TAXATION LAW CASES

CIR VS. ALGUE

GR NO. L-28896 | FEB. 17, 1988
FACTS:
The Philippine Sugar Estate Development Company had earlier appointed Algue as its agent,
authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority,
Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez,
worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to
invest in it. Ultimately, after its incorporation largely through the promotion of the said persons,
this new corporation purchased the PSEDC properties. For this sale, Algue received as agent a
commission of P126,000.00, and it was from this commission that the P75,000.00 promotional
fees were paid to the aforenamed individuals.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by
the private respondent for actual services rendered. The payment was in the form of promotional
fees.
ISSUE:
Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction
claimed by private respondent Algue as legitimate business expenses in its income tax returns.
RULING:
The Supreme Court agrees with the respondent court that the amount of the promotional fees was
not excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the formation
of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate
properties.
It is said that taxes are what we pay for civilization society. Without taxes, the government would
be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government.

ABAKADA GURO PARTY LIST VS. ERMITA

G.R. NO. 168056, SEPT. 1, 2005
FACTS:
ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties;
Section 5 imposes a 10% VAT on importation of goods; and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties;
These provisions contain a provision which authorizing the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified
conditions have been satisfied.
ISSUE:
Whether or not there is a violation of Article VI, Section 24 of the Constitution.

Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2)
of the Constitution.

Whether or not there is a violation of the due process and equal protection of the Constitution.

RULING:
No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting
within its constitutional power to introduce amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and
franchise taxes.

No, there is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it, and what is the scope of
his authority; in our complex economy that is frequently the only way in which the legislative
process can go forward. In this case, it is not a delegation of legislative power but a delegation of
ascertainment of facts upon which enforcement and administration of the increased rate under the
law is contingent.

No, the power of the State to make reasonable and natural classifications for the purposes of
taxation has long been established. Whether it relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation
and collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary will
not interfere with such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.

COMPANIA GENERAL DE TABACOS VS. CITY OF MANILA

8 SCRA 367

Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of
Manila to refund the sum of P15,280.00 to Compania General de Tabacos de Filipinas.
Appellee Compania General de Tabacos de Filipinas — hereinafter referred to simply as
Tabacalera — filed this action in the Court of First Instance of Manila to recover from appellants,
City of Manila and its Treasurer, Marcelino Sarmiento — also hereinafter referred to as the City
— the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of
liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive, under
Ordinances Nos. 3634, 3301, and 3816.
Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the
fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and, as
a wholesale and retail dealer of general merchandise, it also paid the sales taxes required by
Ordinances Nos. 3634, 3301, and 3816.1äwphï1.ñët
In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the
third quarter of 1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor
sales of the same period, and it is not denied that of the taxes it paid on all its sales of general
merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to
the liquor sales aforesaid.
Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it
should pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes
imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees
aforesaid, the sales taxes paid by it — amounting to the sum of P15,208.00 — under the three
ordinances mentioned heretofore is an overpayment made by mistake, and therefore refundable.
The City, on the other hand, contends that, for the permit issued to it granting proper authority to
"conduct or engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay
the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by
Ordinances Nos. 3634, 3301, and 3816; that, even assuming that Tabacalera is not subject to the
payment of the sales taxes prescribed by the said three ordinances as regards itsliquor sales, it is
not entitled to the refund demanded for the following reasons:.
(a) The said amount was paid by the plaintiff voluntarily and without protest;
(b) If at all the alleged overpayment was made by mistake, such mistake was one of law and arose
from the plaintiff's neglect of duty; .
(c) The said amount had been added by the plaintiff to the selling price of the liquor sold by it and
passed to the consumers; and
(d) The said amount had been already expended by the defendant City for public improvements
and essential services of the City government, the benefits of which are enjoyed, and being enjoyed
by the plaintiff.
It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor license
fees under Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City Ordinance No.
3420, and City Ordinance No. 3816, amending City Ordinance No. 3301 were passed. By reason
thereof, the City Treasurer issued the regulations marked Exhibit A, according to which, the term
"general merchandise as used in said ordinances, includes all articles referred to in Chapter 1,
Sections 123 to 148 of the National Internal Revenue Code. Of these, Sections 133-135
included liquor among the taxable articles. Pursuant to said regulations, Tabacalera included its
sales of liquor in its sworn quarterly declaration submitted to the City Treasurer beginning from
the third quarter of 1954 to the second quarter of 1957, with a total value of P722,501.09 and
correspondingly paid a wholesaler's tax amounting to P13,688.00 and a retailer's tax amounting to
P1,520.00, or a total of P15,208.00 — the amount sought to be recovered.
It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs. Sycip,
Gorres, Velayo and Co., an accounting firm, expressing the view that liquor dealers paying the
annual wholesale and retail fixed tax under City Ordinance No. 3358 are not subject to the
wholesale and retail dealers' taxes prescribed by City Ordinances Nos. 3634, 3301, and 3816. Upon
learning of said opinion, appellee stopped including its sales of liquor in its quarterly sworn
declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634, 3301, and
3816, and on December 3, 1957, it addressed a letter to the City Treasurer demanding refund of
the alleged overpayment. As the claim was disallowed, the present action was instituted.
The term "tax" applies — generally speaking — to all kinds of exactions which become public
funds. The term is often loosely used to include levies for revenue as well as levies for regulatory
purposes. Thus license fees are commonly called taxes. Legally speaking, however, license fee is
a legal concept quite distinct from tax; the former is imposed in the exercise of police power for
purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising
revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26).
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage
in the business of selling liquor or alcoholic beverages, having been enacted by the Municipal
Board of Manila pursuant to its charter power to fix license fees on, and regulate, the sale of
intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409,
as amended). The license fees imposed by it are essentially for purposes of regulation, and are
justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to public
health and morals, and must be subject to supervision or regulation by the state and by cities and
municipalities authorized to act in the premises. (MacQuillin, supra, p. 445.)
On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales
of general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal
Board of Manila by virtue of its power to tax dealers for the sale of such merchandise. (Section 10
[o], Republic Act No. 409, as amended.).
Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor.
Aside from this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-
8799, August 31, 1956, that the word "merchandise" refers to all subjects of commerce and traffic;
whatever is usually bought and sold in trade or market; goods or wares bought and sold for gain;
commodities or goods to trade; and commercial commodities in general.
That Tabacalera is being subjected to double taxation is more apparent than real. As already stated
what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the
sale of liquor, a calling in which — it is obvious — not anyone or anybody may freely engage,
considering that the sale of liquor indiscriminately may endanger public health and morals. On the
other hand, what the three ordinances mentioned heretofore impose is a tax for revenue purposes
based on the sales made of the same article or merchandise. It is already settled in this connection
that both a license fee and a tax may be imposed on the same business or occupation, or for selling
the same article, this not being in violation of the rule against double taxation (Bentley Gray Dry
Goods Co. vs. City of Tampa, 137 Fla. 641, 188 So. 758; MacQuillin, Municipal Corporations,
Vol. 9, 3rd Edition, p. 83). This is precisely the case with the ordinances involved in the case at
bar.
Appellee's contention that the City is repudiating its previous view — expressed by its Treasurer
in a letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 — that a liquor dealer who
pays the annual license fee under Ordinance No. 3358 is exempted from the wholesalers and
retailers taxes under the other three ordinances mentioned heretofore is of no consequence. The
government is not bound by the errors or mistakes committed by its officers, especially on matters
of law.
Having arrived at the above conclusion, we deem it unnecessary to consider the other legal points
raised by the City.
WHEREFORE, the decision appealed from is reversed, with the result that this case should be, as
it is hereby dismissed, with costs.

OSMENA VS. ORBOS

220 SCRA 703 (1993)

FACTS:
Senator John Osmeña assails the constitutionality of paragraph 1c of PD 1956, as amended by EO
137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or
impose additional amounts on petroleum products which proceeds shall accrue to the Oil Price
Stabilization Fund (OPSF) established for the reimbursement to ailing oil companies in the event
of sudden price increases. The petitioner avers that the collection on oil products establishments is
an undue and invalid delegation of legislative power to tax. Further, the petitioner points out that
since a 'special fund' consists of monies collected through the taxing power of a State, such
amounts belong to the State, although the use thereof is limited to the special purpose/objective
for which it was created. It thus appears that the challenge posed by the petitioner is premised
primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake
of the nature of the taxation power of the State.
ISSUE:
Is there an undue delegation of the legislative power of taxation?

RULING:
None. It seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain
from the special treatment given it by E.O. 137. It is segregated from the general fund; and while
it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains
subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply
with the constitutional description of a "special fund." With regard to the alleged undue
delegation of legislative power, the Court finds that the provision conferring the authority upon
the ERB to impose additional amounts on petroleum products provides a sufficient standard by
which the authority must be exercised. In addition to the general policy of the law to protect the
local consumer by stabilizing and subsidizing domestic pump rates, P.D. 1956 expressly authorizes
the ERB to impose additional amounts to augment the resources of the Fund.

PAL VS. EDU

164 SCRA 320 (1988)

FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a
legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of
taxes.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate)
issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and
Transportation and Traffic Code, requiring all tax exempt entities, among them PAL to pay motor
vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its
motor vehicles. After paying under protest, PAL through counsel, wrote a letter dated May
19,1971, to Land Transportation Commissioner Romeo Edu (Edu) demanding a refund of the
amounts paid. Edu denied the request for refund. Hence, PAL filed a complaint against Edu and
National Treasurer Ubaldo Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn
certified the case to the Supreme Court.

ISSUE:
Whether or not motor vehicle registration fees are considered as taxes.
RULING:
Yes. 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. Such is the case of motor vehicle registration
fees. The motor vehicle registration fees are actually taxes intended for additional revenues of the
government even if one fifth or less of the amount collected is set aside for the operating expenses
of the agency administering the program.

PROGRESSIVE DEVELOPMENT VS. QC

172 SCRA 629 (1989)
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance No.
7997, Series of 1969, otherwise known as the Market Code of Quezon City, Section 3 of which
provided:

Sec. 3. Supervision Fee.- Privately owned and operated public markets shall
submit monthly to the Treasurer's Office, a certified list of stallholders showing
the amount of stall fees or rentals paid daily by each stallholder, ... and shall pay
10% of the gross receipts from stall rentals to the City, ... , as supervision fee.
Failure to submit said list and to pay the corresponding amount within the period
herein prescribed shall subject the operator to the penalties provided in this Code
... including revocation of permit to operate. ... .1

The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on 23 March
1972, which reads:

SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts

on rentals or lease of space in privately-owned public markets in Quezon City.

xxx xxx xxx

SECTION 3. For the effective implementation of this Ordinance, owners of

privately owned public markets shall submit ... a monthly certified list of
stallholders of lessees of space in their markets showing ... :

a. name of stallholder or lessee;

b. amount of rental;

c. period of lease, indicating therein whether the same is on a daily, monthly or

yearly basis.

xxx xxx xxx

SECTION 4. ... In case of consistent failure to pay the percentage tax for the (3)
consecutive months, the City shall revoke the permit of the privately-owned
market to operate and/or take any other appropriate action or remedy allowed by
law for the collection of the overdue percentage tax and surcharge.

xxx xxx xxx 2

On 15 July 1972, petitioner Progressive Development Corporation, owner and operator of a

public market known as the "Farmers Market & Shopping Center" filed a Petition for Prohibition
with Preliminary Injunction against respondent before the then Court of First Instance of Rizal
on the ground that the supervision fee or license tax imposed by the above-mentioned ordinances
is in reality a tax on income which respondent may not impose, the same being expressly
prohibited by Republic Act No. 2264, as amended.

In its Answer, respondent, through the City Fiscal, contended that it had authority to enact the
questioned ordinances, maintaining that the tax on gross receipts imposed therein is not a tax on
income. The Solicitor General also filed an Answer arguing that petitioner, not having paid the
ten percent (10%) supervision fee prescribed by Ordinance No. 7997, had no personality to
question, and was estopped from questioning, its validity; that the tax on gross receipts was not a
tax on income but one imposed for the enjoyment of the privilege to engage in a particular trade
or business which was within the power of respondent to impose.

In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under protest
the five percent (5%) tax under Ordinance No. 9236 for the months of June to September 1972.
Two (2) days later, on 25 September 1972, petitioner moved for judgment on the pleadings,
alleging that the material facts had been admitted by the parties.

On 21 October 1972, the lower court dismissed the petition, ruling 3 that the questioned
imposition is not a tax on income, but rather a privilege tax or license fee which local
governments, like respondent, are empowered to impose and collect.

Having failed to obtain reconsideration of said decision, petitioner came to us on the present
Petition for Review.

The only issue to be resolved here is whether the tax imposed by respondent on gross receipts of
stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively,
of a license fee.

We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise known as
the Revised Charter of Quezon City, authorizes the City Council:

xxx xxx xxx

(b) To provide for the levy and collection of taxes and other city revenues and
apply the same to the payment of city expenses in accordance with appropriations.

(c) To tax, fix the license fee, and regulate the business of the following:

... preparation and sale of meat, poultry, fish, game, butter, cheese, lard
vegetables, bread and other provisions. 4

The scope of legislative authority conferred upon the Quezon City Council in respect of
businesses like that of the petitioner, is comprehensive: the grant of authority is not only" [to]
regulate" and "fix the license fee," but also " to tax" 5

Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the Local
Autonomy Act, provides that:

Any provision of law to the contrary notwithstanding, all chartered

cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or municipal
districts by requiring them to secure licenses at rates fixed by the municipal board
or city council of the city, the municipal council of the municipality, or the
municipal district council of the municipal district; to collect fees and charges for
service rendered by the city, municipality or municipal district; to regulate and
impose reasonable fees for services rendered in connection with any business,
profession or occupation being conducted within the city, municipality or
municipal district and otherwise to levy for public purposes just and uniform taxes
licenses or fees: ... 6

It is now settled that Republic Act No. 2264 confers upon local governments broad taxing
authority extending to almost "everything, excepting those which are mentioned therein,"
provided that the tax levied is "for public purposes, just and uniform," does not transgress any
constitutional provision and is not repugnant to a controlling statute. 7 Both the Local Autonomy
Act and the Charter of respondent clearly show that respondent is authorized to fix the license
fee collectible from and regulate the business of petitioner as operator of a privately-owned
public market.

Petitioner, however, insist that the "supervision fee" collected from rentals, being a return from
capital invested in the construction of the Farmers Market, practically operates as a tax on
income, one of those expressly excepted from respondent's taxing authority, and thus beyond the
latter's competence. Petitioner cites the same Section 2 of the Local Autonomy Act which goes
on to state: 8

... Provided, however, That no city, municipality or municipal district may levy or
impose any of the following:

xxx xxx xxx

(g) Taxes on income of any kind whatsoever;

The term "tax" frequently applies to all kinds of exactions of monies which become public funds.
It is often loosely used to include levies for revenue as well as levies for regulatory purposes
such that license fees are frequently called taxes although license fee is a legal concept
distinguishable from tax: the former is imposed in the exercise of police power primarily for
purposes of regulation, while the latter is imposed under the taxing power primarily for purposes
of raising revenues. 9 Thus, if the generating of revenue is the primary purpose and regulation is
merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that
incidentally revenue is also obtained does not make the imposition a tax. 10

To be considered a license fee, the imposition questioned must relate to an occupation or activity
that so engages the public interest in health, morals, safety and development as to require
regulation for the protection and promotion of such public interest; the imposition must also bear
a reasonable relation to the probable expenses of regulation, taking into account not only the
costs of direct regulation but also its incidental consequences as well. 11When an activity,
occupation or profession is of such a character that inspection or supervision by public officials
is reasonably necessary for the safeguarding and furtherance of public health, morals and safety,
or the general welfare, the legislature may provide that such inspection or supervision or other
form of regulation shall be carried out at the expense of the persons engaged in such occupation
or performing such activity, and that no one shall engage in the occupation or carry out the
activity until a fee or charge sufficient to cover the cost of the inspection or supervision has been
paid. 12 Accordingly, a charge of a fixed sum which bears no relation at all to the cost of
inspection and regulation may be held to be a tax rather than an exercise of the police power. 13

In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of Resolution
No. 7350 passed on 30 January 1967 by respondents's local legislative body authorizing
petitioner to establish and operate a market with a permit to sell fresh meat, fish, poultry and
other foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for continuous
operation, the obligation to "abide by and comply with the ordinances, rules and regulations
prescribed for the establishment, operation and maintenance of markets in Quezon City." 15

The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open
to and inviting the patronage of the general public, even though privately owned, petitioner's
operation thereof required a license issued by the respondent City, the issuance of which,
applying the standards set forth above, was done principally in the exercise of the respondent's
police power. 16 The operation of a privately owned market is, as correctly noted by the Solicitor
General, equivalent to or quite the same as the operation of a government-owned market; both
are established for the rendition of service to the general public, which warrants close
supervision and control by the respondent City, 17 for the protection of the health of the public
by insuring, e.g., the maintenance of sanitary and hygienic conditions in the market, compliance
of all food stuffs sold therein with applicable food and drug and related standards, for the
prevention of fraud and imposition upon the buying public, and so forth.

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the meaning of
Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the
business in which the petitioner is engaged. While it is true that the amount imposed by the
questioned ordinances may be considered in determining whether the exaction is really one for
revenue or prohibition, instead of one of regulation under the police power, 18 it nevertheless
will be presumed to be reasonable. Local' governments are allowed wide discretion in
determining the rates of imposable license fees even in cases of purely police power measures, in
the absence of proof as to particular municipal conditions and the nature of the business being
taxed as well as other detailed factors relevant to the issue of arbitrariness or unreasonableness of
the questioned rates. 19 Thus:

[A]n ordinance carries with it the presumption of validity. The question of

reasonableness though is open to judicial inquiry. Much should be left thus to the
discretion of municipal authorities. Courts will go slow in writing off an
ordinance as unreasonable unless the amount is so excessive as to be prohibitory,
arbitrary, unreasonable, oppressive, or confiscatory. A rule which has gained
acceptance is that factors relevant to such an inquiry are the municipal conditions
as a whole and the nature of the business made subject to imposition. 20

Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large and
excessive and so grossly disproportionate to the costs of the regulatory service being performed
by the respondent as to compel the Court to characterize the imposition as a revenue measure
exclusively. The lower court correctly held that the gross receipts from stall rentals have been
used only as a basis for computing the fees or taxes due respondent to cover the latter's
administrative expenses, i.e., for regulation and supervision of the sale of foodstuffs to the
public. The use of the gross amount of stall rentals as basis for determining the collectible
amount of license tax, does not by itself, upon the one hand, convert or render the license tax into
a prohibited city tax on income. Upon the other hand, it has not been suggested that such basis
has no reasonable relationship to the probable costs of regulation and supervision of the
petitioner's kind of business. For, ordinarily, the higher the amount of stall rentals, the higher the
aggregate volume of foodstuffs and related items sold in petitioner's privately owned market; and
the higher the volume of goods sold in such private market, the greater the extent and frequency
of inspection and supervision that may be reasonably required in the interest of the buying
public. Moreover, what we started with should be recalled here: the authority conferred upon the
respondent's City Council is not merely "to regulate" but also embraces the power "to tax" the
petitioner's business.

Finally, petitioner argues that respondent is without power to impose a gross receipts tax for
revenue purposes absent an express grant from the national government. As a general rule, there
must be a statutory grant for a local government unit to impose lawfully a gross receipts tax, that
unit not having the inherent power of taxation. 21 The rule, however, finds no application in the
instant case where what is involved is an exercise of, principally, the regulatory power of the
respondent City and where that regulatory power is expressly accompanied by the taxing power.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City,
Branch 18, is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack of
merit.

SO ORDERED.

TOLENTINO VS. SEC. OF FINANCE

249 SCRA 628 (1995)
FACTS:
Petitioners (Tolentino, Kilosbayan, Inc., Philippine Airlines, Roco, and Chamber of Real Estate
and Builders Association) seek reconsideration of the Court’s previous ruling dismissing the filed
for the declaration of unconstitutionality of R.A. No. 7716, the Expanded Value-Added Tax Law.
Petitioners contend that the R.A. did not “originate exclusively” in the HoR as required by Article
6, Section 24 of the Constitution. The Senate allegedly did not pass it on second and third readings,
instead passing its own version. Petitioners contend that it should have amended the House bill by
striking out the text of the bill and substituting it with the text of its own bill, so as to conform with
the Constitution.
ISSUE:
W/N the R.A. is unconstitutional for having “originated” from the Senate, and not the HoR.
RULING:
Petition is unmeritorious. The enactment of the Senate bill has not been the first instance where
the Senate, in the exercise of its power to propose amendments to bills (required to originate in the
House), passed its own version. An amendment by substitution (striking out the text and
substituting it), as urged by petitioners, concerns a mere matter of form, and considering the
petitioner has not shown what substantial difference it would make if Senate applied such
substitution in the case, it cannot be applied to the case at bar. While the
aforementioned Constitutional provision states that bills must “originate exclusively in the HoR,”
it also adds, “but the Senate may propose or concur with amendments.” The Senate may
then propose an entirely new bill as a substitute measure. Petitioners erred in assuming the Senate
version to be an independent and distinct bill. Without the House bill, Senate could not have
enacted the Senate bill, as the latter was a mere amendment of the former. As such, it did not have
to pass the Senate on second and third readings. Petitioners question the signing of the President
on both bills, to support their contention that such are separate and distinct. The President certified
the bills separately only because the certification had to be made of the version of the same revenue
bill which AT THE MOMENT was being considered. Petitioners question the power of the
Conference Committee to insert new provisions. The jurisdiction of the conference committee is
not limited to resolving differences between the Senate and the House. It may propose an entirely
new provision, given that such are germane to the subject of the conference, and that the respective
houses of Congress subsequently approve its report. Petitioner PAL contends that the amendment
of its franchise by the withdrawal of its exemption from VAT is not expressed in the title of the
law, thereby violating the Constitution. The Court believes that the title of the R.A. satisfies the
Constitutional Requirement.

GEROCHI VS. DOE

G.R. NO. 159796 JULY 17, 2007
FACTS:
On June 8, 2001 Congress enacted RA 9136 or the Electric Power Industry Act of 2001. Petitioners
Romeo P. Gerochi and company assail the validity of Section 34 of the EPIRA Law for being an
undue delegation of the power of taxation. Section 34 provides for the imposition of a “Universal
Charge” to all electricity end users after a period of (1) one year after the effectively of the EPIRA
Law. The universal charge to be collected would serve as payment for government debts,
missionary electrification, equalization of taxes and royalties applied to renewable energy and
imported energy, environmental charge and for a charge to account for all forms of cross subsidies
for a period not exceeding three years. The universal charge shall be collected by the ERC on a
monthly basis from all end users and will then be managed by the PSALM Corp. through the
creation of a special trust fund.
ISSUE:
Whether or not there is an undue delegation of the power to tax on the part of the ERC
RULING:
No, the universal charge as provided for in section 34 is not a tax but an exaction of the regulatory
power (police power) of the state. The universal charge under section 34 is incidental to the
regulatory duties of the ERC, hence the provision assailed is not for generation of revenue and
therefore it cannot be considered as tax, but an execution of the states police power thru regulation.

Moreover, the amount collected is not made certain by the ERC, but by the legislative parameters
provided for in the law (RA 9136) itself, it therefore cannot be understood as a rule solely coming
from the ERC. The ERC in this case is only a specialized administrative agency which is tasked
of executing a subordinate legislation issued by congress; which before execution must pass both
the completeness test and the sufficiency of standard test. The court in appreciating Section 34 of
RA 9136 in its entirety finds the said law and the assailed portions free from any constitutional
defect and thus deemed complete and sufficient in form.

REPUBLIC VS. BACOLOD-MURCIA MILLING CO.

17 SCRA 632 (1966)
FACTS:
RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute
acquired the Insular Sugar Refinery for P3.07 million payable in installments from the proceeds
of the Sugar tax to be collected under RA 632. The operation of the refinery for 1954 to 1957 was
disastrous as the Institute suffered tremendous losses. Contending that the purchase of refinery
with money from the Institute’s fund was not authorized under RA 632, and that the continued
operation of the refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-ao Sugar
Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refused to continue with
their contribution to said fund. The trial court found them liable under RA 632. Hence, this petition.
ISSUE:
Are the milling companies liable?
RULING:
Yes. The special assessment or levy for the Philippine Sugar Institute Fund is not so much an
exercise of the power of taxation, nor the imposition of a special assessment, but the exercise of
police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign
power which no private citizen may lawfully resist. Section 2a of the charter authorizes Philsugin
to acquire the refinery in question. The financial loss resulting from the operation thereof is no
means an index that the industry did profit therefrom, as other gains of a different nature (such as
experience) may have been realized.

GARCIA VS. EXECUTIVE SECRETARY

211 SCRA 219 (1992)
FACTS:
In November 1990, President Corazon Aquino issued Executive Order No. 438 which imposed, in
addition to any other duties, taxes and charges imposed by law on all articles imported into the
Philippines, an additional duty of 5% ad valorem tax. This additional duty was imposed across the
board on all imported articles, including crude oil and other oil products imported into the
Philippines. In 1991, EO 443 increased the additional duty to 9%. In the same year, EO 475 was
passed reinstating the previous 5% duty except that crude oil and other oil products continued to
be taxed at 9%. Enrique Garcia, a representative from Bataan, avers that EO 475 and 478 are
unconstitutional for they violate Section 24 of Article VI of the Constitution which provides:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
He contends that since the Constitution vests the authority to enact revenue bills in Congress, the
President may not assume such power by issuing Executive Orders Nos. 475 and 478 which are in
the nature of revenue-generating measures.
ISSUE:
Whether or not EO 475 and 478 are constitutional.
RULING:
Under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue and tariff
bills, like all other bills is, of course, within the province of the Legislative rather than the
Executive Department. It does not follow, however, that therefore Executive Orders Nos. 475 and
478, assuming they may be characterized as revenue measures, are prohibited to be exercised by
the President, that they must be enacted instead by the Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts within the framework of the national development
program of the Government.
There is thus explicit constitutional permission to Congress to authorize the President “subject to
such limitations and restrictions as [Congress] may impose” to fix “within specific limits” “tariff
rates . . . and other duties or imposts . . . .” In this case, it is the Tariff and Customs Code which
authorized the President ot issue the said EOs.

REPUBLIC VS. MAMBULAO LUMBER

6 SCRA 858 (1962)
FACTS:
Mambulao Lumber Company paid the Government a total of P9,127.50 as reforestation charges.
Having found liable for an aggregate amount of P4,802.37 for forest charges, it contended that
since the Republic (Government) has not made use of the reforestation charges for reforesting the
denuded area of the land covered by the company’s license, the Republic should refund said
amount or, if it cannot be refunded, at least the company should be compensated with what it owed
the Republic for reforestation charges.
ISSUE:
Whether taxes may be subject of set-off or compensation.
RULING:
Internal revenue taxes, such as forest charges, cannot be the subject of set-off or compensation. A
claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under
the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the State or municipality to one who is liable to the
State or municipality for taxes. Neither are they subject of recoupment since they do not arise out
of the contract or transaction sued on.
Taxes are not in the nature of contracts between the parties but grow out of a duty to, and are the
positive acts of the government, to the making and enforcing of which, the personal consent of
individual taxpayers is not required.

PHILEX MINING VS. CIR

294 SCRA 687 (1998)
FACTS:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of
Tax Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994
until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex protested the
demand for payment of the tax liabilities stating that it has pending claims for VAT input
credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest.
Therefore, these claims for tax credit/refund should be applied against the tax liabilities.
ISSUE:
Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the
petitioner?
RULING:
No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance. Evidently,
to countenance Philex's whimsical reason would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that
it has a pending tax claim for refund or credit against the government which has not yet been
granted. Taxes cannot be subject to compensation for the simple reason that the government and
the taxpayer are not creditors and debtors of each other. There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the
Government in its sovereign capacity. xxx There can be no off-setting of taxes against the claims
that the taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the government.

CALTEX VS. COA

208 SCRA 726 (1992)
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization
Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the additional tax on
petroleum products authorized under the PD 1956. Pending such remittance, all of its claims for
reimbursement from the OPSF shall be held in abeyance. The grant total of its unremitted
collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved
the proposal but prohibited Caltex from further offsetting remittances and reimbursements for the
current and ensuing years. Caltex moved for reconsideration but was denied. Hence, the present
petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be offsetted against Caltex’s outstanding
claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence
of 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. PD 1956, as amended by EO 137, explicitly provides that
the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims he may have
against the government. Taxes cannot be 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,, contractor judgment as is allowed to be set-off. Hence, COA decision is affirmed
except that Caltex’s claim for reimbursement of under recovery arising from sales to the National
Power Corporation is allowed.

FRANCIA VS. IAC

162 SCRA 753 (1988)
FACTS:
Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977, a
portion of his land (125 square meter) was expropriated by the government for P4,116.00. The
expropriation was made to give way to the expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00.
So in December 1977, the remaining 203 square meters of his land was sold at a public auction
(after due notice was given him). The highest bidder was a certain Ho Fernandez who paid the
purchase price of P2,400.00 (which was lesser than the price of the portion of his land that was
expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was
grossly inadequate. He further argued that his land should have never been auctioned because the
P2,400.00 he owed the government in taxes should have been set-off by the debt the government
owed him (legal compensation). He alleged that he was not paid by the government for the
expropriated portion of his land because though he knew that the payment therefor was deposited
in the Philippine National Bank, he never withdrew it.
ISSUE:
Whether or not the tax owed by Francia should be set-off by the “debt” owed him by the
government.
RULING:
No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right are reciprocally debtors and creditors
of each other, are extinguished (Art. 1278, Civil Code). This is not applicable in taxes. There can
be no off-setting of taxes against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him an amount equal to
or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.
The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or judgment
as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light
of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality
to one who is liable to the state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or transaction sued on.
Further, the government already Francia. All he has to do was to withdraw the money. Had he
done that, he could have paid his tax obligations even before the auction sale or could have
exercised his right to redeem – which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not tenable.
The Supreme Court said: “alleged gross inadequacy of price is not material when the law gives the
owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser
the price, the easier it is for the owner to effect redemption.” If mere inadequacy of price is held
to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly
embarrassed, if not rendered altogether impracticable. “Where land is sold for taxes, the
inadequacy of the price given is not a valid objection to the sale.” This rule arises from necessity,
for, if a fair price for the land were essential to the sale, it would be useless to offer the property.
Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land.