POWER OF TAXATION

 TAXATIONis thepower by which the sovereign raises revenue to

defray the necessary expenses of the government.1

 The POWER OF TAXATION is an essential andINHERENT

attribute of sovereignty, belonging as a matter of right to every
independent government,WITHOUTbeing expressly conferred
by the people.2

 “LIFEBLOOD THEORY ” – Taxes are the lifeblood of the

government, for without taxes, the government can neither
exist nor endure.3

In CIR vs. Pineda, G.R. No. L-22734, September 15, 1967,the

CIRproposed to hold Manuel B. Pineda liable for the payment
ofALL THE TAXES DUE from the estate.Manuel B. Pineda
opposes on the ground that as an heir he is liable only up to
the extent of and IN PROPORTIONto any share he received.

HELD:The Government can require Manuel B. Pineda to pay

the FULL AMOUNT of the taxes assessed. (His liability, however,
cannot exceed the amount of his share.) The Bureau of Internal
Revenue should be given, in instances like the case at bar, THE
NECESSARY DISCRETION to avail itself of the most
expeditious way to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted, because
TAXES are the LIFEBLOOD of GOVERNMENT and their
prompt and certain availability is an IMPERIOUS NEED.

 “NECESSITY THEORY ” – Taxation is a power predicated upon

necessity. It is a necessary burden to preserve the State’s
sovereignty.4

1
51 Am. Jur. 34.
2
Pepsi-Cola Bottling Company of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, G.R.
No. L-31156 February 27, 1976.
3
NAPOCOR vs. City of Cabanatuan, G.R. No. 149110, April 9, 2003.
4
Philippine Guaranty Co., Inc. vs. CIR, G.R. No. L-22074, April 30, 1965.
 “BENEFITS-PROTECTION THEORY ” – Every person who is
able to must contribute his share in the running of the
government. The government for its partis expected
torespond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their
moral and material values.5

 NOTE:TheCONSERVATIVE and PIVOTAL

DISTINCTION betweenPOWER OF TAXATION and POLICE
POWER rests in the purposefor which the charge is made. If
generation of REVENUE is the primary purpose and regulation
is merely incidental, the imposition is a TAX; BUTIF
REGULATION is the primary purpose, the fact that revenue
is incidentally raised does not make the imposition a tax.6

 NOTE:It is a well-established doctrine that the TAXING POWER

may be used as an IMPLEMENT OF POLICE POWER.7

 NOTE:The POWER TO TAX may include the POWER TO

DESTROY if it is used validly as anIMPLEMENT OF THE
POLICE POWER in discouraging and in effect, ultimately
prohibiting certain things or enterprises inimical to the public
welfare.BUT where the power to tax is used solely for
thePURPOSE OF RAISING REVENUES, the modern view is that
it cannot be allowed to confiscate or destroy.8

WHO MAY EXERCISE

 The power of taxation is PURELY LEGISLATIVEand which the

central legislative body cannot delegate either to the executive or
judicial department of government without infringing upon the
theory of separation of powers.9

5
CIR vs. Algue, Inc., G.R. No. L-28896, February 17, 1988.
6
Gerochi vs. DOE, G.R. No. 159796, July 17, 2007.
7
Ibid.
8
Cruz, Constitutional Law, 2000 Edition, p. 87.
9
Pepsi-Cola Bottling Company of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, G.R.
No. L-31156 February 27, 1976.
 EXCEPTIONS :(1)Delegations to LOCAL GOVERNMENTS [to be
exercised by the local legislative bodies thereof] or political
subdivisions; (2)Delegations allowed by the CONSTITUTION;
and (3)Delegations relating merely to ADMINISTRATIVE
IMPLEMENTATION that may call for some degree of
discretionary powers under a set of sufficient standards
expressed by law.10

DELEGATIONS TO LOCAL GOVERNMENTS

 In Mactan Cebu International Airport Authority vs. Marcos,

G.R. No. 120082, September 11, 1996,it was held that the
power to tax is primarily vested in the Congress; however, in
our jurisdiction, it may be exercised by local legislative
bodies, no longer merely be virtue of a valid delegation as before,
but pursuant toDIRECT AUTHORITY conferred by Section 5,
Article X of the Constitution.Under the latter, the exercise of
the power may be subject to such guidelines and limitations
as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.

 NOTE:Section 5 of Article XDOES NOT change the

DOCTRINE thatmunicipal corporations DO NOT possess
INHERENT POWERS of TAXATION.What it does is to confer
municipal corporations a GENERAL POWER to levy taxes and
otherwise create sources of revenue.They no longer have to wait
for a statutory grant of these powers.The power of the
legislative authority relative to the fiscal powers of local
governments has been reduced to the authority to IMPOSE
LIMITATIONS on municipal powers. Moreover, these limitations
must be consistent with the basic policy of local autonomy. The
importantLEGAL EFFECT of SECTION 5 is thus
toREVERSEthe principle that DOUBTS are RESOLVED
AGAINST municipal corporations. HENCEFORTH, in
interpreting statutory provisions on municipal fiscal powers,

10
Vitug, Acosta, Tax Law and Jurisprudence, Second Edition, pp. 8-9.
 “doubts will be resolved in favor of municipal
corporations ”.11

 In Philippine Long Distance Telephone Company, Inc. vs.

City of Davao, G.R. No. 143867, August 22, 2001,the Supreme
Court held that the grant of taxing powers to local
governmentunits under the Constitution and the LGC DOES
NOT affect the power of Congress to grant exemptions to
certain persons, pursuant to a declared national policy. The
legal effect of the constitutional grant to local governments
simply means that in interpreting statutory provisions on
municipal taxing powers, doubts must be resolved in favor of
municipal corporations.

DELEGATIONS ALLOWED BY THE CONSTITUTION

 “THE FLEXIBLE TARIFF CLAUSE ” –The Congress may, “by

law”, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may
impose, T ARIFF RATES, IMPORT and EXPORT Q UOTAS ,
T ONNAGE and W HARFAGE DUES, and other duties or
imposts within the framework of the national development
program of the Government.12

 In Southern Cross Cement Corporation vs. Cement

Manufacturers Association of the Philippines, G.R. No.
158540, August 3, 2005,the Supreme Court enumerated the
QUALIFIERS mandated by the Constitution on this presidential
authority. First,there must be a LAW; Second,there must be
SPECIFIED LIMITS, a detail which would be filled in by the law;
and Third, Congress is further empowered to impose
LIMITATIONS and RESTRICTIONS on this presidential
authority.

The authority delegated to the President under Section 28 [2],

Article VI may be exercised, in accordance with legislative
11
The City Government of Quezon City vs. Bayan Telecommunications, Inc., G.R. No. 162015,
March 6, 2006 citing Bernas.
12
Section 28 [2], Article VI, 1987 Constitution.
 sanction, by the alter egos of the President, such as
department secretaries.

REQUISITES FOR VALID EXERCISE

DUE PROCESS OF LAW

“No person shall be deprived of life, liberty, or property

without due process of law…”(Section 1, Article III, 1987
Constitution).

 DUE PROCESS is usually violated where: (1)The tax

imposed isfor a PRIVATEas distinguished from a
publicpurpose; (2) A tax is imposed on property OUTSIDEthe
State, i.e., extraterritorial taxation; and(3)ARBITRARYor
OPPRESSIVE METHODSare used in assessing and collecting
taxes.13

 It is undoubted that the due process clause may be invoked

where a taxing statute is soARBITRARYthat it finds no support
in the Constitution. An obvious example is where it can be
shown to amount to the CONFISCATION OF PROPERTY.14

 In Chamber of Real Estate and Builders’ Associations, Inc. vs.

Romulo, G.R. No. 160756, March 9, 2010,petitioner claimed
that pegging the TAX BASE of the “Minimum Corporate
Income Tax ” [MCIT] to a corporations GROSS
INCOMEistantamount to a confiscation of capital because
gross income, unlike net income, is not realized gain.

HELD:The MCIT is imposed on GROSS INCOME which is

arrived at by DEDUCTING the CAPITAL spent by a
corporationin the sale of its goods, i.e., the cost of goods and

13
Pepsi-Cola Bottling Company of the Philippines, Inc. vs. Municipality of Tanauan, Leyte, G.R.
No. L-31156, February 27, 1976.
14
Sison vs. Ancheta, G.R. No. L-59431, July 25, 1984.
 other direct expenses from gross sales. Clearly, the capital is
not being taxed.

 In Commissioner of Internal Revenue vs. Reyes, G.R. No.

159694, January 27, 2006,the Supreme Court held that under
the present provisions of the Tax Code and pursuant to
elementary due process, taxpayers must be informed in
writing of the LAW and the FACTS upon which a TAX
ASSESSMENT is based; OTHERWISE, the ASSESSMENT is
VOID. Being invalid, the assessment cannot in turn be used as a
basis for the perfection of a tax compromise.

 NOTE:To justify the nullification of a law, there must be a

CLEAR and UNEQUIVOCAL BREACH of the Constitution, NOT
a DOUBTFUL and ARGUMENTATIVEimplication.15

EQUAL PROTECTION CLAUSE

“…nor shall any person be denied the equal protection of

the laws.”(Section 1, Article III, 1987 Constitution).

 EQUAL PROTECTION requires that all persons or

thingssimilarly situated should be treated alike, both as to
rights conferred and responsibilities imposed. 16The law may,
therefore, treat and regulate one class differently from
another classPROVIDEDthere are real and substantial
differences to distinguish one class from another.17

 NOTE: The fundamental right of equal protection of the laws is

not absolute, but is subject to reasonable classification. 18The
REQUIREMENTSfor a valid and reasonable CLASSIFICATION
are:(1)It must rest on “SUBSTANTIAL D ISTINCTIONS ”; (2)It
15
Kapatiran Ng Mga Naglilingkod Sa Pamahalaan Ng Pilipinas, Inc. vs. Tan, G.R. No. 81311,
June 30, 1988.
16
City of Manila vs. Laguio, G.R. No. 118127, April 12, 2005.
17
Social Justice Society vs. Atienza, G.R. No. 156502, February 13, 2008.
18
Tiu vs. CA, G.R. No. 127410, January 20, 1999.
 must be “G ERMANE ”to the purpose of the law; (3)It must
“N OT be limited to existing conditions only ”; and (4)It
must “APPLY E QUALLY ” to all members of the same class.19

 In Ferrer vs. Bautista, G.R. No. 210551, June 30,

2015,petitioner argues that the collection of the “Socialized
Housing Tax ” [SHT] is a kind of class legislation that violates
the right of property owners to equal protection of the laws since
it favors informal settlers who occupy property not their own and
pay no taxes over law-abiding real property owners who pay
income and realty taxes.

HELD:For the purpose of undertaking a comprehensive and

continuing urban development and housing program, the
disparities between a real PROPERTY OWNER and an
INFORMAL SETTLER as two distinct classes are too obvious.

 In Tiu vs. CA, G.R. No. 127410, January 20, 1999,the issue is
whether “E.O. 97-A confining the TAX-and-DUTY-FREE
PRIVILEGE within the SECURED AREAconsisting of the
presently fenced-in former Subic Naval Base” and
excluding the residents of the zone outside of the secured
area is discriminatory or not.

HELD:E.O. 97-A is not violative of the equal protection clause;

neither is it discriminatory. Real and substantive distinctions
between the circumstances obtaining inside and those
outside the Subic Naval Base, thereby justifying a valid and
reasonable classification.

Certainly, there are substantial differences between the BIG

INVESTORS who are being lured to establish and operate
their industries in the so-called secured area and the present
business operators outside the area. On the one hand, we are
talking of billion-peso investments and thousands of new jobs.
On the other hand, definitely none of such magnitude. In the
first, the economic impact will be national; in the second, only
local. Even more important, at this time the business activities
19
City of Manila vs. Laguio, G.R. No. 118127, April 12, 2005.
 outside the secured area are not likely to have any impact in
achieving the purpose of the law, which is to turn the former
military base to productive use for the benefit of the Philippine
economy.x x x Lastly, the classification applies equally to all
the resident individuals and businesses within the secured
area.

 In Villegas vs. Hiu Chiong Tsai Pao Ho, G.R. No. L-29646,
November 10, 1978, the Municipal Board of Manila passed an
“Ordinance prohibiting aliens from being employed or
toengage or participate in any position or occupation or
business without first securing an employment permit
from the Mayor of Manilaand PAYING the PERMIT FEE of
₱ 50.00 .”

HELD:The ₱50.00 fee is unreasonable not only because it is

excessive but because it fails to consider valid substantial
differences in situation among individual aliens who are
required to pay it. x x x The same amount of ₱50.00 is being
collected from every employed alien whether he is casual or
permanent, part time or full time or whether he is a lowly
employee or a highly paid executive

 In Ormoc Sugar Company, Inc. vs. The Treasurer of Ormoc

City, G.R. No. L-23794, February 17, 1968,the issue is
whether the“Ordinanceimposing on any and all productions of
centrifugal sugar milledat the Ormoc Sugar Company, Inc. ,
a municipal tax equivalent to one per centum (1%) per export
sale,” infringes the equal protection clause.(NOTE:At the time
of the enactment of the Tax Ordinance, Ormoc Sugar Company,
Inc., was the only sugar central in the City of Ormoc.)

HELD:The classification, to be reasonable, should be in terms

APPLICABLE TO FUTURE CONDITIONS AS WELL. The taxing
ordinance SHOULD NOT be SINGULAR and EXCLUSIVEas to
exclude any subsequently established sugar central, of the same
class, for the coverage of the tax. AS IT IS NOW, even if later a
similar company is set up, it cannot be subject to the tax
 because THE ORDINANCE expressly POINTS ONLY to ORMOC
CITY SUGAR COMPANY, INC. as the entity to be levied upon.

 In Punsalan vs. Municipal Board of the City of Manila, G.R.

No. L-4817, May 26, 1954,the City of Manila passed an
Ordinance imposing a “MUNICIPAL OCCUPATION TAX on
persons exercising various professions in the city .”

HELD:Manila, no doubt, offers a more lucrative field for the

practice of the professions, so that it is but fair that the
professionals in Manila be made to pay a higher occupation
tax than their brethren in the provinces.

 In Association of Customs Brokers, Inc. vs. The Municipality

Board of the City of Manila, G.R. No. L-4376, May 22,
1953,the City of Manila passed an “Ordinance levying a
property tax on all motor vehicles “OPERATING ” within
the City of Manila.”The tax shall be expended exclusively
for the repair, maintenance, and improvement of its streets
and bridges.

HELD:The ordinance infringes the rule of the uniformity of

taxation. The ordinance intends to burden with the tax ONLY
those REGISTERED in the City of Manila as may be inferred
from the word “OPERATING” used therein.The ordinance
DOES NOT apply to motor vehicles who come to Manila for a
temporary stay or for short errands, and it cannot be denied
that they contribute in no small degree to the deterioration of the
streets and public highway. The fact that they are benefited by
their use they should also be made to share the
corresponding burden.And yet such is not the case.

 In Eastern Theatrical Co., Inc. vs. Alfonso, G.R. No. L-1104,

May 31, 1949,the City of Manila enacted an“Ordinance
imposing a fee on the price of every ADMISSION
TICKET sold by cinematographs, theaters, vaudeville
companies,theatrical shows, and boxing exhibition.”Plaintiff
contended that the Ordinance violated the principle of equality
 and uniformity of taxation. Plaintiff pointed out that the
Ordinance does not tax other places of amusement.

HELD:The fact that some places of amusement are not taxed

while others, is no argument at all against the equality and
uniformity of the tax imposition. The taxing power has the
authority to make reasonable and natural classifications for
purposes of taxation.

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.20

 NOTE:At present, it may not be amiss to state that whatever is

beneficially employed for the general welfare satisfies the
requirement of public use.21The term PUBLIC USE has now
been held to be synonymous with “public interest,”“public
benefit,”“public welfare,” and “public convenience.”22It includes
the broader notion of indirect public benefit or advantage.23

 NOTE:PUBLIC PURPOSEincludes those purposes designed to

promote social justice. Thus, public money may now be used
for the relocation of illegal settlers, low-cost housing and urban
or agrarian reform.24

 In Philippine Coconut Producers Federation, Inc. [COCOFED]

vs. Republic of the Philippines, G.R. Nos. 177857-58 and
178193, January 24, 2012,the Supreme Court held that the
“COCONUT LEVY FUNDS ” are in the nature of taxes and can
20
Planters Products, Inc. vs. Fertiphil Corporation, G.R. No. 166006, March 14, 2008.
21
Manapat vs. CA, G.R. No. 110478, 15 October 2007.
22
Reyes vs. National Housing Authority, G.R. No. 147511, January 20, 2003.
23
Didipio Earth-Savers’ Multi-Purpose Association, Incorporated (DESAMA) vs. Gozun, G.R.
No. 157882, 30 March 2006
24
Ibid.
 only be used for public purpose. Consequently, they CANNOT be
used to purchase shares of stocks to be given for free to
PRIVATE INDIVIDUALS.

 In Pascual vs. The Secretary of Public Works and

Communications, et al., G.R. No. L-10405, December 29,
1960,Congress enacted R.A. 920 appropriating public funds “for
the construction, reconstruction, repair, extension and
improvement of Pasig feeder road terminals.”HOWEVER,at the
time of the passage and approval of R.A. 920, the lands on which
said feeder roads were to be constructed were PRIVATE
PROPERTIES.In order to give a semblance of legality, the
ownerof the lands executed a deed of donation in favor of the
government.

HELD:The appropriation sought a PRIVATE PURPOSE, and

hence, was NULL and VOID.The donation to the Government did
not cure its basic defect.

 In Gaston vs. Republic Planters Bank, G.R. No. L-77194,

March 15, 1988,the issues are: (1)whether
the“STABILIZATION FEES” collected from sugar planters and
millers pursuant to P.D. No. 388 are FUNDS IN TRUSTfor them,
or PUBLIC FUNDS; and (2)whether the “SHARES OF
STOCK”paid for with said stabilization fees belong to the
different sugar planters and millers from whom the fees were
collected or levied.

HELD:The STABILIZATION FEES collected are in the NATURE

OF A TAX. That the fees were collected from sugar
producers, planters and millers, and that the funds were
channeled to the purchase of shares of stock do not convert the
funds into a trust fund for their benefit nor make them the
beneficial owners of the shares so purchased.

Revenues derived from taxes cannot be used for purely private

purposes or for the exclusive benefit of private persons. The
Stabilization Fund is to be utilized for the benefit of the ENTIRE
sugar industry.
 In Bagatsing vs. Ramirez, G.R. No. L-41631, December 17,
1976,it was argued that the “MARKET STALL FEES” imposed
in the disputed ordinance are diverted to PRIVATE USE since the
COLLECTION of said fees had been let by the City of Manilato
Asiatic Integrated Corporation.

HELD:The ENTRUSTING of the COLLECTION of the fees DOES

NOT DESTROY the PUBLIC PURPOSE of the ordinance. So long
as the purpose is public, it does not matter whether the
agency through which the money is dispensed is public or
private. The RIGHT TO TAX depends upon the ultimate USE,
purpose and object for which the fund is raised. It is not
dependent on the nature or character of the person or
corporation whose intermediate agency is to be used in
applying it. The people may be taxed for a public purpose,
although it be under the direction of an individual or private
corporation.

PRIVATE ACTS and THE BILL of RIGHTS

 The Constitutional proscription enshrined in the Bill of Rights

DOES NOT concern itself with the relation between a
PRIVATE INDIVIDUAL and ANOTHER INDIVIDUAL. It governs
the relationship between theINDIVIDUAL andTHE STATE and
ITS AGENTS . “The Bill of Rights only tempers GOVERNMENTAL
POWER”and protects the individual against any aggression and
unwarranted interference by any department of government and
its agencies.25In the ABSENCE of GOVERNMENTAL
INTERFERENCE, the LIBERTIES GUARANTEED by the
Constitution CANNOT BE INVOKED against the State.26The BILL

25
People vs. Hipol, G.R. No. 140549, July 22, 2003.
26
People vs. Marti, G.R. No. 81561, January 18, 1991.
 OF RIGHTS embodied in the Constitution is NOT meant to be
INVOKED against ACTS of PRIVATE INDIVIDUALS.27

27
Ibid.