a.

Administrative Feasibility
i. Diaz v. Sec. of Finance, G.R. No. 193007, 19 July 2011 35
Law assailed: BIR’s imposition of VAT on the collection of tollway operators – as user’s tax / tax on tax
Facts: Petitioners Renato Diaz and Aurora Timbol filed a petition assailing the validity of the imposition of VAT by the BIR
on the collection of tollway operators contending that The VAT would result in increased toll fees and that they have an
interest as regular users of tollways in stopping the BIR.
Petitioners hold the view that:
 the toll fee is a “user’s tax”, and that to impose VAT on toll fees would amount to a taxing a tax
 it was not the intention of Congress to include toll fees in “sale of services”
 since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-
impairment clause of the constitution.
OSG: VAT is imposed on “all other franchise grantees” including toll way operators (Sec 108 of NIRC). petitioners have no
right to invoke the non-impairment clause since they clearly have no personal interest in existing toll operating
agreements between the government and tollway operators. It cannot be claimed that the rights of tollway operators to
a reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate. Further, the
imposition of VAT on toll fees would have a very minimal effect on motorists using the tollways.
w/o toll fees collected by tollway operators may be subject to VAT?
YES.
(1) VAT is imposed on “all kinds of services” and tollway operators who are engaged in constructing, maintaining, and
operating expressways are no different from lessors of property, transportation contractors, etc. The term “all kinds of
services” covers those in the list, but it is not exclusive. Thus, every activity that can be imagined as a form of "service"
rendered for a fee should be deemed included unless some provision of law especially excludes it
(2) they also come under those described as “all other franchise grantees” which is not confined only to legislative
franchise grantees since the law does not distinguish. The franchise in this case is evidenced by a "Toll Operation
Certificate."
(3) Neither are the services part of the enumeration under Section 109 on VAT-exempt transactions. If the legislative
intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the
law to clearly say so. Tax exemptions must be justified by clear statutory grant and based on language in the law too
plain to be mistaken.
w/o toll fees are taxes?
NO.
(4) The toll fee is not a user’s tax and thus it is permissible to impose a VAT on the said fee. The MIAA case does not
apply and the Court emphasized that toll fees are not taxes since they are not assessed by the BIR and do not go the
general coffers of the government. Toll fees are collected by private operators as reimbursement for their costs and
expenses with a view to a profit while taxes are imposed by the government as an attribute of its sovereignty. Even if the
toll fees were treated as user’s tax, the VAT can not be deemed as a ‘tax on tax’ since the VAT is imposed on the tollway
operator and the fact that it might pass-on the same to the tollway user, it will not make the latter directly liable for VAT
since the shifted VAT simply becomes part of the cost to use the tollways.
“fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under
the taxing power of the government principally for the purpose of raising revenues to fund public expenditures.27 Toll
fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses
incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin
of income.”
“VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. The seller who is
liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a
case, what is transferred is not the seller’s liability but merely the burden of the VAT.”
w/o the imposition of VAT is administratively feasible
YES.
(5) The assertion that the VAT imposed is not administratively feasible given the manner by which the BIR intends to
implement the VAT, that is by rounding off the toll rates and putting any excess collection in an escrow account, is not
enough to invalidate the law. Administrative feasibility is one of the canons of a sound tax system. It simply means that
the tax system should be capable of being effectively administered and enforced with the least inconvenience to the
taxpayer.
b. Uniformity and Equality in Taxation
i. CIR v. Fortune Tobacco Corporation, G.R. No. 180006, 28 Sept 2011 36
Law assailed: CIR’s RR 17-99 – going beyond the 1997 Tax Code
Doctrine: The higher tax rule only applies during the transition period. To implement the higher tax rule on Jan. 1, 2000
would violate the rule of uniformity since brands belonging to the same category would be imposed with different taxes.
Background facts:
 Under our tax laws, manufacturers of cigarettes are subject to pay excise taxes on their products.
o Prior to Jan. 1, 1997 – excise taxes on these products were in the form of ad valorem taxes pursuant to
the 1977 Tax Code.
o Beginning Jan. 1, 1997, RA 8240 took effect and a shift from ad valorem to specific taxes was made. Sec
142(c) of the 1977 Tax Code, as amended by RA 8240 provides:
“The specific tax from any brand of cigarettes within the next three 3 years of effectivity
of this Act shall not be lower than the tax [which] is due from each brand on October 1,
1996: Provided, however, That in cases where the specific tax rates imposed in
paragraphs (1)-(4) hereinabove will result in an increase in excise tax of more than 70%,
for a brand of cigarette, the increase shall take effect in two tranches: 50% of the
increase shall be effective in 1997 and 100% of the increase shall be effective in 1998.
xxx
The rates of specific tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4)
hereof, shall be increased by twelve percent (12%) on January 1, 2000.”
 The 1977 Tax Code was later repealed by RA 8424 (1997 Tax Code), and Sec. 142 as amended by RA 8240 was
renumbered as Sec. 145.
 This time, to implement the 12% increase in specific taxes mandated under Section 145 of the 1997 Tax Code,
the CIR issued RR 17-99:
“Sec. 1. New Rates of Specific Tax – The specific tax rates imposed under the ff. sections
are hereby increased by 12% and the new rates to be levied, assessed, and collected are
as follows… Provided, however, that the new specific tax rate for any existing brand of
cigars [and] cigarettes packed by machine, distilled spirits, wines and fermented
liquors shall not be lower than the excise tax that is actually being paid prior to
January 1, 2000.”
Facts:
 Pursuant to these laws, Fortune Tobacco Corporation paid in advance excise taxes for 2003 (P11.15B), and for
the period covering Jan. 1-May 31, 2004 (P4.90B).
  June 2004: Fortune Tobacco filed an administrative claim for tax refund with the CIR for erroneously and/or
illegally collected taxes. It also filed a judicial claim for tax refund w/ the CTA.
 CTA 1st Division ruled in favor of Fortune Tobacco and granted its claim for refund. CTA en banc affirmed the CTA
decision and denied CIR’s MR. CIR filed a petition for review on certiorari.
 The parties’ arguments:
Fortune Tobacco CIR
 Primary basis for the claim for refund:  The inclusion of the proviso was made to
CIR’s unauthorized administrative carry out the law’s intent and is well
legislation. within the scope of his delegated
 By including the Sec 1 of RR 17-99, CIR legislative authority. (Intent daw talaga
went beyond the language of the law and ng Congress na taasan ang tax sa sin
usurped Congress’ power. products, such as cigars etc)
 Said proviso requires the payment of the  CTA’s strict interpretation of the law
excise tax actually being paid prior to Jan. ignored Congress’ intent to increase the
1, 2000 if this amount is higher than the collection of excise taxes (as shown by
new specific tax rate, i.e., rates of the adoption of the “higher tax rule”
specific taxes imposed in 1997 for each during the transition period) by
category of cigarette, plus 12%. increasing specific tax rates on sin
products.

 Section 145(c) of the 1997 Tax Code, as
written, imposes a 12% increase on the
excise tax rates provided under sub-
paragraphs (1)-(4) only; it does not say
that the tax due during the transition
period shall continue to be collected if
the amount is higher than the new
specific tax rates.
 The “higher tax rule” applies only to the
3-year transition period to offset the
burden caused by the shift from ad
valorem to specific taxes.
 Sec 145(c) categorically declares that the
excise tax from any brand of cigarettes
w/in the 3-year transition period shall not
be lower than the tax which is due from
each brand on Oct. 1, 1996.
 No plausible reason why the new specific
tax rates due beginning Jan. 1, 2000
should not be subject to the same rule as
those due during the transition period.

Issue:
WON the rule of uniformity of taxation was violated by the proviso in Sec 1, RR 17-99
YES
Held:
 Following stare decisis, the ruling in CIR v. Fortune Tobacco (2008) applies in this case. The SC upheld Fortune
Tobacco’s tax refund claims after finding invalid the proviso in Sec 1 of RR17-99.
o By adding the qualification in Sec 145 stating that the tax due after the 12% increase becomes effective
shall not be lower than the tax actually paid prior to Jan. 1, 2000, RR 17-99 effectively imposes a tax
which is the higher amount between the ad valorem tax being paid at the end of the 3-year transition
period and the specific tax under par. C, sub-paragraph (1)-(4), as increased by 12% – a situation not
supported by the plain wording of Section 145 of the Tax Code.
o The qualification is conspicuously absent as regards the 12% increase to be applied on cigars and
cigarettes packed by machine, among others, effective on Jan. 1, 2000.
o The proviso in Sec 1 of RR 17-99 clearly went beyond the terms of the law it was supposed to
implement.
  Raising government revenue is not RA8240’s sole objective. The shift from ad valorem (based on the value of the
goods) to specific taxes (based on the volume of the goods produced) was intended to curb the corruption in the
imposition of the former. Imposing specific taxes would prevent price manipulation and also cure the unequal
tax treatment created by the skewed valuation of similar goods.
 The Constitution requires that taxation should be uniform and equitable. Uniformity in taxation requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
 Illustration of the violation of the rule of uniformity of taxation by the proviso in Sec 1, RR 17-99:
o Consider 3 brands of cigarettes, all classified as lower-priced cigarettes (P5/pack net retail price) under
the 1997 Tax Code. Though the brands all belong to the same category, the said proviso authorized the
imposition of different and grossly disproportionate tax rates. It effectively extended the qualification
stated in the 1997 Tax Code that was supposed to apply only during the transition period:
“The excise tax from any brand of cigarettes w/in the next 3 years from the effectivity of
RA 8240 shall not be lower than the tax, which is due from each brand on Oct. 1, 1996.”
o In the process, the CIR also perpetuated the unequal tax treatment of similar goods that was supposed
to be cured by the shift from ad valorem to specific taxes.
 The 1997 Tax Code’s provisions on excise taxes have omitted the adoption of certain tax measures. These
omissions reveal the legislative intent not to adopt the higher tax rule; they are not simply unintended lapses in
the law’s wording.

2. Aspects of Taxation
a. Levy
b. Assessment and Collection
i. Powers and Duties of the BIR
1. Genato v. Silapan, A.C. No. 4078 dated 14 July 2003 37
THIS CASE WAS OMITTED
2. CIR v. CTA, G.R. No. 207843, 15 July 2015 38 – Petron case
Law assailed: Customs Memorandum Circular (CMC) No. 164-2012 – based on CIR’s Letter which interprets Section 1
48(e) of the (NIRC) of 1997
In June 2012, Petron imported 12,802,660 liters of alkylate and paid value-added tax (VAT) in the total amount of
P41,657,533.00
Based on the Final Computation, said importation was subjected by the Collector of Customs of Port Limay, Bataan,
upon instructions of the Commissioner of Customs (COC), to:

- excise taxes of P4.35 per liter, or in the aggregate amount of P55,691,571.00, and
- consequently, to an additional VAT of 12% on the imposed excise tax in the amount of P6,682,989.00.
The imposition of the excise tax was based on Customs Memorandum Circular (CMC) No. 164-2012 implementing the
Letter issued by the CIR, which states that: [A]lkylate, is subject to excise tax under Section 1 48(e) of the (NIRC) of 1997
Petron's tax liability therefore, was based on the issuance, which was based on CIR's Letter, which interpreted the
relevant provision of the NIRC --- as to include alkylate among the articles subject to customs duties, hence, Petron's
petition before the CTA challenging the legality and constitutionality of the CIR's aforesaid interpretation of a tax
provision through its letter.
In view of the CIR's assessment, Petron filed before the CTA a petition for review
Issue: whether or not the CTA properly assumed jurisdiction over the petition assailing the imposition of excise tax on
Petron's importation of alkylate based on Section 148 (e) of the NIRC.
Held:
No.
Jurisdiction Issue:
Thee CIR correctly argues that the CTA had no jurisdiction to take cognizance of the petition as its resolution would
necessarily involve a declaration of the validity or constitutionality of the CIR's interpretation of Section 148 (e) of the
NIRC, which is subject to the exclusive review by the Secretary of Finance and ultimately by the regular courts. In British
American Tobacco v. Camacho, [24] the Court ruled that the CTA's jurisdiction to resolve tax disputes excludes the
power to rule on the constitutionality or validity of a law, rule or regulation (or question the quasi-legislative function
of the CIR).
Section 4 of the NIRC confers upon the CIR both: (a) the power to interpret tax laws in the exercise of her quasi-
legislative function; and (b) the power to decide tax cases in the exercise of her quasi-judicial function. The CTA is a
court of special jurisdiction, with power to review by appeal decisions involving tax disputes rendered by either the
CIR or the COC.1âwphi1 Conversely, it has no jurisdiction to determine the validity of a ruling issued by the CIR or the
COC in the exercise of their quasi-legislative powers to interpret tax laws.
The CTA only has jurisdiction assessments, refunds, penalties, and other charges. the phrase "other matters arising
under this Code," as stated in the second paragraph of Section 4 of the NIRC, should be understood as pertaining to
those matters directly related to the preceding phrase "disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto" and must therefore not be taken in isolation to invoke the
jurisdiction of the CTA.[27] In other words, the subject phrase should be used only in reference to cases that are, to
begin with, subject to the exclusive appellate jurisdiction of the CTA, i.e., those controversies over which the CIR had
exercised her power to decide disputed assessments, refunds or internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, not to those that involved the CIR's exercise of quasi-legislative powers.
Hence, as the CIR's interpretation of a tax provision involves an exercise of her quasi-legislative functions, the proper
recourse against the subject tax ruling expressed in CMC No. 164-2012 is a review by the Secretary of Finance and
ultimately the regular courts.
Petron prematurely invoked the jurisdiction of the CTA. Under Section 7 of RA 1125, as amended by RA 9282, what is
appealable to the CTA is the decision of the COC over a customs collector's adverse ruling on a taxpayer's protest:
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money
charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs
Section 11 of the same law is no less categorical in stating that what may be the subject of an appeal to the CTA is a
decision, ruling or inaction of the CIR or the COC, among others:
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling
or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals
or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such
decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2)
herein.
In this case, there was even no tax assessment to speak of. the Court concurs with the CIR's stance that there was not
yet the customs collector's final assessment that could be the proper subject of review or appeal. And even if it were,
the same should have been brought first for review before the COC and not directly to the CTA. It should be stressed
that the CTA has no jurisdiction to review by appeal, decisions of the customs collector.[34] The TCC prescribes that a
party adversely affected by a ruling or decision of the customs collector may protest such ruling or decision upon
payment of the amount due[35] and, if aggrieved by the action of the customs collector on the matter under protest,
may have the same reviewed by the COC.[36] It is only after the coc shall have made an adverse ruling on the matter
may the aggrieved party file an appeal to the CTA.
Notably, Petron admitted to not having filed a protest of the assessment before the customs collector and elevating a
possible adverse ruling therein to the COC. This admission is at once decisive of the issue of the CTA's jurisdiction over
the petition. There being no protest ruling by the customs collector that was appealed to the COC, the filing of the
petition before the CTA was premature as there was nothing yet to review
c. Payment
d. Refund

I. Limitations of Taxation
3. Public Purpose
a. Pascual v. Sec. of Public Works, 110 Phil 331 (1960) 39
Law assailed: RA 920 – appropriating 85k for feeder roads (private property of Sen Zulueta)
"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such expenditure, is
merely incidental in the promotion of a particular enterprise."
Facts: Petitioner, Governor Wenceslao Pascual of the Province of Rizal, filed an action for declaratory relief with
injunction on the ground that RA 920, an Act appropriating funds for public works, providing P85,000 for the
construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals, were nothing but
projected and planned subdivision roads within Antonio Subdivision. The said law was passed in Congress and approved
by the President.
Antonio Subdivision is owned by the respondent, Jose Zulueta, a member of the Senate of the Philippines. Respondent
offered to donate the said feeder roads to the municipality of Pasig and the offer was accepted by the council, subject to
a condition that the donor would submit plan of the roads and an agreement to change the names of two of the streets.
However, the donation was not executed, which prompted Zuleta to write a letter to the district engineer calling
attention the approval of RA 920. The district engineer, on the other hand, did not endorse the letter that inasmuch the
feeder roads in question were private property at the time of passage and approval of RA 920, the appropriation for the
construction was illegal and therefore, void ab initio. Petitioner, prayed for RA 920 be declared null and void and the
alleged deed of donation be declared unconstitutional.
The respondents' contention is that there is public purpose because people living in the subdivision will directly be
benefitted from the construction of the roads, and the government also gains from the donation of the land supposed to
be occupied by the streets, made by its owner to the government.
Lower court dismissed the case and dissolved the writ of preliminary injunction.

ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of justifying an
expenditure of the government?
HELD: No. It is a general rule that the legislature is without power to appropriate public revenue for anything but a
public purpose. It is the essential character of the direct object of the expenditure which must determine its validity as
justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of
the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or
to the state, which results from the promotion of private interest and the prosperity of private enterprises or business,
does not justify their aid by the use public money.
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to
individuals might incidentally serve the public.
Issue: Whether or Not the deed of donation and the appropriation of funds stipulated in RA 920 are constitutional.
Held: The ruling case law rules that the legislature is without power to appropriate public revenue for anything but
public purpose. The taxing power must be exercised for public purposes only and the money raised by taxation can be
expended only for public purposes and not for the advantage of private individuals.
In the case at bar, the legality of the appropriation of the feeder roads depend upon whether the said roads were public
or private property when the bill was passed by congress or when it became effective. The land which was owned by
Zulueta, the appropriation sought a private purpose and hence, null and void. The donation did not cure the nullity of
the appropriation; therefore, a judicial nullification of a said donation need not precede the declaration of
unconstitutionality of the said appropriation.
"It is a general rule that the legislature is without power to appropriate public revenues for anything but a public
purpose. * * * It is the essential character of the direct object of the expenditure which must determine its validity as
justifying a tax and not the magnitude of the interests to be affected nor the degree to which the general advantage of
the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental advantage to
the public or to the state, which results from the promotion of private interests, and the prosperity of private
enterprises or business, does not justify their aid by the use of public money." (23 R. L. C. pp. 398-450).
Generally, under the express or implied provisions of the constitution, public funds may be used only for a public
purpose. The right of the legislature to appropriate public funds is correlative with its right to tax, and, under
constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one
purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than a
public purpose. (81 C. J. S. p. 1147).
The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to
promote the public interests, as opposed to the furtherance of the advantage of individuals, although such advantage to
individuals might incidentally serve the public. (81 C. J. S. p. 1147).
Where the land on which projected feeder roads are to be constructed belongs to a private person, an appropriation
made by Congress for that purpose is null and void, and a donation to the Government, made over five (5) months
after the approval and effectivity of the Act for the purpose of giving a "semblance of legality" to the appropriation,
does not cure the basic defect. Consequently, a judicial nullification of said donation need not precede the declaration
of unconstitutionality of said appropriation.
b. Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987) 40
TOPIC: Limitations of taxation = For Public Purpose
Law assailed: PD No. 1987 Section 10. 30% Tax on Sale, Lease or Disposition of Videograms

MAIN DOCTRINE: 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.

Facts: The case is a petition filed by petitioner Tio on behalf of videogram operators adversely affected by PD No. 1987,
“An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry.
A month after the promulgation of the said Presidential Decree, the amended the National Internal Revenue Code
provided that:
"SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for playback, regardless
of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject
to sales tax."
PD No. 1987 "Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to
the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may
be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or audiovisual
program.”
The rationale behind the tax provision is to curb the proliferation and unregulated circulation of videograms including,
among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced
the operations of movie houses and theaters. Such unregulated circulation have caused a sharp decline in theatrical
attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government
revenues.
Videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of
videograms, and these earnings have not been subjected to tax, thereby depriving the Government of approximately
P180 Million in taxes each year.
The unregulated activities of videogram establishments have also affected the viability of the movie industry.
ISSUE: Is PD 1987 a valid exercise of taxing power of the state?
HELD: Yes.
The purpose is to regulate
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 those 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. Neither can it be successfully argued that the
DECREE contains an undue delegation of legislative power. The grant in Section 11 of the DECREE of authority to the
BOARD is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its
execution, enforcement, and implementation.
The purpose is to protect the public
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 encouraged the legislature to impose the tax was
to favor one industry over another.
Being a relatively new industry, the need for its regulation was apparent. While the underlying objective of the DECREE
is to protect the moribund movie industry, there is no question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public
brought about by the availability of unclassified and unreviewed video tapes containing pornographic films and films
with brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not to
mention the fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's permit
and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the
contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed.

ISSUE: Whether or not the PD 1987 is unconstitutional due to the tax provision (Sec 10) included
RULING: PD 1987 is constitutional.
1. The tax imposition is germane to the purpose of the law. The title of the decree, which calls for the creation of the
VRB is comprehensive enough to include the purposes expressed in its Preamble and reasonably covered in all its
provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the
decree.
2. The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of the general
object of the decree, which is the regulation of the video industry through the VRB as expressed in its title. The tax
provision is not inconsistent with nor foreign to the general subject and title. As a tool for regulation it is simply one of
the regulatory and control mechanisms scattered throughout the decree.
3. The express purpose of PD 1987 to include taxation of the video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videos is evident from Preambles 2 and 5. Those preambles explain the motives
of the lawmaker in presenting the measure.
c. COCOFED v. Republic, G.R. Nos. 177857-58, 24 Jan 2012 41
Law assailed: PD 755 which allowed the UCPB to invest the coco levy funds to CIFF companies and SMC and private
individuals (farmers) to benefit from the earnings. The law violates the rule that tax should revert to the government
and be used for PUBLIC purpose not for private purpose.
FACTS
In 1971, RA 6260 created the Coconut Investment Company (CIC) to administer the Coconut Investment Fund (CIF). The
CIF was sourced from a 55 centavos levy on the sale of every 100 kg. of copra, where PhP 0.02 was placed at the
disposition of COCOFED. Then, Martial Law came providing for many PD’s on the use of the CIF. Philippine Coconut
Authority (PCA) was charged of collecting and administering such fund.
• PD 276 established the Coconut Consumers Stabilization Fund (CCSF) and declared the proceeds of the CCSF levy
as trust fund.
• PD 582 created the Coconut Industry Dev’t Fund (CIDF) to finance a hybrid coconut seed farm.
• PD 755
 authorized PCA to utilize the CCSF and the CIDF collections to acquire a commercial bank (UCPB) and deposit
the CCSF levy collections in said bank, interest free.
 It also decreed that the levies are not special funds and shall not form part of the general funds of the
government.
• PD 961 as amended by PD 1468 (Revised Coconut Industry Code) decreeing that the CCSF and the CIDF shall not
be considered as special funds, the intention for such being for the benefit of the coconut farmers shall be owned by
them in their private capacities.
 It further allowed UCPB to invest the CIIF (coco levy funds) in private corporations, acquisitions of shares in
SMC, provided that coconut farmers controls at least 50% of the outstanding voting capital stock
In sum, a part of the coconut levy funds went directly or indirectly to various projects and/or was converted into
different assets or investments, particularly to acquire the First United Bank (FUB), later renamed UCPB, and the
acquisition by UCPB, through the CIIF companies, of a large block of SMC shares. The FUB buy-out (bank of choice of
Pedro Cojuangco) was attended with contracts showing anomalies involving the Cojuangcos who had control of FUB
shares. Some shares were later held by non-farmers. (Pedro Cojuangco sold his common shares with P100 par value to
Eduardo Cojuangco for P200, which turned out to be option shares that only Eduardo can purchase. PCA allegedly
offered Eduardo to transfer such shares for P200 (his option price) – allegedly the solution to COCOFED’s perennial
credit problems).
During Cory Aquino’s presidency, PCGG was created. PCGG issued orders of sequestration (confiscation) including some
against the shares of stock in UCPB and SMC. The SB granted COCOFED’s Class Action Omnibus Motion to enjoin the
PCGG from voting the sequestered UCPB and SMC shares. On certiorari filed by the republic (Rep. v. COCOFED), SC
declared the coco levy funds as prima facie public funds, with the shares owned by the government.
In another civil case, COCOFED, et. al. contended that UCPB shares are not unlawfully acquired assets. They filed Class
Action Motion for Partial Separate Trial on the issue of whether said UCPB shares have legitimately become the private
property of the million coconut farmers. Republic filed a Motion for Partial Summary Judgment using as basis the ruling
in Republic v. COCOFED, praying that PD 755 and PD 961 as amended by PD 1468 be declared unconstitutional, and that
it be held the owner of the coconut levy funds and the UCPB shares, which SB granted (SB decisions called in this case as
PSJ-A and PSJ-F). Hence this consolidated petitions for review under Rule 45 assailing such SB decisions.
ISSUE
WON the assailed PD’s are unconstitutional for allowing the use of the coco levy funds to benefit private individuals
rather than the public purpose?

YES
1. The coconut levy funds are in the nature of taxes and can only be used for public purpose. Consequently, they cannot
be used to purchase shares of stocks to be given for free to private individuals.
As We wrote in Republic v. COCOFED:[109]
Indeed, coconut levy funds partake of the nature of taxes, which, in general, are enforced proportional contributions
from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for all
public needs.

They were clearly imposed for a public purpose. There is absolutely no question that they were collected to advance the
government's avowed policy of protecting the coconut industry.
Taxation is done not merely to raise revenues to support the government, but also to provide means for the
rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the
police power of the State....
Even if the money is allocated for a special purpose and raised by special means, it is still public in character....
It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It is,
therefore, the State's concern to make it a strong and secure source not only of the livelihood of a significant segment of
the population, but also of export earnings the sustained growth of which is one of the imperatives of economic
stability.[110] (Emphasis Ours)
We have ruled time and again that taxes are imposed only for a public purpose.[111] "They cannot be used for purely
private purposes or for the exclusive benefit of private persons."[112] When a law imposes taxes or levies from the
public, with the intent to give undue benefit or advantage to private persons, or the promotion of private enterprises,
that law cannot be said to satisfy the requirement of public purpose.[113]

2. Coconut levy funds are special public funds of the government.

The very laws governing the coconut levies recognize their public character. Thus, the third Whereas clause of PD No.
276 treats them as special funds for a specific public purpose. Furthermore, PD No. 711 transferred to the general funds
of the State all existing special and fiduciary funds including the CCSF. On the other hand, PD No. 1234 specifically
declared the CCSF as a special fund for a special purpose, which should be treated as a special account in the National
Treasury.[126] (Emphasis Ours.)

3. The coconut levy funds can only be used for the special purpose and the balance thereof should revert back to the
general fund. Consequently, their subsequent reclassification as a private fund to be owned by private individuals in
their private capacities under P.D. Nos. 755, 961 and 1468 are unconstitutional.
To recapitulate, Article VI, Section 29 (3) of the 1987 Constitution, restating a general principle on taxation, enjoins the
disbursement of a special fund in accordance with the special purpose for which it was collected, the balance, if there be
any, after the purpose has been fulfilled or is no longer forthcoming, to be transferred to the general funds of the
government, thus:
Section 29(3)....
(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such
purpose only.
In sum, not only were the challenged presidential issuances unconstitutional for decreeing the distribution of the
shares of stock for free to the coconut farmers and, therefore, negating the public purpose declared by P.D. No. 276, i.e.,
to stabilize the price of edible oil[136] and to protect the coconut industry.[137] They likewise reclassified, nay treated,
the coconut levy fund as private fund to be disbursed and/or invested for the benefit of private individuals in their
private capacities, contrary to the original purpose for which the fund was created.

4. Taxation is Inherently Legislative

a. Chamber of Real Estate and Builders’ Associations, Inc. (CREBA) v. The Hon. Executive Secretary Alberto
Romulo, G.R. No. 160756, 09 March 2010 42
Assailed Law: Amendment on the Tax Code with respect to MCIT and CWT – imposes taxes on unrealized gains – a
violation on the imposition of income tax, amounting to violation of due process. Also violates EPC for being imposed
only on real properties.
Facts: Petitioner is an association of real estate developers and builders in the Philippines. It impleaded former Executive
Secretary Alberto Romulo et al as respondents.
Petitioner assails the validity of the imposition of “minimum corporate income tax” (MCIT, 2% tax on gross income
beginning on the 4th yr of the corp) on corporations and “creditable withholding tax” (CWT, prerequisite payment to CIR
before buyer acquires Certificate Authorizing Registration or CAR) on sales of real properties classified as ordinary
assets.
Section 27(E) of RA 8424 (Tax Code amendment) provides for MCIT on domestic corporations and is implemented by RR
9-98. Petitioner argues that the MCIT violates the:
 due process clause because it levies income tax even if there is no realized gain.
Petitioner also seeks to nullify various RR - 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.
 Also, violates the due process clause because, like the MCIT, the government collects income tax even when the
net income has not yet been determined.
 Contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises but
not on other business enterprises, more particularly those in the manufacturing sector.
Issue:
Whether or not the imposition of the MCIT on domestic corporations is unconstitutional?
Held: NO. It is constitutional.
Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The exercise of
taxing power derives its source from the very existence of the State whose social contract with its citizens obliges it to
promote public interest and the common good.
Taxation is an inherent attribute of sovereignty. It is a power that is purely legislative. Essentially, this means that in
the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation .It has the authority to prescribe a certain tax at a specific rate for a particular
public purpose on persons or things within its jurisdiction. In other words, the legislature wields the power to define
what tax shall be imposed, why it should be imposed, how much tax shall be imposed, against whom (or what) it shall be
imposed and where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so
that the principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the
tax) to its constituency who are to pay it. Nevertheless, it is circumscribed by constitutional limitations. At the same
time, like any other statute, tax legislation carries a presumption of constitutionality.
The constitutional safeguard of due process is embodied in the fiat "[no] person shall be deprived of life, liberty or
property without due process of law."
due process clause may properly be invoked to invalidate, in appropriate cases, a revenue measure39 when it amounts
to a confiscation of property.40 But in the same case, we also explained that we will not strike down a revenue measure
as unconstitutional (for being violative of the due process clause) on the mere allegation of arbitrariness by the taxpayer.
There must be a factual foundation to such an unconstitutional taint, there is a need for proof of such persuasive
character.
As to MCIT
Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is
income, not capital, which is subject to income tax. However, the MCIT is not a tax on capital. The MCIT is imposed on
gross income after deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and
other direct expenses from gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if
the normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and uses as the base the corporation’s gross income.
Absent any other valid objection, the assignment of gross income, instead of net income, as the tax base of the MCIT,
taken with the reduction of the tax rate from 32% to 2%, is not constitutionally objectionable
In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and
confiscatory. The Court cannot strike down a law as unconstitutional simply because of its yokes. Taxation is necessarily
burdensome because, by its nature, it adversely affects property rights. The party alleging the laws unconstitutionality
has the burden to demonstrate the supposed violations in understandable terms.
As to CWT
The withholding tax system is a procedure through which taxes (including income taxes) are collected. Under Section 57
of RA 8424, the types of income subject to withholding tax are divided into three categories: (a) withholding of final tax
on certain incomes; (b) withholding of creditable tax at source and (c) tax-free covenant bonds
The Secretary of Finance is granted, under Section 244 of RA 8424, the authority to promulgate the necessary rules
and regulations for the effective enforcement of the provisions of the law. Such authority is subject to the limitation
that the rules and regulations must not override, but must remain consistent and in harmony with, the law they seek to
apply and implement.64 It is well-settled that an administrative agency cannot amend an act of Congress.65
We have long recognized that the method of withholding tax at source is a procedure of collecting income tax which is
sanctioned by our tax laws.
Respondent Secretary has the authority to require the withholding of a tax on items of income payable to any person,
national or juridical, residing in the Philippines. Such authority is derived from Section 57(B) of RA 8424
b. Secretary of Finance v. Phil Tabaco Institute, Inc., G.R. No. 210251, 22 Feb 2017 43
Assailed law: Sec. of Finance’s RR 17-2012 - Section 11 and CIR’s RMC 90-2012 for going beyond the provisions of Sin Tax
Reform Law (RA 10351)
Sin Tax Reform Law (RA 10351) restructured the excise tax on alcohol and tobacco products by amending pertinent
provisions of NIRC (Republic Act No. 8424), SEC. 5 increased the excise tax rate of cigars and cigarettes and allowed
cigarettes packed by machine to be packed in other packaging combinations of not more than 20.
The Secretary of Finance issued RR 17-2012 - Section 11 thereof imposes an excise tax on individual cigarette pouches of
5's and 10's even if they are bundled or packed in packaging combinations not exceeding 20 cigarettes.
Pursuant to the RR, the CIR issued RMC 90-2012 which provides for the initial classifications in tabular form, tax rates
locally-manufactured cigarette brands packed by machine effective 1 January 2013.
PMFTC, Inc., a member of respondent Philippine Tobacco Institute, Inc. (PTI), paid the excise taxes required under RA
10351, RR 17-2012, and RMC 90-2012 in order to withdraw cigarettes from its manufacturing facilities. However, PMFTC
paid under protest and without prejudice to its right to question said issuances through remedies available under the
law.
Thereafter, PTI filed a petition for declaratory relief with an application for writ of preliminary injunction with the RTC.
PTI sought to have RR 17-2012 and RMC 90-2012 declared null and void for allegedly violating the Constitution and
imposing tax rates not authorized by RA 10351. They claim that excise tax rate of either ₱12 or ₱25 under RA 10351
should be imposed only on cigarettes packed by machine in packs of 20's or packaging combinations of 20's and should
not be imposed on cigarette pouches of 5's and 10's.
The RTC granted the petition for declaratory relief. They ordered that the tax rates imposed by RA No. 10351 should be
imposed on the whole packaging combination of 20's, regardless of whether they are packed by pouches of 2xl0's or
4x5's, etc.
ISSUE: Whether or not the RTC erred in nullifying relevant portions of RR17-2012 and RMC 90-2012?
RULING: NO. The petition lacks merit.
Section 145(C) of the NIRC is clear that the excise tax on cigarettes packed by machine is imposed per pack. "Per pack"
was not given a clear definition by the NIRC. However, a "pack" would normally refer to a number of individual
components packaged as a unit. Under the same provision, cigarette manufacturers are permitted to bundle cigarettes
packed by machine in the maximum number of 20 sticks and aside from 20's, the law also allows packaging
combinations of not more than 20's - it can be 4 pouches of 5 cigarette sticks in a pack (4 x 5's), 2 pouches of 10 cigarette
sticks in a pack (2 x 10's), etc.
The RTC ruled in favor of PTI and declared that RA 10351 intends to tax the packs of 20's as a whole, regardless of
whether they are further repacked by 10's or 5's, as long as they total 20 sticks in all. Thus, the tax rate to be imposed
shall only be either for a net retail price of (1) less than P11.50, or (2) more than P11.50, applying the two excise tax
rates from 2013 until 2016 as mentioned under RA 10351. The RTC added "that the fact the law allows 'packaging
combinations,' as long as they will not exceed a total of 20 sticks, is indicative of the lawmakers' foresight that these
combinations shall be sold at retail individually. Yet, the lawmakers did not specify in the law that the tax rate shall be
imposed on each packaging combination." Thus, the RTC concluded that the interpretation made by the Secretary of
Finance and the CIR has no basis in the law.
We agree.
the lawmakers intended to impose the excise tax on every pack of cigarettes that come in 20 sticks. Individual pouches
or packaging combinations of 5's and 10's for retail purposes are allowed and will be subjected to the same excise tax
rate as long as they are bundled together by not more than 20 sticks. Thus, by issuing Section 11 of RR 17-2012 and
Annex "D-1" on Cigarettes Packed by Machine of RMC 90-2012, the BIR went beyond the express provisions of RA
10351.
It is an elementary rule in administrative law that administrative rules and regulations enacted by administrative
bodies to implement the law which they are entrusted to enforce have the force of law and are entitled to great
weight and respect. However, these implementations of the law must not override, supplant, or modify the law but
must remain consistent with the law they intend to implement. It is only Congress which has the power to repeal or
amend the law.
we held that a mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to
do any more than implement the latter. The courts will not countenance an administrative regulation that overrides the
statute it seeks to implement.
In the present case, reading of Section 11 of RR17-2012 and Annex"D-1" on Cigarettes Packed by Machine of RMC 90-
2012 reveals that they are not simply regulations to implement RA10351. They are amendatory provisions which
require cigarette manufacturers to be liable to pay for more tax than the law, RA10351, allows. The BIR, in issuing
these revenue regulations, created an additional tax liability for packaging combinations smaller than 20 cigarette
sticks. In so doing, the BIR amended the law, an act beyond the power of the BIR to do.
In sum, we agree with the ruling of the RTC that Section 11 of RR 17-2012 and Annex "D-1" on Cigarettes Packed by
Machine of RMC 90-2012 are null and void. Excise tax on cigarettes packed by machine shall be imposed on the
packaging combination of 20 cigarette sticks as a whole and not to individual packaging combinations or pouches of 5's,
10's, etc.
WHEREFORE, we DENY the petition.

5. Non-delegation of the Power to Tax

a. In general – power to tax may not be delegated
i. Kapatiran v. Tan, 163 SCRA 372 (1988) 44
DOCTRINE: Limitations of taxation = Non-delegation of the Power to Tax (GR.)
Assailed Law: EO 273 because Cory allegedly has no legislative power
FACTS: EO No. 273 was issued by the President of the Philippines CORY AQUINO on 25 July 1987 which amended certain
sections of the NIRC and adopted the value-added tax (VAT, for short),
These four (4) petitions, seek to nullify EO No. 273, for being unconstitutional in that its enactment is:
 not alledgedly within the powers of the President;
 the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and
other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that the petitioners have failed to show
justification for the exercise of its judicial powers. According to the Solicitor General, only the third requisite — that the
constitutional question should be raised at the earliest opportunity — has been complied with. He also questions the
legal standing of the petitioners who, he contends, are merely asking for an advisory opinion from the Court, there being
no justiciable controversy for resolution.
ISSUE:
1. W/N EO 273 is unconstitutional on the Ground that the President had no authority to issue EO 273?
NO. It is constitutional.
It should be noted that, under both the Provisional Constitution and the 1987 Constitutions, the President is vested with
legislative powers until a legislature under a new Constitution is convened. The first Congress, created and elected under
the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days
before Congress convened on 27 July 1987, was within the President's constitutional power and authority to legislate.
2. W/N EO 273 was issued by the President in grave abuse of discretion amounting to lack or excess of jurisdiction?
NO. There is no evidence to support the claim.
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an arbitrary or despotic
manner by reason of passion or personal hostility. It appears that a comprehensive study of the VAT had been
extensively discussed by this framers and other government agencies involved in its implementation, even under the
past administration. As the Solicitor General correctly stated. "The signing of E.O. 273 was merely the last stage in the
exercise of her legislative powers. The legislative process started long before the signing when the data were gathered,
proposals were weighed and the final wordings of the measure were drafted, revised and finalized. Certainly, it cannot
be said that the President made a jump, so to speak, on the Congress, two days before it convened.
3. W/N EO 273 is oppressive, discriminatory, unjust and regressive?
NO
Art. VI, sec. 28(1) of the 1987 Constitution, which states: Sec. 28 (1) The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their conclusions.
They have failed to adequately show that the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon
newspaper articles which are actually hearsay and have no evidentiary value. To justify the nullification of a law, there
must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative implication.
The sales tax adopted in EO 273 is uniform, as it is applied similarly on all goods and services sold to the public, which
are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engage in business
with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the general public.
In any event, if petitioners seriously believe that the adoption and continued application of the VAT are prejudicial to the
general welfare or the interests of the majority of the people, they should seek recourse and relief from the political
branches of the government. The Court, following the time-honored doctrine of separation of powers, cannot substitute
its judgment for that of the President as to the wisdom, justice and advisability of the adoption of the VAT. The Court
can only look into and determine whether or not EO 273 was enacted and made effective as law, in the manner required
by, and consistent with, the Constitution, and to make sure that it was not issued in grave abuse of discretion amounting
to lack or excess of jurisdiction; and, in this regard, the Court finds no reason to impede its application or continued
implementation.
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation;
"inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional
limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
ii. CIR v. Santos and Guild of Phil. Jewelers, Inc., 277 SCRA 617 (1997) 45
Facts:
Cory Aquino issued:
 EO 273, imposing 20% excise tax on jewelry, pearls and other precious stones and amended portions of NIRC.
 EO 470 imposed 3% - 10% tariff and customs duty on natural and cultured pearls and precious or semi-precious
stones and amended portions of the Tariff and Customs Code. Private respondent Guild of Philippine Jewelers,
Inc., is an association of Filipino jewelers engaged in the manufacture of jewelries and allied undertakings.
After the BIR conducted a surveillance, monitoring, and inventory of all imported articles on some of the members of the
Guild, they were given a Mission Order of CIR and Customs for preventive embargo or not to sell the jewelries and other
articles displayed in their respective establishments until it can be proven that the necessary taxes thereon have been
paid.
Private Respondent jewelers filed in the RTC TRO against CIR, to declare relevant secs. of the NIRC and the Tariff and
Customs Code to be unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be
prevented or enjoined from issuing mission orders and other orders of similar nature. It even submitted a position paper
purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax
rates levied on the same in the Philippines.
Because of this, Judge Apolinario Santos of RTC Pasig City, declared Section 150(a) of EO 273 inoperative and without
force and effect insofar as petitioners are concerned. Petitioner Commissioner of Internal Revenue and the
Commissioner of Customs jointly seek the reversal of the Decision.
Issue: Whether or not the RTC can declare a law inoperative and without force and effect or otherwise
unconstitutional
Held: No. This is a matter on which the RTC is not competent to rule. As Cooley observed: “Debatable questions are for
the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.” In Angara vs. Electoral
Commission, Justice Laurel made it clear that “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 RTC have no power whatsoever to declare a law unconstitutional. the inferior courts should have
jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate review of final judgments of
inferior courts in cases where such constitutionality happens to be in issue.”
But this authority does not extend to deciding questions which pertain to legislative policy.
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
it is to the legislature that petitioner jewelers must resort to for relief, since with the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs(place) of
taxation. This Court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative
judgment.
the court should exercise becoming modesty and avoid the constitutional question.” As judges, we can only interpret
and apply the law and, despite our doubts about its wisdom, cannot repeal or amend it.
The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian countries. This is
meant to convince us that compared to other countries, the tax rates imposed on said industry in the Philippines is
oppressive and confiscatory. This Court, however, cannot subscribe to the theory that the tax rates of other countries
should be used as a yardstick in determining what may be the proper subjects of taxation in our own country. It should
be pointed out that in imposing the aforementioned taxes and duties, the State, acting through the legislative and
executive branches, is exercising its sovereign prerogative. It is inherent in the power to tax that the 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.”
b. Exceptions
i. Delegation to LGUs
1. LTO v. City of Butuan, 322 SCRA 805 (2000) 46
Assailed law: SP Ordinance no. 916-42 which empowers LGU to register tricycles, grant the corresponding franchise,
issue tricycle drivers' license, and collect fees.
Facts: Respondent city of Butuan asserts that one of the salient provisions introduced by the LGC is in the area of local
taxation which allows LGUs to register tricycles, grant the corresponding franchise, issue tricycle drivers' license, and
collect fees.
Relying on the provisions of the local government code, the sangguniang panlungsod of Butuan, on August 16, 1992
passed SP Ordinance no. 916-42.
Petitioner LTO explains that has been transferred to local government units is the franchising authority over tricycles-
for-hire (LTFRB) --- but not the authority of LTO to register all motor vehicles and to issue to qualified persons of
licenses to drive such vehicles.
The RTC of Butuan City held that the authority had all been vested in the Local Government Units ("LGUs"). It issued
permanent writ of injunction against LTO from (a) registering tricycles and (b) issuing licenses to drivers of tricycles. The
Court of Appeals sustained the trial court.
LTO to file the instant petition for review on certiorari to annul and set aside the decision.
Issue: Whether or not respondent city of Butuan may register tricycles, grant the corresponding franchise, issue
tricycle drivers' license, and collect fees.
Held: No. Under the Local Government Code, certain functions of the DOTC (through the LTFRB) were transferred to the
LGUs, thusly:
Sec. 458. Powers, Duties, Functions and Compensation. — (VI) Subject to the guidelines prescribed by the Department of
Transportation and Communications, regulate the operation of tricycles and grant franchises for the operation thereof
within the territorial jurisdiction of the city. (Emphasis supplied).
LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchises for the
operation thereof. The devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, is aimed at
curbing the alarming increase of accidents in national highways involving tricycles. It has been the perception that local
governments are in good position to achieve the end desired by the law-making body because of their proximity to the
situation that can enable them to address that serious concern better than the national government.
However, under Article 458 of the Local Government Code, the power of LGUs to regulate the operation of tricycles and
to grant franchises for the operation thereof is still subject to the guidelines prescribed by the DOTC. In compliance
therewith, the Department of Transportation and Communications ("DOTC") issued "Guidelines to Implement the
Devolution of LTFRBs Franchising Authority over Tricycles-For-Hire to Local Government units pursuant to the Local
Government Code."
The power over tricycles granted under Section 458(8)(3)(VI) of the Local Government Code to LGUs is the power to
regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax
provisions of Section 133(1) of the Local Government Code must not be held to have had the effect of withdrawing the
express power of LTO
2. Quezon City, et al. (QC) v. Bayantel, G.R. No. 162015, 6 March 2006 47

FACTS:
Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic Act (Rep. Act) No.
3259[4] to establish and operate radio stations for domestic telecommunications, radiophone, broadcasting and
telecasting. sec. 14 which provides:
(a) The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the
franchise
In Quezon City, Bayantel owned several real properties on which it maintained various telecommunications facilities.
On January 1, 1992. RA 7160 or the Local Government Code, took effect which:
 granted the Local Government unit Within Metro Manila Area the power to levy tax on real properties and
 withdrew any exemption from realty tax granted to or enjoyed by all persons, natural or juridical
On 1993, The government of QC issued a City Ordinance (the Quezon City Revenue Code), imposing a real property
tax on all real properties in Quezon City, and, reiterating in its Section 6, the withdrawal of exemption from real
property tax under Section 234 of the LGC.
Congress enacted Rep. Act No. 7633, amending Bayantel’s original franchise which provides:
SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise. . . In addition thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications
businesses . . . in lieu of all taxes on this franchise or earnings thereof.
In 1998, new tax declaration for Bayantel’s real properties were issued by the City. To them, Bayantel was not given any
express exemption from the payment of real property tax under its amendatory franchise.
Pursuant to this, Bayantel, wrote the office of the City Assessor seeking the exclusion of its real properties in the city
from the roll of taxable real properties. This was denied.
The Quezon City Treasurer sent out notices of delinquency for the total amount of P43M followed by the issuance of
several warrants of levy against Bayantel's properties.
Bayantel filed with the RTC of QC a petition for prohibition and TRO against the petitioner to which the Lower Court
granted and TRO was issued and declared Bayantel exempt from real estate taxation.
Aggrieved, Herein petitioner QC elevated the case to SC on pure question of law.
ISSUE:
1. Won Bayantel's real properties in Quezon City are exempt from real property taxes under its legislative
franchise; and
As may be recalled, the taxing power of local governments under both the 1935 and the 1973 Constitutions solely
depended upon an enabling law. Absent such enabling law, local government units were without authority to impose
and collect taxes on real properties within their respective territorial jurisdictions. While Section 14 of Rep. Act No. 3259
may be validly viewed as an implied delegation of power to tax, the delegation under that provision, as couched, is
limited to impositions over properties of the franchisee which are not actually, directly and exclusively used in the
pursuit of its franchise. Necessarily, other properties of Bayantel directly used in the pursuit of its business are beyond
the pale of the delegated taxing power of local governments. In a very real sense, therefore, real properties of Bayantel,
save those exclusive of its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was that all
realties which are actually, directly and exclusively used in the operation of its franchise are "exempted" from any
property tax.
Bayantel’s franchise being national in character, the "exemption" thus granted under Section 14 of Rep. Act No. 3259
applies to all its real or personal properties found anywhere within the Philippine archipelago.
However, with the LGC’s taking effect on January 1, 1992, Bayantel’s "exemption" from real estate taxes for properties
of whatever kind located within the Metro Manila area was, by force of Section 234 of the Code, supra, expressly
withdrawn. But, not long thereafter, however, or on July 20, 1992, Congress passed Rep. Act No. 7633 amending
Bayantel’s original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax
provision, i.e., Section 14, supra, of Bayantel’s original franchise under Rep. Act No. 3259. Stated otherwise, Section 14
of Rep. Act No. 3259 which was deemed impliedly repealed by Section 234 of the LGC was expressly revived under
Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax exemption heretofore enjoyed by Bayantel under its
original franchise, but subsequently withdrawn by force of Section 234 of the LGC, has been restored by Section 14 of
Rep. Act No. 7633.
2. whether or not the City's Revenue Code pursuant to which the city treasurer of Quezon City levied real property
taxes against Bayantel's real properties effectively withdrew the tax exemption enjoyed by Bayantel under its
franchise.
NO. While the system of local government taxation has changed with the onset of the 1987 Constitution, the power of
local government units to tax is still limited. As held in Mactan Cebu International Airport Authority: 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 to direct 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.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of Davao,13 this Court has upheld the
power of Congress to grant exemptions over the power of local government units to impose taxes. There, the Court
wrote:
Indeed, the grant of taxing powers to local government units 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. (Emphasis supplied.)
ii. Delegation to the President
1. Garcia v. Executive Secretary, 210 SCRA 219 (1992) 48
Assailed Law: Additional “duty” of 5% (later 9%) ad valorem on imported oil products
Executive Order No. 475 was issued, in which crude oil and other oil products continue to be subject to the additional
duty of nine percent (9%) ad valorem tax. After public hearings, the Tariff Commission submitted to the President a
Report. Cory then issued Executive Order No. 478 was issued to impose special duty of P0.95 per liter of imported crude
oil and P1.00 per liter of imported oil products
petitioner Garcia assails the validity of the EOs, being violative of Section 24, Article VI of the 1987 Constitution which
provides as follows:
"Section 24. 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."
Thus, the President may not assume such power of issuing the subject EOs which are in the nature of revenue-
generating measures.
Also, that acc. To the Tar.&Cus. Code, the President may only increase, reduce or remove or impose tariff duties when
necessary to protect local industries or products but not for the purpose of raising additional revenue for the
government.
ISSUE: Whether or not EOs 475 and 478 contravene are unconstitutional and violative of the Tariff and Customs Code
=RULING:
No.
Under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue and tariff bills are 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 the President.
This is the exception.
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, tonage and wharfage dues, and other duties or
imposts within the framework of the national development program of the Government." (Emphasis supplied)
There is thus explicit constitutional permission 1 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 . . . ."
Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to be substantially
moved by the desire to generate additional public revenues, are not, for that reason alone, either constitutionally
flawed, or legally infirm under Section 401 of the Tariff and Customs Code. Petitioner has not successfully overcome the
presumptions of constitutionality and legality to which those Executive Orders are entitled.
 2. ABAKADA v. Ermita, 469 SCRA 1 (2005) 49
Assailed Law: RA 9337 or VAT – invalid delegation of power to tax to the president. – no, the president has no
jurisdiction, but only ministerial function to implement the law.
FACTS:
RA 9337, an act amending certain sections of the NIRC of 1997, is questioned by petitioners for being unconstitutional.
Procedural issues raised by petitioners are:
 the legality of the bicameral proceedings
 exclusive origination of revenue measures and
 the power of the Senate connected thereto.
The main issue was raised by Abakada Guro is with regard to the undue delegation of legislative power to the
President to increase the rate of value-added tax to 12%. In the case, it was called the Standby Authority of the
President upon the happening of 2 conditions. These are:
 If the collection of the VAT exceeds the previous year by 2%; or
 If the national gov’t deficit exceeds the previous year by 1%
Respondent contends, through the OSG, that the law is complete and leaves no discretion to the President but to
increase the rate to 12% once any of the two conditions provided therein arise.
Issues:
Whether or not there is a violation of Article VI, Section 24 of the Constitution.
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.
Whether or not there is a violation of the due process and equal protection of the Constitution.
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.
WON Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the NIRC giving the
President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes
undue delegation of the legislative power to tax.
NO.
The legislature has made the operation of the 12% rate effective January 1, 2006, contingent upon a specified fact or
condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control of
the executive. Congress did not delegate the power to tax but the mere implementation of the law. The intent and will
to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative
policy. Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact and then
report to the president, the President in turn “shall” increase the rate if the conditions were met.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the word
“shall” is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent with the idea of discretion.Where the law is clear and
unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate
is obeyed
It is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the
conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as the law
specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive
to impose the 12% VAT rate when the specified conditions are present. The time of taking into effect of the 12% VAT
rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts or
conditions by a person or body other than the legislature itself.
HOW DID IT HAPPENED?
Furthermore, Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact,
namely, whether by December 31, 2005, the value-added tax collection as a percentage of Gross Domestic Product
(GDP) of the previous year exceeds two and four-fifth percent (24/5%) or the national government deficit as a
percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12%
VAT rate must be imposed by the President effective January 1, 2006. 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.
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power
to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress did not delegate
the power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12% came
from Congress and the task of the President is to simply execute the legislative policy. That Congress chose to do so in
such a manner is not within the province of the Court to inquire into, its task being to interpret the law.
iii. Delegation to Administrative Agencies
a. Phil Comm Satellite Corp. (PHILCOMSAT) v. Alcuaz, 180 SCRA 218 (1989) 50
Assailed Law: Based on EO, NTC issued Order to reduce the rates which Philcomsat may be charge its services by 15%
in. The EO is valid and fixes a standard, but the order of NTC is ureasonable and unjust to Philcomsat.
Fact:
Pursuant to Executive Order No. 196, Philcomsat was placed under the jurisdiction, control and regulation of respondent
NTC, including all its facilities and services and the fixing of rates. Implementing said EO, respondents required petitioner
to apply for the requisite certificate of public convenience and necessity covering its facilities and the services it renders,
as well as the corresponding authority to charge rates therefor.
Philcomsat provides satellite services to serve the public with indispensable communication services, such as overseas
telephone, telex, facsimile, telegrams, high speed data, live television in full color, and television standard
Petitioner filed with respondent NTC an application for authority to continue operating and maintaining the same
facilities it has been continuously operating and maintaining since 1967, to continue providing the international satellite
communications services, and to charge the current rates applied for in rendering such services.
Pending hearing, it also applied for a provisional authority so that it can continue to operate and maintain the above
mentioned facilities, provide the services and charge therefor the aforesaid rates therein applied for. petitioner was
granted a provisional authority which was valid for six (6) months which was extended 3 times
But the last extension directed the petitioner to charge modified reduced rates through a reduction of fifteen percent
(15%) on the present authorized rates.
Hence this petition.
Petitioner Philcomsat questions the EOs for not fixing a standard, thus it cannot be validly delegated. Petitioner also
seeks to annul and set aside an Order issued by NTC because it was:
 violative of the constitutional prohibition against undue delegation of legislative power and
  a denial of procedural (they were not afforded a hearing) & substantive (unjust, unreasonable and confiscatory)
due process of law
Issue:
w/o EOs fixed a standard for the exercise of the power
YES
Fundamental is the rule that delegation of legislative power may be sustained only upon the ground that some standard
for its exercise is provided and that the legislature in making the delegation has prescribed the manner of the exercise of
the delegated power (Complete and Fixes a standard).
In case of a delegation of rate-fixing power, the only standard which the legislature is required to prescribe for the
guidance of the administrative authority is that the rate must be reasonable and just. Based on the EO respondent
NTC should be guided by the requirements of public safety, public interest and reasonable feasibility of maintaining
effective competition of private entities in communications and broadcasting facilities.
Thus, in this case, pursuant to the EOs, NTC, in the exercise of its rate-fixing power was given a standard to abide by -
which more than satisfy the requirements of a valid delegation of legislative power.
WON there orders issued by the NTC adhered to the standard imposed by the EOs?
NO.
the challenged order, particularly on the issue of rates provided therein, being violative of the due process clause is void
and should be nullified.
While we concede the primacy of the public interest in an adequate and efficient service, the same is not necessarily to
be equated with reduced rates. Reasonableness in the rates assumes that the same is fair to both the public utility and
the consumer.
The inherent power and authority of the State, or its authorized agent, to regulate the rates charged by public utilities
should be subject always to the requirement that the rates so fixed shall be reasonable and just. A commission has no
power to fix rates which are unreasonable or to regulate them arbitrarily. This basic requirement of reasonableness
comprehends such rates which must not be so low as to be confiscatory, or too high as to be oppressive.
the immediate reduction in petitioner's rates would adversely affect its operations and the quality of its service to the
public considering the maintenance requirements. Notably, petitioner was not even afforded the opportunity to cross-
examine the inspector who issued the report on which respondent NTC based its questioned order.
The rate-fixing order is not exempt from the statutory procedural requirements of notice and hearing, as well as the
requirement of reasonableness. Assuming that such power is vested in NTC, it may not exercise the same in an arbitrary
and confiscatory manner.
An order of respondent NTC prescribing reduced rates, even for a temporary period, could be unjust, unreasonable or
even confiscatory, especially if the rates are unreasonably low, since the utility permanently loses its just revenue during
the prescribed period.
b. CIR v. CA and Fortune Tobacco Corporation, 261 SCRA 236 (1996) 51
Assailed Law: Fortune tobacco assails the RMC issued by CIR pursuant to RA 7654 as invalid exercise of quasi legislative
function of power to tax bec it did not comply with notice, hearing, and pub. SC invalidated the sa RMC

FACTS:

Initially, cigarette brands 'Champion," "Hope," and "More" were considered local brands subjected to an ad valorem tax
at the rate of 20-45%.

On July 3, 1993, RA 7654 (Amending Sec 142 of NIRC) took effect. In Sec. 142, it provides an increase on:
  other locally manufactured cigarettes taxed at 55%, also 55%
 other locally manufactured cigarettes at 45%

But two days before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying "Champion," "Hope," and "More" as
“locally manufactured cigarettes” bearing a foreign brand which is subject to the 55% ad valorem tax. They imposed the
55% to the 3 cigarette brands manufactured locally, even if it is owned by a foreign brand (based on World Tobacco
Directory)

BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco.

On July 15, 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. It then filed with BIR
a motion for reconsideration requesting the recall of RMC 37-93, but was denied in a letter. Attached with the letter is
the assessment of respondent for ad valorem tax deficiency amounting to P9,598,334.00 (computed on the basis of RMC
37-93) and demanded payment within 10 days from receipt thereof.

Respondent filed a petition for review with the CTA. The CTA injunction against the implementation of RMC 37-93. CTA
ruled that the RMC is defective, invalid, and unenforceable, thus the deficiency of 9M cannot be collected. CA affirmed.

In this petition, Petitioner contends that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become
effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since
it would apply under similar circumstances to all locally manufactured cigarettes.

ISSUE: W/N RMC No. 37 -93 is a valid administrative ordinance in the absence of the requirements of notice, hearing,
and publication?

NO

RMC 37-93, has fallen short of the requirements for a valid administrative issuance.

A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that
the circular cannot be viewed simply as merely (an interpretative rule) construing Section 142(c)(1) of the NIRC, as
amended, but (legislative rule) places "Hope Luxury," "Premium More" and "Champion" within the classification of
locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654.

In order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law
and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply
intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of
notice, of hearing, and of publication should not have been then ignored. However, BIR did not comply with the
requirements.

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective
administrative issuance.

FOR OTHER ISSUES: UNIFORMITY OF TAXATION – INFRINGED

Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity
requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in
privileges and liabilities. 14 Thus, all taxable articles or kinds of property of the same class must be taxed at the same
rate 15 and the tax must operate with the same force and effect in every place where the subject may be found.

Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless
petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my
esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and
thus violative of due process following the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity of
taxation.

6. Territoriality/Situs
a. CIR v. Marubeni Corporation, G.R. No. 137377, 18 Dec 2001 52
Assailed: Respondent marubeni refused to pay contractor’s tax since the constructions were done in Japan, not in the
PH, thus outside the jurisdiction of the taxing authority.
FACTS:
Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It is engaged
in general import and export trading, financing and the construction business. It is duly registered to engage in such
business in the Philippines and maintains a branch office in Manila.
Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to examine the
books of accounts of the Manila branch office of respondent corporation for the fiscal year ending March 1985. In the
course of the examination, petitioner found respondent to have undeclared income from two (2) contracts in the
Philippines, both of which were completed in 1984. One of the contracts was with the National Development Company
(NDC) in connection with the construction and installation of a wharf/port complex in Leyte. The other contract was with
the Philippine Phosphate Fertilizer Corporation (Philphos) for the construction of an ammonia storage complex also in
Leyte.
On March 1, 1986, petitioner’s revenue examiners recommended an assessment for:
 deficiency income
 deficiency branch profit remittance
 deficiency in contractor’s and commercial broker’s taxes
TOTAL AMOUNT DUE 3.6M
Respondent questioned this assessment in a letter dated June 5, 1986.
Petitioner found that each contract was for a piece of work and since the projects called for the construction and
installation of facilities in the Philippines, hence, subject to internal revenue taxes.
Thereafter, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that taxpayers who wished to avail
this should on or before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986. EO 64 expanded EO 41’s
scope and extended the period of availment. It also stated that those who already availed the amnesty under EO 41
should file an amended return to avail of the new benefits. Marubeni filed a supplemental tax amnesty return. On both
EOs Marubeni complied promptly.
After hearing the case, CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes and extinguished the tax liability. CA affirmed on appeal.
ISSUE: Whether nor not Marubeni’s deficiency tax liabilities were extinguished due to the tax amnesty
As to the business tax…
No.
In the instant case, the vagueness in Section 4 (b) brought about by E.O. No. 64 should therefore be construed strictly
against the taxpayer. By the time respondent filed its supplementary tax amnesty return on December 15, 1986,
respondent already fell under the exception in Section 4 (b) of E.O. Nos. 41 and 64 and was disqualified from availing of
the business tax amnesty granted therein.
As to the contractor’s tax…
YES
Marubeni contends that it is not liable for the deficiency tax because the income from the projects came from the
“Offshore Portion” as opposed to “Onshore Portion”. It claims all materials and equipment in the contract under the
“Offshore Portion” were manufactured and completed in Japan, not in the Philippines, and are therefore not subject to
Philippine taxes.
Under Section 205 of the NIRC, an independent contractor is a person whose activity consists essentially of the sale of all
kinds of services for a fee, regardless of whether or not the performance of the service calls for the exercise or use of the
physical or mental faculties of such contractors or their employees. Marubeni is considered as an independent
contractor.
A contractor’s tax is a tax imposed upon the privilege of engaging in business. It is generally in the nature of an excise
tax on the exercise of a privilege of selling services or labor rather than a sale on products; and is directly collectible from
the person exercising the privilege.
Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or business are done or
performed within the jurisdiction of said authority. Like property taxes, it cannot be imposed on an occupation or
privilege outside the taxing district.
In the case at bar, it is undisputed that respondent was an independent contractor under the terms of the two subject
contracts.
Clearly, the service of “design and engineering, supply and delivery, construction, erection and installation, supervision,
direction and control of testing and commissioning, coordination…”of the two projects involved two taxing jurisdictions–
Japan and the Philippines. While the construction and installation work were completed within the Philippines, the
evidence is clear that some pieces of equipment and supplies were completely designed and engineered in Japan.
The two sets of ship unloader and loader, the boats and mobile equipment for the NDC project and the ammonia
storage tanks and refrigeration units were made and completed in Japan. They were already finished products when
shipped to the Philippines. The steel sheets, pipes and structures, electrical and instrumental apparatus were likewise
fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication, engineering and
manufacture of the materials and equipment under Japanese Yen Portion I were made and completed in Japan. These
services were rendered outside the taxing jurisdiction of the Philippines and are therefore not subject to contractor’s
tax.
Petition of CIR is denied. The decision of CA is affirmed.
b. CIR v. Baier-Nickel, G.R. No. 153793, 29 Aug 2006 53
Facts:
Respondent Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc., a domestic
corporation engaged in the business of textile products. respondent was appointed as commission agent of the
company. She will receive 10% sales commission on all sales actually concluded and collected through her efforts.
In 1995, respondent received the amount of P1.7M representing her sales commission income. JUBANITEX withheld 10%
of which for the withholding tax amounting to P170K and remitted the same to the BIR.
Respondent then filed a tax refund of the P170K alleging that it was mistakenly withheld and remitted to the BIR.
Respondent contended that her sales commission income is not taxable in the Philippines because the same was a
compensation for her services rendered in Germany.
The next day, she filed a petition for review with the CTA. CTA denied her claim. Holding that the 1.7M were actually her
remuneration as President of JUBANITEX. The income is therefore an income taxable in the Philippines because
JUBANITEX is a domestic corporation.
CA reversed the Decision and held that the compensation was as the agent of the company and that the source of her
income were her marketing activities in Germany, thus non-taxable in the PH.
Issue: whether respondent's sales commission income is taxable in the Philippines
Held:
No.
Under the NIRC, non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income
taxation on their income received from all sources within the Philippines. The source of an income is the property,
activity or service that produced the income.
The Court reiterates the rule that "source of income" relates to the property, activity or service that produced the
income. With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or
service was performed that determines the source of the income. There is therefore no merit in petitioner’s
interpretation which equates source of income in labor or personal service with the residence of the payor or the place
of payment of the income.
The source of an income is the property, activity or service that produced the income. For the source of income to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.
The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the
Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting
the government.
However... petitioner Baier-Nickel, failed to present evidence that the sales efforts and marketing activities which
produced her income truly came from in Germany
What respondent presented as evidence to prove that she performed income producing activities abroad, were copies
of documents she allegedly faxed to JUBANITEX and bearing instructions as to fabrics to be used in the finished products
as well as samples of sales orders purportedly relayed to her by clients. However, these documents do not show
whether they ripened into sales in Germany. respondent presented no such evidence.
The respondent presented no contracts or orders signed by the customers in Germany to prove the sale transactions
therein.
Also, respondent presented no evidence to prove that JUBANITEX does not sell embroidered products in the Philippines
and that her appointment as commission agent is exclusively for Germany and other European markets.
Hence, the claim for tax refund should be denied.
7. International Comity
a. Tanada v. Angara, 272 SCRA 18 (1997) 54
This is a case petition by Sen. Tanada, together with other lawmakers, taxpayers, and various NGO’s to nullify the
Philippine ratification of the World Trade Organization (WTO) Agreement.
Goal: The WTO opens access to foreign markets, especially its major trading partners, through the reduction of tariffs on
its exports, particularly agricultural and industrial products. As viewed by the signatory Senators, a “free market”
espoused by WTO.
Petitioners believe that this will be:
 detrimental to the growth of our National Economy and against to the “Filipino First” policy.
 conflict with the provisions of our constitution. since the said Agreement is an assault on the sovereign powers
of the Philippines. it meant that Congress could not pass legislation that would be good for national interest and
general welfare if such legislation would not conform to the WTO Agreement.
ISSUES
1. Whether the WTO Agreement violated the mandated economic nationalism by the Constitution
No. The Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and
services in the development of the Philippine economy. In fact, it allows an exchange on the basis of equality and
reciprocity, frowning only on foreign competition that is unfair. The constitutional policy of a self-reliant and
independent national economy does not necessarily rule out the entry of foreign investments, goods and services. It
contemplates neither economic seclusion nor mendicancy in the international community.
2. Whether the provisions of the WTO Agreement restricts and impairs Philippine sovereignty, specifically the
legislative power vested in the Congress
No. While sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however
subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the
family of nations. Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest
of the world. By the doctrine of incorporation, the country is bound by generally accepted principles of international
law, which are considered to be automatically part of our laws. A treaty engagement is not a mere moral obligation on
the parties. By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. The Philippines has
effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power. The
underlying consideration in this partial sovereignty is the reciprocal commitment of the other contracting states in
granting the same privilege and immunities to the Philippines, its officials and its citizens. The same reciprocity
characterizes the same commitments under WTO-GATT. The point is that a portion of sovereignty may be waived
without violating the Constitution, based on the rationale that the Philippines adopts the generally accepted principles
of international law as part of the law of the land and adheres to the policy of cooperation and amity with all nations.
3. Whether the Senate concurrence in the WTO Agreement and its annexes but not in the other documents referred
to in the Final Act is defective and insufficient and thus constitutes abuse of discretion
No. The petitioners submit that concurrence in the WTO Agreement alone is flawed because it is in effect a rejection of
the Final Act. The Court held that a final act is an instrument which records the winding up of the proceedings of a
diplomatic conference and not the treaty itself. On the other hand, the WTO Agreement itself expresses what
multilateral agreements are deemed included as its integral parts. It should be added that the Senate was well-aware of
what it was concurring in as shown by the member’s deliberation.

b. GOCCs – PAGCOR v. BIR, G.R. No. 215427, 10 Dec 2014 55

Facts:
PAGCOR was created with an exemption from the payment of any type of tax, except a franchise tax of 5% of the gross
revenue. Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of PAGCOR's exemption. PAGCOR's
tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by Letter of Instruction No.
1430, which was issued in September 1984.
The NIRC of 1997 took effect. Then, Section 27 (c) of such provides that government-owned and controlled corporations
(GOCCs) shall pay corporate income tax, except petitioner PAGCOR, among others.
Different groups came to this Court via petitions for certiorari and prohibition[11] assailing the validity and
constitutionality of R.A. No. 9337 (amendments in the NIRC) which imposes VAT, invalid delegation of legislative powers,
violates due process, guarantee of equal protection of the laws, and other technical aspects of the passage of the law,
questioning the manner it was passed.
The Court dismissed all the petitions and upheld the constitutionality of R.A. No. 9337.

Issue:
Whether or not PAGCOR is liable for the corporate income tax that the conflicting statutes implement.

Held:
There is no conflict between PD 1869 and RA No 9337.The former lays down the taxes imposable upon petitioner, as
follows:
(1) 5% franchise tax of the gross revenues or earnings derived from its operations conducted under the Franchise, which
shall be due and payable in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied,
established or collected by any municipal, provincial or national government authority;
(2) income tax for income realized from other necessary and related services, shows and entertainment of
petitioner.16 With the enactment of R.A. No. 9337, which withdrew the income tax exemption under R.A. No. 8424,
petitioner’s tax liability on income from other related services was merely reinstated.
It is a rule that every effort must be exerted to avoid a conflict between statutes; so that if reasonable construction is
possible, the laws must be reconciled in that manner. Also, it shall also be borne in mind that it is a canon of statutory
construction that a special law prevails over a general law — regardless of their dates of passage — and the special is to
be considered as remaining an exception to the general.

8. Exemption of Government Entities, Agencies, and Instrumentalities

a. Manila International Airport Authority (MIAA) v. CA, 495 SCRA 591 (2006) 56
FACTS:
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA). As
operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land. It further provides that no portion
of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the
President of the Philippines.
The Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061, where it opined that the Local
Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA
Charter. Thus, MIAA negotiated with Respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA
then paid some of the real estate tax already due.
MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to
2001. MIAA’s real estate tax delinquency was estimated at P624 million.
The City of Parañaque, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the
City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real
estate tax delinquency.
MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real
estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings.
Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. Court of Appeals
also denied motion for reconsideration.
Paranaque’s Contention: Section 193 of the Local Government Code expressly withdrew the tax exemption privileges of
“government-owned and-controlled corporations” upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all
others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
MIAA’s contention: Airport Lands and Buildings are owned by the Republic. The government cannot tax itself. The
reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a
case the tax debtor is also the tax creditor.
ISSUE: Whether Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws?
RULING:
Yes. The real estate tax assessments issued by the City of Parañaque are void.
1. MIAA is Not a Government-Owned or Controlled Corporation
but an instrumentality of the National Government and thus exempt from local taxation. MIAA is not a stock corporation
because it has no capital stock divided into shares. MIAA has no stockholders or voting shares.
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers.
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a
government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the
governmental powers of eminent domain, police authority and the levying of fees and charges. At the same time, MIAA
exercises “all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with
the provisions of this Executive Order.”
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like “roads, canals,
rivers, torrents, ports and bridges constructed by the State,” are owned by the State. The term “ports” includes seaports
and airports. The MIAA Airport Lands and Buildings constitute a “port” constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does
not remove the character of the Airport Lands and Buildings as properties for public use. The terminal fees MIAA charges
to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such
fees are often termed user’s tax. This means taxing those among the public who actually use a public facility instead of
taxing all the public including those who never use the particular public facility.
b. Real Property Owned by the Republic is Not Taxable
Sec 234 of the LGC provides that real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable
person following are exempted from payment of the real property tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real
estate tax.
b. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of
the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic. MIAA’s
case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot
sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.
b. Philippine Fisheries Development Authority (PFDA) v. CA, 528 SCRA 706 (2007) 57
FACTS:
Pursuant to the LGC, Respondent Municipality of Navotas assessed the real estate taxes allegedly due from petitioner
Philippine Fisheries Development Authority (PFDA) for the period 1981-1990 on properties inside the Navotas Fishing
Port Complex (NFPC). The assessed taxes had remained unpaid despite the demands made by the municipality which
prompted it to give notice to petitioner on October 29, 1990 that the NFPC will be sold at public auction on November
30, 1990 in order that the municipality will be able to collect on petitioner’s delinquent realty taxes which, as of June 30,
1990, amounted to P23M.
Petitioner refused to pay and prevented of the auction sale, claiming that the NFPC is owned by the Republic of the
Philippines, and pursuant to P.D. No. 977, thus PFDA is not a taxable entity.
Department of Finance stated that the use of the property should first be identified to determine its tax liability. If used
by a non-taxable person other than PFDA itself, it remains to be non-taxable.
Notwithstanding the DOF’s instruction, respondent Municipality proceeded to publish the notice of sale of NFPC in the
November 2, 1990 issue of Balita, a local newspaper.
Petitioner PFDA instituted filed a petition in the RTC of Malabon to enjoin the auction of the NFPC on the ground that
the properties comprising the NFPC are owned by the Republic of the Philippines and are, thus, exempt from taxation.
According to petitioner, only a small portion of NFPC which had been leased to private parties may be subjected to real
property tax which should be paid by the latter.
RTC dismissed the case and dissolved the writ of preliminary injunction, ruling in favor of the Municipality’s right to
collect said tax.
CA affirmed the ruling of the RTC. Motion for Reconsideration was filed but the same was denied by the CA.
ISSUE: Whether PFDA is entirely exempted from the payment of real property tax.
NO
RULING: Local government units, pursuant to the fiscal autonomy granted by the provisions of Republic Act No. 7160 or
the 1991 Local Government Code, can impose realty taxes on juridical persons subject to the limitations enumerated in
Section 133 of the Code:
SEC. 133. Common Limitations on the Taxing Power of Local Government Units. – Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:
(o) taxes, fees, charges of any kind on the national government, its agencies and instrumentalities, and local government
units.
Nonetheless, the above exemption does not apply when the beneficial use of the government property has been
granted to a taxable person. Section 234 (a) of the Code states that real property owned by the Republic of the
Philippines or any of its political subdivisions is exempted from payment of the real property tax "except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person."
Thus, as a rule, petitioner PFDA, being an instrumentality of the national government, is exempt from real property tax
but the exemption does not extend to the portions of the NFPC that were leased to taxable or private persons and
entities for their beneficial use.
9. Constitutional Limitations
a. Due Process
i. Philippine Bank of Comm (PBCOM) v. CIR, 302 SCRA 241 (1999) 58
Prescription of filing of tax refund is 2 yrs, not 10 yrs based on CIR
Facts:
Petitioner Philippine Bank of Communications (PBCom), a commercial banking corporation duly organized under
Philippine laws
1985 - filed its quarterly income tax returns for the first and second quarters of 1985, reported profits, and paid the total
income tax of P5M. The taxes due were settled by applying PBCom's tax credit memos and accordingly, the Bureau of
Internal Revenue (BIR) issued Tax Debit Memo Nos. 0746-85 and 0747-85 for P3,401,701.00 and P1,615,253.00,
respectively.
1986 - Subsequently, PBCom suffered losses so that when it filed its Annual Income Tax Returns for the year 1986, the
petitioner likewise reported a net loss of P14M and thus declared no tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The lessees withheld and remitted to
the BIR withholding creditable taxes of P282K in 1985 and P234K in 1986.
1987 - petitioner requested the Commissioner of Internal Revenue, among others, for a tax credit of P5M representing
the overpayment of taxes in the first and second quarters of 1985.
1988 - petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for
P282,795.50 and in 1986 for P234,077.69.
Pending the investigation of the respondent CIR, petitioner instituted a Petition for Review in the CTA. The Court of
Appeals erred in denying the plea for tax refund or tax credits on the ground of prescription
Issue:
Whether or not the action for tax refund already prescribed, despite petitioner's reliance on RMC No. 7-85, changing
the prescriptive period of two years to ten years?
Held:
Yes, the action already prescribed. The relaxation of revenue regulations by RMC 7-85 is not warranted as it disregards
the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The primary purpose is to generate funds for the State
to finance the needs of the citizenry and to advance the common wealth. 13 Due process of law under the Constitution
does not require judicial proceedings in tax cases. This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations and it is of utmost importance that the modes
adopted to enforce the collection of taxes levied should be summary and interfered with as little as possible. 14
From the same perspective, claims for refund or tax credit should be exercised within the time fixed by law because the
BIR being an administrative body enforced to collect taxes, its functions should not be unduly delayed or hampered by
incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides for the prescriptive
period for filing a court proceeding for the recovery of tax erroneously or illegally collected, viz.:
a claim for refund or credit must be duly filed with the Commissioner;
no such suit or proceedings shall begun after the expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after payment;
The rule states that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue,
within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period
provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the
year.
Revenue memorandum-circulars are considered administrative rulings entitled to great respect by the courts.
Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts
will not countenance administrative issuances that override, instead of remaining consistent and in harmony with the
law they seek to apply and implement.
Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes or errors of its officials or
agents. As pointed out by the respondent courts, the nullification of RMC No. 7-85 issued by the Acting Commissioner of
Internal Revenue is an administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC.
Sec. 69 of the 1977 NIRC (now Sec. 76 of the 1997 NIRC) provides that any excess of the total quarterly payments over
the actual income tax computed in the adjustment or final corporate income tax return, shall either (a) be refunded to
the corporation, or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the
succeeding taxable year.
The corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR
form) its intention, whether to request for a refund or claim for an automatic tax credit for the succeeding taxable year.
To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the
other.
b. Equal Protection
i. Tiu v. CA, 301 SCRA 279 (1999) 59
Incentives within the fenced-in area of SSEZ
RA 7227 seeks to accelerate the conversion of military reservations into other productive uses. Section 12 thereof
created the Subic Special Economic Zone (SSEZ), which includes the City of Olongapo, Municipality of Subic and the lands
occupied by the Subic Naval Base and granted special privileges.
Thereafter, EO 97 was issued to clarify the application of the incentives provided by RA 7227. Sec. 1 of EO 97 provides
for the tax and duty-free importations shall only be applied to raw materials, capital goods and equipment brought in by
business enterprises into the SSEZ. Except for these items, importations of other goods into the SSEZ, whether by
business enterprises, resident individuals are subject to the taxes and duties under Philippine laws. The removal of tax
and duty free goods from the territory of the SSEZ to other parts of the Philippines shall be subject to duties and taxes
under Philippine laws.
Section 1.1 thereof grants the enjoyment of the tax and duty incentives to the business and enterprises and residents
within the presently fenced-in former Subic Naval Base only.
It excludes the the first two component cities as provided for by Sec. 12 of RA 7227 – Olongapo, Subic, and outside of
the “fenced-in” area.
Issue: Whether there is a violation of the EPC when EO 97-A granted tax and duty incentives only to business and
residents within the “Fenced-in” ares of the SSEZ and denied such to those who live within the Zone but outside such
area.
Decision: The EO 97-A is not violative of the equal protection clause; neither is it discriminatory. There is substantial diff.
between the classification.
The right of equal protection of the laws is not absolute, but is subject to reasonable classification. The classification
occasioned by EO 97-A was not unreasonable, capricious or unfounded. Rather, it was based, rather, on fair, and
substantive considerations that was germane to the legislative purpose.
There are substantial differences between the big investors who are being lured to establish and operate their industries
in so-called “secured area” and the present business operators outside the area.
 billions of investments and thousands of new jobs, and on the other hand, definitely none of such magnitude .
 In the first, the economic impact is national; in the second, only local.
 Business activities outside the 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
 It will be easier to manage and monitor activities within the “secured area” which is already fenced-off, to
prevent “fraudulent importation of merchandise” or smuggling.
The classification equally applies to all residents within the secured area. The residents, being in like circumstances or
contributing directly to the achievement of the end purpose of the law, are not categorized further. Instead, they are all
similarly treated.
The equal protection gurantee does not reuire territorial uniformity of laws. As long as there are actual and material
differences between territories, there is no violationof the constitutional clause. Herein, anyone possessing the requisite
investment capital can always avail of the same benefits by channeling his or her resources or business operations into
the fenced-off free port zone.
c. Uniform and Equitable
i. British American Tobacco (BAT) v. Camacho and Parayno, G.R. No. 163583, 20 Aug 2008 and 15 April
2009 60
Assailed Law: RRs implementing the classification of cigarettes under amended Sec 145 of the NIRC are unconstitutional
for allowing BIR to make further classifications every 2 years – this is beyond Sec 145 of the NIRC – and is an invalid
classification of new cigarettes.
Facts:
To implement RA 8240 (Amending NIRC), BIR issued Revenue Regulations No. 1-97, 2 which classified
 Existing brands of cigarettes and
 New brands (or those registered after January 1, 1997, shall be initially assessed at their suggested retail price)
In 2001, British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike
Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack. the Lucky Strike brands were initially assessed
the excise tax at P8.96 per pack.
Revenue Regulations were to implement the revised tax classification of certain new brands introduced in the market
after January 1, 1997. Surveys were made to determine their current net retail price.
The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current
net retail price of P22.54, P22.61 and P21.23, per pack, respectively.
Respondent CIR thus recommended the applicable tax rate of P13.44 per pack.
Pet. British American Tobacco filed before the RTC of Makati a petition for injunction with prayer for the issuance of a
temporary restraining order (TRO) and/or writ of preliminary injunction against CIR to enjoin the implementation of
Section 145 of the NIRC and RRs - on the ground that they discriminate against new brands of cigarettes, in violation of
the equal protection and uniformity provisions of the Constitution.
The trial court rendered a decision upholding the constitutionality of Section 145 of the NIRC and the RRs.
Philip Morris Philippines Manufacturing Incorporated, Fortune Tobacco Corporation, Mighty Corporation, and JT
International, filed a Motion for Leave to Intervene with attached Comment-in-Intervention. The Intervenors claim that
they are parties-in-interest who stand to be affected by the ruling of the Court on the constitutionality of Section 145 of
the NIRC and RRs because they are manufacturers of cigarette brands which are included in the said Annex. Hence, their
intervention is proper since the protection of their interest cannot be addressed in a separate proceeding.
On August 7, 2006, the OSG manifested that it interposes no objection to the motions for intervention. Therefore,
considering the substantial interest of the intervenors, and in the higher interest of justice, the Court admits their
intervention.
Issues:
1. Whether or not Sec 145 of the NIRC violates the equal protection clause and uniformity of taxation clauses; and
No. it does not violate the EPC.
Section 145 of the National Internal Revenue Code is Constitutional. In the instant case, there is no question that the
classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all
cigarette brands in the Philippines. And, for reasons already adverted to in our August 20, 2008 Decision, the four-fold
test has been met in the present case
Consequently, the rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of
an equal protection challenge. It has been held that "in the areas of social and economic policy, a statutory classification
that neither proceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection
challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification."
Under the rational basis test, it is sufficient that the legislative classification is rationally related to achieving some
legitimate State interest.
Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance specifically
named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central from its
coverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its terms do not apply
to future conditions as well. This is not the case here. The classification freeze provision uniformly applies to all
cigarette brands whether existing or to be introduced in the market at some future time. It does not purport to
exempt any brand from its operation nor single out a brand for the purpose of imposition of excise taxes.
2. Whether or not Revenue Regulation are invalid insofar as they empower BIR to reclassify and update the
classification of new brands every two years or earlier.
YES.
It is clear that the afore-quoted portions of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue
Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the operation of Section 145
of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands
every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section
145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify cigarette
brands remains a prerogative of the legislature which cannot be usurped by the former.
d. Non-impairment of Contracts
i. Tolentino v. Sec. of Finance, 235 SCRA 630 (1995) 61
Assailed Law: E-VAT Law does not impair the obligation of any existing contract in its true legal sense when it imposed
10% evat on real properties considered as for the “homeless less poor”.
FACTS:
The Petitioners seeks the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-
Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press.
Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts that R.A. No. 7716
(1) impairs the obligations of contracts,
- that the application of the tax to existing contracts of the sale of real property by installment or on deferred
payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10%
VAT. The additional amount is something that the buyer did not anticipate at the time he entered into the
contract.
(2) classifies transactions as covered or exempt without reasonable basis and
(3) violates the rule that taxes should be uniform and equitable and that Congress shall “evolve a progressive system of
taxation”.
Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite policy of granting
tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To subject
cooperatives to the VAT would, therefore, be to infringe a constitutional policy.

ISSUE:
Whether or not the EVAT Law violates the non-impairment of contracts?
NO.
Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject,
or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the
Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and
lessen the security of another, or may impose additional burdens upon one class and release the burdens of another,
still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any
existing contract in its true legal sense.
Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the
government and no obligation of contract can extend to the defeat of that authority.
As to EPC… NO.
The sale of real property for socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be exempted.

there is a difference between the "homeless poor" and the "homeless less poor" in the example given by petitioner,
because the second group or middle class can afford to rent houses in the meantime that they cannot yet buy their own
homes. The two social classes are thus differently situated in life. "It is inherent in the power to tax that the 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.
WON the EVAT Law is unconstitutional?
No.
As to the other petitions…
With respect to the first contention, it would suffice to say that since the law granted the press a privilege, the law could
take back the privilege anytime without offense to the Constitution. The reason is simple: by granting exemptions, the
State does not forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the exemption, the law
merely subjects the press to the same tax burden to which other businesses have long ago been subject. The VAT is
different. It is not a license tax. It is not a tax on the exercise of a privilege, much less a constitutional right. It is imposed
on the sale, barter, lease or exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its payment is not to burden the exercise of its right any
more than to make the press pay income tax or subject it to general regulation is not to violate its freedom under the
Constitution.
As to the issue regarding violation on the rule of uniform and equitable: these mean that all taxable articles or kinds of
property of the same class be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or ordinance
applies equally to all persons, firms, and corporations placed in similar situation. Furthermore, the Constitution does not
really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that
Congress shall “evolve a progressive system of taxation.” The constitutional provision has been interpreted to mean
simply that “direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.” The
mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
As regards the contention of CUP, it is worth noting that its theory amounts to saying that under the Constitution
cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which only the following are
exempt from taxation: charitable institutions, churches, and parsonages, by reason of Art. VI, §28 (3), and non-stock,
non-profit educational institutions by reason of Art. XIV, §4 (3).
With all the foregoing ratiocinations, it is clear that the subject law bears no constitutional infirmities and is thus upheld.
ii. Manila Electric Company (MERALCO) v. Province of Laguna, G.R. No. 131359, 05 May 1999 62
Assailed Law: Provincial ordinance issued by Laguna which imposes franchise tax to meralco does not impair contracts,
because LGU is empowered to impose tax under LGC and Consi Art 10, and the franchise grant is not a government
bonds or debentures as contemplated in the Const.

Facts: Certain municipalities of the Province of Laguna issued resolutions granting franchise in favor of petitioner
Meralco for the supply of electric light, heat and power within their concerned areas.
In 1991 LGC was enacted enjoining local government units to create their own sources of revenue and to levy taxes, fees
and charges, subject to the limitations expressed therein, consistent with the basic policy of local autonomy.
Then the LGC was passed.
Then, respondent Province of Laguna enacted an Ordinance imposing a tax on businesses enjoying a franchise.
Petitioner paid the tax under protest. A formal claim for tax refund was thereafter sent by the petitioner to the
Provincial Treasurer.
Contention: that the imposition of a franchise tax under the said Ordinance contravened the the non-impairment clause
since the franchise are contracts entered into by the gov’t. In 1995, the claim for refund of petitioner was denied. In
1996, petitioner filed with the RTC a complaint for refund, with a prayer for the issuance of a writ of preliminary
injunction and/or TRO, against the Respondent. The trial court dismissed the complaint. Hence this petition.
Issue: Whether the imposition of a franchise tax under Provincial Ordinance authorized by the LGC, is violative of the
non-impairment clause of the Constitution.
Held:
No
Even though the local governments do not have the inherent power to tax, they may do so to the extent that such
power to tax might be delegated to them either by the basic law or by statute . Presently, under Article X of the 1987
Constitution, a general delegation of that power has been given in favor of local government units. Under the now
prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be deemed to
exist although Congress may provide statutory limitations and guidelines. The basic rationale for the current rule is to
safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units are being strengthened and made
more autonomous, the legislature must still see to it that:
(a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions;
(b) each local government unit will have its fair share of available resources;
(c) the resources of the national government will not be unduly disturbed; and
(d) local taxation will be fair, uniform, and just. The Local Government Code of 1991 has incorporated and adopted, by
and large, the provisions of the now repealed Local Tax Code.
The Local Government Code explicitly authorizes provincial governments, notwithstanding “any exemption granted by
any law or other special law, . . . (to) impose a tax on businesses enjoying a franchise.” Indicative of the legislative intent
to carry out the Constitutional mandate of vesting broad tax powers to local government units, the Local Government
Code has effectively withdrawn under Section 193 thereof, tax exemptions or incentives theretofore enjoyed by certain
entities. The Code, in addition, contains a general repealing which all general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed or modified accordingly. These policy considerations are
consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy
genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities
and make them effective partners in the attainment of national goals. The power to tax is the most effective instrument
to raise needed revenues to finance and support myriad activities if local government units for the delivery of basic
services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of
the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges
granted to government-owned and controlled corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of similarity situated enterprises, and there
was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes
and other charges due from them.
While the Court has, not too infrequently, referred to tax exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying on the franchise, these exemptions, nevertheless, are
far from being strictly contractual in nature. Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or debentures, lawfully entered into by them under enabling
laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be revoked without impairing the obligations of contracts. 14
These contractual tax exemptions, however, are not to be confused with tax exemptions granted under franchises. A
franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution.15 Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the
1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted except under the
condition that such privilege shall be subject to amendment, alteration or repeal by Congress as and when the common
good so requires.
iii. Phil. Rural Electric Cooperatives Association Inc., et al. (PHILRECA) v. DILG and DOF, G.R. No. 143076, 10
June 2003 63
Topic: non-impairment of contracts
- Philreca assails the withdrawal of their exemption to pay taxes under a loan agreement thus violates
the non-impairment clause. SC: For the prohibition to apply (1) substantial impairment (2) change in the
rights of parties. In the present case, the loan agreement does not provide for exemption so the
imposition of taxes by LGC is vaild.
Facts:
Members of petitioner Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) are electric cooperatives
organized and existing under PD 269. They filed a class suit to assail relevant provisions of the LGC.
Petitioner’s Contention: Under Sec. 39 of PD 269 electric cooperatives shall be exempt from the payment of all National
Government, local government, and municipal taxes and fee, including franchise, fling recordation, license or permit
fees or taxes and any fees, charges, or costs involved in any court or administrative proceedings in which it may be party.
From 1971to 1978, NEA, entered into six loan agreements with the government of the USAID with the electric
cooperatives as beneficiaries. The loan agreements contain similarly worded provisions on the tax application of the loan
and any property or commodity acquired through the proceeds of the loan.
Then the LGC was passed.
Petitioners allege that because of the LGC, their tax exemptions have been validly withdrawn. Also, that such withdrawal
amounts to violation of EPC because Sec. 193 provides for the withdrawal of tax exemption privileges granted to all
persons, whether natural or juridical, except cooperatives duly registered under the Cooperative Code , while Sec. 234
exempts the same cooperatives from payment of real property tax.
Issues:
(1) Is there an impairment of the obligations of contract under the loan entered into between the Philippine and the
US Governments?
No.
To fall within the prohibition, the change must:
 not only impair the obligation of the existing contract, but the impairment must be substantial.
 affect a change in the rights of the parties with reference to each other and not with respect to non-parties.
The quoted provision under the loan agreement does not purport to grant any tax exemption in favor of any party to
the contract, including the beneficiaries thereof. The provisions simply shift the tax burden, if any, on the transactions
under the loan agreements to the borrower and/or beneficiary of the loan. Thus, the withdrawal by the Local
Government Code under Sec. 193 and 234 of the tax exemptions previously enjoyed by petitioners does not impair the
obligation of the borrower, the lender or the beneficiary under the loan agreements as, in fact, no tax exemption is
granted therein.

(2) Does the LGC violate the equal protection clause since the provisions unduly discriminate against petitioners who
are duly registered cooperatives under PD 269 and not under the Cooperative Code?
No.
The guaranty of the equal protection clause is not violated by a law based on a reasonable classification. Classification,
to be reasonable must (a) rest on substantial classifications; (b) germane to the purpose of the law; (c) not limited to the
existing conditions only; and (d) apply equally to all members of the same class. We hold that there is reasonable
classification under the Local Government Code to justify the different tax treatment between electric cooperatives
covered by PD 269 and electric cooperatives under RA 6938.
First, substantial distinctions exist between cooperatives under PD 269 and those under RA 6938. In the former, the
government is the one that funds those so-called electric cooperatives, while in the latter, the members make equitable
contribution as source of funds.
a. Capital Contributions by Members – Nowhere in PD 269 does it require cooperatives to make equitable contributions
to capital. Petitioners themselves admit that to qualify as a member of an electric cooperative under PD 269, only the
payment of a P5.00 membership fee is required which is even refundable the moment the member is no longer
interested in getting electric service from the cooperative or will transfer to another place outside the area covered by
the cooperative. However, under the Cooperative Code, the articles of cooperation of a cooperative applying for
registration must be accompanied with the bonds of the accountable officers and a sworn statement of the treasurer
elected by the subscribers showing that at least 25% of the authorized share capital has been subscribed and at least
25% of the total subscription has been paid and in no case shall the paid-up share capital be less than P2,000.00.
b. Extent of Government Control over Cooperatives – The extent of government control over electric cooperatives
covered by PD 269 is largely a function of the role of the NEA as a primary source of funds of these electric cooperatives.
It is crystal clear that NEA incurred loans from various sources to finance the development and operations of these
electric cooperatives. Consequently, amendments were primarily geared to expand the powers of NEA over the electric
cooperatives to ensure that loans granted to them would be repaid to the government. In contrast, cooperatives under
RA 6938 are envisioned to be self-sufficient and independent organizations with minimal government intervention or
regulation.
Second, the classification of tax-exempt entities in the Local Government Code is germane to the purpose of the law.
The Constitutional mandate that “every local government unit shall enjoy local autonomy,” does not mean that the
exercise of the power by the local governments is beyond the regulation of Congress. Sec. 193 of the LGC is indicative of
the legislative intent to vet broad taxing powers upon the local government units and to limit exemptions from local
taxation to entities specifically provided therein.
Finally, Sec. 193 and 234 of the LGC permit reasonable classification as these exemptions are not limited to existing
conditions and apply equally to all members of the same class.
e. Non-imprisonment for non-payment of poll tax
f. Prohibition against taxation of real property of charitable institutions, churches, parsonages or convents,
mosques, and non-profit cemeteries
i. Abra Valley College, Inc. v. Aquino, 162 SCRA 106 (1988) 64
o Exemption for educational purposes is liberally construed. Therefore, it may extend to facilities which
are INCIDENTAL TO and REASONABLY NECESSARY.
o The ground floor of an educational institution (which is tax exempted), being used for commercial
purpose does not fall under said extension, thus must be taxed.
FACTS:
Abra Valley College (a private school), located at Benguet, Abra, an educational corporation filed a complaint with the
Benguet provincial fiscal to annul and declare void the NOTICE OF SEIZURE and a NOTICE OF SALE of its lot and building
by the municipal and provincial treasurers for non-payment of real estate taxes and its penalties.
Respondents are the municipal and provincial treasurers filed through counsel a motion to dismiss the complaint.
The Provincial Fiscal opined that based on the evidence, the school building and the school lot used for educational
purpose of Abra Valley College are exempted from payment of taxes.
The trial court disagreed.
Abra Valley College (AVC) was renting out the ground floor of its college building to Northern Marketing Corporation
(NMC) while the second floor thereof is used by the Director of the College for residential purposes. So this is precisely
the reason why the municipal and provincial treasurers served upon the College a “notice of seizure” and later a “notice
of sale” due to the alleged failure of the College to pay real estate taxes and penalties thereon.
ISSUE:
whether or not the lot and building in question are used exclusively for educational purpose thus exempted?
RULING:
NO
While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively used for educational
purposes,” reasonable emphasis has always been made that exemption extends to facilities which are incidental to and
reasonably necessary for the accomplishment of the main purposes.
While the second floor’s use, as residence of the director, is incidental to education; the lease of the first floor cannot by
any stretch of imagination be considered incidental to the purposes of education.
The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution.
While the use of the second floor of the main building in the case at bar for residential purposes of the Director of the
school and his family may find justification under the concept of INCIDENTAL USE, which is complimentary to the main
or primary purpose which is educational
the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of imagination be
considered incidental to the purpose of education.
So the Supreme Court affirmed the lower court ruling stating it correctly arrived at the conclusion that Under the 1935
Constitution the school building as well as the lot where it is built, should be taxed. Not because of the second floor
issue but of the first floor.
However since it is only a portion of its premises is used for purpose of commerce, the high court directed that it is only
fair that half of the assessed tax be returned to the school.
the exemption in favor of property used exclusively for charitable or educational purposes is ‘not limited to property
actually indispensable’ therefor but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes.
the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence
ii. Lung Center v. QC et al., G.R. No. 144104, 29 June 2004 65
- The Lung center is a charitable institution thus lands, buildings which are ADE is exempted from taxes. However,
the portions leased to private individuals are not since they are used for commercial purposes.
FACTS:
The petitioner Lung Center of the Philippines is a non-stock and non-profit entity by virtue of Presidential Decree No.
1823. It is the registered owner of a parcel of land. Erected in the middle of the aforesaid lot is a hospital known as the
Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small
store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients
whom they charge for their professional services. Almost one-half of the entire area on the left side of the building is
vacant and idle, while a big portion on the right side is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center.

The petitioner accepts paying and non-paying patients. It also renders medical services to out-patients, both paying and
non-paying. Aside from its income from paying patients, the petitioner receives annual subsidies from the government.

Both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of ₱4M by
the City Assessor of Quezon City. Accordingly, Tax Declarations were issued for the land and the hospital building,
respectively.

The petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it
is a charitable institution. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the
property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used
for charity patients and that the major thrust of its hospital operation is to serve charity patients. The petitioner
contends that it is a charitable institution and, as such, is exempt from real property taxes. The Assessor rendered
judgment dismissing the petition and holding the petitioner liable for real property taxes: which ruled that the petitioner
was not a charitable institution and that its real properties were not actually, directly and exclusively used for charitable
purposes; hence, it was not entitled to real property tax exemption under the constitution and the law.

The petitioner sought relief from the Court of Appeals which sustained the previous decision.

Issues

Whether the petitioner is a charitable institution, thus exempted from real property taxes?

YES

Petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions.

To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered
include the
- Statute creating the enterprise,
- Its corporate purposes,
- Its constitution and by-laws,
- The methods of administration,
 - The nature of the actual work performed,
- The character of the services rendered,
- The indefiniteness of the beneficiaries, and
- The use and occupation of the properties.

The word “charitable” is not restricted to relief of the poor or sick. The test whether an enterprise is charitable or not is
whether it exists to carry out a purpose reorganized in law as charitable. Under P.D. No. 1823, the petitioner was
organized for the welfare and benefit of the Filipino people principally to help combat the high incidence of lung and
pulmonary diseases in the Philippines. Hence, the medical services of the petitioner are to be rendered to the public in
general in any and all walks of life including those who are poor and the needy without discrimination. After all, any
person, the rich as well as the poor, may fall sick or be injured or wounded and become a subject of charity.

As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply
because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies
from the government, so long as the money received is devoted or used altogether to the charitable object which it is
intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution.

Whether the real properties of the petitioner are exempt from real property taxes

NO.

those portions of its real property that are leased to private entities are not exempt from real property taxes as these
are not actually, directly and exclusively used for charitable purposes.

The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing power.

Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus: Charitable institutions, churches and
parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and
improvements, actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt
from taxation.

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is
burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are
ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.

“exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.” If real property is used for one or
more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation.

What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate
and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the
use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.

Accordingly, the portions of the land leased to private entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and
portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.

iv. Commissioner v. St. Luke’s Medical Center, G.R. No. 195909, 26 Sept 2012 Charitable hospital (exempted from
Income taxes)
DOCTRINES:
 The Supreme Court holds that Section 27(B) of the National Internal Revenue Code (NIRC) does not remove the
income tax exemption of proprietary non-profit hospitals under Section 30(E) and (G).
 Charity is essentially a gift to an indefinite number of persons which lessens the burden of government. In other
words, charitable institutions provide for free goods and services to the public which would otherwise fall on the
shoulders of government; The government forgoes taxes which should have been spent to address public needs,
because certain private entities already assume a part of the burden.
 Charitable institutions are not ipso facto entitled to a tax exemption. The requirements for a tax exemption are
specified by the law granting it.
 For real property taxes, the incidental generation of income is permissible because the test of exemption is the
use of the property; The effect of failing to meet the use requirement is simply to remove from the tax exemption that
portion of the property not devoted to charity.
 A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared from
sharing in the expenses of government and yet benefits from them.

Facts: Petitioner, St. Luke's Medical Center, Inc. (St. Luke's), is a hospital organized as a non-stock and non-profit
corporation paid On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed deficiency taxes amounting to
₱76,063,116.06 for 1998, which comprised of deficiency income tax, value-added tax, withholding tax on compensation
and expanded withholding tax. The BIR reduced the amount to ₱63,935,351.57 during trial in the First Division of the
CTA.
On 14 January 2003, St. Luke's filed an administrative protest with the BIR against the deficiency tax assessments. The
BIR did not act on the protest within the 180-day period under Section 228 of the NIRC. Thus, St. Luke's appealed to the
CTA.
According to BIR, Section 27B of the NIRC imposing a 10% preferential tax rate applies to St. Luke’s. Its reason is that it
amends the exemption on non-profit hospitals and which prevails over the exemption on income tax granted under
Section 30 (E and G) for non- stock, nonprofit charitable institution and civic
organizations promoting social welfare. It further claimed that St. Luke’s was actually operating for profit because only
13% came from charitable purposes and that it had a total revenue of P1.73B from patient services in 1998.
Meanwhile, St. Luke’s contended that its operating income only totaled P334 M (less the operating expenses) and out of
that P218M (65%) made up its free services and further claimed that its income does not inure to the benefit of anyone.
Furthermore, it argued that it falls under the exception provided under Sec. 30 (E) and (G) of NIRC and making of profit
per se does not destroy its tax exemption. CTA En Banc ruled in favor of St. Luke’s exemption under Sec. 30 and
reiterated its earlier fiding in another case identifying St. Luke’s as a charitable institution. CTA adopted the test in
Hospital de San Juan de Dios, Inc. v. Pasay City, which states that "a charitable institution does not lose its charitable
character and its consequent exemption from taxation merely because recipients of its benefits who are able to pay are
required to do so, where funds derived in this manner are devoted to the charitable purposes of the institution.

Issue: Whether or not St. Luke’s is liable for deficiency income tax under Sec. 27 (B) of the NIRC which imposes a 10%
preferential rate.

Ruling: Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B) of the NIRC. Under Sec. 30 (E) of the NIRC
provides that a charitable institution must be: (1) non-stock corporation or association; (2)ORGANIZED EXCLUSIVELY for
charitable purposes; (3)
OPERATED EXCLUSIVELY for charitable purposes; (4) No part of its net income or asset shall inure to the benefit of any
member , officer or any person.
Under the last paragraph of Sec. 30 of the NIRC if a tax exempt charitable institution conducts "any" activity for profit,
such activity is NOT TAX EXEMPT even as its not-for-profit activities remain tax exempt. It simply means that even if a
charitable institution organized and operated exclusively for charitable purposes is nevertheless allowed to engage in
“activities conducted for profit” without losing its tax exempt status for its no-for-profit activities. However, as a
consequence "income of whatever kind and character" of a charitable institution "from any of its activities conducted for
profit, regardless of the disposition made of such income, shall be subject to tax." (Sec. 30, last par.).
Therefore, services rendered to paying patients are activities conducted for profit and thus taxable under Sec. 27 (B) of
the NIRC. St. Luke's fails to meet the requirements under Section 30 (E) and (G) of the NIRC to be completely tax exempt
from all its income. However, it remains a proprietary non-profit hospital under Section 27 (B) of the NIRC as long as it
does not distribute any of its profits to its members and such profits are reinvested pursuant to its corporate purposes.
St. Luke's, as a proprietary nonprofit hospital, is entitled to the preferential tax rate of 10% on its net income from its
for-profit activities.

Notes:

1. TEST OF CHARITY - as a gift, to be applied consistently with existing laws, for the benefit of
an indefinite number of persons, either by bringing their minds and hearts under the influence of education or religion,
by assisting them to establish themselves in life or [by] otherwise lessening the burden of government." (In other words,
charitable institutions provide for free goods and services to the public which would otherwise fall on the shoulders of
government.)
2. Solely is synonymous with EXCLUSIVELY. (Lung center of the Phil.)
3. Proprietary- means private.
4. Non-profit- no net income accrues to the benefit of any person and with all its income devoted to the
institutions purpose and all its activities CONDUCTED NOT FOR PROFIT.

e. Prohibition against taxation of non-stock, non-profit educational

institutions i. Section 4(3,4), Article XIV of the Philippine
Constitution
ii. Sections 27 (B) and 30 (H), NIRC
iii. CIR v. CA & YMCA, 298 SCRA 83 (1998) [Charitable Institution, Not an educational
institution] DOCTRINES:

 In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the
last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be subject to the tax imposed by the same
Code. Because the last paragraph of said section unequivocally subjects to tax the rent income of the YMCA
 from its real property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from
resorting to any convoluted attempt at construction.
 Private respondent is exempt from the payment of property tax, but not income tax on the rentals from its
property.

Facts: Private Respondent YMCA is a non-stock, non-profit institution, which conducts various programs and activities
that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion of its
premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected
from non-members.

CIR issued an assessment to private respondent, in the total amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency
withholding tax on wages. Private respondent formally protested the assessment and, as a supplement to its basic protest,
filed a letter dated October 8, 1985.

CIR denied. Elevated to CTA.

CTA: Ruled in favor of YMCA. The leasing of YMCA’s facilities to small shop owners, to restaurant and
canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for
the accomplishment of the objectives of the YMCA.

The rentals and parking fees were just enough to cover the costs of operation and maintenance only. The earning[s]
from these rentals and parking charges including those from lodging and other charges for the use of the recreational
facilities constitute [the] bulk of its income which [is] channeled to support its many activities and attainment of its objectives

Considering our findings that the YMCA was not engaged in the business of operating or contracting [a] parking lot,
we find no legal basis also for the imposition of [a] deficiency fixed tax and [a] contractor’s tax in the amount[s] of P353.15
and P3,129.73, respectively. Therefore, YMCA is NOT liable for:
1980 Deficiency Fixed Tax—P353.15;
1980 Deficiency Contractor’s Tax
—P3,129.23; 1980 Deficiency
Income Tax—P372,578.20. Valid
Assessment: (YMCA is liable
+interest ):
1980 Deficiency Expanded Withholding Tax
—P1,798.93; 1980 Deficiency Withholding
Tax on Wages—P33,058.82

CIR elevated the case to CA: First CA decision: Applied the ruling in Province of Abra vs. Hernando and Abra Valley
College, Inc. vs. Aquino and held that YMCA is liable to pay Deficiency Income Tax, Deficiency Contractor's Tax and,
Deficiency Income Tax.

Upon MR filed by YMCA, CA reversed: The Court cannot depart from the CTA’s findings of fact, as they are
supported by evidence beyond what is considered as substantial. Affirmed CTA’s decision in toto
Issue: Whether or not the rental income of the YMCA from its real estate subject to tax

Held: YES. Respondent submits that Article VI, Section 28 of par. 3 of the 1987 Constitution,24 exempts “charitable
institutions” from the payment not only of property taxes but also of income tax from any source. The following are the
respondent’s arguments:
1. the present provision is divisible into two categories:
a. “[c]haritable institutions, churches and parsonages or convents appurtenant thereto, mosques and non-profit
cemeteries,” the incomes of which are, from whatever source, all tax-exempt;
b. “[a]ll lands, buildings and improvements actually and directly used for religious, charitable or educational
purposes,” which are exempt only from property taxes
2. Lladoc v. Commissioner of Internal Revenue,29 which limited the exemption only to the payment of property
taxes, referred to the provision of the 1935 Constitution and not to its counterparts in the 1973 and the 1987
Constitutions.
3. the phrase “actually, directly and exclusively used for religious, charitable or educational purposes” refers not only
to “all lands, buildings and improvements,” but also to the above-quoted first category which includes charitable
institutions like the YMCA.
The Court reviewed the constitutional deliberations which revealed said institutions (charitable etc) are only
exempt from real estate taxes. Therefore, private respondent is exempt from the payment of property tax, but not
income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational
institution is insufficient to justify its exemption from the payment of income tax.
Court held that YMCA is not an educational institution and it did not submit proof of the proportionate
amount of the subject income that was actually, directly and exclusively used for educational purposes.
Relevant Provision:
“SEC. 27. Exemptions from tax on corporations.—The following organizations shall not be taxed under this
Title in respect to income received by them as such— x x x x x x x x x (g) Civic league or organization not
organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and
operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income
of which inures to the benefit of any private stockholder or member; x x x x x x x x x
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the
foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (As amended by
Pres. Decree No. 1457)”
While the income received by the organizations enumerated in Section 27 (now Section 26) of the NIRC is, as a rule,
exempted from the payment of tax “in respect to income received by them as such,” the exemption does not apply to income
derived “x x x from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of
the disposition made of such income x x x.”
The last paragraph of said section unequivocally subjects to tax the rent income of the YMCA from its real
property,20 the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted
attempt at construction.
A reading of said paragraph ineludibly shows that the income from any property of exempt organizations, as well as
that arising from any activity it conducts for profit, is taxable. The phrase “any of their activities conducted for profit” does not
qualify the word “properties.” This makes income from the property of the organization taxable, regardless of how that income
is used—whether for profit or for lofty non-profit purposes.

G. Prohibition against taxation of non-stock, non-profit educational institutions

iv. CIR v. CA, CTA and ADMU, G.R. No. 115349, 18 April 1997
DOCTRINES:

 To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent
contractor be engaged in the business of selling its services. Hence, to impose the three percent
contractor’s tax on Ateneo’s Institute of Philippine Culture, it should be sufficiently proven that the private
respondent is indeed selling its services for a fee in pursuit of an independent business. And it is only after
private respondent has been found clearly to be subject to the provisions of Sec. 205 that the question of
exemption therefrom would arise. Only after such coverage is shown does the rule of construction—that tax
exemptions are to be strictly construed against the taxpayer—come into play, contrary to petitioner’s
position. This is the main line of reasoning of the Court of Tax Appeals in its decision, which was affirmed by
the CA.

 ADMU is not liable to pay for contractor’s tax

 There is no evidence that Ateneo’s Institute of Philippine Culture ever sold its services for a fee to anyone or
 was ever engaged in business aside from the academic purposes of the university.

FACTS: ADMU is a non-stock, non-profit educational institution with auxiliary units and branches all over the
Philippines, including the Institute of Philippine Culture (IPC) which has no separate legal personality. IPC is a Philippine
unit engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research
activities from international organizations, private foundations and government agencies. Because of IPC, CIR assessed
ADMU for alleged deficiency contractor's tax of P174,043.97 and income tax of P1,141,837. ADMU sent a letter-protest
after which CIR rendered a letter-decision canceling the assessment for deficiency income tax, but increasing the
contractor’s tax. ADMU filed a petition for review with CTA, which while pending, CIR reduced the contractor's tax. CTA
cancelled the contractor’s tax. CA affirmed. Hence this petition for review by CIR.
CIR contends that ADMU has the burden of proof to show its exemption from the coverage of the law and that the
term "independent contractor", as defined by the Code, encompasses all kinds of services rendered for a fee and that ADMU
does not fall within the following three exceptions:
a) Persons, association and corporations under contract for embroidery and apparel for export and gross receipts of or from
pioneer industry registered with the Board of Investment under R.A. No. 5186;
b) Individuals occupation tax under Sec 12 of the Local Tax Code; and
c) Regional or area headquarters established in the Philippines by multinational corporations, including their alien executives,
and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communication and
coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region (Section 205 of the Tax Code).

ISSUE: WON ADMU, through IPC, falls under the purview of an independent contractor pursuant to Sec 205 of the NIRC
and is thus subject to 3% contractor’s tax? – NO

RULING: CIR erred in applying the principles of tax exemption without first applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is obviously both illogical and impractical to determine who are exempted without
first determining who are covered by the aforesaid provision. The general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by
implication.
In answering the question of who is subject to tax statutes, it is basic that "in case of doubt, such statutes are to be
construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what statutes expressly and clearly import."
Under Sec. 205 of the NIRC, a contractor's tax of 3% is imposed on: (16) Business agents and other independent
contractors except persons, associations and corporations under contract for embroidery and apparel for export, as well as
their agents and contractors and except gross receipts of or from a pioneer industry registered with the Board of Investments
under RA 5186:
The term "independent contractors" include persons (juridical or natural) not enumerated above (but not
including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity
consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance
of the service calls for the exercise or use of the physical or mental faculties of such contractors or their
employees
To fall under its coverage, Sec 205 requires that the independent contractor be engaged in the business of selling its
services. Only after it is proven that IPC is indeed selling its services for a fee in pursuit of an independent business can it be
taxed under Sec. 205. ADMU’s IPC never sold its services for a fee to anyone or was ever engaged in a business apart from
and independently of the academic purposes of the university. Although CIR’s contention that the tax is due on IPC’s activity
may be correct, CIR has presented no evidence to prove its bare contention that contracts for sale of services were ever
entered into by IPC.
The funds received by ADMU are technically not a fee. They may however fall as gifts or donations which are tax-
exempt under Sec. 123 of NIRC providing for the exemption of such gifts to an educational institution. The funds received by
ADMU’s IPC are in the nature of an endowment or donation given by IPC's benefactors solely for the purpose of sponsoring
or funding the research with no strings attached.
It can’t also be considered as a contract of sale or a contract of a piece of work which both require a transfer of
ownership – results of searches remain owned by ADMU. Moreover, ADMU’s motive is Public Service, Not Profit. Thus, it is
not a contractor selling its services for a fee but an academic institution conducting these researches pursuant to its
commitments to education and, ultimately, to public service.

v. Angeles University Foundation v. City of Angeles, G.R. No. 189999, 27 June 2012
DOCTRINES:

 R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted to non-
stock, non-profit educational foundations.
 We explained the condition for the tax exemption privilege of charitable and educational institutions, as
follows: Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable
institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable
purposes.
“Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred from
participation or enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a
privilege exclusively.” If real property is used for one or more commercial purposes, it is not
 exclusively used for the exempted purposes but is subject to taxation. The words “dominant use” or
“principal use” cannot be substituted for the words “used exclusively” without doing violence to the
Constitutions and the law. Solely is synonymous with exclusively.
 What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is determinative of whether the
property is used for taxexempt purposes.
FACTS: Petitioner Angeles University Foundation (AUF) is an educational institution established and was converted
into a non-stock, non- profit education foundation. Sometime in 2005, petitioner filed for a building permit for the
construction of an 11-storey building of the Medical Center in its main campus. The City of Angeles issued a Building
Permit Fee Assessment in the amount of P126K and an order of Payment in the sum of P238K pursuant to the National
Bldg Code.
In separate letters addressed to the City Treasurer petitioner claimed that it is exempt from the payment of the
building permit and locational clearance and that respondents have previously issued building permits acknowledging such
exemption. Despite petitioner’s plea, however, respondents refused to issue the building permits for the construction of
the AUF Medical Center in the main campus and renovation of a school building.
Consequently, petitioner paid under protest for the Building permit fee and other charges, electrical fee, Fire
code fee and Locational Clearance Fee for the Medical Cent (new Construction) and School Building (renovation). BY reason
of such payments, petitioner was issued building permits. A refund then demanded by the petitioner which was denied by the
City treasurer.
Petitioners filed a complaint before the RTC.
RTC ruled in favor of the petitioner declaring AUF exempt from the payment of building permits. However upon
appeal, CA reversed the decision of the trial court holding that it is not exempt from the payment of regulatory Fees. CA
noted that under R.A. No. 6055, petitioner was granted exemption only from income tax derived from its educational activities
and real property used exclusively for educational purposes. Regardless of the repealing clause in the National Building
Code, the CA held that petitioner is still not exempt because a building permit cannot be considered as the other “charges”
mentioned in Sec. 8 of R.A. No. 6055 which refers to impositions in the nature of tax, import duties, assessments and other
collections for revenue purposes.
PETITIONERS: Petitioner stresses that the tax exemption granted to educational stock corporations which
have converted into non-profit foundations was broadened to include any “other charges imposed by the
Government” as one of the incentives for such conversion. Petitioner further contends that this Court has consistently held
in several cases that the primary purpose of the exaction determines its nature. Thus, a charge of a fixed sum which bears
no relation to the cost of inspection and which is payable into the general revenue of the state is a tax rather than an exercise
of the police power. The standard set by law in the determination of the amount that may be imposed as license fees is such
that is commensurate with the cost of regulation, inspection and licensing. But in this case, the amount representing the
building permit and related fees and/or charges is such an exorbitant amount as to warrant a valid imposition; such amount
exceeds the probable cost of regulation. Even with the alleged criteria submitted by the respondents and the construction by
petitioner of an 11-storey building, the costs of inspection will not amount to P645,906.84.
RESPONDENTS: respondents maintain that petitioner is not exempt from the payment of building permit and
related fees since the only exemptions provided in the National Building Code are public buildings and traditional
indigenous family dwellings. Inclusio unius est exclusio alterius. Because the law did not include petitioner’s buildings from
those structures exempt from the payment of building permit fee, it is therefore subject to the regulatory fees imposed under
the National Building Code.

ISSUE:
1. Whether Petitioner is exempt from the payment of building permit and related fees imposed under the National Building Code
2. Whether the parcel of land owner by petitioner which has been assessed for real property tax is likewise exempt

HELD:
1. NO. R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted to non-stock, non-profit
educational foundations. Section 8 of said law provides:.” The Foundation shall be exempt from the payment of all taxes, import duties,
assessments, and other charges imposed by the Government on all income derived from property, real or personal, used exclusively for
the educational activities of the Foundation”
While PD 1096 was issued adopting the National Building Code of the Philippines. The said Code requires every
person, firm or corporation, including any agency or instrumentality of the government to obtain a building permit for any
construction, alteration or repair of any building or structure. Exempted from the payment of building permit fees are: (1)
public buildings and (2) traditional indigenous family dwellings being expressly included in the enumeration of
structures to which the building permit fees do not apply, petitioner’s claim for exemption rests solely on its
interpretation of the term “other charges imposed by the National Government” in the tax exemption clause of R.A.
No. 6055.
A “charge” is broadly defined as the “price of, or rate for, something,” while the word “fee” pertains to a “charge fixed
by law for services of public officers or for use of a privilege under control of government.”
Charges refers to pecuniary liability, as rents or fees against persons or property, while fee means a charge fixed by
law or ordinance for the regulation or inspection of a business or activity. That “charges” in its ordinary meaning appears to
be a general term which could cover a specific “fee” does not support petitioner’s position that building permit fees are among
those “other charges” from which it was expressly exempted.
That a building permit fee is a regulatory imposition is highlighted by the fact that in processing an application for a
building permit, the Building Official shall see to it that the applicant satisfies and conforms with approved standard
requirements on zoning and land use, lines and grades, structural design, sanitary and sewerage, environmental health,
electrical and mechanical safety
As to petitioner’s argument that the building permit fees collected by respondents are in reality taxes because the
primary purpose is to raise revenues for the local government unit, the same does not hold water. 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 functions affecting
buildings/structures, like local government units,
may be further required before a building permit may be issued. Since building permit fees are not charges on property, they
are not impositions from which petitioner is exempt.
Concededly, in the case of building permit fees imposed by the National Government under the National Building
Code, revenue is incidentally generated for the benefit of local government units. Sec. 193 of the Local Government Code
provides:
SECTION 193. Withdrawal of Tax Exemption Privileges. -- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code. (Emphasis supplied.)

2. NO. Section 28(3), Article VI of the 1987 Constitution provides:

(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for religious,
charitable or educational purposes shall be exempt from taxation.
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner
is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are
ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. “Exclusive” is defined as possessed and enjoyed
to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude; as
enjoying a privilege exclusively.” If real property is used for one or more commercial purposes, it is not exclusively used for
the exempted purposes but is subject to taxation. The words “dominant use” or “principal use” cannot be substituted for the
words “used exclusively” without doing violence to the Constitutions and the law. Solely is synonymous with exclusively.
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate
and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of
the income from the real property that is determinative of whether the property is used for tax-exempt purposes.
Petitioner failed to discharge its burden to prove that its real property is actually, directly and exclusively used for
educational purposes. While there is no allegation or proof that petitioner leases the land to its present occupants, still there
is no compliance with the constitutional and statutory requirement that said real property is actually, directly and exclusively
used for educational purposes. The respondents correctly assessed the land for real property taxes for the taxable period
during which the land is not being devoted solely to petitioner’s educational activities.

vi. CIR v. De La Salle University, Inc., G.R. No. 196596, 09 Nov 2016 DLSU, Despite Sec. 30, it is still exempted since the
income from properties is still used for educational purposes under Sec. 4(3), Art. XIV of Constitution.
DOCTRINES:

 When a non-stock, nonprofit educational institution proves that it uses its revenues actually, directly, and
exclusively for educational purposes, it shall be exempted from income tax, value-added tax (VAT), and local
business tax. On the other hand, when it also shows that it uses its real property for educational purposes, it
shall be exempted from real property tax.
 Income and revenues of non-stock, nonprofit educational institution not used actually, directly and
exclusively for educational purposes are not exempt from duties and taxes.
 While a non-stock, nonprofit educational institution is classified as a tax-exempt entity under Section 30
(Exemptions from Tax on Corporations) of the National Internal Revenue Code (NIRC), a proprietary
educational institution is covered by Section 27 (Rates of Income Tax on Domestic Corporations)
 A proprietary educational institution is entitled only to the reduced rate of ten percent (10%) corporate
income tax. The reduced rate is applicable only if: (1) the proprietary educational institution is nonprofit
and (2) its gross income from unrelated trade, business or activity does not exceed fifty percent (50%) of
its total gross income.

FACTS:
BIR issued to DLSU Letter of Authority to examine the latter's books of accounts and other accounting records for all internal
revenue taxes for the period Fiscal Year Ending 2003 and Unverified Prior Years.
BIR issued a Preliminary Assessment Notice to DLSU for the following deficiency taxes:
(1) income tax on rental earnings from restaurants/canteens and bookstores
operating within the campus;
(2) value-added tax (VAT) on business income; and
(3) documentary stamp tax (DST) on loans and lease contracts.
BIR demanded the payment of P17M, inclusive of surcharge, interest and penalty for taxable years 2001, 2002 and
2003. DLSU protested the assessment. The Commissioner failed to act on the protest; thus, DLSU filed petition for review
with the CTA Division.
 DLSU, a non-stock, non-profit educational institution, principally anchored its petition on Article XIV, Section 4 (3) of
the Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. xxx.
CTA Division: Cancelled DST assessment on the loan transactions but retained other deficiency taxes.
Commissioner and DLSU moved for reconsideration which were denied. Commissioner appealed to the CTA En Banc
arguing that DLSU's use of its revenues and assets for non-educational or commercial purposes removed these items from
the exemption coverage under the Constitution.
Meanwhile, DLSU formally offered to the CTA Division supplemental pieces of documentary evidence to prove that
its rental income was used actually, directly and exclusively for educational purposes. The Commissioner did not promptly
object to the formal offer of supplemental evidence despite notice.
CTA Division: reduced the amount of DLSU's tax deficiencies. Dissatisfied with the partial reduction of its tax
liabilities, DLSU filed a separate petition for review with the CTA En Banc on the following grounds:
(1) the entire assessment should have been cancelled because it was based on an invalid LOA;
(2) assuming the LOA was valid, the CTA Division should still have cancelled the entire assessment because DLSU submitted
evidence similar to those submitted by Ateneo in a separate case where the CTA cancelled Ateneo's tax assessment; and
(3) the CTA Division erred in finding that a portion of DLSU's rental income was not proved to have been used actually, directly
and exclusively for educational purposes.

CTA En Banc ruled on the ff:

 Tax on rental income: DLSU was able to prove that a portion of the assessed rental income was used actually, directly and
exclusively for educational purposes; hence, exempt from tax. Rental income had indeed been used to pay the loan it
obtained to build the university's Physical Education - Sports Complex. However, other unsubstantiated claim for
exemption must be subjected to income tax and VAT.
 DST on loan and mortgage transactions: Contrary to the Commissioner's contention, DLSU proved its remittance of the
DST due on its loan and mortgage documents evidenced by the stamp on the documents made by a DST imprinting
machine.
 Admissibility of DLSU's supplemental evidence: Supplemental pieces of documentary evidence were admissible even if
DLSU formally offered them upon MR. Law creating the CTA provides that proceedings before it shall not be governed
strictly by the technical rules of evidence. (Affirmed by SC)
 On the validity of the Letter of Authority : LOA should cover only one taxable period and that the practice of issuing a LOA
covering audit of unverified prior years is prohibited. If the audit includes more than one taxable period, the other
periods or years shall be specifically indicated in the LOA. In the present case, the LOA issued to DLSU is for Fiscal Year
Ending 2003 and Unverified Prior Years. Hence, the assessments for deficiency income tax, VAT and DST for taxable
years 2001 and 2002 are void, but the assessment for taxable year 2003 is valid.
 On the CTA Division's appreciation of the evidence: The CTA En Banc affirmed the CTA Division's appreciation of DLSU's
evidence. It held that while DLSU successfully proved that a portion of its rental income was transmitted and used to
pay the loan obtained to fund the construction of the Sports Complex, the rental income from other sources were not
shown to have been actually, directly and exclusively used for educational purposes. (Affirmed by SC)

ISSUE: Whether or not DLSU's income and revenues proved to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes.- Yes.

CIR’s Arguments: DLSU's rental income is taxable regardless of how such income is derived, used or disposed of.
Section 30
(H) of the Tax Code,which states among others, that the income of whatever kind and character of a non-stock and non-profit
educational institution from any of its properties, real or personal, or from any of its activities conducted for profit regardless
of the disposition made of such income, shall be subject to tax. Commissioner posits that a tax-exempt organization like
DLSU is exempt only from property tax but not from income tax on the rentals earned from property.
DLSU’s Arguments: Article XIV, Section 4 (3) of the Constitution is clear that all assets and revenues of non-
stock, non-profit educational institutions used actually, directly and exclusively for educational purposes are
exempt from taxes and duties.

RULING: Yes. The income and revenues of DLSU proven to have been used actually, directly and exclusively for
educational purposes are exempt from duties and taxes.
Article XIV, Section 4 (3) of the Constitution refers to 2 kinds of institutions; (1) non-stock, non-profit educational
institutions and (2) proprietary educational institutions. DLSU falls on the first category. The difference is that the tax
exemption granted to non-stock, non- profit educational institutions is conditioned only on the actual, direct and exclusive use
of their revenues and assets for educational purposes. While tax exemptions may also be granted to proprietary educational
institutions, these exemptions may be subject to limitations imposed by Congress. The tax exemption granted by the
Constitution to non-stock, non-profit educational institutions, unlike the exemption that may be availed of by proprietary
educational institutions, is not subject to limitations imposed by law.
Article XIV, Section 4 (3) does not require that the revenues and income must have also been sourced from
educational activities or activities related to the purposes of an educational institution.The phrase “all revenues” is
unqualified by any reference to the source of revenues. Thus, so long as the revenues and income are used
actually, directly and exclusively for educational purposes, then said revenues and income shall be exempt from
taxes and duties.
Court laid down the requisites for availing the tax exemption under Article XIV, Section 4 (3), namely:
 (1) the taxpayer is a non-stock, non-profit educational institution; and
(2) the income is used actually, directly and exclusively for educational purposes.
Article XIV,Section 4 (3) categorically states that "all revenues and assets... used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties."
The tax exemption was seen as beneficial to students who may otherwise be charged unreasonable tuition fees if
not for the tax exemption extended to all revenues and assets of non-stock, non-profit educational institutions.
We find it helpful to discuss at this point the taxation of revenues versus the taxation of assets.
Revenues consist of the amounts earned by a person or entity from the conduct of business operations. It may refer
to the sale of goods, rendition of services, or the return of an investment. Revenue is a component of the tax base in income
tax, VAT,84 and local business tax (LBT).
Assets, on the other hand, are the tangible and intangible properties owned by a person or entity. It may refer to real
estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of goods, or any property from which the
person or entity may derive income or use to generate the same. In Philippine taxation, the fair market value of real property
is a component of the tax base in real property tax (RPT). Also, the landed cost of imported goods is a component of the tax
base in VAT on importation and tariff duties.
Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually, directly,
and exclusively for educational purposes, it shall be exempted from income tax, VAT, and LBT. On the other hand,
when it also shows that it uses its assets in the form of real property for educational purposes, it shall be exempted
from RPT.
To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax from which the
entity shall be exempted from shall depend on whether the item is an item of revenue or asset.
While a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30
(Exemptions from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered by Section 27 (Rates
of Income Tax on Domestic Corporations).
non-stock, non-profit educational institutions vs proprietary educational institution
To be specific, Section 30 provides that exempt organizations like non-stock, non-profit educational
institutions shall not be taxed on income received by them as such.
Section 27 (B), on the other hand, states that [p]roprietary educational institutions...which are nonprofit
shall pay a tax of ten percent (10%) on their taxable income...Provided, that if the gross income from unrelated trade,
business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational
institutions...[the regular corporate income tax of 30%] shall be imposed on the entire taxable income...
By the Tax Code's clear terms, a proprietary educational institution is entitled only to the reduced rate of 10%
corporate income tax. The reduced rate is applicable only if:
(1) the proprietary educational institution is non profit and
(2) its gross income from unrelated trade, business or activity does not exceed 50% of its total gross income.
Thus, we declare the last paragraph of Section 30 of the Tax Code without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of non-stock, nonprofit educational institutions used
actually, directly and exclusively for educational purpose. We make this declaration in the exercise of and consistent with our
duty93 to uphold the primacy of the Constitution.

iii. CIR v. St. Paul College Makati, G.R. No. 215383, 08 March 2017 71
FACTS:
On 22 July 2013 CIR, issued RMO No. 20-2013 which prescribes the Policies and Guidelines in the Issuance of Tax
Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations.
Respondent St. Paul College of Makati (SPCM), a non-stock, non-profit educational institution, filed a Civil Action to
Declare Unconstitutional RMO No. 20-2013 with Prayer for Issuance of TRO and Writ of Preliminary Injunction before
the RTC.
Respondent SPMC’s contention:
RMO No. 20-2013 imposes as a prerequisite in the enjoyment of the privilege of tax exemption under Sec. 4(3) of Article
XIV of the Constitution:

- registration and approval requirement

- that they submit an application for tax exemption to the BIR subject to approval by CIR valid for a period of
three years and subject to renewal
RTC granted the writ of preliminary injunction after finding that RMO No. 20-2013 appears to divest non-stock, non-
profit educational institutions of their tax exemption privilege.
RTC denied the CIR's motion for reconsideration.
RTC ruled in favor of SPCM and declared RMO No. 20-2013 unconstitutional. It held that the prerequisite of registration,
application, and approval of CIR to non-stock, non-profit educational institutions, [RMO No. 20-2013 serves] is a
diminution of the constitutional privilege, which even Congress cannot diminish by legislation, and thus more so by the
CIR who merely exercises quasi-legislative function.
ISSUES:
1. won the RMO issued by the CIR violates the constitution with respect to tax exemptions of non-stock, non-profit
educ inst.?
YES.
SECTION 1. Nature of Tax Exemption. --- The tax exemption of non-stock, non-profit educational institutions is directly
conferred by paragraph 3, Section 4, Article XIV of the 1987 Constitution:
"All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes shall be exempt from taxes and duties."
It is clear and unmistakable from the aforequoted constitutional provision that non-stock, non-profit educational
institutions are constitutionally exempt from tax on all revenues derived in pursuance of its purpose as an educational
institution and used actually, directly and exclusively for educational purposes. This constitutional exemption gives the
non-stock, non-profit educational institutions a distinct character. And for the constitutional exemption to be enjoyed,
jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: (1) The school must be non-
stock and non-profit; and (2) The income is actually, directly and exclusively used for educational purposes. There are no
other conditions and limitations as provided by law and is therefore constitutional.
In this light, the constitutional conferral of tax exemption upon non-stock and non-profit educational institutions should
not be implemented or interpreted in such a manner that will defeat or diminish the intent and language of the
Constitution.
However, The petition of CIR is denied on the ground of mootness. On 25 July 2016, the present CIR Caesar R. Dulay
issued RMO No. 44-2016, which provides for the amendment of RMO No. 20-2013. In line with the Bureau's
commitment to put in proper context the nature and tax status of non-profit, non-stock educational institutions, this
Order is being issued to exclude non-stock, non-profit educational institutions from the coverage of Revenue
Memorandum Order No. 20-2013, as amended.