and social welfare purposes under Section 30(E) and (G) of the NIRC. It
argued that the making of profit per se does not destroy its income tax exemption.

The CTA partially granted St. Luke’s petition and accordingly, the 1998 deficiency VAT
assessment issued by respondent against petitioner is CANCELLED and WITHDRAWN.
However, petitioner is hereby ORDERED to PAY deficiency income tax and deficiency
expanded withholding tax for the taxable year 1998.

Issue: Whether St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the
NIRC, which imposes a preferential tax rate of 10% on the income of proprietary non-profit
hospitals.

Held:

Yes. As a general principle, a charitable institution does not lose its character as such and its
exemption from taxes simply because it derives income from paying patients, whether out-
patient, or confined in the hospital, or receives subsidies from the government, so long as the
money received is devoted or used altogether to the charitable object which it is intended to
achieve; and no money inures to the private benefit of the persons managing or operating the
institution.
However, St. Luke's is a corporation that is not "operated exclusively" for charitable or social
welfare purposes insofar as its revenues from paying patients are concerned.

A tax exemption is effectively a social subsidy granted by the State because an exempt
institution is spared from sharing in the expenses of government and yet benefits from
them. Tax exemptions for charitable institutions should therefore be limited to institutions
beneficial to the public and those which improve social welfare. A profit-making entity
should not be allowed to exploit this subsidy to the detriment of the government and other
taxpayers.1âwphi1

St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit hospital
under Section 27(B) of the NIRC as long as it does not distribute any of its profits to its members
and such profits are reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary
non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-
profit activities.

St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) of the NIRC.
However, St. Luke's has good reasons to rely on the letter dated 6 June 1990 by the BIR, which
opined that St. Luke's is "a corporation for purely charitable and social welfare purposes" and
thus exempt from income tax. "Good faith and honest belief that one is not subject to tax on the
basis of previous interpretation of government agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of surcharges and interest." (Michael J. Lhuillier,
Inc. v. Commissioner of Internal Revenue).

K. Exemption from Taxation

3. Cases

d. CIR v. A.D. Guerrero, G.R. No. L-20942 22, September 1967

Facts:

The Commissioner of Internal Revenue (petitioner), denied the claim for refund filed by the
administrator of the estate of Paul I. Gunn, thereafter substituted by the present respondent A. D.
Guerrero as special administrator. The deceased operated an air transportation business under the
business name and style of Philippine Aviation Development; 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." 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. The refund as already noted was denied. The matter was
brought to the Court of Tax Appeals on a stipulation of facts, no additional evidence being
introduced. Viewing the Ordinance differently, it "ordered the petitioner to refund to the
respondent 50% of the specific taxes paid on 61,048.19 liters of gasoline actually used in
aviation during the period from October 3, 1956 up to May 31, 1957." Not satisfied with the
above decision, petitioner appealed.

Issue:
Whether or not Section 142 of the National Internal Revenue Code allowing Filipinos a refund of
50 percentum of the specific tax paid on aviation oil, could be availed of by citizens of the
United States and all forms of business enterprises owned or controlled directly or indirectly by
them in view of their privilege under the Ordinance to operate public utilities "in the same
manner as to, and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the Philippines.

Held:
We sustain the Commissioner of Internal Revenue; accordingly, the court of Tax Appeals is
reverse. To the extent that a refund is allowable, there is in reality a tax exemption. The rule
applied with undeviating rigidity in the Philippines is that for a tax exemption to exist, it must
be so categorically declared in words that admit of doubt. No such language may be found in
the Ordinance. It furnishes no support, whether express or implied, to the claim of respondent
administrator for, a refund.
Exemption from taxation is not favored and is never presumed, so that if granted it must be
strictly construed against the taxpayer (Catholic Church v. Hastings, Esso Standard Eastern,
Inc. v. Acting Commissioner of Customs). The law frowns on exemption from taxation, hence, an
exempting provision should be construed strictissimi juris. The state of the law on the subject was
aptly summarized in the Esso Standard Eastern, Inc. by Justice Sanchez thus: "The drive of peti-
tioner'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.
The court of Tax Appeals failed unfortunately to abide by what the controlling precedents require,
namely, that tax exemption is not to be presumed and that if granted, it is to be most strictly
construed. No such grant was apparent on the face of the Ordinance. No such grant could be
implied from its history, much less from its transitory character. The Court of Tax Appeals went
too far. That cannot be done.
The decision of the court of Tax Appeals is reversed and the case is remanded to it, to grant
respondent Administrator the opportunity of proving whether the estate could claim the benefits
of section 142 of the National Internal Revenue Code, allowing refund to citizens of foreign
countries on a showing of reciprocity. With costs.

Principles:
 Exemption from taxation not being favored," and therefore "must be strictly construed'
against the taxpayer (Justice Tracey, Moreland and Street)
  "Even though the complaint in this regard were well founded, it would have little being on
the result of the litigation when we take into consideration the universal rule that he who
claims an exemption from his share of the common burden of taxation must justify his
claim by showing that the legislature intended to exempt him by words too plain to be
mistaken" (justice Moreland).

 "Exemptions from taxation are highly disfavored, so much so that they may almost be sale
to be odious to the law. He who claims an exemption must be able to point to some positive
provision of law creating the right. It cannot be allowed to exist upon a vague implication
such as is supposed to arise in this case from the omission from act no. 1654 of any
reference to liability for tax. The books are full of very strong expressions on this point"
(Justice Street).

 A constitutional provision must be presumed to have been framed and adopted in the light
and understanding of prior and existing laws end with reference to them. Courts are
bound to presume that the people adopting a constitution are familiar with the previous
and existing laws upon the subjects to which its provisions relate, and upon which they
express their judgment and opinion in its adoption.

TAX REMEDIES
I.BIR
B. Powers and Duties of the BIR

4.Power of the Commissioner to make assessments and prescribe additional requirement for tax
administration and enforcement

c. CIR v. Kudos Metal Corp., GR. No. 178087, 5 May 2010

FACTS
The CTA En Banc ruled for canceling the assessment notices issued against respondent for
having been issued beyond the prescriptive period. It found the first Waiver of the Statute of
Limitations incomplete and defective for failure to comply with the provisions of Revenue
Memorandum Order (RMO) No. 20-90. Thus: the waiver failed to indicate the date of
acceptance. Such date of acceptance is necessary to determine whether the acceptance was made
within the prescriptive period; And, the fact of receipt by the taxpayer of his file copy was not
indicated on the original copy. The requirement to furnish the taxpayer with a copy of the waiver
is not only to give notice of the existence of the document but also of the acceptance by the BIR
and the perfection of the agreement. The subject waiver is therefore incomplete and defective. As
such, the three-year prescriptive period was not tolled or extended and continued to run.
Petitioner argues that the government’s right to assess taxes is not barred by prescription as the
two waivers executed by respondent, through its accountant, effectively tolled or extended the
period within which the assessment can be made. In disputing the conclusion of the CTA that the
waivers are invalid, petitioner claims that respondent is estopped from adopting a position
contrary to what it has previously taken. Petitioner insists that by acquiescing to the audit during
the period specified in the waivers, respondent led the government to believe that the “delay” in
the process would not be utilized against it. Thus, respondent may no longer repudiate the
validity of the waivers and raise the issue of prescription.Respondent maintains that prescription
had set in due to the invalidity of the waivers executed by Pasco, who executed the same without
any written authority from it, in clear violation of RDAO No. 5-01.
ISSUE
Whether the belated assessment of the CIR is still valid and effective on the ground that
respondent is already in estoppel.
HELD
NO.
Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to
assess internal revenue taxes within three years from the last day prescribed by law for the filing
of the tax return or the actual date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 222 of the NIRC.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the
expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued
on August 2, 2001 lay down the procedure for the proper execution of the waiver
Due to the defects in the waivers, the period to assess or collect taxes was not extended.
Consequently, the assessments were issued by the BIR beyond the three-year period and are
void.

III. ASSESSMENT
B. Assessment process

4. Government’s part
n. Appeal

e. PAGCOR v. BIR, GR. No. 208731 27, January 2016

Facts:

PAGCOR claims that it is a duly organized government-owned and controlled corporation

existing under and by virtue of Presidential Decree No. 1869, as amended. It was created to
regulate, establish and operate clubs and casinos for amusement and recreation, including sports
gaming pools, and such other forms of amusement and recreation.

Respondent [CIR], on the other hand, is the Head of the [BIR] with authority, among others, to
resolve protests on assessments issued by her office or her authorized representatives.

[PAGCOR] provides a car plan program to its qualified officers under which sixty percent (60%)
of the car plan availment is shouldered by PAGCOR and the remaining forty percent (40%) for
the account of the officer, payable in five (5) years.
The Post Reporting Notice shows that PAGCOR has deficiencies on Value Added Tax (VAT),
Withholding Tax on VAT (WTV), Expanded Withholding Tax (EWT), and Fringe Benefits Tax
(FBT).

Subsequently, the BIR abandoned the claim for deficiency assessments on VAT, WTV and EWT
in the Letter to PAGCOR dated November 23, 2007 in view of the principles laid down
in Commissioner of Internal Revenue vs. Acesite Hotel Corporation [G.R. No. 147295]
exempting [PAGCOR] and its contractors from VAT. However, the assessment on deficiency
FBT subsists and remains due to date.

PAGCOR filed a protest and then, elevated its protest to respondent CIR in a Letter there being
no action taken thereon as of that date. In a Letter PAGCOR was informed that its protest was
forwarded to the Assessment Division for further action. PAGCOR received a letter from the
OIC-Regional Director, stating that its letter protest was referred to Revenue District Office for
appropriate action. PAGCOR] filed the instant Petition for Review alleging respondents' inaction
in its protest on the disputed deficiency FBT.

The CTA 1st Division issued the assailed decision dated 6 July 2011 and ruled in favor of
respondents. RD Misajon's issuance of the FAN was a valid delegation of authority, and
PAGCOR's administrative protest was validly and seasonably filed. The petition for review filed
with the CTA 1st Division, however, was filed out of time. PAGCOR filed a petition for review
with urgent motion to suspend tax collection.

The CTA En Banc dismissed PAGCOR's petition for review and affirmed the CTA 1st
Division's Decision and Resolution. The CTA En Banc ruled that the protest filed before the RD
is a valid protest; hence, it was superfluous for PAGCOR to raise the protest before the CIR.
When PAGCOR filed its administrative protest, the CIR or her duly authorized representative
had 180 days to act on the protest. After the expiration of the 180 days, PAGCOR had 30 to
assail before the CTA the non-determination of its protest. The CTA En Banc denied PAGCOR's
motion in a Resolution. Thus, PAGCOR filed the present petition for review.

Issue:
Whether or not the CTA En Banc gravely erred in affirming the CTA 1st Division's Decision
dismissing the Petition for Review for having been filed out of time.

Held:

The petition has no merit. The CTA En Banc and 1st Division were correct in dismissing
PAGCOR's petition. However, the dismissal should be on the ground of premature, rather than
late, filing.

Timeliness of PAGCOR's Petition before the CTA

The CTA 1st Division and CTA En Banc both established that PAGCOR received a FAN on 17
January 2008, filed its protest to the FAN addressed to RD Misajon on 24 January 2008, filed yet
another protest addressed to the CIR on 14 August 2008, and then filed a petition before the CTA
on 11 March 2009. There was no action on PAGCOR's protests filed on 24 January 2008 and 14
August 2008. PAGCOR would like this Court to rule that its protest before the CIR starts a new
period from which to determine the last day to file its petition before the CTA.

X. Judicial Remedies of the government

A.
B. Criminal Actions

8. Cases
c. CIR v. Pascor 309 SCRA 402

Facts:

Pascor Realty and Development Corporation (PRDC) was found out to be liable for a total of
P10.5 million tax deficiency for the years 1986 and 1987.The commissioner of Internal revenue
filed a criminal complaint against PRDC with the Department of Justice. Attached to the
criminal complaint was affidavit executed by the tax examiners. PRDC then filed a protest with
the CTA. PRDC averred that the affidavit attached to the criminal complaint is tantamount to a
formal assessment notice (FAN) hence can be subjected to protest; that there is a simultaneous
assessment and filing of criminal case; that the same is contrary to due process because it is its
theory that an assessment should come first before a criminal case of tax evasion should be filed.
The CIR then files a motion to dismiss on the ground that the CTA has no jurisdiction over the
case because the cir has not yet issued a FAN against PRDC; that the affidavit attached to the
complaint is not a FAN; that since there is no FAN, there cannot be a valid subject of a protest.

The CTA however denied the MRD. It ruled that the joint affidavit attached to the complaint
submitted to the DOJ constitutes an assessment; that an assessment is defined as simply the
statement of the details and the amount of tax due from a taxpayer; that therefore, the joint
affidavit which contains a computation of the tax liability of PRDC is in effect an assessment
which can be the subject of a protest. This ruling was affirmed by the Court of Appeals.

Issues:
1. Whether or not the criminal complaint for tax evasion can be construed as an assessment.
2. Whether or not an assessment is necessary before criminal charges for tax evasion may be
instituted.

Held:
No. An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. It also signals the time when penalties and protest begin to
accrue against the tax payer. To enable the taxpayer to determine his remedies thereon, dues
process requires that it must be served on and received by the tax payer. Accordingly, an
affidavit which was executed by revenue officers stating that tax liabilities of a tax payer
attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be
questioned before the CTA. Further, such affidavit was not issued t the taxpayer, it was
submitted as an attachment to the DOJ. It must be noted that not all documents coming form the
BIR which provides a computation of the tax liability of the taxpayer can be considered as an
assessment. An assessment is deemed made only when CIR releases, mails or sends such letter to
the taxpayer.

2. No, section 222 of the NIRC specifically states that in cases where a false or fraudulent return
is submitted or in cases of failure to file a return such as this case, proceedings in court may be
commenced without an assessment. Furthermore, Section 205 of the NIRC clearly mandates that
the civil and criminal aspects of the case may be pursued simultaneously.