A.

GENERAL PRINCIPLES OF TAXATION

a. Definition, Concept and Purpose of Taxation

LUTZ vs ARANETA
GR NO. L-7859, 22 DECEMBER 1955

FACTS: Plaintiff challenged the Constitutionality of Sec. 3, Commonwealth Act no. 567 which levies additional
taxes to owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to others for
a consideration, on lease or otherwise. Sec. 6 of said act states the purpose for the additional taxes. In sum,
these taxes shall be used for the stabilization of and support for the sugar industry exclusively.

Plaintiff alleged that the purpose for which such additional taxes were levied is NOT for a public purpose,
hence, void. And that the taxes paid by the estate pursuant to such Act should be reimbursed.

ISSUE: WON the taxes imposed by Commonwealth Act no. 567 are unconstitutional for being exclusively
devoted to the sugar industry, which, according to the plaintiff, is not for public purpose.

RULING: The Act is not Unconstitutional. The taxes imposed under such act is for regulatory purpose, to
provide means for the rehabilitation and stabilization of the threatened sugar industry, hence, an exercise of
police power of the State, and not of its taxing 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

Here, the legislative discretion must be allowed fully play, subject only to the test of reasonableness; and
it is not contended that the means provided in section 6 of the law (above quoted) bear no relation to the
objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no
reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation
may be made the implement of the state's police power

As to the argument that the tax to be levied should burden the sugar producer themselves, (note: the Estate to
which Petitioner was appointed as an administrator did not belong to a sugar producer, the late Ledesma was a
mere owner of a land devoted for Sugar production as defined in Sec. 3 of the challenged act) the SC held:

 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 "inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation"
Things to consider (Not included in the case, but might be asked):
  Requisites of a valid exercise of police power: (1) LAWFUL SUBJECT: the interest of the public
generally, as distinguished from that of a particular class, requires its exercise; and (2) LAWFUL
MEANS: the means employed are reasonably necessary for the accomplishment of the purpose and not
unduly oppressive upon individuals. (Lucena Grand Central Terminal, Inc. v. JAC Line, Inc., G.R. No.
148339, February 23, 2005, 452 SCRA 174).

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in
his capacity as National Treasurer, defendants-appellants.
G.R. No. L- 41383 August 15, 1988
FACTS:
Petitioner is a corporation organized and existing under the laws of the Philippines and engaged in the air
transportation business under a legislative franchise, Act No. 42739, as amended by Republic Act Nos. 25). and
269.1 Under its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax
exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75
as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu
demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951])
where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is
exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit
Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory
exceptional. and not revenue measures and, therefore, do not come within the exemption granted to PAL?
under its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu
and National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal. The defendant moved for the
dismissal of this case on the ground 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. The trial court rendered a decision
dismissing the case. The decision was affirmed by the CA. Hence, this case.

ISSUE: What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
RULING: 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. 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.
In the case of Calalang v. Lorenzo, the Court held that: The charges prescribed by the Revised Motor Vehicle
Law for the registration of motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name but the object of the
charge determines whether it is a tax or a fee. Geveia speaking, taxes are for revenue, whereas fees are
exceptional. for purposes of regulation and inspection and are for that reason limited in amount to what is
necessary to cover the cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the value of the services
performed and where the amount collected eventually finds its way into the treasury of the branch of the
government whose officer or officers collected the chauffeur, is not a fee but a tax.

CALTEX PHILIPPINES vs. COA

FACTS: COA demanded CALTEX Ph to remit to the Oil Prize Stabilization Fund (OPSF) its collection of the
additional tax on petroleum products authorized under Sec 8 of PD 1956 which, amounted to
P1,287,668,820.00 and informing it that, pending such remittance, all of its claims for reimbursement from the
OPSF shall be held in abeyance.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.

Petitioner proposed that the amount due be offset by its claim for reimbursement amounting also to the same
amount.

COA later on denied the offsetting of the amount due, arguing that the same has no legal basis.

Petitioner filed a case, one of its prayers is that the request for offsetting be allowed since it has its basis on
the provisions of the New Civil Code about Compensation and Section 21, Book V, Title I-B of the Revised
Administrative Code which provides for "Retention of Money for Satisfaction of Indebtedness to Government.

Respondent, on the other hand, contend that there can be no offsetting of taxes against the claims that a
taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of
the taxpayer, but are imposed by law.

Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative
Code, is misplaced because "while this provision empowers the COA to withhold payment of a government
indebtedness to a person who is also indebted to the government and apply the government indebtedness to
the satisfaction of the obligation of the person to the government, like authority or right to make compensation
is not given to the private person." The reason for this, as stated in Commissioner of Internal Revenue vs.
Algue, Inc., is that money due the government, either in the form of taxes or other dues, is its lifeblood and
should be collected without hindrance.

Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result of
taxation because "P.D. 1956, amended, did not create a source of taxation; it instead established a
special fund . . .," and that the OPSF contributions do not go to the general fund of the state and are not used
for public purpose, i.e., not for the support of the government, the administration of law, or the payment of
public expenses. This alleged lack of a public purpose behind OPSF exactions distinguishes such from a tax.

ISSUE: WON the amount due to OPSF should be considered as tax? WON the same amount may be offset by
the petitioner’s claim for reimbursements?

RULING: Yes, the amount payable to the OPSF is considered as taxes. The Court finds no merit in petitioner's
contention that the OPSF contributions are not for a public purpose because they go to a special fund of the
government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of
the government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest as to
be within the POLICE POWER of the state.

There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general
welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause
economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for
wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil prices is of
prime concern which the state, via its police power, may properly address.

As to the issue on offsetting:

Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors
and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed
to be set-off. The petitioner is considered as agent of the Government for collection of the OPSF remittances. It
does not directly shoulder the amount, instead, it was passed to the end-users. As such, the liability of the
petitioner to remit the collections to the OPSF cannot be considered as the same in terms of nature with that of
an ordinary debtor because petitioner’s duty in this case is based on fiduciary capacity created by law.

Furthermore, there is no proof that the claims of petitioner for reimbursement is already due and demandable
as required by the Civil code in order for compensation to take place. Under Article 1279 of the Civil Code, in
order that compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

(5) over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.

TIO VS. VIDEOGRAM REGULATORY BOARD, GR NO. L-75697, 18 JUNE 1997

FACTS: The petitioner assails the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry. A month
after the promulgation of the abovementioned decree, Presidential Decree No. 1994 amended the National
Internal Revenue Code imposing annual tax of five pesos to each processed vidoetapes and sales tax over
locally manufactured and imported blank video tapes. The petitioners alleged that the imposition of the 30%
tax on every video tape is harsh, confiscatory, oppressive and/or unlawful restraint of trade in violation of the
due process clause.
ISSUE: Whether or not the 30% tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of
trade in violation of the due process clause of the Constitution.
RULING: It is beyond serious question that 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.
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.

COMMISSIONER OF CUSTOMS
vs.
PHILIPPINE PHOSPHATE FERTILIZER CORPORATION

Facts:

Respondent, a PEZA registered corporation, purchased fuel supplies (which are indispensable for fertilizer
production) from Petron, a domestic distributor.

Petron imports the same and pays the corresponding customs duties.

However, respondents were billed by Petron, as part of the selling price, for such customs duties corresponding
to the fuel supplies the latter delivers to the former.

Pursuant to this arrangement respondent indirectly pay as part of customs duties the approximate amount of
Php 20 Million.

Respondent claimed for refund of the said amount. Arguing that it is exempted to pay such taxes for being
registered under an Export Processing Zone pursuant to Sec. 17 of PD 66.

Such claim was denied by the Bureau on the ground that the tax exemption does not cover indirect taxes.

ISSUE: WON respondent is entitled to the refund.

RULING: Yes, respondent is entitled to the refund. The exemption under Sec. 17 PD 66 certainly covers
petroleum supplies used, directly or indirectly, by Philphos to facilitate its production of fertilizers, subject to
the minimal requirement that these supplies are brought into the zone.

The supplies are not subject to customs and internal revenue laws and regulations, nor to local tax ordinances.

Following the Commissioner’s interpretation, any duly registered enterprise sought to be held liable for the
controverted custom’s duty because the importer had shifted the duty to the buyer would forever be precluded
from challenging the duty, which it is not in the first place obliged to pay under the law. Hence, the same must
be invalidated.

COMMISSIONER OF INTERNAL REVENUE VS. CENTRAL LUZON DRUG CORPORATION

G.R. NO. 159647 APRIL 15, 2005

FACTS: Respondents operated six drugstores under the business name Mercury Drug. From January to
December 1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of
medicines pursuant to RA 7432 for a total of ₱ 904,769.

On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein net
losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of ₱ 904,769.00 allegedly
arising from the 20% sales discount. Unable to obtain affirmative response from petitioner, respondent
elevated its claim to the Court of Tax Appeals. The court dismissed the same but upon reconsideration, the
latter reversed its earlier ruling and ordered petitioner to issue a Tax Credit Certificate in favor of respondent
citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec. 229 of RA 7432
deals exclusively with illegally collected or erroneously paid taxes but that there are other situations which may
warrant a tax credit/refund.

CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax liability nor a
payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not
tantamount to an unintended benefit from the law, but rather a just compensation for the taking of private
property for public use.

ISSUE: Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as a
tax credit.

RULING: Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20%
discount on their purchase of medicine from any private establishment in the country. The latter may then
claim the cost of the discount as a tax credit. Such credit can be claimed even if the establishment operates at
a loss.

A tax credit generally refers to an amount that is “subtracted directly from one’s total tax liability.” It is an
“allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the government.

A tax credit should be understood in relation to other tax concepts. One of these is tax deduction – which is
subtraction “from income for tax purposes,” or an amount that is “allowed by law to reduce income prior to the
application of the tax rate to compute the amount of tax which is due.” In other words, whereas a tax credit
reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable income.

A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit
can be applied. Without that liability, any tax credit application will be useless. There will be no reason for
deducting the latter when there is, to begin with, no existing obligation to the government. However, as will
be presented shortly, the existence of a tax credit or its grant by law is not the same as the availment or use of
such credit. While the grant is mandatory, the availment or use is not. If a net loss is reported by, and no
other taxes are currently due from, a business establishment, there will obviously be no tax liability against
which any tax credit can be applied. For the establishment to choose the immediate availment of a tax credit
will be premature and impracticable.

MANILA MEMORIAL PARK, INC v. SECRETARY OF DSWD

G.R. No. 175356 December 3, 2013

FACTS: RA 7432 was passed into law (amended by RA 9257), granting senior citizens 20% discount on certain
establishments.

To implement the tax provisions of RA 9257, the Secretary of Finance and the DSWD issued its own Rules and
Regulations.

Petitioners are not questioning the 20% discount granted to senior citizens but are only assailing the
constitutionality of the tax deduction scheme prescribed under RA 9257 and the implementing rules and
regulations issued by the DSWD and the DOF.

Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the Constitution, which
provides that: "private property shall not be taken for public use without just compensation."

Respondents maintain that the tax deduction scheme is a legitimate exercise of the State’s police power.

ISSUE: Whether the legally mandated 20% senior citizen discount is an exercise of police power or eminent
domain.

RULING: The 20% senior citizen discount is an exercise of police power. It may not always be easy to
determine whether a challenged governmental act is an exercise of police power or eminent domain. The
judicious approach, therefore, is to look at the nature and effects of the challenged governmental act and
decide on the basis thereof.

The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to be
gainfully employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing
basic commodities. It serves to honor senior citizens who presumably spent their lives on contributing to the
development and progress of the nation.

In turn, the subject regulation affects the pricing, and, hence, the profitability of a private establishment.

The subject regulation may be said to be similar to, but with substantial distinctions from, price control or rate
of return on investment control laws which are traditionally regarded as police power measures.

The subject regulation differs there from in that (1) the discount does not prevent the establishments from
adjusting the level of prices of their goods and services, and (2) the discount does not apply to all customers of
a given establishment but only to the class of senior citizens. Nonetheless, to the degree material to the
resolution of this case, the 20% discount may be properly viewed as belonging to the category of price
regulatory measures which affect the profitability of establishments subjected thereto. On its face, therefore,
the subject regulation is a police power measure.
 b. Nature and Characteristics of Taxation

COMMISSIONER OF INTERNAL REVENUE V. EASTERN TELECOMMUNICATIONS PHILIPPINES

G.R. NO. 163835 JULY 7, 2010

FACTS:

Eastern filed with the CIR a written application for refund or credit of unapplied input taxes it paid on the
imported equipment purchased during 1995 and 1996 amounting to P22,013,134.00. To toll the running of the
two-year prescriptive period under the same provision, Eastern filed an appeal with the CTA. The CTA found
that Eastern has a valid claim for the refund/credit of the unapplied input taxes, declaring it entitled to a tax
refund of P16,229,100.00.

The CIR filed a motion for reconsideration of the CTA’s decision. Subsequently, it filed a supplemental motion
for reconsideration. The CTA denied the CIR’s motion for reconsideration. The CIR then elevated the case to
the CA, who affirmed the CTA ruling and likewise denied the subsequent motion for reconsideration. Hence,
the present petition.

The CIR posits that, applying Section 104(A) of the Tax Code on apportionment of tax credits, Eastern is
entitled to a tax refund of only a portion of the amount claimed. Since the VAT returns clearly reflected income
from exempt sales, the CIR asserts that this constitutes as an admission on Eastern’s part that it engaged in
transactions not subject to VAT. Hence, the proportionate allocation of the tax credit to VAT and non-VAT
transactions provided in Section 104(A) of the Tax Code should apply.

Eastern objects to the arguments raised in the petition, alleging that these have not been raised in the Answer
filed by the CIR before the CTA and was only raised. In fact, the CIR only raised the applicability of Section
104(A) of the Tax Code in his supplemental motion for reconsideration of the CTA’s ruling. Eastern claims that
for the CIR to raise such an issue now would constitute a violation of its right to due process; following settled
rules of procedure and fair play, the CIR should not be allowed at the appeal level to change his theory of the
case.

Eastern further argues that there is no evidence on record that would evidently show that respondent is also
engaged in other transactions that are not subject to VAT.

ISSUE: Whether or not the rule in Section 104(A) of the Tax Code on the apportionment of tax credits can be
applied in appreciating Eastern’s claim for tax refund, considering that the matter was raised by the CIR only
when he sought reconsideration of the CTA ruling

RULING: Yes. The question of the applicability of Section 104(A) of the Tax Code was already raised but the
tax court did not rule on it. This failure should not be taken against the CIR. The mere declaration of exempt
sales in the VAT returns, whether based on Section 103 of the Tax Code or some other special law, should
have prompted for the application of Section 104 (A) of the Tax Code to Eastern’s claim.

The general rule is that appeals can only raise questions of law or fact that (a) were raised in the court below,
and (b) are within the issues framed by the parties therein (People v. Echegaray, G.R. No. 117472). An issue
which was neither averred in the pleadings nor raised during trial in the court below cannot be raised for the
first time on appeal.
The rule against raising new issues on appeal is not without exceptions; it is a procedural rule that the Court
may relax when compelling reasons so warrant or when justice requires it. What constitutes good and sufficient
cause that would merit suspension of the rules is discretionary upon the courts (CIR v. Mirant Pagbilao
Corporation, G.R. No. 159593). Another exception is when the question involves matters of public importance.

“Taxes are the lifeblood of the government.” For this reason, the right of taxation cannot easily be
surrendered; statutes granting tax exemptions are considered as a derogation of the sovereign authority and
are strictly construed against the person or entity claiming the exemption. Claims for tax refunds, when based
on statutes granting tax exemption or tax refund, partake of the nature of an exemption; thus, the rule of strict
interpretation against the taxpayer-claimant similarly applies (CIR v. Fortune Tobacco Corporation, G.R. Nos.
167274-75).

The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the
statutory and administrative requirements to be entitled to the tax refund. This burden cannot be offset by the
non-observance of procedural technicalities by the government’s tax agents when the non-observance of the
remedial measure addressing it does not in any manner prejudice the taxpayer’s due process rights.

Lapses in the literal observance of a rule of procedure may be overlooked when they have not prejudiced the
adverse party and especially when they are more consistent with upholding settled principles in taxation.

The burden of strict compliance with statutory and administrative requirements by the person claiming for a tax
refund cannot be offset by the non-observance of procedural technicalities by the government’s tax agents
when the non-observance of the remedial measure addressing it does not in any manner prejudice the
taxpayer’s due process rights.

CIR vs.HON. APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial
Court, Branch 67, Pasig City; ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD
OF PHILIPPINE JEWELLERS, INC., respondents.

G.R. No. 119252 August 18, 1997

FACTS: The BIR examined the books and accounting records of Jewelry by Marco & Co. for excise tax
purposes. Alleging that the provisions of the Tariff and Customs Code are oppressive and confiscatory,
presenting on its behalf data on the differences of tax rates in Asia, sought said Code to declare
unconstitutional. Judge Santos, an RTC judge, ruled in favor of Jewelry by Marco & Co, and declared that said
law is inoperative and without force and effect as far as Jewelry by Marco & Co is concerned, or
unconstitutional.

ISSUE: WON the RTC judge correctly declared some provisions of the Tariff and Customs Code as
unconstitutional.

RULING: NO. The trial court is not the proper forum for the ventilation of the issues raised by the private
respondents. The arguments they presented focus on the wisdom of the provisions of law which they seek to
nullify. Regional Trial Courts can only look into the validity of a provision, that is, whether or not it has been
passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its
existence. Granting arguendo that the private respondents may have provided convincing arguments why the
jewelry industry in the Philippines should not be taxed as it is, it is to the legislature that they must resort to for
relief, since with the legislature primarily lies the discretion to determine the nature (kind), object (purpose),
extent (rate), coverage (subjects) andsitus (place) of taxation. This Court cannot freely delve into those
matters which, by constitutional fiat, rightly rest on legislative judgment.

“The judiciary does not pass upon questions of wisdom, justice or expediency of legislation.” And fittingly so,
for in the exercise of judicial power, we are allowed only “to settle actual controversies involving rights which
are legally demandable and enforceable”, and may not annul an act of the political departments simply
because we feel it is unwise or impractical. This is not to say that Regional Trial Courts have no power
whatsoever to declare a law unconstitutional. In J.M. Tuason and Co. v. Court of Appeals, we said that
“[p]lainly the Constitution contemplates that the inferior courts should have jurisdiction in cases involving
constitutionality of any treaty or law, for it speaks of appellate review offinal judgments of inferior courts in
cases where such constitutionality happens to be in issue.” This authority of lower courts to decide questions of
constitutionality in the first instance reaffirmed in Ynos v. Intermediate Court of Appeals. But this authority
does not extend to deciding questions which pertain to legislative policy.

CREBA v. EXECUTIVE SECRETARY

G.R. No. 160756 March 9, 2010

FACTS: Chamber of Real Estate and Builders’ Associations, Inc. (CREBA) is an association of real estate
developers and builders in the Philippines. It filed a petition for certiorari and mandamus questioning the
constitutionality of Section 27 (E) of Republic Act (RA) 8424 and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision and those involving creditable withholding taxes.
It impleaded former Executive Secretary Alberto Romulo, then acting Secretary of Finance Juanita D. Amatong
and then Commissioner of Internal Revenue Guillermo Parayno, Jr. as respondents. CREBA assails the validity
of the imposition of minimum corporate income tax (MCIT) on corporations and creditable withholding tax
(CWT) on sales of real properties classified as ordinary assets. CREBA argues that the MCIT violates the due
process clause because it levies income tax even if there is no realized gain. CREBA also seeks to nullify
Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) and (c)(ii) of RR 7-
2003, all of which prescribe the rules and procedures for the collection of CWT on the sale of real properties
categorized as ordinary assets. Petitioner contends that these revenue regulations are contrary to law for two
reasons: first, they ignore the different treatment by RA 8424 of ordinary assets and capital assets and second,
respondent Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross
selling price or fair market value of the real properties classified as ordinary assets.

ISSUE: Whether or not the imposition of the MCIT on domestic corporations is unconstitutional. Whether or
not the imposition of CWT on income from sales of real properties classified as ordinary assets under RRs 2-98,
6-2001 and 7-2003, is unconstitutional.

RULING: No. Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an
MCIT of 2% of its gross income when such MCIT is greater than the normal corporate income tax imposed
under Section 27(A). If the regular income tax is 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 income
tax for the three immediately succeeding taxable years.

The SC ruled that MCIT is not violative of due process and thus is not unconstitutional. MCIT was devised as a
relatively simple and effective revenue-raising instrument compared to the normal income tax which is more
difficult to control and enforce. It is a means to ensure that everyone will make some minimum contribution to
the support of the public sector.
 c. Power of Taxation vs. Police Power and Power of Eminent Domain

d. Theory and Basis of Taxation

e. Principles of a Sound Tax System

f. Scope and Limitations of Taxation