TAX1 DIGESTS

A. Concepts, Nature, Characteristics of Taxation and Taxes

1. Power of Taxation
a) Taxation

 Sarasola v. Trinidad, 40 Phil. 252

Facts:
A complaint for injunction was filed by the petitioner before CFI Manila to restrain the Collector of Internal Revenue from the
alleged illegal collection of taxes in the amount of 11,739 pesos. CIR interposed a demurrer to the complaint on the following
grounds:

a. Court had no jurisdiction of the subject matter because of the provisions of the Sec. 1578 of the Administrative Code;
b. Facts stated in the complain did not entitle the plaintiff to the relief demanded.

Judge of CFI sustained the demurrer (basing his decision from Churchill case). The appellant’s assignments of error can be
summarized as to the following: “Is the legal provision prohibiting the courts from granting an injunction to retrain the
collection of internal revenue taxes constitutional?” The laws in question in this case are Secs. 1578-1579 of the
Administrative Code of 1917.

Sec. 1578: Injunction not available to restrain collection of tax – No court shall have authority to grantan injunction to restrain
the collection of any internal revenue tax.
Sec. 1579: Recovery of tax paid under protest – When the validity of any tax is questioned, or itsamount disputed, or other
question raised as to liability therefore, the person against whom or against whose property the same is sought to be enforced
shall pay the tax under instant protest, or upon protest within 10 days, and shall request the decision of the Collector of
Internal Revenue. If the decision of the Collector of Internal Revenue is adverse, or if no decision is made by him within 6
months from the date when his decision was requested, the taxpayer may proceed, at any time within 2 years after the
payment of the tax, to bring an action against the Collector of Internal Revenue for the recovery without interest of the sum
alleged to have been illegally collected, the process to be served upon him, upon the provincial treasurer, or upon the officer
collecting the tax.
Note: The antecedents of the aforecited laws found its particular inspiration in a similar provision in the
Act of Congress (of the United States).

Issue: Whether or not the words “without interest” is constitutional.

HELD: YES.
Principles from US cases:
1. Broad principle: every taxpayer has a right to a remedy for any actual wrong he may have suffered in the collection of taxes.
Usually, a party will find a plain and sufficient remedy for the injuries complained of, or threatened, in the courts of law; in
such instances, equity will not take jurisdiction.
2. Where, as in the Philippines, the taxpayer is permitted to pay the amount demanded of him under protest and then maintain
an action at law to recover back the whole amount paid or so much of it was illegal exacted, this is regarded as an adequate
remedy.
3. The phrase “without interest” were not included when the Legislature of the State of Tennessee enacted a statute similar to
that of the Philippine statute: “This remedy is simple and effective… it is a wise and reasonable precaution for the security of
the government. No government could exist that permitted its collection to be delayed by every litigious man or every
embarrassed man, to whom delay was more important than the payment of costs.”
4. There can be no case of equitable cognizance “where there is a plain and adequate remedy at law.” And except where the
special circumstances, the party of whom an illegal tax is collected has ordinarily ample remedy, either by action against the
officer making the collection or the body to whom the tax was paid.

Decision of the Court:

5. It is well settled both on principle and authority that interest is not to be awarded against a sovereign government unless its
consent has been manifested by an Act of its Legislature or by a lawful contract of its executive officers. If there be doubt upon
the subject, that doubt must be resolved in favor of the State.
6. “The state never pays interest unless she expressly engages to do so.”
7. Taxes only draw interest as do sums of money when expressly authorized. Interest cannot be recovered on an abatement
unless the statute provides for it.
8. The only contrary dictum is that where an illegal tax has been collected, the citizen who has paid and is obliged to bring suit
against the collector is entitled to interest from the time of the illegal exaction. The distinction undoubtedly arises through the
fiction that the suit is against the collector and not against the State, although the judgment is not to be paid by the collector
but directly from the treasury.
9. The state is not amenable to judgments for damages or costs without its consent.
10. Our own statute not only does not authorize interest but negatives the payment of interest.
11. The law is valid, or that the plaintiff has not proven such a case of irreparable injury as would warrant the issuance of the
extraordinary writ of execution.

On the Scope of Taxation

12. Taxation is an attribute of sovereignty. It is the strongest of all the powers of government. It involves the power to destroy.

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13. Dows case: “It is upon taxation that the several states chiefly rely to obtain the means to carry on their respective
governments, and it is of the utmost important to all of them that the modes adopted to enforce the taxes levied should be
interfered with as little as possible”
14. The Government may fix the conditions upon which it will consent to litigate the validity of its original taxes.
15. The power of taxation being legislative, all the incidents are within the control of the Legislature.

 CIR v. SANTOS 277 SCRA 1997

GR 119252, 18 August 1997
Wisdom of tax policy not a justiciable issue

FACTS: On August 5, 1988, the then Regional Director of Region 4-A, acting for and in behalf of the Commissioner of Internal
Revenue, issued Regional Mission Order directing BIR officers to conduct surveillance, monitoring, and inventory of all
imported articles of Hans Brumann, Inc., a member of the Guild of Philippine Jewelers, Inc., and place the same under
preventive embargo. This was to see if the proper taxes have been paid. The duration of the mission was from August 8-20,
1988.

The BIR officers inventoried the articles, requested for proof of necessary payments for excise and VAT taxes on said articles,
and requested not to sell the articles until it can be proven that the necessary taxes thereon have been paid. The owner,
Brumann, signed a receipt acknowledging that the articles inventoried have been seized and left in his possession, and
promising not to dispose of the same without authority of the CIR pending investigation.
The BIR requested that certain documents be presented for ―stocktaking investigation for excise tax purposes‖ but Brumann
did not produce them. Other members of the Guild (Miladay Jewels, Mercelles, Solid Gold, Diagem Traders) were also
subjected to the same request.

On Nov. 29, 1988, private respondents prayed that Sec. 126, 127(a)(b), 150(a) of the National Internal Revenue Code and Hdg.
No 71.01, 71.02, 71.03, 71.04, Chapter 71 of the Tariff and Customs Code be declared unconstitutional and void, and that the
CIR and Customs be prevented or enjoined from issuing mission orders and other orders of similar nature.
The RTC declared Sec 104 of the Tariff and Custom Code of the Philippines, Hdg, 71.01, 71.02,71.03,71.04, Chapter 71 as
amended by EO 470, imposing 3%-10% tariff and customs duty on natural and cultured pearls and precious or semi-precious
stones, and Sec. 150(1) of the National Internal Revenue Code of 1977, as amended, renumbered and rearranged by EO 273,
imposing 20% excise tax on jewelry, pearls, and other precious stones, as inoperative and without force and effect insofar as
petitioners are concerned.

ISSUE: Whether or not the RTC has authority to pass judgment upon taxation policy of the government.

RULING: Passing judgment on the wisdom of the laws is a matter on which the RTC is not competent to rule. It is a matter for
the legislature to decide. ―The Judiciary does not pass upon question of wisdom, justice or expediency of legislation‖ (Angara
vs. Electoral Commission). Judicial power only allows ―to settle actual controversies involving rights which are legally
demandable and enforceable‖ and may not annul an act of the political departments simply because the judiciary feel it
unwise or impractical.

Respondent RTC judge encroached upon matters properly falling within the province of legislative functions. In citing as basis
for his decision unproven comparative data pertaining to differences between tax rates of various Asian countries, and
concluding that the jewelry industry in the Philippines suffers as a result, the respondent judge took it upon himself to
supplant legislative policy regarding jewelry taxation. In advocating the abolition of local tax and duty on jewelry simply
because other countries have adopted such policies, the respondent judge overlooked the fact that such matters are not for
him to decide.

There are reasons why jewelry, a non-essential item, is taxed as it is and these reasons are deliberated by our legislature, are
beyond the reach of judicial questioning. As held in Macasiano vs. National Housing Authority:
―The policy of our courts is to avoid ruling on constitutional questions and to presume that the acts of the political
departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain, this
presumption is based on the doctrine of separation of powers…The theory is that as the joint act of Congress and the President
of the Philippines, a law has been carefully studied and determined to be in accordance with the fundamental law before it was
finally enacted.‖

BUT, this is not to say that the RTCs have no power to declare a law unconstitutional. ―The Constitution contemplates that the
inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate
review 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 RTC can only look into the validity of a provision,
that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot inquire as to the
reasons for its existence.

Judges can only interpret and apply the law, they cannot repeal or amend it.

 GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA 696

GR 159796, 17 July 2007
Regulatory exactions are not taxes

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FACTS: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), which sought to impose a
universal charge on all end-users of electricity for the purpose of funding NAPOCOR‘s projects, was enacted and took effect in
2001.

Petitioners contest the constitutionality of the EPIRA, stating that the imposition of the universal charge on all end-users is
oppressive and confiscatory and amounts to taxation without representation for not giving the consumers a chance to be
heard and be represented.

ISSUE: Whether or not the universal charge is a tax.

RULING: NO. The assailed universal charge is not a tax, but an exaction in the exercise of the State‘s police power. That public
welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates the policies of the State regarding
electrification. Moreover, the Special Trust Fund feature of the universal charge reasonably serves and assures the attainment
and perpetuity of the purposes for which the universal charge is imposed (e.g. to ensure the viability of the country‘s electric
power industry), further boosting the position that the same is an exaction primarily in pursuit of the State‘s police objectives
If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is
the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax.
The taxing power may be used as an implement of police power. The theory behind the exercise of the power to tax emanates
from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the
people.

 CHURCHILL v. CONCEPCION, 34 Phil 969

Facts:
Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914, imposed an annual tax of P4 per square meter
upon "electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs displayed on
premises not occupied by buildings.

This section was subsequently amended by Act No. 2432, effective January 1, 1915, by reducing the tax on such signs,
billboards, etc., to P2 per square meter or fraction thereof. Francis A. Churchill and Stewart Tait, copartners doing business
under the firm name and style of the Mercantile Advertising Agency, owners of a sign or billboard containing an area of 52
square meters constructed on private property in the city of Manila and exposed to public view, were taxes thereon P104. The
tax was paid under protest.

Issue:
Whether or not the imposition of the tax is void for lack of uniformity.

Ruling:
NO. A tax is uniform, within the constitutional requirement, when it operates with the same force and effect in every place
where the subject of it is found. Uniformity, as applied to the constitutional provision that all taxes shall be uniform, means
that all property belonging to the same class shall be taxed alike. It does not mean that all lands, chattels, securities, incomes,
occupations, franchises, privileges, necessities, and luxuries shall all be assessed at the same rate. Different articles may be
taxed at different amounts provided the rate is uniform on the same class everywhere, with all people, at all times.

The statute under consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-board,
etc., wherever found in the Philippine Islands. Or in other words, the rule of taxation upon such signs is uniform throughout
the Islands. The rule, which we have just quoted from the Philippine Bill, does not require taxes to be graded according to the
value of the subject or subjects upon which they are
imposed, especially those levied as privilege or occupation taxes.

 CIR v. EASTERN TELECOMMUNICATIONS, 624 SCRA 340

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

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

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

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

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

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

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

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

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

The general rule is that appeals can only raise questions of law or fact that (a) were raised in the court below, and (b) are
within the issues framed by the parties therein (People v. Echegaray, G.R. No. 117472). An issue which was neither averred in
the pleadings nor raised during trial in the court below cannot be raised for the first time on appeal.

The rule against raising new issues on appeal is not without exceptions; it is a procedural rule that the Court may relax when
compelling reasons so warrant or when justice requires it. What constitutes good and sufficient cause that would merit
suspension of the rules is discretionary upon the courts (CIR v. Mirant Pagbilao Corporation, G.R. No. 159593). Another
exception is when the question involves matters of public importance.

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

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

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

c) Power of Taxation as an implement of the power of eminent domain

 CARLOS SUPERDRUG CORP. v. DSWD, G.R. NO. 166494 JUNE 29, 2007
Tax credits vs tax deductions; superiority of general welfare over property rights

FACTS: This is a petition for Prohibition with Prayer for Preliminary Injunction assailing the constitutionality of Sec. 4(a) of RA
9257 (Expanded Senior Citizens Act of 2003) based on the grounds that (1) the law is confiscatory; (2) it violates the equal
protection clause; and, (3) the 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that
makes "essential goods, health and other social services available to all people at affordable cost."
Sec. 4(a) of the Act states that the senior citizens shall be entitled to 20% discount from all establishments relative to the
utilization of services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of senior citizens, including funeral and burial services for
the death of senior citizens; and, the establishment may claim the discounts as tax deduction based on the net cost of the goods
sold or services rendered.

ISSUES:
1) What is a tax credit and what are its effects
2) What is a tax deduction and what are its effects
3) Whether the State, in promoting the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program

RULING:

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1) Under RA 7432 (the old Senior Citizens Act) the 20% discount may be claimed by the private establishments concerned as
tax credit. A tax credit is a peso-for-peso deduction from a taxpayer‘s tax liability due to the government of the amount of
discounts such establishment has granted to a senior citizen. The establishment recovers the full amount of discount given to a
senior citizen and hence, the government shoulders 100% of the discounts granted. A tax credit scheme under the Philippine
tax system, necessitates that prior payments of taxes have been made and the taxpayer is attempting to recover this tax
payment from his/her income tax due.

2) Under RA No. 9257, the establishment concerned may claim the 20% discounts as tax deduction from gross income, based
on the net cost of goods sold or services rendered. Under this scheme, the establishment concerned is allowed to deduct from
gross income, in computing for its tax liability, the amount of discounts granted to senior citizens. Effectively, the government
loses in terms of foregone revenues an amount equivalent to the marginal tax rate the said establishment is liable to pay the
government. This will be an amount equivalent to 32% of the 20% discounts so granted. The establishment shoulders the
remaining portion of the granted discount.

3) A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet the definition of
just compensation. However, the Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to
nation-building, and to grant benefits and privileges to them for their improvement and well-being as the State considers them
an integral part of our society, as provided for in Art. XV, Sec. 4 of the Constitution. The law is a legitimate exercise of police
power which has general welfare for its object. When the conditions so demand as determined by the legislature, property
rights must bow to the primacy of police power because property rights, though sheltered by due process, must yield to
general welfare.

6. Nature of the power of taxation

 ROXAS v. CTA, 23 SCRA 276

FACTS:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession
properties which are agricultural lands, residential house and shares of stocks. The grandchildren formed a partnership called
Roxas y Compania.

1. AGRICULTURAL LANDS - Government persuaded the Roxas brothers to part with their landholdings. Roxas brothers
agreed to sell 13,500 hectares to the Government for distribution to actual occupants. However, government did not
have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance
Corporation to advance to Roxas y Cia as loan. Collateral for such loan were the lands proposed to be sold to the
farmers. Roxas y Cia allowed the farmers to buy the lands for the same price but by installment, and contracted with
the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations paid by the
farmers. In 1953 and 1955 Roxas y Cia derived from said installment payments a net gain where Fifty percent of said
net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year
pursuant to Section 34 of the Tax Code.

2. RESIDENTIAL HOUSE - Roxas brothers lived in the residential house which they inherited from their grandparents.
After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. Jose paid to
Roxas y Cia. rentals for the house in the sum of P8,000.00 a year. Commissioner of Internal Revenue demanded from
Roxas y Cia the payment of real estate dealer's tax based on the fact that Roxas y Cia received house rentals from
Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a
yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to
pay the corresponding fixed tax. Also, for the reason that Roxas y Cia subdivided its Nasugbu farm lands and sold them
to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate,
hence, 100% of the profits derived therefrom was taxed.

Roxas Brothers questioned the assessment but was denied. They instituted an appeal in the Court of Tax Appeals. The Tax
Court sustained the assessment except the demand for the payment of the fixed tax on dealer of securities and the
disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de
Manresa.

ISSUES:
(1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?
(2) Are the deductions for business expenses and contributions deductible?
(3) Is Roxas y Cia liable for the payment of the fixed tax on real estate dealers?

RULING: Court ruled in favor of petitioner.

RATIONALE:
(1) It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations
was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government
to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it
had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very
reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly,
Roxas y Cia. shouldered the Government’s burden, went out of its way and sold lands directly to the farmers in the
same way and under the same terms as would have been the case had the Government done it itself. For this
magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people’s gratitude.

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 (2) The contribution to the Manila Police trust fund is an allowable deduction for said trust fund belongs to the Manila
Police, a government entity, intended to be used exclusively for its public functions. The contributions were not made
to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for
charitable purposes. There is no question that the members of this group of citizens do not receive profits, for all the
funds they raised were for Manila’s neediest families.

(3) Although they paid for their respective holdings in installment for a period of ten years, it would nevertheless not
make the vendor Roxas y Cia. a real estate dealer during the ten-year amortization period. It was the bounden duty of
the Government to pay the agreed compensation after it had persuaded Roxas y Cia. However, the Government could
not comply with its duty for lack of funds. Obligingly, Roxas y Cia shouldered the Government's burden, went out
of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the
case had the Government done it itself. In fine, Roxas y Cia cannot be considered a real estate dealer for the sale in
question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain
derived from the sale thereof is capital gain, taxable only to the extent of 50%.

8. Extent of Legislative Power to Tax

1) Scope of Legislative Power to tax

 CREBA, INC. v. ROMULO, G.R. NO. 160756 MARCH 9, 2010

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

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

HELD:
No. Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of 2% of its gross
income when such MCIT is greater than the normal corporate income tax imposed under Section 27(A). If the regular income
tax is higher than the MCIT, the corporation does not pay the MCIT. Any excess of the MCIT over the normal tax shall be carried
forward and credited against the normal income tax for the three immediately succeeding taxable years. The SC ruled that
MCIT is not violative of due process and thus is not unconstitutional. MCIT was devised as a relatively simple and effective
revenue-raising instrument compared to the normal income tax which is more difficult to control and enforce. It is a means to
ensure that everyone will make some minimum contribution to the support of the public sector.

2) Judicial Review of Taxation

 ROXAS v. CTA, 23 SCRA 276 (See #6 Nature of the power tof tax)

3) Extent of the Taxing Power

 TIO v. VIDEOGRAM REGULATORY BOARD, G.R. NO. 75697, June 1, 1987

DOCTRINES:

Validity of law; title of bill – The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" is sufficiently complied with if the title be comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute wishes to
accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter
expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title.

Taxation; security against oppressive taxation – The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a
sufficient security against erroneous and oppressive taxation.

Taxation as a revenue and regulatory measure – The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not
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been subjected to tax, thereby depriving the Government of an additional source of revenue. . . . 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.

Undue delegation of legislative power – The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct
assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for 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 true distinction is
between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring
authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the
latter, no valid objection can be made." Besides, in the very language of the decree, the authority of the BOARD to solicit such
assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and control
of the BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE
as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law.

FACTS:

Valentin Tio is a videogram establishment operator adversely affected by Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board".

P.D. No. 1987 provides for the levy of a tax over each cassette sold (Sec. 134) and a 30% tax on the gross receipts of a
videogram establishment, payable to the local government (Sec. 10). The rationale for this decree is set forth in its
preambulatory/whereas clauses to wit:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs,
cassettes ... have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in
theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of [taxes] thereby
resulting in substantial losses estimated at P450 Million annually in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie
industry, ...;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial
condition of the movie industry ..., but also provide an additional source of revenue for the Government, and at the
same time rationalize the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present
danger to the moral and spiritual well-being of the youth [READ: PORN], and impairs the mandate of the Constitution
for the State to support the rearing of the youth for civic efficiency and the development of moral character and
promote their physical, intellectual, and social well-being;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people [AGAIN, READ: PORN]
and betraying the national economic recovery program, bold emergency measures must be adopted with dispatch;
(emphasis supplied and certain passages omitted)

ISSUES:

The petioner, among others, raised the following issues:

1. Whether or not the imposition of the 30% tax is a rider and the same is not germane to the subject matter of the law.

2. Whether or not there is undue delegation of power and authority;

HELD:
1. No, the tax is not a rider and is germane to the purpose and subject of the law.

The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title thereof" is
sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to
achieve. It is not necessary that the title express each and every end that the statute wishes to accomplish. The requirement is
satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as
they are not inconsistent with or foreign to the general subject and title.

Reading section 10 of P.D. No. 1987 closely, one can see that the foregoing provision is allied and germane to, and is reasonably
necessary for the accomplishment of, the general object of the law, which is the regulation of the video industry through the
Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general

7
subject and title. As a tool for regulation it is simply one of the regulatory and control mechanisms scattered throughout the
decree.

Aside from revenue collection, tax laws may also be enacted for the purpose of regulating an activity. At the same time, the
videogram industry is also an untapped source of revenue which the government may validly tax. All of this is evident from
preambulatory clauses nos. 2, 5, 6 and 8, quoted in part above.

The levy of the 30% tax is also 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 law to protect the movie industry, the tax
remains a valid imposition.

2. No. There was no undue delegation of law making authority.

Petitioner was concerned that Section 11 of P.D. No. 1987 stating that the videogram board (Board) has authority to "solicit
the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or
personnel of such agencies and units to perform enforcement functions for the Board" is an undue delegation of legislative
power.

This 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 true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and
in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." Besides, in the very language of
the decree, the authority of the Board to solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the Board."

5) Taxpayer’s suit

 COCONUT OIL REFINERS ASSOCIATION, INC. v. TORRES, G.R. NO. 132527 JULY 29, 2005

Delegation of taxation power to the executive

FACTS: On March 13, 1992, RA No. 7227 was enacted, providing for, among other things, the sound and balanced conversion
of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of special
economic zones in order to promote the economic and social development of Central Luzon in particular and the country in
general. The law contains provisions on tax exemptions for importations of raw materials, capital and equipment. After which
the President issued several Executive Orders as mandated by the law for the implementation of RA 7227. Herein petitioners
contend the validity of the tax exemption provided for in the law.

ISSUE: Whether or not the Executive Orders issued by President for the implementation of the tax exemptions constitutes
executive legislation.

RULING: To limit the tax-free importation privilege of enterprises located inside the special economic zone only to raw
materials, capital and equipment clearly runs counter to the intention of the Legislature to create a free port where the ―free
flow of goods or capital within, into, and out of the zones‖ is insured. The phrase ―tax and duty-free importations of raw
materials, capital and equipment‖ was merely cited as an example of incentives that may be given to entities operating within
the zone. Public respondent SBMA correctly argued that the maxim expressio unius est exclusio alterius, on which petitioners
impliedly rely to support their restrictive interpretation, does not apply when words are mentioned by way of example.
It is obvious from the wording of RA No. 7227, particularly the use of the phrase ―such as,‖ that the enumeration only meant
to illustrate incentives that the SSEZ is authorized to grant, in line with its being a free port zone. The Court finds that the
setting up of such commercial establishments which are the only ones duly authorized to sell consumer items tax and duty-
free is still well within the policy enunciated in Section 12 of RA No. 7227 that

―. . .the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment
center to generate employment opportunities in and around the zone and to attract and promote productive foreign
investments.‖

However, the Court reiterates that the second sentences of paragraphs 1.2 and 1.3 of Executive Order No. 97-A, allowing tax
and duty-free removal of goods to certain individuals, even in a limited amount, from the Secured Area of the SSEZ, are null
and void for being contrary to Section 12 of RA No. 7227. Said Section clearly provides that ―exportation or removal of goods
from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.‖

It is public policy that the zones have a different tax policy with the rest of the country. This classification is valid, as long as it is:
1. Germane to the purpose of the law, RA 7227
2. Not limited to the existing conditions
3. Apply equally to all retailers found within the ―secured area,‖ i.e the SEZ

9, Non-revenue objectives of taxation

8
  COCOFED v. PCGG, 178 SCRA 236 (1989)-no digest; full text

The petition for certiorari and prohibition with preliminary injunction at bar seeks the annulment of the sequestration and other
orders issued by the Presidential Commission on Good Government PCGG)1 against petitioner Philippine Coconut Producers
Federation, Inc. (COCOFED) and various other industrial and commercial enterprises set up ostensibly for purposes concerned
with the development of the coconut industry and the welfare of those involved in or served by it. These agencies or enterprises
were organized and financed with revenues derived from coconut levies imposed under a succession of laws of the late
dictatorship and are alleged to have been thereafter used as conduits to perpetrate "the most stupendous malversation of public
funds in the annals of our history," as the PCGG puts it, 2 with deposed President Ferdinand Marcos and his cronies as the
suspected authors and chief beneficiaries of the resulting "coconut industry monopoly.

The action is denominated a class suit of the COCOFED, a private national association of coconut producers which by legal
mandate receives allocations from the coconut levy funds to finance its operating expenses and projects; the Coconut Investment
Company (CIC), the first government corporation created to administer the coconut levy funds (as will later be explained in some
detail); and individual petitioners Maria Clara Lobregat and some 37 other persons, all claiming to be either coconut farmers,
coconut workers or stockholders of the sequestered companies, bringing suit for themselves and in representation of "the more
than one million coconut farmers who are similarly situated" upon a claim of private interest in the sequestered assets and
properties.

The COCONUT LEVY FUNDS:

The sequestration of the corporations and the other acts complained of were undertaken by the PCGG preparatory to the filing of
suit in the Sandiganbayan against Marcos and his associates for the illicit conversion of the coconut levy funds, purportedly
channeled through the COCOFED and the other sequestered businesses, into private pelf. These funds fall into four general classes,
viz.: (a) the Coconut Investment Fund created under R.A. 6260 (effective June 19, 1971); (b) the Coconut Consumers Stabilization
Fund created under PD 276 (effective August 20, 1973); (c) the Coconut Industry Development Fund created under PD 582
(effective November 14,1974); and (d) the Coconut Industry Stabilization Fund created under P.D. 1841 (effective October 2,
1981).

The Coconut Investment Fund (CIF):

The Coconut Investment Fund, or CIF, was put up in 1971 by R.A. 6260 which declared it to be the national policy to accelerate the
development of the coconut industry through the provision of adequate medium and long term financing for capital investment in
the industry.3 A levy of P 0.55 was imposed on the first domestic sale of every 100 kilograms of copra or equivalent coconut
product,4 fifty centavos (P 0. 50) of which accrued to the CIF. The Philippine Coconut Administration (or PHILCOA), 5 received
three centavos (P 0.03)6 of the five remaining, and the balance was placed "at the disposition of the recognized national
association of coconut producers with the largest x x membership"7- which association was declared by PHILCOA 8 to be
petitioner COCOFED.

The CIF was to be used exclusively to pay for the Philippine Government's subscription to the capital stock 9 of the Coconut
Investment Company (CIC), a corporation with a capitalization of P 100,000,000.00 created by the statute to administer the Fund,
as has already been stated, and to invest its capital in financing "agricultural, industrial or other productive (coconut)
enterprises" qualified under the terms of the statute to apply for loans with the CIC.10 The State was to initially subscribe to CIC's
capital stock "for and on behalf of the coconut farmers," to whom such shares were supposed to be transferred "upon full payment
(with the collections on the levy) of the authorized capital stock x x or upon termination of a ten-year period from the start of the
collection of the levy x x, whichever comes first."11 The scheme, in short, called for the use of the CIF-funds collected mainly from
coconut farmers-to pay for the CIC shares of stock to be subscribed by the Government and held by it until the levy was lifted,
whereupon the Government was to "convert" the receipts issued to the farmers (as evidence of payment of the levy) "into shares of
stock"-this time in the farmers' names in the new, private corporation to be formed by them at such time, conformably with the
provisions of the law. 12

The levy imposed by R.A. 6260 was collected from 1972 to 1982.

The Coconut Consumers Stabilization Fund (CCSF)

P.D. 276 established a second fund on August 20,1973, barely a year after the creation of the CIF. The decree imposed a
"Stabilization Fund Levy" of fifteen pesos (P 15.00) on the first sale of every 100 kilograms of copra resecada or equivalent
product.13 The revenues were to be credited to the Coconut Stabilization Fund (CCSF)14 Which was to be used to subsidize the
sale of coconut-based products at prices set by the Price Control Council, in order to stabilize the price of edible oil and other
coconut oil-based products for the benefit of consumers 15 The levy was to be collected for only one year.16 The CCSF however
became a permanent fund under PD 414.17

The Coconut Industry Development Fund (CIDF):

On November 14, 1974, PD 582 was promulgated setting up yet another "permanent fund ... (this time to) finance the
establishment, operation and maintenance of a hybrid coconut seednut farm ... (and the implementation of) a nationwide coconut
replanting program" "using precocious high-yielding hybrid seednuts x x to (be) distribute(d), ... free, to coconut farmers." 18 The
fund was denominated the Coconut Industry Development Fund, or the CIDF. Its initial capital of P100 million was to be paid from
the CCSF, and in addition to this, the PCA was directed to thereafter remit to the fund "an amount equal to at least twenty
centavos (PO.20) per kilogram of copra resecada or its equivalent out of its current collections of the coconut consumers
9
stabilization levy." 19 The CIDF was assured of continued contribution from the permanent levy in the same amount deemed to be
"automatically imposed" in the event of the lifting of the Stabilization Fund Levy.20

The Coconut Industry Investment Fund (CIIF)

The various laws relating to the coconut industry were codified in 1976; promulgated on October 21 of that year was PD 961 or
the "Coconut Industry Code," which later came to be known as the "Revised Coconut Industry Code" upon its amendment by PD
1468, effective June 11, 1978. The Code provided for the continued enforcement of the Stabilization Fund Levy imposed by PD 276
and for the use of the CCSF and the CIDF for substantially the same purposes specified by the enactments ordaining their creation.

A new provision was however inserted in the Code, authorizing the use of the balance of the CIDF not needed to finance the
replanting program and other authorized projects, for the acquisition of "shares of stock in corporations organized for the
purpose of engaging in the establishment and operation of industries, .. commercial activities and other allied business
undertakings relating to coconut and other palm oil indust(ries)."21 From this fund thus created, the Coconut Industry
Investment Fund or the CIIF, were purchased the shares of stock in what have come to be known as the "CIIF companies the
sequestered corporations into which said CIIF (Coconut Industry Investment Fund) was heavily invested after its creation.

The Coconut Industry Stabilization Fund (CISF): (Formerly CCSF)

The collection of the CCSF and the CIDF was suspended for a time in virtue of PD 1699.22 However, on October 2, 1981, PD 1841
was issued reviving the levies and renaming the CCSF the Coconut Industry Stabilization Fund, or the CISF, to which accrued the
new collections. The impost was in the amount of P50.00 for every 100 kilos of copra resecada or equivalent product delivered to
exporters and other copra users. The funds collected were to be apportioned among the CIDF,23 the COCOFED,24 the PCA,25 and
the "bank acquired for the benefit of the coconut farmers under PD 755" referring to the United Coconut Planters Bank or the
UCPB.26

The AGENCIES INVOLVED:

As may be observed, three agencies played key roles in the collection, management, investment and use of the coconut levy funds:
(a) the Philippine Coconut Authority (PCA), formerly the Philippine Coconut Administration or the PHILCOA; (b) the COCOFED;
and (c) the UCPB. Charged with the duty to "receive and administer the funds provided by law,"27 the Philippine Coconut
Authority or the PCA was created on June 30, 1973 by P.D. 232 to replace and assume the functions of (1) the Philippine Coconut
Administration or PHILCOA (which had been established in 1954), (2) the Coconut Coordinating Council (CCC), and (3) the
Philippine Coconut Research Institute(PHILCORIN). By virtue of the Decree, the PCA took over the collection of the CIF Levy under
RA 6260 in 1973, while subsequent statutes, to wit, PD 276 (in relation to PD 414), PD 582, and PD 1841, empowered it
specifically to manage the CCSF, the CIDF, and the CISF, from the time of their creation. Under the laws just mentioned, the PCA, as
the government arm that "formulate(s) x x (the) general program of development for the coconut x x and palm oil indust(ries)" 28
is allotted a share in the funds kept in its trust. Its governing board is composed of members coming from the public and private
sectors, among them representatives of COCOFED.29

The Philippine Coconut Producers Federation, Inc. or the COCOFED, as the private national association of coconut producers
certified in 1971 by the PHILCOA as having the largest membership among such producers,30 receives substantial portions of the
coconut funds to finance its operating expenses and socio-economic projects. R.A. 6260 entrusted it with the task of maintaining
"continuing liaison with the different sectors of the industry, the government and its own mass base." 31 Its president sits on the
governing board of the PCA and on the Philippine Coconut Consumers Stabilization Committee, the agency assisting the PCA in the
administration of the CCSF. It is also represented in the Board of Directors of the CIC and of two (2) CIIF companies COCOMARK
(the COCOFED Marketing Corporation) and COCOLIFE (the United Coconut Planters' Life Insurance Co.).

The United Coconut Planters Bank (or the UCPB) is a commercial bank acquired "for the benefit of the coconut farmers" 32 with
the use of the Coconut Consumers Stabilization Fund (CCSF) in virtue of P.D. 755, promulgated on July 29,1975. The Decree
authorized the Bank to provide the intended beneficiaries with "readily available credit facilities at preferential rates." 33 It also
authorized the distribution of the Bank's shares of stock, free, to the coconut farmers; and some 1,405,366 purported recipients
have been listed as UCPB stockholders as of April 10, 1986.34

The UCPB was thereafter empowered by PD 1468 to "(make) investments for the benefit of the coconut farmers"35 using that part
of the CIDF referred to as the CIIF. Thus were organized the "CIIF companies" subject of the sequestration orders herein
assailed.36 As in the case of the shares of stock in the UCPB, the law provided for the "equitable distribution" to the coconut
farmers, free, of the investments made in the CIIF companies.37 Among the corporations in which the UCPB has come to have
substantial shareholdings are the COCOFED Marketing Corporation (COCOMARK), United Coconut Planters' Life Insurance
(COCOLIFE) GRANEX, ILICOCO, Southern Island Oil Mill, Legaspi Oil of Davao City and of Cagayan de Oro City, Anchor Insurance
Brokerage, Inc., Southern Luzon Coconut Oil Mills, and San Pablo Oil Manufacturing Co., Inc. Some of these corporations in turn
acquired UCPB shares of stock as well as shareholdings in the San Miguel Corporation.

The SEQUESTRATION PROCEEDINGS:

On March 19, 1986, the Presidential Commission on Good Government (PCGG) sequestered CIIF companies GRANEX, ILICOCO,
Southern Island Oil Mill, Legaspi Oil of Davao City, and Legaspi Oil of Cagayan de Oro City. Also sequestered shortly thereafter, on
April 21, 1986, were Anchor Insurance Brokerage, Inc., Southern Luzon Coconut Oil Mills and the San Pablo Oil Manufacturing Co.,
Inc. Shares of stock in the UCPB registered in the names of these and other CIIF companies, and later those issued to 1,405,366
purported coconut farmers-stockholders were likewise sequestered, as were the 33.1 million shares of stock held by fourteen (14)
CIIF companies in the San Miguel Corporation.
10
Next placed under sequestration on July 8,1986 was the COCOFED. Its bank accounts as well as those of CIIF companies COCOLIFE
and COCOMARK, of COCOFED president Maria Clara Lobregat, and of COCOFED directors Inaki Mendezona and Eladio Chatto,
were frozen. On May 30, 1988, PCGG appointed a 15-man Board of Directors for COCOFED, replacing the incumbents.
Management teams for the CIC and COCOMARK were deputized the day after, relieving Maria Clara Lobregat and Manuel
Agcaoili as president and vice-president, respectively, of both corporations, and Vicente Valmores as corporate secretary of the
CIC. Various other orders pertaining to the CIC, the CIIF companies, COCOFED, and the UCPB were also afterwards issued and
implemented, with a view to conserving their assets pending the government's investigation into the suspected plunder of the
coconut levy funds by former President Ferdinand Marcos and his associates and cronies.

PETITIONERS' SUBMITTALS

The instant petition was filed on September 3, 1986 to assail the foregoing directives and acts. The petitioners posit that:

1) the PCGG has no jurisdiction over the sequestered properties as the powersconferred upon it by Executive Orders
Numbered 1, 2 and 14 extend only to ill-gotten wealth of "former President Ferdinand E. Marcos and/or his wife, Imelda
Romualdez Marcos" or "their close relatives, subordinates, business associates, dummies, agents, or nominees," 38 and not to the
private properties of the coconut farmers and the petitioners, who do not fall under any of the classes of persons specified under
the Orders;

2) the sequestered properties are not ill-gotten wealth of the petitioners whose ownership of the shares of stock in the
COCOFED, the CIIF companies, and the UCPB resulted from lawful disbursements of the coconut levy fund; and

3) the sequestration of the petitioners' private properties is a gross abuse of prosecutorial discretion on the part of PCGG
and, corollarily, rendered enforcement of E.O.'s 1, 2 and 14 as against them unconstitutional and violative of the Bill of Rights.

PCA INTERVENTION

A petition-in-intervention presented by the PCA was admitted by the Court by Resolution dated May 24, 1988.

THE PCGG POSITION

The Solicitor General, for the PCGG, submits that the funds collected from the coconut levy are public funds which no amount of
pronouncements to the contrary-by decree or any other presidential issuance can convert into private money; that in the light of
the report of the Commission on Audit of its examination of the funds made after the unceremonious deposal of President Marcos,
to the effect that the funds were misappropriated and squandered by the latter, his cronies and the leaders of the coconut
industry, it is the duty of PCGG to recover the same and, pending recovery proceedings, to make use of its power of sequestration
and other remedies conferred by Executive Orders 1, 2 and 14. In his view, the so-called "more than one million coconut farmers"
do not own the coconut levy funds or the assets acquired therewith.

1. The question of the validity of PCGG sequestration and freeze orders as provisional measures to collect and conserve the
assets believed to be ill-gotten wealth has been laid to rest in BASECO vs. PCGG (150 SCRA 181) where this Court held that such
orders are not confiscatory but only preservative in character, not designed to effect a confiscation of, but only to conserve
properties believed to be ill-gotten wealth of the ex-president, his family and associates, and to prevent their concealment,
dissipation, or transfer, pending the determination of their true ownership.

Nor may it be gainsaid that pending the institution of the suits for the recovery of such ill-gotten wealth as the evidence at hand
may reveal, there is an obvious and imperative need for preliminary provisional measures to prevent the concealment,
disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may
render moot and academic, or effectively hamper, delay, or negate efforts to recover the same.

xxx

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover. (at p. 208)

The PCGG exercised the powers conferred upon it by Executive Orders Numbered 1, 2 and 14 on the basis of evidence in its
possession which it deemed sufficient to show, prima facie, that former President Marcos, Mr. Eduardo Cojuangco, Jr., the
COCOFED and its national leaders, collaborated with each other to perpetrate the "systematic plunder" of the funds generated by
the coconut levy. That preliminary determination finds support in the documents and evidence relative thereto. Reports, for
example, from the Commission on Audit (COA) which audited the funds after the February 1986 Revolution tend to show that:

(1) of the funds allocated to COCOFED, some P20 million were delivered to Mrs. Imelda R. Marcos for the Imelda Romualdez
Marcos Scholarship Program of which no accounting has been made;

(2) COCOFED purchased an aircraft at a total cost of P 11,849,071.29;

(3) a COCOFED disbursement of P 23 million for the account of the Census Committee which undertook the survey of coconut
farmers to determine other farmers entitled to the unissued shares of UCPB, was under-reimbursed by P 3,584,826.36;

11
(4) cash advances in hundreds of thousands of pesos granted by COCOMARK to COCOFED officials Jose Reynaldo Morente,
Inaki Mendezona, Bienvenido Marquez and Maria Clara Lobregat were unliquidated;

(5) COCOMARK made disbursements for cash advances for travel and transportation expenses to its directors who are also
directors of COCOFED without supporting documents.

The investigation by the PCGG of the funds supposed to havebeen invested in the UCPB on behalf of the coconut farmers, also
reveal that UCPB shares appearing in the UCPB books as issued to 1,405,366 coconut farmers are not in fact owned by the said
persons because a large number of them sold their stock to national and local officials of COCOFED at the latter's initiative; and
documents found in Malacanang in the wake of the February 1986 people's revolution tend to show that Eduardo Cojuangco, Jr.,
apart from owning his own shares in UCPB, also "fronted" for the shares of Mr. Marcos in that bank.

As to the coconut levy funds invested in the CIIF companies for the benefit of coconut farmers, COA findings adverted to by the
PCGG disclose that said funds were invested in companies most of which were or became vehicles to effectuate their misuse. The
United Coconut Oil Mills, Inc. (UNICOM), a CIIF funded company, for example, appears to have spent millions of pesos to acquire
non-operating and unprofitable coconut oil mills owned by persons close to the Marcoses that P840 million of the CIDF were
siphoned off to Agricultural Investors, Inc., a corporation owned and controlled by Eduardo Cojuangco, Jr., which has a paid-up
capital of only P100,000; and that P41.9 million worth of seednuts equivalent to 24.48% of the total purchases of UCPB using CIDF
from 1979 to 1982 had not been accounted for. Reports were also cited showing that only 75.52% of the total seednuts purchased
had been distributed to the participants of the replanting program. The PCGG also claims to have in its possession evidence of
other instances of misuse or misappropriation of the coconut levy funds attributable to the petitioners.

The petitioners deny the PCGG's postulations and assertions.

It is of course not for this Court to pass upon the factual issues thus raised. That function pertains to the Sandiganbayan in the
first instance. For purposes of this proceeding, all that the Court needs to determine is whether or not there is prima facie
justification for the sequestration ordered by the PCGG. The Court is satisfied that there is. The cited incidents, given the public
character of the coconut levy funds, place petitioners COCOFED and its leaders and officials, at least prima facie, squarely within
the purview of Executive Orders Nos. 1, 2 and 14, as construed and applied in BASECO, to wit:

1. that ill-gotten properties (were) amassed by the leaders and supporters of the previous regime;

a. more particularly, that (i)ll-gotten wealth was accumulated by former President Ferdinand E. Marcos, his immediate
family, relatives, subordinates and close associates, x x located in the Philippines or abroad, x x (and) business enterprises and
entities (came to be) owned or controlled by them, during x x (the Marcos) administration, directly or through nominees, by
taking undue advantage of their public office and using their powers, authority, influence, connections or relationships

b. otherwise stated, that 'there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos,
and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of
funds or properties owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in
their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines';

c. that 'said assets and properties are in the form of bank accounts, deposits, trust accounts, shares of stocks, buildings,
shopping centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines
and in various countries of the world' ...39

2. The petitioners' claim that the assets acquired with the coconut levy funds are privately owned by the coconut farmers is
founded on certain provisions of law, to wit:

Sec. 7. Incorporation as a private entity under Act Numbered One Thousand Four Hundred Fifty-Nine, as amended. -Upon full
payment of the authorized capital stock, as evidenced by receipts issued for levies paid, or upon termination of a ten-year period
from the start of the collection of the levy as provided in Section eight hereof, whichever comes first, the shares of stock held by the
Philippine Government for and in behalf of the coconut farmers shall be transferred, in accordance with such rules, regulations
and procedures as the Company shall prescribe and promulgate, to and in the name of the coconut farmers who shall then
incorporate as a private entity under Act Numbered One Thousand Four Hundred Fifty-Nine, as amended.... (Sec. 7, Republic Act
6260)

and

The Coconut Consumers Stabilization Fund and the Coconut Industry Development Fund as well as all disbursements of said Funds
for the benefit of the coconut farmers x x shall not be construed or interpreted .. as special and/or fiduciary funds, or as part of the
general funds of the national government within the contemplation of P.D. 711; nor as subsidy, donation, levy government funded
investment, or government share within the contemplation of PD 898, the intention being that said fund and the disbursements
thereof as herein authorized for the benefit of the coconut farmers shall be owned by them in their private capacities .... (Section 5,
Article III, P.D. 1468)

The proposition is open to question, to say the least. Indeed, the Solicitor General suggests quite strongly that the laws operating
or purporting to convert the coconut levy funds into private funds, are a transgression of the basic limitations for the licit exercise

12
of the state's taxing and police powers, and that certain provisions of said laws are merely clever strategems to keep away
government audit in order to facilitate misappropriation of the funds in question.

The utilization and proper management of the coconut levy funds, raised as they were by the State's police and taxing powers, are
certainly the concern of the Government. It cannot be denied that it was the welfare of the entire nation that provided the prime
moving factor for the imposition of the levy. 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. The coconut levy funds are clearly affected with public interest. Until it is demonstrated
satisfactorily that they have legitimately become private funds, they must prima facie and by reason of the circumstances in which
they were raised and accumulated be accounted subject to the measures prescribed in E.O. Nos. 1, 2, and 14 to prevent their
concealment, dissipation, etc., which measures include the sequestration and other orders of the PCGG complained of.

3. The incidents concerning the voting of the sequestered shares, the COCOFED elections, and the replacement of directors,
being matters incidental to the sequestration, should be addressed to the Sandiganbayan in accordance with the doctrine laid
down in PCGG vs. Pena, 159 SCRA 556, reiterated in G.R. No. 74910, Andres Soriano III vs. Hon. Manuel Yuzon; G.R. No. 75075,
Eduardo Cojuangco, Jr. vs. Securities and Exchange Commission; G.R. No. 75094, Clifton Ganay vs. Presidential Commission on
Good Government; G.R. No. 76397, Board of Directors of San Miguel Corporation vs. Securities and Exchange Commission; G.R. No.
79459, Eduardo Cojuangco, Jr. vs. Hon. Pedro N. Laggui; G.R. No. 79520, Neptunia Corporation, Ltd. vs. Presidential Commission on
Good Government, August 10, 1988.

In view of the foregoing, the petition and the petition-in-intervention are hereby DISMISSED. Costs against petitioners.

SO ORDERED.

 CALTEX v. COA, 208 SCRA 738

Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non-revenue / special / regulatory

DOCTRINE:
A taxpayer may not offset taxes due from the claims that he may have againstthe government.

QUICK FACTS: Caltex Philippines questions the decisions of COA fordisallowing the offsetting of its claims for reimbursement
with its due OPSFremittance

FACTS: In 1989, COA sent a letter to Caltex directing it to remit to the Oil Price Stabilization Fund its collection of the
additional tax on petroleum products. Pending such remittance, Caltex’s claims for reimbursement from the OPSF shall be held
in abeyance. Caltex submitted to the COA a proposal for the payment of the collections and the recovery of claims. COA denied
its claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to
NAPOCOR, ATLAS and MAR-COPPER, preventing it from exercising the right to offset its remittances against its
reimbursementvis-a-visthe OPSF and disallowed its claims pending resolution before the Office of Energy Affairs and
Department of Finance.

ISSUE: Whether or not the amounts due to the OPSF from Caltex may be offset against its outstanding claims from said fund.

RULING: No. It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government.
Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. In respect to the
taxes for the OPSF, the oil companies merely act as agents for the Government in the latter’s collection since the taxes are, in
reality, passed unto the end-users –– the consuming public. In that capacity, Caltex has the primary obligation to account for
and remit the taxes collected to the administrator of the OPSF.

 OSMEÑA VS. ORBOZ, 220 SCRA 703

Tax if primary purpose is revenue generation; requisites of valid delegation of legislative power

FACTS: Petitioner Osmena challenges the constitutionality of the PD 1956, which created a special account in the general fund
for the Oil Price Stabilization Fund (OSPF) as buffer mechanism to protect the domestic oil industry from frequent fluctuations
of crude oil prices in the world market. PD 1529 created a ―trust account‖ in the books of the Ministry of Energy. He alleges
that the law is unconstitutional because:

1. The monies collected are supposed to treated as a special fund, not a trust fund considering that it is a ―special tax collected
for a specific purpose‖
2. PD 1529 unduly delegates legislative power by conferring the Energy Regulatory Board the authority to impose additional
amounts on petroleum products without a sufficient standard by which such authority may be exercised.

ISSUES: 1) Was the Oil Price Stabilization Fund (OSPF) a tax?

2) What are the requisites for a valid delegation of the taxation power? Was there undue delegation of such power?

RULING: 1) No. Petitioner assumed that PD 1956 was enacted to collect taxes for a fund for a special purpose. The purpose for
13
the fund, however, is not to generate revenue. The OPSF was designed to reimburse oil companies for cost increases in crude
oil1 and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices
of crude oil.1 As such, establishment and maintenance of the OPSF is well within that pervasive and non-waivable power and
responsibility of the government to secure the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State, because its purpose is to regulate the oil
industry pursuant to public policy.

That a portion of the fund is taken from collections of ad valorem taxes and the increases thereon does not change its primary
purpose. Hence, if the primary purpose of the law is to regulate but has incidental taxing effects, then it is legislated by virtue
of the police power. If the primary purpose of the law is to generate revenue but has incident regulatory effects, then it is
legislated by virtue of the power to tax. The OSPF law falls under the first type.

2) The power to tax is reposed in the legislative, but the latter may delegate it to the executive provided that the law delegating
the power:
i. is complete in itself, that is, it must set forth the policy to be executed by the delegate
ii. fixes a standard, the limits of which are sufficiently determinate or determinable to which the delegate must conform.
There was no undue delegation in this case because a standard was fixed, albeit impliedly, as when the law intended to permit the
additional impositions as long as there exists a need to protect the general public and the petroleum industry from price
fluctuations.

 TAÑADA VS. ANGARA, 272 SCRA 18-Haven’t seen a digest in tax for this one

 PHILHEALTH CARE VS. CIR, 554 SCRA 411

Facts:

The petitioner, a prepaid health-care organization offering benefits to its members. The CIR found that the organization had a
deficiency in the payment of the DST under Section 185 of the 1997 Tax Code which stipulated its implementation:

“On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed
by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance)”

The CIR sent a demand for the payment of deficiency taxes, including surcharges and interest, for 1996-1997 in the total
amount of P224,702,641.18.

The petitioner protested to the CIR, but it didn’t act on the appeal. Hence, the company had to go to the CTA. The latter declared
judgment against them and reduced the taxes. It ordered them to pay 22 million pesos for deficiency VAT for 1997 and 31
million deficiency VAT for 1996.

CA denied the company’s appeal an d increased taxes to 55 and 68 million for 1996 to 1997.

Issue: WON a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp
tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)

Held: Yes. Petition dismissed.

Ratio:

The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments.

The DST is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business. In
particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of
insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or
liability.

Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v.
Olivares, this Court ruled that a health care agreement is in the nature of a non-life insurance policy.

Its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide medical or
hospital services but merely arranges for the same

It is also incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement,
petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional

1
The OPSF acts as a buffer mechanism into which a portion of the purchase price of oil and petroleum products paid by
consumers as well as some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil
companies, when appropriate situations arise, for increases in, as well as underrecovery of, costs of crude importation.

14
fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur
in case of illness or injury.

Philamcare Health Systems, Inc. v. CA.- The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity.

Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is
his own health. Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingency to the extent agreed upon under the contract.

10. Basic principles of a sound tax system

a) Principle of a Sound Tax System

 Chavez vs. Ongpin, G.R. No. 76778, June 6, 1990

FACTS:
Section 21 of Presidential Decree 464 provides that every 5 years starting calendar year 1978, there shall be a provincial or
city general revision of real property assessments. The general revision was completed in 1984.

On November 25, 1986, President Corazon Aquino issued EO 73 stating that beginning January 1, 1987, the 1984 assessments
shall be the basis of real property taxes. Francisco Chavez, a taxpayer and landowner, questioned the constitutionality of EO 74.
He alleges that it will bring unreasonable increase in real property taxes.

ISSUE:
Is EO 73 constitutional?

RULING:
Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978 revision of property values. Certainly, to
continue collecting real property taxes based on valuations arrived at several years ago, in disregard of the increases in the
value of real properties that have occurred since then is not in consonance with a sound tax system.

Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of revenue must be adequate to
meet government expenditures and their variations.

 Abakada Guro Party List vs. Ermita, G.R. No. 168056, Sept. 1, 2005

Delegation of taxation power; input and output tax; uniform and equitability of EVAT

FACTS: Before R.A. No. 9337 took effect (July 1, 2005, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition. Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution. They further contend that
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. It states…

. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the
rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).

ISSUE: Do Sections 4, 5 and 6 of R.A. No. 9337, 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?

RULING: There is no undue delegation of legislative power but only of the discretion as to the execution of a law. 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. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the
increase rate under the law is contingent. A (permissible delegation) is valid only if the law (a) is complete in itself, setting
forth therein the policy to be executed, carried out, or implemented by the delegate; and (b) fixes a standard — the limits of
which are sufficiently determinate and determinable — to which the delegate must conform in the performance of his
functions. In this case, 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. No discretion would be exercised by the President. Thus, 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.

Notes: There was no delegation of legislative power at all, because the legislature merely specified factual conditions that must
concur before the executive may apply the provision of the law. Fact-finding processes may be delegated by the Congress to the
Executive. The phrase ―upon the recommendation of the Sec. of Finance‖ makes the latter an agent of the Legislature, so his
functions as an alter-ego of the Executive are not necessarily affected by the provision.

15
FISCAL ADEQUACY—the sources of tax should coincide with the needs of government expenditures. This is a question of wisdom,
which the judiciary cannot take cognizance of

 Output vs Input Tax

OUTPUT VAT—tax paid when selling a product
INPUT VAT—tax paid when buying the materials of the thing sold; it is not a property, it is a statutory privilege which the
legislative may remove at any time
VAT Payable = Output VAT - Input VAT
 Is the EVAT uniform and equitable?

Yes. A uniform rate of 0%, 12%, or exemption, are respectively imposed on the same class of goods

B. Classifications and Distinctions

1. Classification of taxes
b) Person liable
o Tan Tiong Bio vs. CIR, G.R. No. L-15778, April 23, 1962

Facts: A corporation Central Syndicate, allegedly purchased from Dee Hong Lue stock of surplus properties from the Foreign
Liquidation Commission. Thus, it remitted the amount of P43,750 as deposit for the sales tax. Later on, it claimed refund for
the excess in the payment of the sales tax due to the adjustment and reduction of the purchase price. However, an agent of the
CIR reported that it was the syndicate who was the actual importer and original seller of the surplus goods. Thus, the syndicate
is liable to pay the whole amount of the sales tax. The CTA rendered a decision holding the incorporators of the syndicate to be
severally liable, the syndicate’s personality having had expired.

Issue: WON the petitioners, the successors-in-interest of the defunct Central Syndicate, can be hel personally liable for the
sales taxes.

Held: Affirmative.

Petitioners are the beneficiaries of the defunct corporation and as such should be held liable to pay the taxes. However, there
being no express provision requiring the stockholders of the corporation to be solidarily liable for its debts which liability
must be express cannot be presumed, petitioners should be held liable for the tax in question only in proportion to their
shares in the distribution of the assets of the defunct corporation.

2. Tax distinguished from debt

a)Tax vs. Debt
o CIR vs. Pineda, 21 SCRA 105
FACTS: Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and 15 children, the eldest of whom is Atty. Manuel
Pineda. Estate proceedings were had in Court so that the estate was divided among and awarded to the heirs. Atty Pineda's
share amounted to about P2,500.00. After the estate proceedings were closed, the BIR investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the Collector of Internal Revenue filed said returns for the estate issued an assessment and
charged the full amount to the inheritance due to Atty. Pineda who argued that he is liable only to extent of his proportional
share in the inheritance.

ISSUE: Can BIR collect the full amount of estate taxes from an heir's inheritance.

HELD: Yes. The Government can require Atty. Pineda to pay the full amount of the taxes assessed.

The reason is that the Government has a lien on the P2,500.00 received by him from the estate as his share in the inheritance,
for unpaid income taxes for which said estate is liable. By virtue of such lien, the Government has the right to subject the
property in Pineda's possession to satisfy the income tax assessment. After such payment, Pineda will have a right of
contribution from his co-heirs, to achieve an adjustment of the proper share of each heir in the distributable estate.

All told, the Government has two ways of collecting the tax in question. One, by going after all the heirs and collecting from
each one of them the amount of the tax proportionate to the inheritance received; and second, is by subjecting said property of
the estate which is in the hands of an heir or transferee to the payment of the tax due. This second remedy is the very avenue
the Government took in this case to collect the tax. The Bureau of Internal Revenue should be given, in instances like the case
at bar, the necessary discretion to avail itself of the most expeditious way to collect the tax as may be envisioned in the
particular provision of the Tax Code above quoted, because taxes are the lifeblood of government and their prompt and certain
availability is an imperious need.

o Borja vs. Gella, G.R. No. L-18330, July 31, 1963

FACTS:
Jose de Borja has been delinquent in the payment of his real estate taxes since 1958 and has offered to pay them with two
negotiable certificates of indebtedness to which he is only an assignee. These were rejected by the City treasurers of both
Manila and Pasay cities on the ground of their limited negotiability. Borja brought the question to the Treasurer of the
Philippines who opined that the negotiable certificates cannot be accepted as payment of real estate taxes inasmuch as the law
16
provides for their acceptance from their backpay holder only or the original applicant himself, but not his assignee. Lower
court ruled in favor of Borja.

ISSUES:
1. Whether Borja may apply to the payment of his real estate taxes the certificates of indebtedness he holds; while,
respondents have the correlative legal duty to accept the certificates in payment of the taxes
2. Whether compensation can take place between Borja’s real estate tax liability and the credit represented by the certificate of
indebtedness

RULING:
1. No, the respondents are not duty bound to accept the negotiable certificates of indebtedness for the simple reason that they
were not obligations subsisting at the approval of RA 304 which took effect on June 18, 1948. Under RA 304, payment through
a certificate of indebtedness may be allowed if the tax is owed by the applicant himself. Furthermore, the right to use the
backpay certificate in settlement of taxes is given only to the applicant himself. Futhermore, the right to use the backpay
certificate in settlement of taxes is given only to the applicant and not to any holder of any negotiable certificate to whom the
law only gives the right to have it discounted by a Filipino citizen or corporation under certain limitations. Borja is not himself
the applicant of the certificate in question, he is merely as assignee thereof.

2.No, the debtor insofar as the certificates of indebtedness are concerned is the Republic of the Philippines, whereas the real
estate taxes owed by Borja are due to the City of Manila and Pasay City, each one of which having a distinct and separate
personality from our Republic. This is contrary to Article 1279 (1) of the Civil Code which states that “each one of the obligors
be bound principally, and that he be at the same time a principal creditor of the other”

o CIR vs. Cebu Portland Cement, G.R. No. L-29059, December 15, 1987

Facts: In a decision, the CTA ordered the respondent to refund to the petitioner the amount representing overpayments of ad
valorem taxes on cement. The respondents moved to enforce the said judgment, but the motion was opposed by the petitioner
on the ground that the private respondent had an outstanding sales tax liability to which the judgment debt had already been
credited. The CTA granted the petitioner’s motion, holding that the alleged sales tax liability was still being questioned and
therefore could not be set-off against the refund.

The petitioner claims that the refund should be charged against the tax deficiency of the private respondent on the sales of
cement under Section 186 of the Tax Code. His position is that cement is a “manufactured” and not a “mineral” product and
therefore not exempt from sales taxes. On the other hand, the respondent disclaims liability for the sales taxes, on the ground
that cement is not a “manufactured” product but a “mineral” product. As such, it was exempted from sales taxes under Section
188 of the Tax Code after the effectivity of Rep. Act No. 1299 on June 16, 1955, in accordance with Cebu Portland Cement Co. v.
Collector of Internal Revenue, decided in 1968.

Issue: (1) Whether or not sales tax was properly imposed upon private respondent.
(2) Whether or not assessment of taxes can be enforced even if there is a case contesting it

Ruling:
(1) Yes, because cement has always been considered a manufactured product and not a mineral product. In a case, cement
was never considered as a mineral product within the meaning of Section 246 of the Tax Code for the simple reason that
cement is the product of a manufacturing process and is no longer the mineral product contemplated in the Tax Code for the
purpose of imposing the ad valorem tax.

(2) The argument that the assessment cannot as yet be enforced because it is still being contested loses sight of the urgency of
the need to collect taxes as "the lifeblood of the government." If the payment of taxes could be postponed by simply
questioning their validity, the machinery of the state would grind to a halt and all government functions would be paralyzed.

o Republic vs. Mambulao, G.R. No. L-17725, February 28, 1962

FACTS:
Mambulao Lumber Company paid the Government a total of P9,127.50 as reforestation charges. Having found liable for an
aggregate amount of P4,802.37 for forest charges, it contended that since the Republic (Government) has not made use of the
reforestation charges for reforesting the denuded area of the land covered by the company’s license, the Republic should
refund said amount or, if it cannot be refunded, at least the company should be compensated with what it owed the Republic
for reforestation charges.

ISSUE:
Whether taxes may be subject of set-off or compensation.

HELD:
Internal revenue taxes, such as forest charges, cannot be the subject of set-off or compensation. A claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in
the light of public policy, to exclude the remedy in an action or any indebtedness of the State or municipality to one who is
liable to the State or municipality for taxes. Neither are they subject of recoupment since they do not arise out of the contract
or transaction sued on.

Taxes are not in the nature of contracts between the parties but grow out of a duty to, and are the positive acts of the
government, to the making and enforcing of which, the personal consent of individual taxpayers is not required.
17
Other digest: There is nothing in the law which requires that the amount collected as reforestation charges should be used
exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used, the same
shall be refunded to him. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature of
a tax which forms part of the Forestation Fund, payable by him irrespective of whether the area covered by his license is reforested
or not. Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely,
the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation. The weight of authority
is to the effect that internal revenue taxes, such as the forest charges in question is not subject to set-off or compensation. Taxes are
not in the nature of contracts between the parties but grow out of a duty to, and are positive acts of the government, to the
making and enforcing of which, the personal consent of the individual taxpayers is not required. With respect to the forest charges
which the company has paid to the government, they are in the coffers of the government as tax collected, and the government
does not owe anything. It is crystal clear that the Republic of the Philippines and the Mambulao Lumber Company are not
creditors and debtors of each other, because compensation refers to mutual debts.

o Francia vs. IAC, G.R. No. L-67649, June 28, 1988

162 SCRA 753 – Taxation Law – General Principles – Set-off of Taxes

FACTS: Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977, a portion of his land (125
square meter) was expropriated by the government for P4,116.00. The expropriation was made to give way to the expansion of
a nearby road.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00. So in December 1977, the
remaining 203 square meters of his land was sold at a public auction (after due notice was given him). The highest bidder was
a certain Ho Fernandez who paid the purchase price of P2,400.00 (which was lesser than the price of the portion of his land
that was expropriated).

Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was grossly inadequate. He
further argued that his land should have never been auctioned because the P2,400.00 he owed the government in taxes should
have been set-off by the debt the government owed him (legal compensation). He alleged that he was not paid by the
government for the expropriated portion of his land because though he knew that the payment therefor was deposited in the
Philippine National Bank, he never withdrew it.

ISSUE: Whether or not the tax owed by Francia should be set-off by the “debt” owed him by the government.

HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By legal compensation,
obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278,
Civil Code). This is not applicable in taxes. There can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to
or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or
any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the contract or transaction sued on.

Further, the government already Francia. All he has to do was to withdraw the money. Had he done that, he could have paid his
tax obligations even before the auction sale or could have exercised his right to redeem – which he did not do.

Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not tenable. The Supreme Court said:
“alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at
public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption.” If mere inadequacy
of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if
not rendered altogether impracticable. “Where land is sold for taxes, the inadequacy of the price given is not a valid objection
to the sale.” This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer
the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to
the value of the land.

o Philex Mining vs. CIR, 294 SCRA 687

No off-setting in tax collection

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of Tax Appeals decision
ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter
of 1992 plus 20% annual interest from 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. Philex
protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the
taxes it paid for the years 1989 to 1991 in the amount of P120 M plus interest. Therefore these claims for tax credit/refund
should be applied against the tax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner?

RULING: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the
18
government and so should be collected without unnecessary hindrance. Philex cannot be allowed to refuse the payment of its
tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been
granted. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors
and debtors of each other. There is a material distinction between a tax and debt.

Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity.
There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit against the government

o Domingo vs. Garlitos, 8 SCRA 443

Facts: In Domingo vs. Moscoso (106 PHIL 1138), the Supreme Court declared as final and executory the order of the Court of
First Instance of Leyte for the payment of estate and inheritance taxes, charges and penalties amounting to Php 40,058.55 by
the Estate of the late Walter Scott Price. The petition for execution filed by the fiscal, however, was denied by the lower court.
The Court held that the execution is unjustified as the Government itself is indebted to the Estate for Php 262,200; and ordered
the amount of inheritance taxes be deducted from the Government’s indebtedness to the Estate.

Issue: Whether a tax and a debt may be compensated.

Ruling: Yes. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an
inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to
pay the amount thereof. The legal basis of such procedure is the fact that in the testate or intestate proceedings to settle the
estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction
continues until said properties have been distributed among the heirs entitled thereto.

The court having jurisdiction of the Estate had found that the claim of the Estate against theGovernment has been recognized
and an amount of P262,200 has already been appropriated by a corresponding law (RA 2700). Under the circumstances, both
the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become
overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance
with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.

C. Limitations on the Power of Taxation

1. Requirement of due process of law

a) Due Process Clause
o Chamber of Real Estate and Builders Associations, Inc. vs. The Hon. Executive Secretary Alberto
Romulo, G.R. No. 160756, March 9, 2010 (repeated case; See scope of legislative power of tax;see full
text)

2. Requirement of equal protection of the laws

a) Equal Protection Clause
o Sison, Jr. vs. Ancheta, G.R. No. L-59431, July 25,1984

Sison assails the validity of BP 135 w/c further amended Sec 21 of the National Internal Revenue Code of 1977. The law
provides that there’d be a higher tax impost against income derived from professional income as opposed to regular income
earners. Sison, as a professional businessman, and as taxpayer alleges that by virtue thereof, “he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-
vis those which are imposed upon fixed income or salaried individual taxpayers.” He characterizes the above section as
arbitrary amounting to class legislation, oppressive and capricious in character. There is a transgression of both the equal
protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation.

ISSUE: Whether the imposition of a higher tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.

HELD: The SC ruled against Sison. The power to tax, an inherent prerogative, has to be availed of to assure the performance of
vital state functions. It is the source of the bulk of public funds. Taxes, being the lifeblood of the government, their prompt and
certain availability is of the essence. According to the Constitution: “The rule of taxation shall be uniform and equitable.”
However, the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable.
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. Where
“the differentiation” complained of “conforms to the practical dictates of justice and equity” it “is not discriminatory within the
meaning of this clause and is therefore uniform.” There is quite a similarity then to the standard of equal protection for all that
is required is that the tax “applies equally to all persons, firms and corporations placed in similar situation.

What misled Sison is his failure to take into consideration the distinction between a tax rate and a tax base. There is no legal
objection to a broader tax base or taxable income by eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories. In the case of the gross income taxation embodied in
BP 135, the discernible basis of classification is the susceptibility of the income to the application of generalized rules
removing all deductible items for all taxpayers within the class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense,
19
these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or
less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in
the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of
them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income. There is ample
justification then for the Batasang Pambansa to adopt the gross system of income taxation to compensation income, while
continuing the system of net income taxation as regards professional and business income.

3. Requirement of uniformity and equity in taxation

a) Progressive System of Taxation
o British American Tobacco vs. Camacho, 585 SCRA 36

Lessons Applicable: Court of Tax Appeals Jurisdiction, Regional Trial Court Jurisdiction, Equal Protection and Uniformity of
Taxation (constitutional issue), BIR Power to Conduct Resurvey and Reclassification (delegated by express legislation)

Laws Applicable:

FACTS:

June 2001, petitioner British American Tobacco introduced and sold Lucky Strike, Lucky Strike Lights and Lucky Strike
Menthol Lights cigarettes w/ SRP P 9.90/pack - Initial assessed excise tax: P 8.96/pack (Sec. 145 [c])

February 17, 2003: RR 9-2003: Periodic review every 2 years or earlier of the current net retail price of new brands and
variants thereof for the purpose of the establishing and updating their tax classification

March 11, 2003: RMO 6-2003: Guidelines and procedures in establishing current net retail prices of new brands of cigarettes
and alcohol products

August 8, 2003: RR 22-2003: Implement the revised tax classification of certain new brands introduced in the market after
January 1, 1997 based on the survey of their current net retail prices. This increased the excise tax to P13.44 since the average
net retail price is above P 10/pack. This cause petitioner to file before the RTC of Makati a petition for injunction with prayer
for issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction sought to enjoin the implementation of
Sec. 145 of the NIRC, RR No. 1-97, 9-2003, 22-2003 and 6-2003 on the ground that they discriminate against new brands of
cigarettes in violation of the equal protection and uniformity provisions of the Constitution

RTC: Dismissed

While petitioner's appeal was pending, RA 9334 amending Sec. 145 of the 1997 NIRC among other took effect on January 1,
2005 which in effect increased petitioners excise tax to P25/pack
Petitioner filed a Motion to Admit attached supplement and a supplement to the petition for review assailing the
constitutionality of RA 9334 and praying a downward classification of Lucky Strike products at the bracket taxable at P
8.96/pack since existing brands are still taxed based on their price as of October 1996 eventhough they are equal or higher
than petitioner's product price.

Philip Morris Philippines Manufacturing Incorporated, Fortune Tobacco Corp., Mighty Corp. and JT International Intervened.
Fortune Tobacco claimed that the CTA should have the exclusive appellate jurisdiction over the decision of the BIR in tax
disputes
ISSUE:
W/N the RTC rather than the CTA has jurisdiction.
W/N RA 9334 of the classification freeze provision is unconstitutional for violating the equal protection and uniformity
provisions of the Constitution
W/N RR Nos. 1-97, 9-2003, 22-2003 and RA 8243 even prior to its amendment by RA 9334 can authorize the BIR to conduct
resurvey and reclassification.

HELD:
1. Yes. The jurisdiction of the CTA id defined in RA 1125 which confers on the CTA jurisdiction to resolve tax disputes in
general. BUT does NOT include cases where the constitutionality of a law or rule is challenged which is a judicial power
belonging to regular courts.

2. No. In Sison Jr. v. Ancheta, the court held that "xxx It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the conditions not being different, both in
the privileges conferred and the liabilities imposed. If the law be looked upon in tems of burden on charges, those that fall
within a class should be treated in the same fashion, whatever restrictions cast on some in the group equally binding on the
rest. xxx" Thus, classification if rational in character is allowable. In Lutz v. Araneta: "it is inherent in the power to tax that a
state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out
of one particular class for taxation, or exemption infringe no constitutional limitation" SC previously held: "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"

Under the the rational basis test, a legislative classification, to survive an equal protection challenge, must be shown to
rationally further a legitimate state interest. The classifications must be reasonable and rest upon some ground of difference
having a fair and substantial relation to the object of the legislation
20
A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws.
The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to
the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it applies equally to
all those belonging to the same class.

Moreover, petitioner failed to clearly demonstrate the exact extent of such impact as the price is not the only factor that affects
competition.

3. NO. 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. These are however modified by RA 9334.

4. Prohibition against imprisonment for non-payment of poll tax

a) Non-Imprisonment for Non-Payment of Poll Tax
o Republic vs. Patanao, G.R. No. L-22356, July 21, 1967
FACTS:

Pedro B. Patanao, an Agusan timber concessionaire, was prosecuted for failure to file income tax returns and for non-payment
of income tax. He was ACQUITTED. Later, the government sued him civilly for the collection of the tax due. Patanao alleges that
the civil claim cannot prosper anymore because:

1) He was already acquitted in the criminal case;

2) The collection of the tax was not reserved in the criminal action.

ISSUE: Whether or not Patanao’s acquittal in the said criminal case operates to discharge him from his duty of paying the taxes.

HELD:

The acquittal in the criminal case is not important. Under the Revised Penal Code, civil liability is the result of a crime; in the
Internal Revenue Code, civil liability arises first, i.e., civil liability to pay taxes arises from the fact that one has earned income
or has engaged in business, and not because of any criminal act committed by him. In other words, criminal liability comes only
after failure of the debtor to satisfy his civil obligation.

The collection of the tax could not have been reserved in the criminal case – because criminal prosecution is not one of the
remedies stated in the law for the collection of the tax. (Pp vs Arnault, L-4288, Nov 20, 1952; Pp vs Tierra, L-17177-17180, Dec
28, 1964). Indeed civil liability is not deemed included in the criminal proceeding. The tax certainly is not a mere civil liability
arising from a crime, that could be wiped out by the judicial declaration of non-existence of the criminal acts charged. (Castro
vs Internal Revenue, L-12174, April 20, 1962).

5. Prohibition against impairment of obligation of contracts

a) Non-Impairment Clause
o Mactan Cebu International Airport vs. Marcos, 261 SCRA 667

Petitioner was created by virtue of RA6958, mandated to "principally undertake the economical, efficient and effective control,
management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City.
Under Section 1: The authority shall be exempt from realty taxes imposed by the National Government or any of its political
subdivisions, agencies and instrumentalities. However, the Officer of the Treasurer of Cebu City demanded payment for realty
taxes on parcels of land belonging to petitioner. Petitioner objected invoking its tax exemption. It also asserted that it is an
instrumentality of the government performing governmental functions, citing section 133 of the LGC which puts limitations on
the taxing powers of LGUs. The city refused insisting that petitioner is a GOCC performing proprietary functions whose tax
exemption was withdrawn by Sections 193 and 234 of the LGC. Petitioner filed a declaratory relief before the RTC. The trial
court dismissed the petitioner ruling that the LGC withdrew the tax exemption granted the GOCCs.

Issue: WON the City of Cebu has the power to impose taxes on petitioner

Held: Yes

Ratio:
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature
no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on
the constituency who are to pay it. Since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law
frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayers and liberally in favor of the taxing authority. A claim of exemption from tax payment must be clearly shown and
based on language in the law too plain to be mistaken. There can be no question that under Section 14 RA 6958 the petitioner
is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies,
and instrumentalities.

Nevertheless, since taxation is the rule and exemption is the exception, the exemption may thus be withdrawn at the pleasure
of the taxing authority. The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by LGUs
of their power to tax, the scope thereof or its limitations, and the exemption from taxation.
21
Section 133 of the LGC prescribes the common limitations on the taxing powers of LGUs: (o) Taxes, fees or charges of any kind
on the national government, its agencies and instrumentalities and LGUs. Among the "taxes" enumerated in the LGC is real
property tax. Section 234 of LGC provides for the exemptions from payment of GOCCs, except as provided therein. On the other
hand, the LGC authorizes LGUs to grant tax exemption privileges.

Reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in Secs 133 the taxing
powers of LGUs cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its
agencies and instrumentalties, and LGUs"; however, pursuant to Sec 232, provinces, cities, municipalities in the Metropolitan
Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or
any of its political subdivisions except when the beneficial used thereof has been granted to a taxable person."

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-
owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the
effectivity of the LGC, except upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non stock and non-profit hospitals and educational institutions, and unless otherwise provided
in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. But
the last paragraph of Section 234 further qualifies the retention of the exemption in so far as the real property taxes are
concerned by limiting the retention only to those enumerated there-in; all others not included in the enumeration lost the
privilege upon the effectivity of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or
any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the
beneficial use of such property has been granted to taxable person for consideration or otherwise. Since the last paragraph of
Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real property taxes granted to natural
or juridical persons, including GOCCs, except as provided in the said section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958,
has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the
exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is
qualified by Section 232 and 234. In short, the petitioner can no longer invoke the general rule in Section 133. It must show
that the parcels of land in question, which are real property, are any one of those enumerated in Section 234, either by virtue
of ownership, character, or use of the property.

Most likely, it could only be the first, but not under any explicit provision of the said section, for one exists. In light of the
petitioner's theory that it is an "instrumentality of the Government", it could only be within be first item of the first paragraph
of the section by expanding the scope of the terms Republic of the Philippines" to embrace ."instrumentalities" and "agencies."

This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the Government is based
on Section 133(o), which expressly mentions the word "instrumentalities"; and in the second place it fails to consider the fact
that the legislature used the phrase "National Government, its agencies and instrumentalities" "in Section 133(o),but only the
phrase "Republic of the Philippines or any of its political subdivision "in Section 234(a). The terms "Republic of the
Philippines" and "National Government" are not interchangeable. The former is boarder and synonymous with "Government
of the Republic of the Philippines" which the Administrative Code of the 1987 defines as the "corporate governmental entity
though which the functions of the government are exercised through at the Philippines, including, saves as the contrary
appears from the context, the various arms through which political authority is made effective in the Philippines, whether
pertaining to the autonomous reason, the provincial, city, municipal or barangay subdivision or other forms of local
government." These autonomous regions, provincial, city, municipal or barangay subdivisions" are the political subdivision. On
the other hand, "National Government" refers "to the entire machinery of the central government, as distinguished from the
different forms of local Governments." The National Government then is composed of the three great departments the
executive, the legislative and the judicial. An "agency" of the Government refers to "any of the various units of the Government,
including a department, bureau, office instrumentality, or government-owned or controlled corporation, or a local government
or a distinct unit therein;" while an "instrumentality" refers to "any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy; usually through a charter. This term includes
regulatory agencies, chartered institutions and government-owned and controlled corporations". If Section 234(a) intended to
extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence
of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it
should have restated the wording of the latter. Yet, it did not Moreover, that Congress did not wish to expand the scope of the
exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government
including government-owned and controlled corporations is further borne out by the fact that the source of this exemption is
Section 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code. Note that as a reproduced in Section 234(a), the
phrase "and any government-owned or controlled corporation so exempt by its charter" was excluded. The justification for
this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, specially in light of the
general provision on withdrawal of exemption from payment of real property taxes in the last paragraph of property taxes in
the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local
governments 33 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. 34

The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of 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 similarly situated enterprises,
22
and there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by paying the taxes
and other charges due from them. The crucial issues then to be addressed are: (a) whether the parcels of land in question
belong to the Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the
petitioner is a "taxable person". It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then
administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real
property taxes. This section involves a "transfer" of the "lands" among other things, to the petitioner and not just the transfer
of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This "transfer" is actually an
absolute conveyance of the ownership thereof because the petitioner's authorized capital stock consists of "the value of such
real estate owned and/or administered by the airports." Hence, the petitioner is now the owner of the land in question and the
exception in Sec 234(c) of the LGC is inapplicable. Petitioner cannot claim that it was never a "taxable person" under its
Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even
if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing disquisitions, it
had already become even if it be conceded to be an "agency" or "instrumentality" of the Government, a taxable person for such
purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes,
which, as earlier adverted to, applies to the petitioner. Accordingly, the position taken by the petitioner is untenable. Reliance
on Basco vs. Pagcor is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress
from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject
to tax. Where it is done precisely to fulfil a constitutional mandate and national policy, no one can doubt its wisdom.

o People vs. Caguioa, G.R. No. 168584, October 15, 2007

Facts: Congress enacted Republic Act (R.A) No. 7227 or the Bases Conversion and Development Act of 1992 which created the
Subic Special Economic and Freeport Zone (SBF) and the Subic Bay Metropolitan Authority (SBMA). Section 12 of R.A No. 7227
of the law provides that no taxes, local and national, shall be imposed within the Subic Special Economic Zone. Pursuant to the
law, Indigo Distribution Corporation, et al., which are all domestic corporations doing business at the SBF, applied for and were
granted Certificates of Registration and Tax Exemption by the SBMA.

Congress subsequently passed R.A. No. 9334, which provides that all applicable taxes, duties, charges, including excise taxes
due thereon shall be applied to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly into the
duly chartered or legislated freeports of the Subic Economic Freeport Zone. On the basis of Section 6 of R.A. No. 9334, SBMA
issued a Memorandum declaring that, all importations of cigars, cigarettes, distilled spirits, fermented liquors and wines into
the SBF, shall be treated as ordinary importations subject to all applicable taxes, duties and charges, including excise taxes.

Upon its implementation, Indigo et al., sought for a reconsideration of the directives on the imposition of duties and taxes,
particularly excise taxes by the Collector of Customs and the SBMA Administrator. Their request was subsequently denied
prompting them to file with the RTC of Olongapo City a special civil action for declaratory relief to have certain provisions of
R.A. No. 9334 declared as unconstitutional. They prayed for the issuance of a writ of preliminary injunction and/or Temporary
Restraining Order (TRO) and preliminary mandatory injunction. The same was subsequently granted by Judge Ramon Caguioa.
The injunction bond was approved at One Million pesos (P1,000,000).

ISSUE:

Whether or not public respondent judge committed grave abuse of discretion amounting to lack or excess in jurisdiction in
peremptorily and unjustly issuing the injunctive writ in favor of private respondents despite the absence of the legal requisites
for its issuance

HELD:

One such case of grave abuse obtained in this case when Judge Caguioa issued his Order of May 4, 2005 and the Writ of
Preliminary Injunction on May 11, 2005 despite the absence of a clear and unquestioned legal right of private respondents. In
holding that the presumption of constitutionality and validity of R.A. No. 9334 was overcome by private respondents for the
reasons public respondent cited in his May 4, 2005 Order, he disregarded the fact that as a condition sine qua non to the
issuance of a writ of preliminary injunction, private respondents needed also to show a clear legal right that ought to be
protected. That requirement is not satisfied in this case. To stress, the possibility of irreparable damage without proof of an
actual existing right would not justify an injunctive relief.

Indeed, Sections 204 and 229 of the NIRC provide for the recovery of erroneously or illegally collected taxes which would be
the nature of the excise taxes paid by private respondents should Section 6 of R.A. No. 9334 be declared unconstitutional or
invalid.

The Court finds that public respondent had also ventured into the delicate area which courts are cautioned from taking when
deciding applications for the issuance of the writ of preliminary injunction. Having ruled preliminarily against the prima facie
validity of R.A. No. 9334, he assumed in effect the proposition that private respondents in their petition for declaratory relief
were duty bound to prove, thereby shifting to petitioners the burden of proving that R.A. No. 9334 is not unconstitutional or
invalid.

In the same vein, the Court finds Judge Caguioa to have overstepped his discretion when he arbitrarily fixed the injunction
bond of the SBF enterprises at only P1million. Rule 58, Section 4(b) provides that a bond is executed in favor of the party
enjoined to answer for all damages which it may sustain by reason of the injunction. The purpose of the injunction bond is to
protect the defendant against loss or damage by reason of the injunction in case the court finally decides that the plaintiff was
23
not entitled to it, and the bond is usually conditioned accordingly.

Whether this Court must issue the writ of prohibition, suffice it to stress that being possessed of the power to act on the
petition for declaratory relief, public respondent can proceed to determine the merits of the main case. Moreover, lacking the
requisite proof of public respondent‘s alleged partiality, this Court has no ground to prohibit him from proceeding with the
case for declaratory relief. For these reasons, prohibition does not lie.

6. Prohibition against infringement of religious freedom

a) Religious Freedom
o American Bible Society vs. City of Manila, G.R. No. L-9637, April 30, 1957
Facts:
· American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and doing
business in the Philippines through its Philippine agency established in Manila in November, 1898
· City of Manila is a municipal corporation with powers that are to be exercised in conformity with the provisions of
Republic Act No. 409, known as the Revised Charter of the City of Manila
· American Bible Society has been distributing and selling bibles and/or gospel portions throughout the Philippines and
translating the same into several Philippine dialect
· City Treasurer of Manila informed American Bible Society that it was violating several Ordinances for operating without
the necessary permit and license, thereby requiring the corporation to secure the permit and license fees covering the period
from 4Q 1945-2Q 1953
· To avoid closing of its business, American Bible Society paid the City of Manila its permit and license fees under protest
· American Bible filed a complaint, questioning the constitutionality and legality of the Ordinances 2529 and 3000, and
prayed for a refund of the payment made to the City of Manila. They contended:
a. They had been in the Philippines since 1899 and were not required to pay any license fee or sales tax
b. it never made any profit from the sale of its bibles
· City of Manila prayed that the complaint be dismissed, reiterating the constitutionality of the Ordinances in question
· Trial Court dismissed the complaint
· American Bible Society appealed to the Court of Appeals

Issue: WON American Bible Society liable to pay sales tax for the distribution and sale of bibles

Ruling: NO
· Under Sec. 1 of Ordinance 3000, one of the ordinance in question, person or entity engaged in any of the business, trades
or occupation enumerated under Sec. 3 must obtain a Mayor’s permit and license from the City Treasurer. American Bible
Society’s business is not among those enumerated
· However, item 79 of Sec. 3 of the Ordinance provides that all other businesses, trade or occupation not mentioned, except
those upon which the City is not empowered to license or to tax P5.00
· Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade
or occupation.
· 2 provisions of law that may have bearing on this case:
a. Chapter 60 of the Revised Administrative Code, the Municipal Board of the City of Manila is empowered to tax and fix the
license fees on retail dealers engaged in the sale of books
b. Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in general merchandise, including importers and indentors,
except those dealers who may be expressly subject to the payment of some other municipal tax. Further, Dealers in general
merchandise shall be classified as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on retail dealers, general
merchandise shall be classified into four main classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A separate license shall be prescribed for each class but where commodities of
different classes are sold in the same establishment, it shall not be compulsory for the owner to secure more than one license if
he pays the higher or highest rate of tax prescribed by ordinance. Wholesale dealers shall pay the license tax as such, as may be
provided by ordinance
· The only difference between the 2 provisions is the limitation as to the amount of tax or license fee that a retail dealer has
to pay per annum
· As held in Murdock vs. Pennsylvania, The power to impose a license tax on the exercise of these freedoms provided for in
the Bill of Rights, is indeed as potent as the power of censorship which this Court has repeatedly struck down. It is not a
nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way
apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed
by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly
recognized as the inherent vice and evil of this flat license tax.
· Further, the case also mentioned that the power to tax the exercise of a privilege is the power to control or suppress its
enjoyment. Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the
resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can
close all its doors to all those who do not have a full purse
· Under Sec. 27(e) of Commonwealth Act No. 466 or the National Internal Revenue Code, Corporations or associations
organized and operated exclusively for religious, charitable, . . . or educational purposes, . . .: Provided, however, That the
income of whatever kind and character from any of its properties, real or personal, or from any activity conducted for profit,
regardless of the disposition made of such income, shall be liable to the tax imposed under this Code shall not be taxed
· The price asked for the bibles and other religious pamphlets was in some instances a little bit higher than the actual cost
of the same but this cannot mean that American Bible Society was engaged in the business or occupation of selling said
"merchandise" for profit
· Therefore, the Ordinance cannot be applied for in doing so it would impair American Bible Society’s free exercise and
24
enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs.

* A municipal license tax on the sale of bibles and religious articles by a non-stock, non-profit, missionary organization at a
minimal profit constitutes a curtailment of religious freedom and worship which is guaranteed by the constitution. However, the
income of such organization from any activity for profit or from any of their property, real or personal, regardless of the
disposition made of such income is taxable.

Wherefore, and on the strength of the foregoing considerations, We hereby reverse the decision appealed from, sentencing
defendant return to plaintiff the sum of P5,891.45 unduly collected from it

7. Prohibition against appropriation for religious purposes

o Aglipay vs. Ruiz, G.R. No. L-45459, March 13, 1937

Facts: Petitioner seeks the issuance of a writ of prohibition against respondent Director of Posts from issuing and selling
postage stamps commemorative of the 33rd International Eucharistic Congress. Petitioner contends that such act is a violation
of the Constitutional provision stating that no public funds shall be appropriated or used in the benefit of any church, system of
religion, etc. This provision is a result of the principle of the separation of church and state, for the purpose of avoiding the
occasion wherein the state will use the church, or vice versa, as a weapon to further their ends and aims. Respondent contends
that such issuance is in accordance to Act No. 4052, providing for the appropriation funds to respondent for the production
and issuance of postage stamps as would be advantageous to the government.

Issue: Whether or Not there was a violation of the freedom to religion.

Held: What is guaranteed by our Constitution is religious freedom and not mere religious toleration. It is however not an
inhibition of profound reverence for religion and is not a denial of its influence in human affairs. Religion as a profession of
faith to an active power that binds and elevates man to his Creator is recognized. And in so far as it instills into the minds the
purest principles of morality, its influence is deeply felt and highly appreciated. The phrase in Act No. 4052 “advantageous to
the government” does not authorize violation of the Constitution. The issuance of the stamps was not inspired by any feeling to
favor a particular church or religious denomination. They were not sold for the benefit of the Roman Catholic Church. The
postage stamps, instead of showing a Catholic chalice as originally planned, contains a map of the Philippines and the location
of Manila, with the words “Seat XXXIII International Eucharistic Congress.” The focus of the stamps was not the Eucharistic
Congress but the city of Manila, being the seat of that congress. This was to “to advertise the Philippines and attract more
tourists,” the officials merely took advantage of an event considered of international importance. Although such issuance and
sale may be inseparably linked with the Roman Catholic Church, any benefit and propaganda incidentally resulting from it was
no the aim or purpose of the Government.

8. Prohibition against taxation of religious charitable, and educational entities, etc.

a) Tax Exemption of Religious, Charitable, and Educational Entities
o Abra Valley College, Inc. vs. Aquino, G.R. No. L-39086, June 15, 1988
FACTS:

Petitioner, an educational corporation and institution of higher learning duly incorporated with the Securities and Exchange
Commission in 1948, filed a complaint to annul and declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and
building located at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31. Said "Notice of
Seizure" by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was issued for the satisfaction of the
said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its questioned decision. The trial
court ruled for the government, holding that the second floor of the building is being used by the director for residential
purposes and that the ground floor used and rented by Northern Marketing Corporation, a commercial establishment, and thus
the property is not being used exclusively for educational purposes. Instead of perfecting an appeal, petitioner availed of the
instant petition for review on certiorari with prayer for preliminary injunction before the Supreme Court, by filing said petition
on 17 August 1974.

ISSUE:

Whether or not the lot and building are used exclusively for educational purposes.

RULING:

Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants exemption from realty taxes for
cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable or educational purposes.ﾝ Reasonable emphasis has always been made that the exemption
extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. The use of
the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the
lease of the first floor of the building to the Northern Marketing Corporation cannot by any stretch of the imagination be
considered incidental to the purpose of education. The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the assessed tax be returned to the
petitioner. The modification is derived from the fact that the ground floor is being used for commercial purposes (leased) and
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the second floor being used as incidental to education (residence of the director).

o Lung Center of the Philippines vs. Quezon City, G.R. No. 144104, June 29, 2000

FACTS: The petitioner, a non-stock and non-profit entity is the registered owner of a parcel of land where 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 along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon
Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and
Garden Center.

On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount
of P4, 554,860 by the City Assessor of Quezon City but the former filed a Claim for Exemption from real property taxes with the
City Assessor, predicated on its claim that it is a charitable institution.

ISSUE:

Whether or not the petitioner’s real properties are exempted from realty tax exemptions.

RULING:

Even as we find that the petitioner is a charitable institution, 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.
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.

Hence, a claim for exemption from tax payments must be clearly shown and based on language in the law too plain to be
mistaken. Under Section 2 of Presidential Decree No. 1823, the petitioner does not enjoy any property tax exemption privileges
for its real properties as well as the building constructed thereon. If the intentions were otherwise, the same should have been
among the enumeration of tax exempt privileges under Section 2.

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

a) Taxability of Income Derived from the Operation of Dormitories, Canteens and Bookstores
o CIR vs. Ateneo de Manila University, Inc. CTA EB No. 669 (CTA Case Nos. 7246 & 7293, March 11,
2010), June 30, 2011

INDIRECT TAX *additional cases

1) MACEDA v. MACARAIG G.R. NO. 88291 MAY 31, 1991 (not my digest)
• Indirect tax exemption
FACTS:
Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic power and the
production of power from other sources. RA 358 granted NAPOCOR tax and duty exemption privileges. RA 6395 revised the
charter of the NAPOCOR, tasking it to carry out the policy of the national electrification and provided in detail NAPOCOR’s tax
exceptions. PD 380 specified that NAPOCOR’s exemption includes all taxes, etc. imposed “directly or indirectly.” PD 938 dated
May 27, 1976 further amended the aforesaid provision by integrating the tax exemption in general terms under one
paragraph.

ISSUE:
Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the enactment of PD 938 on May 27, 1976 which
amended PD 380 issued on January 11, 1974

RULING:
No, it is still exempt.
NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by the government of
the Republic of the Philippines. From the very beginning of the corporation’s existence, NAPOCOR enjoyed preferential tax
treatment “to enable the corporation to pay the indebtedness and obligation” and effective implementation of the policy
enunciated in Section 1 of RA 6395.

From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be interpreted liberally so as to
enhance the tax exempt status of NAPOCOR.

It is recognized that the rule on strict interpretation does not apply in the case of exemptions in favor of government political
subdivision or instrumentality. In the case of property owned by the state or a city or other public corporations, the express
exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the
state, since as to such property “exception is the rule and taxation the exception.”

2) CIR v. GOTAMCO G.R. NO. 31092 FEBRUARY 27, 1987

FACTS:
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The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. As an
international organization, it enjoys privileges and immunities which are defined more specifically in the Host Agreement
entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement
provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and
indirect taxes. It is understood, however, that the Organization will not claim exemption from taxes which are, in fact, no more
than charges for public utility services; . . .

When the WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in
Manila, it entered into a further agreement with the Govermment of the Republic of the Philippines on November 26, 1957.
This agreement granted the Organization exemption from all direct and indirect taxes.

In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed
belonged to an international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and
taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other
payments to Government agencies."

The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958
for the stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00. The CIR
opined that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the
contractor, the same is not covered by . . . the Host Agreement."

WHO issued a certification that the bid of John Gotamco & Sons, made under the condition stated above, should be exempted
from any taxes in connection with the construction of the World Health Organization office building. Despite of it, CIR sent a
letter of demand to Gotamco demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the
gross receipts it received from the WHO in the construction of the latter's building.

ISSUE: Whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the National
Internal Revenue Code on the gross receipts it realized from the construction of the World Health Organization office building
in Manila.

HELD: NO.

The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not
imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it. This is made clear in Section
12 of the Host Agreement which provides:

While the Organization will not, as a general rule, in the case of minor purchases, claim exemption from excise duties, and from
taxes on the sale of movable and immovable property which form part of the price to be paid, nevertheless, when the
Organization is making important purchases for official use of property on which such duties and taxes have been charged or
are chargeable the Government of the Republic of the Philippines shall make appropriate administrative arrangements for the
remission or return of the amount of duty or tax. (Emphasis supplied).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear intention of the
Agreement to exempt the WHO from "indirect" taxation.

The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco, from any taxes in
connection with the construction of the WHO office building. The 3% contractor's tax would be within this category and
should be viewed as a form of an "indirect tax" On the Organization, as the payment thereof or its inclusion in the bid price
would have meant an increase in the construction cost of the building.

3) CIR v. AMERICAN RUBBER G.R. NO. 19667 NOVEMBER 29, 1966

FACTS:

Petitioner, American Rubber Company, a domestic corporation, from January 1, 1955 to December 1, 1958, was engaged in
producing rubber from its approximately 900 hectare rubber tree plantation, which it owned and operated in Latuan, Isabela,
City of Basilan.

Petitioner during the said period sold its foregoing rubber products locally and as prescribed by the respondent's regulations
declared same for tax purposes which respondent accordingly assessed. Petitioner paid, under protest, the corresponding
sales taxes thereon claiming exemption therefrom under Section 188 (b) of the National Internal Revenue Code.

The company paid under protest the corresponding sales taxes thereon. Petitioner claimed for refund of the sales taxes paid
by it on the ground that under section 188 (b) of the Internal Revenue Code as amended, its rubber products were agricultural
products exempt from sales tax.

ISSUES:

27
(1) Whether the plaintiff's rubber products above described should be considered agricultural or manufactured for
purposes of their subjection to the sales tax;

(2) Whether plaintiff is or is not entitled to recover the sales tax paid by it, but passed on to and paid by the buyers of its
products

HELD:

1) No. Jurisprudence provides that the exemption from sales tax established in section 188 (b) of the Internal Revenue
Tax Code in favor of sales of agricultural products, whether in their original form or not, made by the producer or owner of the
land where produced is not taken away merely because the produce undergoes processing at the hand of said producer or
owner for the purpose of working his product into a more convenient and valuable form suited to meet the demand of an
expanded market; that the exemption was not designed in favor of the small agricultural producer, already exempted by the
subsequent paragraphs of the same section 188, but that said exemption is not incompatible with large scale agricultural
production that incidentally required resort to preservative processes designed to increase or prolong marketability of the
product.

The Revenue Commissioner contends that all of plaintiff's products should be deemed manufactured articles, on the strength
of section 194 (n) of the Revenue Code defining a "manufacturer" as

every person who by physical or chemical process alters the exterior texture or form or inner substances of any raw material
or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could
not have been put to in its original condition, or who . . . alters the quality of any such raw material . . . as to reduce it to
marketable shape . . . .

But, as pointed out in the Philippine Packing Corporation case, this definition is not applicable to the exemption of agricultural
products, "whether in their original form or not". The use of this last phrase in the statute clearly indicates that the agricultural
product may be altered in texture or form without being divested of the exemption.The exception would be sales of
agricultural products while Republic Act No. 1612 was in effect because under this Act the freedom from sales tax became
restricted to agricultural products "in their original form" only. So that plaintiff's sales from August 24, 1956 (approval of
Republic Act 1612) to June 22, 1957 (when Republic Act 1856 became effective and restored the exemption to agricultural
products "whether in their original form or not") became properly taxable.

2) NO. The plaintiff Company is not entitled to recover the sales tax paid by it from January, 1955 to August 2, 1957,
because during that period the plaintiff had separately invoiced and billed the corresponding sales tax to the buyers of its
products. Based on Medina vs. City of Baguio,"The amount collected from the theatergoers as additional price of admission
tickets is not the property of plaintiffs or any of them. It is paid by the public. If anybody has the right to claim it, it is those who
paid it. Only owners of property has the right to claim said property. The cine owner acted as mere agents of the city in
collecting additional price charged in the sale of admission tickets." (Medina vs. City of Baguio, 91 Phil. 854)

By contrast with the municipal taxes involved in the preceding cases, the sales tax is by law imposed directly, not on the thing
sold, but on the act (sale) of the manufacturer, producer or importer, who is exclusively made liable for its timely payment.
There is no proof that the tax paid by plaintiff is the very money paid by its customers. Where the tax money paid by the
plaintiff came from is really no concern of the Government, but solely a matter between the plaintiff and its customers.
Anyway, once recovered, the plaintiff must hold the refund taxes in trust for the individual purchasers who advanced payment
thereof, and whose names must appear in plaintiff's records.

Moreover, the separate billing of the sales tax in appellant's invoices was a direct result of the respondent Commissioner's
General Circular No. 440, providing that —

if a manufacturer, producer, or importer, in fixing the gross selling price of an article sold by him, has included an amount
intended to cover the sales tax in the gross selling price of the article, the sales tax shall be based on the gross selling price less
the amount intended to cover the tax, if the same is billed to the purchaser as a separate item in the invoice. . . . (Emphasis
supplied)

In other words, the separate itemization of the sales tax in the invoices was permitted to avoid the taxpayer being compelled
to pay a sales tax on the tax itself. It does not seem either just or proper that a step suggested by the Internal Revenue
authorities themselves to protect the taxpayer from paying a double tax should now be used to block his action to recover
taxes collected without legal sanction.

*Refund is proper. The sales tax is by law imposed directly, not on the thing sold, but on the act (sale) of the manufacturer,
producer or importer who is exclusively made liable for its time payment. There is no proof that the tax paid by plaintiff is the
very money paid by its customers. Where the tax money paid by the plaintiff came from is really no concern of the
Government. Anyway, once recovered, the plaintiff must hold the refund taxes in trust for the individual purchasers who
advanced payment thereof, and whose names must appear in plaintiff’s records.
It would need to tend to perpetuate illegal taxation; for the individual customers to whom the tax is ultimately shifted will
ordinarily not care to sue for its recovery, in view of the small amount paid by each and the high cost of litigation for the
reclaiming of an illegal tax. Insofar, therefore, as it favors the imposition, collection and retention of illegal taxes, and
encourages a multiplicity of suits, the tax court’s ruling under appeal violates morals and public policy.

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4) PHILIPPINE ACETYLENE CORP v. CIR AUGUST 17, 1967

FACTS:

Petitioner is a corporation engaged in the manufacture and sale of oxygen and acetylene gases. During the period from June 2,
1953 to June 30, 1958, it made varioussales of its products to the National Power Corporation (NPC), an agency of the
Philippine Government and to the Voice of America (VOA), an agency of the United States Government.

Respondent CIR assessed against, and demanded from, the petitioner the payment of P 12, 910.60 as deficiency sales tax and
surcharge, pursuant to Sec. 186 and 183 of the National Internal Revenue Code:

Sec. 186. Percentage tax on sales of other articles.—There shall be levied, assessed and collected once only on every original
sale, barter, exchange, and similar transaction either for nominal or valuable considerations, intended to transfer ownership
of, or title to, the articles not enumerated in sections one hundred and eighty-four and one hundred and eighty-five a tax
equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered exchanged, or
transferred, such tax to be paid by the manufacturer or producer: .

Sec. 183. Payment of percentage taxes.—(a) In general.—It shall be the duty of every person conducting business on which a
percentage tax is imposed under this Title, to make a true and complete return of the amount of his, her, or its gross monthly
sales, receipts or earnings, or gross value of output actually removed from the factory or mill warehouse and within twenty
days after the end of each month, pay the tax due thereon: Provided, That any person retiring from a business subject to the
percentage tax shall notify the nearest internal revenue officer thereof, file his return or declaration and pay the tax due
thereon within twenty days after closing his business.

If the percentage tax on any business is not paid within the time specified above, the amount of the tax shall be increased by
twenty-five per centum, the increment to be a part of the tax.

The petitioner denied liability for the payment of the tax on the ground that both the NPC and the VOA are exempt from
taxation.

ISSUE: Whether petitioner is not liable for the payment of the tax on the ground that both the NPC and the VOA are exempt
from taxation?

HELD:

YES.
The court ruled that the tax on the sale of articles or goods in section 186 of the Code is a tax on the manufacturer and not on
the buyer with the result that the "petitioner Philippine Acetylene Company, the manufacturer or producer of oxygen and
acetylene gases sold to the National Power Corporation, cannot claim exemption from the payment of sales tax simply because
its buyer — the National Power Corporation — is exempt from the payment of all taxes." With respect to the sales made to the
VOA, the court held that goods purchased by the American Government or its agencies from manufacturers or producers are
exempt from the payment of the sales tax under the agreement between the Government of the Philippines and that of the
United States, provided the purchases are supported by certificates of exemption, and since purchases amounting to only
P558, out of a total of P1,683, were not covered by certificates of exemption, only the sales in the sum of P558 were subject to
the payment of tax. Accordingly, the assessment was revised and the petitioner's liability was reduced from P12,910.60, as
assessed by the respondent commission, to P12,812.16.

We begin with an analysis of the nature of the percentage (sales) tax imposed by section 186 of the Code. Is it a tax on the
producer or on the purchaser? Statutes of the type under consideration, which impose a tax on sales, have been described as
"act[s] with schizophrenic symptoms,"3 as they apparently have two faces — one that of a vendor tax, the other, a vendee tax.
Fortunately for us the \provisions of the Code throw some light on the problem. The Code states that the sales tax "shall be
paid by the manufacturer or producer,"4 who must "make a true and complete return of the amount of his, her or its gross
monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill warehouse and within
twenty days after the end of each month, pay the tax due thereon."

The asserted right of the one to be free of taxation by the other does not spell immunity from paying the added costs,
attributable to the taxation of those who furnish supplies to the Government and who have been granted no tax immunity.
If a claim of exemption from sales tax based on state immunity cannot command assent, much less can a claim resting on
statutory grant.

It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the
price which the purchaser must pay. It does not matter that an additional amount is billed as tax to the purchaser. The method
of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax
added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the
purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is
all and the amount added because of the tax is paid to get the goods and for nothing else.14

But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter
of economics.15 Then it can no longer be contended that a sales tax is a tax on the purchaser.
29
We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax on the manufacturer or
producer and not a tax on the purchaser except probably in a very remote and inconsequential sense. Accordingly its levy on
the sales made to tax-exempt entities like the NPC is permissible.

30