Sison v. Ancheta, G.R. No.
L- ISSUE: WON Section 1 of BP 135 is
59431, July 25, 1984- Miranda
Sison vs Ancheta
FACTS: Petitioner suit for declaratory
relief or prohibition proceeding 1 on
the validity of Section I of Batas
Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity.
The assailed provision further amends
Section 21 of the National Internal
Revenue Code of 1977, which provides
for rates of tax on citizens or residents
on (a) taxable compensation income,
(b) taxable net income, (c) royalties,
prizes, and other winnings, (d)
interest from bank deposits and yield
or any other monetary benefit from
deposit substitutes and from trust
fund and similar arrangements, (e)
dividends and share of individual
partner in the net profits of taxable
partnership, (f) adjusted gross
income.  Petitioner, 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. For petitioner, therefore,
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.
The respondents filed an answer
affirming: BP 135 is a valid exercise of
the power to tax
 
unconstitutional for being arbitrary,
amounting to class legislation,
oppressive and capricious in nature.
RULING: NO. The petition must be
dismissed.
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. To praphrase a recent
decision, taxes being the lifeblood of
the government, their prompt and
certain availability is of the essence.
12
The power to tax moreover, to borrow
from Justice Malcolm, "is an attribute
of sovereignty. It is the strongest of
all the powers of of government." 13
It is, of course, to be admitted that for
all its plenitude 'the power to tax is
not unconfined. There are restrictions.
The Constitution sets forth such
limits . Adversely affecting as it does
properly rights, both the due process
and equal protection clauses inay
properly be invoked, all petitioner
does, to invalidate in appropriate
cases a revenue measure. if it were
otherwise, there would -be truth to
the 1803 dictum of Chief Justice
Marshall that "the power to tax
involves the power to destroy." 14 In
a separate opinion in Graves v. New
York, 15 Justice Frankfurter, after
referring to it as an ‘’unfortunate
remark characterized it as "a flourish
of rhetoric [attributable to] the
intellectual fashion of the times
following] a free use of absolutes."
This is merely to emphasize that it is
riot and there cannot be such a
constitutional mandate. Justice
Frankfurter could rightfully conclude:
"The web of unreality spun from
Marshall's famous dictum was brushed
away by one stroke of Mr. Justice
Holmes’s pen: 'The power to tax is
not the power to destroy while
this Court sits." 17 So it is in the
Philippines.
The difficulty confronting petitioner is
thus apparent. He alleges
arbitrariness. A mere allegation, as
here. does not suffice. There must be
a factual foundation of such
unconstitutional taint.
It is undoubted that the due process
clause may be invoked where a
taxing statute is so arbitrary that it
finds no support in the Constitution.
An obvious example is where it can be
shown to amount to the confiscation
of property. That would be a clear
abuse of power. It then becomes the
duty of this Court to say that such an
arbitrary act amounted to the exercise
of an authority not conferred. That
properly calls for the application of the
Holmes dictum. It has also been held
that where the assailed tax measure is
beyond the jurisdiction of the state, or
is not for a public purpose, or, in case
of a retroactive statute is so harsh and
unreasonable, it is subject to attack on
due process grounds.
Moreover, as to the equal protection
clause, the court held that there is a
substantial distinction that sets apart
compensation income earners and
those self-employed.  The court
stressed that 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. To repeat, it. is
enough that the classification must
rest upon substantial distinctions that
make real differences.
LORENZO vs. POSADAS
OCTOBER 31, 2011 ~ VBDIAZ
LORENZO vs. POSADAS JR.
G.R. No. L-43082
June 18, 1937
FACTS: Thomas Hanley died, leaving a
will and a considerable amount of real
and personal properties. Proceedings
for the probate of his will and the
settlement and distribution of his
estate were begun in the CFI of
Zamboanga. The will was admitted to
probate.
The CFI considered it proper for the
best interests of the estate to appoint
a trustee to administer the real
properties which, under the will, were
to pass to nephew Matthew ten years
after the two executors named in the
will was appointed trustee. Moore
acted as trustee until he resigned and
the plaintiff Lorenzo herein was
appointed in his stead.
During the incumbency of the plaintiff
as trustee, the defendant Collector of
Internal Revenue (Posadas) assessed
against the estate an inheritance tax,
together with the penalties for
deliquency in payment. Lorenzo paid
said amount under protest, notifying
Posadas at the same time that unless
the amount was promptly refunded
suit would be brought for its recovery.
Posadas overruled Lorenzo’s protest
and refused to refund the said
amount. Plaintiff went to court. The
CFI dismissed Lorenzo’s complaint and
Posadas’ counterclaim. Both parties
appealed to this court.
ISSUE: (e) Has there been
delinquency in the payment of the
inheritance tax?
HELD: The judgment of the lower
court is accordingly modified, with
costs against the plaintiff in both
instances. YES
The defendant maintains that it was
the duty of the executor to pay the
inheritance tax before the delivery of
the decedent’s property to the trustee.
Stated otherwise, the defendant
contends that delivery to the trustee
was delivery to the cestui que trust,
the beneficiary in this case, within the
meaning of the first paragraph of
subsection (b) of section 1544 of the
Revised Administrative Code. This
contention is well taken and is
sustained. A trustee is but an
instrument or agent for the cestui que
trust
The appointment of Moore as trustee
was made by the trial court in
conformity with the wishes of the
testator as expressed in his will. It is
true that the word “trust” is not
mentioned or used in the will but the
intention to create one is clear. No
particular or technical words are
required to create a testamentary
trust. The words “trust” and “trustee”,
though apt for the purpose, are not
necessary. In fact, the use of these
two words is not conclusive on the
question that a trust is created. ” To
constitute a valid testamentary
trust there must be a concurrence of
three circumstances:
(1) Sufficient words to raise a trust;
(2) a definite subject;
(3) a certain or ascertain object;
statutes in some jurisdictions
expressly or in effect so providing.”
There is no doubt that the testator
intended to create a trust. He ordered
in his will that certain of his properties
be kept together undisposed during a
fixed period, for a stated purpose. The
probate court certainly exercised
sound judgment in appointmening a
trustee to carry into effect the
provisions of the will
As the existence of the trust was
already proven, it results that the
estate which plaintiff represents has
been delinquent in the payment of
inheritance tax and, therefore, liable
for the payment of interest and
surcharge provided by law in such
cases. The delinquency in payment
occurred on March 10, 1924, the date
when Moore became trustee. On that
date trust estate vested in him. The
interest due should be computed from
that date.
NOTES: Other issues:
(a) When does the inheritance tax
accrue and when must it be satisfied?
The accrual of the inheritance tax is
distinct from the obligation to pay the
same.
Acording to article 657 of the Civil
Code, “the rights to the succession of
a person are transmitted from the
moment of his death.” “In other
words”, said Arellano, C. J., “. . . the
heirs succeed immediately to all of the
property of the deceased ancestor.
The property belongs to the heirs at
the moment of the death of the
ancestor as completely as if the
ancestor had executed and delivered
to them a deed for the same before
his death.”
Whatever may be the time when
actual transmission of the inheritance
takes place, succession takes place in
any event at the moment of the
decedent’s death. The time when the
heirs legally succeed to the inheritance
may differ from the time when the
heirs actually receive such inheritance.
” Thomas Hanley having died on May
27, 1922, the inheritance tax accrued
as of the date.
From the fact, however, that Thomas
Hanley died on May 27, 1922, it does
not follow that the obligation to pay
the tax arose as of the date. The time
for the payment on inheritance tax is
clearly fixed by section 1544 of the
Revised Administrative Code as
amended by Act No. 3031, in relation
to section 1543 of the same Code. The
two sections follow:
SEC. 1543. Exemption of certain
acquisitions and transmissions. — The
following shall not be taxed:
(a) The merger of the usufruct in the
owner of the naked title.
(b) The transmission or delivery of the
inheritance or legacy by the fiduciary
heir or legatee to the trustees.
(c) The transmission from the first
heir, legatee, or donee in favor of
another beneficiary, in accordance
with the desire of the predecessor. xx
SEC. 1544. When tax to be paid. —
The tax fixed in this article shall be
paid:
(a) In the second and third cases of
the next preceding section, before
entrance into possession of the
property.
(b) In other cases, within the six
months subsequent to the death of
the predecessor; but if judicial
testamentary or intestate proceedings
shall be instituted prior to the
expiration of said period, the payment
shall be made by the executor or
administrator before delivering to each
beneficiary his share.
The instant case does[not] fall under
subsection (a), but under subsection
(b), of section 1544 above-quoted, as
there is here no fiduciary heirs, first
heirs, legatee or donee. Under the
subsection, the tax should have been
paid before the delivery of the
properties in question to Moore as
trustee.
(b) Should the inheritance tax be
computed on the basis of the value of
the estate at the time of the testator’s
death, or on its value ten years later?
If death is the generating source from
which the power of the estate to
impose inheritance taxes takes its
being and if, upon the death of the
decedent, succession takes place and
the right of the estate to tax vests
instantly, the tax should be measured
by the value of the estate as it stood
at the time of the decedent’s death,
regardless of any subsequent
contingency value of any subsequent
increase or decrease in value
(c) In determining the net value of the
estate subject to tax, is it proper to
deduct the compensation due to
trustees?
A trustee, no doubt, is entitled to
receive a fair compensation for his
services. But from this it does not
follow that the compensation due him
may lawfully be deducted in arriving
at the net value of the estate subject
to tax. There is no statute in the
Philippines which requires trustees’
commissions to be deducted in
determining the net value of the
estate subject to inheritance tax
(d) What law governs the case at bar?
Should the provisions of Act No. 3606
favorable to the tax-payer be given
retroactive effect?
A statute should be considered as
prospective in its operation, whether it
enacts, amends, or repeals an
inheritance tax, unless the language of
the statute clearly demands or
expresses that it shall have a
retroactive effect, . .” Act No. 3606
itself contains no provisions indicating
legislative intent to give it retroactive
effect. No such effect can be given the
statute by this court
Benefits-protection theory or
symbiotic relationship theory
Gomez v. Palomar, G.R. No. L-
23645, October 29, 1968- Nuneza
G.R. No. L-23645            October
29, 1968
BENJAMIN P. GOMEZ,  vs. ENRICO
PALOMAR, in his capacity as
Postmaster General, HON. BRIGIDO R.
VALENCIA, in his capacity as Secretary
of Public Works and Communications,
and DOMINGO GOPEZ, in his capacity
as Acting Postmaster of San Fernando,
Pampanga, 
GENERAL FACTS
This is a case questioning the
constitutionality of Republic Act
1635,1 as amended by Republic Act
2631,2 which provides as follows:
To help raise funds for the Philippine
Tuberculosis Society, the Director of
Posts shall order for the period from
August 19 to September 30 every
year the printing and issue of semi-
postal stamps of different
denominations with face value
showing the regular postage charge
plus the additional amount of five
centavos for the said purpose, and
during the said period, no mail matter
shall be accepted in the mails unless it
bears such semi-postal stamps:
Provided, That no such additional
charge of five centavos shall be
imposed on newspapers. The
additional proceeds realized from the
sale of the semi-postal stamps shall
constitute a special fund and be
deposited with the National Treasury
to be expended by the Philippine
Tuberculosis Society in carrying out its
noble work to prevent and eradicate
tuberculosis.
The respondent Postmaster General,
in implementation of the law,
thereafter issued 4 administrative
orders with the approval of the
respondent Secretary of Public Works
and Communications.
---
On September 15, 1963 the petitioner
Benjamin P. Gomez mailed a letter at
the post office in San Fernando,
Pampanga. Because this letter did not
bear the special anti-TB stamp
required by the statute, it was
returned to the petitioner.
The petitioner filed a declaratory relief
in the Court of First Instance of
Pampanga, questioning the
constitutionality of the law and the
implementation of the administrative
orders. He claims that the law violates
the equal protection clause of the
Constitution and it violates the rule of
uniformity and equality of taxation. 
RTC’s DECISION
1. the law and the orders are
unconstitutional
2. the law is invalid on the ground
that it singles out tuberculosis to the
exclusion of other diseases which, it is
said, are equally a menace to public
health.
Hence this appeal by the respondent
postal authorities.
ISSUE: WON the law violates the rule
of uniformity and equality of taxation
Specifically whether the tax
levied was not for a public
purpose since no special benefits
accrue to mail users as taxpayers.
Petitioner’s Contentions
1. the tax in question is invalid,
first, because it is not levied for a
public purpose as no special benefits
accrue to mail users as taxpayers, and
second, because it violates the rule of
uniformity in taxation.
RULING - NO
1. The five centavo charge levied
by Republic Act 1635 is in the nature
of an excise tax, laid upon the
exercise of a privilege, namely, the
privilege of using the mails. 
2. the classification of mail users is
not without any reason. It is based on
ability to pay, let alone the enjoyment
of a privilege, and on administrative
convenience. In the allocation of the
tax burden, Congress must have
concluded that the contribution to the
anti-TB fund can be assured by those
whose who can afford the use of the
mails.
3. The classification is likewise
based on considerations of
administrative convenience. For it is
now a settled principle of law that
"consideration of practical
administrative convenience and cost in
the administration of tax laws afford
adequate ground for imposing a tax on
a well recognized and defined class."9
In the case of the anti-TB stamps,
undoubtedly, the single most
important and influential consideration
that led the legislature to select mail
users as subjects of the tax is the
relative ease and convenience of
collecting the tax through the post
offices. The small amount of five
centavos does not justify the great
expense and inconvenience of
collecting through the regular means
of collection. On the other hand, by
placing the duty of collection on postal
authorities the tax was made almost
self-enforcing, with as little cost and
as little inconvenience as possible.
4. The State is granted with the
power to select the subject of
taxation, and the State's power to
grant exemption must likewise be
conceded as a necessary corollary.
Tax exemptions are too common in
the law; they have never been
thought of as raising issues under the
equal protection clause.
5. Newspapers were exempt from
payment of additional stamp as they
are considered beneficent enterprises.
The government and its
instrumentalities were exempt due to
State’s sovereign immunity from
taxation
6. As for the TB being “singled
out” - it is never a requirement of
equal protection that all evils of the
same genus be eradicated or none at
all.
As for public purpose and rule of
uniformity of taxation
1. The eradication of a dreaded
disease is a public purpose, but if by
public purpose the petitioner means
benefit to a taxpayer as a return for
what he pays, then it is sufficient
answer to say that the only benefit to
which the taxpayer is constitutionally
entitled is that derived from his
enjoyment of the privileges of living in
an organized society, established and
safeguarded by the devotion of taxes
to public purposes. Any other view
would preclude the levying of taxes
except as they are used to
compensate for the burden on those
who pay them and would involve the
abandonment of the most
fundamental principle of government
— that it exists primarily to provide for
the common good.
Nor is the rule of uniformity and
equality of taxation infringed by the
imposition of a flat rate rather than a
graduated tax. A tax need not be
measured by the weight of the mail or
the extent of the service rendered. We
have said that considerations of
administrative convenience and cost
afford an adequate ground for
classification. The same considerations
may induce the legislature to impose a
flat tax which in effect is a charge for
the transaction, operating equally on
all persons within the class regardless
of the amount involved.
 •       Jurisdiction over subject and
object
 
McCulloch v. Maryland- Obinay
17 U.S. (4 Wheat.) 316
1819
SUMMARY OF DECISIONS:
McCulloch brought suit against the
state of Maryland.  The state of
Maryland prevailed and McCulloch
appealed to the Maryland Court of
Appeals. The court affirmed the lower
court’s decision. McCulloch then
appealed to the United States
Supreme Court.
FACTS:
This was an action of debt, brought
by the defendant in error, John
James Mcculloch, who sued as well
for himself as for the State of
Maryland against the plaintiff in error,
McCulloch, to recover certain
penalties, under the act of the
Legislature of Maryland.
The Congress of United States passed
an act in 1816, which incorporated the
Bank of United States. A branch was
opened in the State of Maryland, in
1817 and in 1818, the state legislature
of Maryland passed an act imposing a
tax on all out of state banks doing
business in Maryland. Meaning, banks
who are not created by the legislature
of Maryland are to pay the said tax.
 
“an act to impose a tax on all
banks, or branches thereof, in the
State of Maryland, not chartered
by the legislature,"
 
The act, general in nature, only
affected the Bank of United States
because it was the only bank
operating in Maryland. The head of the
Bank of the U.S. – Maryland branch,
James McCulloch, refused to pay the
tax resulting in a lawsuit later
appealed to Maryland’s Court of
Appeals. The court upheld Maryland’s
claim that since the Constitution was
silent on whether the U.S. could
charter a bank, establishing such a
bank was unconstitutional.  McCulloch
then appealed to the United States
Supreme Court.
ISSUES:
1.     Whether or not the Congress of
the United States have the power to
incorporate a bank.
2.     Whether or not the State (of
Maryland) can tax banks that are
chartered by the Congress of the
United States.
RULING:
First Issue: Yes.
Under the Constitution, Congress has
the power to charter the Bank of the
United States. Ultimately this power is
derived from the grant of power to
Congress to “tax and spend” for the
general welfare. In addition, Congress
has also been provided general powers
under the necessary and proper
clause, which states Congress can
make laws it deems necessary and
proper to carry out these enumerated
powers. The function of the necessary
and proper clause is not to limit but
expand Congresses power.  Here,
Congress decided that the necessary
and proper method of raising revenue
to carry out its enumerated taxing and
spending power was to charter the
bank of the U.S.
Second Issue: No.
Generally, since the Bank of United
States was created by federal statute
(General Government of United
States), the State of Maryland may
not tax the Bank of U.S. because
federal laws have supremacy over
state laws.
It has also been insisted that, as the
power of taxation in the General and
State Governments is acknowledged
to be concurrent, every argument
which would sustain the right of the
General Government to tax banks
chartered by the States, will equally
sustain the right of the States to tax
banks chartered by the General
Government.

But the two cases are not on the same
reason. The people of all the States
have created the General
Government, and have conferred upon
it the general power of taxation. The
people of all the States, and the
States themselves, are represented in
Congress, and, by their
representatives, exercise this power.
When they tax the chartered
institutions of the States, they tax
their constituents, and these taxes
must be uniform. But when a State
taxes the operations of the
Government of the United States, it
acts upon institutions created not by
their own constituents, but by people
over whom they claim no control. It
acts upon the measures of a
Government created by others as well
as themselves, for the benefit of
others in common with themselves.
The difference is that which always
exists, and always must exist,
between the action of the whole on a
part, and the action of a part on the
whole -- between the laws of a
Government declared to be supreme,
and those of a Government which,
when in opposition to those laws, is
not supreme.
But if the full application of this
argument could be admitted, it might
bring into question the right of
Congress to tax the State banks, and
could not prove the rights of the
States to tax the Bank of the United
States.
The Court has bestowed on this
subject its most deliberate
consideration. The result is a State to tax them sustained by the
conviction that the States have no
power, by taxation or otherwise, to
retard, impede, burden, or in any
manner control the operations of the
constitutional laws enacted by
Congress to carry into execution the
powers vested in the General
Government. This is, we think, the
unavoidable consequence of that
supremacy which the Constitution has
declared.
We are unanimously of opinion that
the law passed by the Legislature of
Maryland, imposing a tax on the Bank
of the United States is unconstitutional
and void.
On the issue of jurisdiction over
subject and object.
It is admitted that the power of taxing
the people and their property is
essential to the very existence of
Government, and may be legitimately
exercised on the objects to which it is
applicable, to the utmost extent to
which the Government may choose to
carry it. The only security against the
abuse of this power is found in the
structure of the Government itself. In
imposing a tax, the legislature acts
upon its constituents. This is, in
general, a sufficient security against
erroneous and oppressive taxation.
The people of a State, therefore, give
to their Government a right of taxing
themselves and their property, and as
the exigencies of Government cannot
be limited, they prescribe no limits to
the exercise of this right, resting
confidently on the interest of the
legislator and on the influence of the
constituent over their representative
to guard them against its abuse. But
the means employed by the
Government of the Union have no
such security, nor is the right of a
same theory. Those means are not
given by the people of a particular
State, not given by the constituents of
the legislature which claim the right to
tax them, but by the people of all the
States They are given by all, for the
benefit of all -- and, upon theory,
should be subjected to that
Government only which belongs to all.
It may be objected to this definition
that the power of taxation is not
confined to the people and property of
a State. It may be exercised upon
every object brought within its
jurisdiction.
This is true. But to what source do we
trace this right? It is obvious that it is
an incident of sovereignty. All
subjects over which the sovereign
power of a State extends are
objects of taxation, but those over
which it does not extend are, upon
the soundest principles, exempt
from taxation. This proposition may
almost be pronounced self-evident.
The sovereignty of a State extends to
everything which exists by its own
authority or is introduced by its
permission, but does it extend to
those means which are employed by
Congress to carry into execution
powers conferred on that body by the
people of the United States? We think
it demonstrable that it does not. Those
powers are not given by the people of
a single State. They are given by the
people of the United States, to a
Government whose laws, made in
pursuance of the Constitution, are
declared to be supreme.
Consequently, the people of a single
State cannot confer a sovereignty
which will extend over them.
 
GR No. 125704, Aug 28, 1998 ]
PHILEX MINING CORPORATION v.
CIR +- Padilla
DECISION
 
FACTS
August 5, 1992, the BIR sent a letter
to Philex asking it to settle its tax
liabilities for the 2nd, 3rd and 4th
quarter of 1991 as well as the 1st and
2nd quarter of 1992 in the total
amount of P123,821,982.52.
 
In a letter dated August 20, 1992,
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 P119,977,037.02 plus
interest. Therefore, these claims for
tax credit/refund should be applied
against the tax liabilities.
 
BIR, in a letter dated September 7,
1992,[6] found no merit in Philex's
position. Since these pending claims
have not yet been established or
determined with certainty, it follows
that no legal compensation can take
place.
 
BIR reiterated its demand that Philex
settle the amount plus interest within
30 days from the receipt of the letter.
 
In view of the BIR's denial of the
offsetting of Philex's claim, it raised
the issue to the Court of Tax Appeals
on November 6, 1992.
 
In the course of the proceedings, the
BIR issued a Tax Credit Certificate SN
001795 in the amount of
P13,144,313.88 which, applied to the
total tax liabilities of Philex of
P123,821,982.52; effectively lowered
the latter's tax obligation of
P110,677,688.52.
 
Despite the reduction of its tax
liabilities, the CTA still ordered Philex
to pay the remaining balance of
P110,677,688.52 plus interest
 
A fortiori, the liquidated debt of the
Petitioner to the government cannot,
therefore, be set-off against the
unliquidated claim which Petitioner
conceived to exist in its favor
 
Court of Tax Appeals ruled that "taxes
cannot be subject to set-off on
compensation since claim for taxes is
not a debt or contract
 
However, a few days after the denial
of its motion for reconsideration,
Philex was able to obtain its VAT input
credit/refund not only for the taxable
year 1989 to 1991 but also for 1992
and 1994
 
In view of the grant of its VAT input
credit/refund, Philex now contends
that the same should, ipso jure, off-
set its excise tax liabilities since both
had already become "due and
demandable, as well as fully
liquidated;" hence, legal compensation
can properly take place.
 
ISSUE:
Whether or not the grant of Philex’s
VAT input credit/refund can off-set its
excise tax liabilities
 
HELD:
No. 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. We find no cogent
reason to deviate from the
aforementioned distinction.
 
To be sure, we cannot allow Philex 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. It must be noted that a
distinguishing feature of a tax is that it
is compulsory rather than a matter of
bargain. Hence, a tax does not depend
upon the consent of the taxpayer.[26]
If any payer can defer the payment of
taxes by raising the defense that it
still has a pending claim for refund or
credit, this would adversely affect the
government revenue system. A
taxpayer cannot refuse to pay his
taxes when they fall due simply
because he has a claim against the
government or that the collection of
the tax is contingent on the result of
the lawsuit it filed against the
government.
 
Moreover, Philex's theory that would
automatically apply its VAT input
credit/refund against its tax liabilities
can easily give rise to confusion and
abuse, depriving the government of
authority over the manner by which
taxpayers credit and offset their tax
liabilities.
 
V.        Principles of Sound Taxation
•       Theoretical justice
•       Fiscal adequacy
 
Chavez v. Ongpin, G.R. No. 76778,
June 6, 1990- Rapisura
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity
as Minister of Finance and
FIDELINA CRUZ, in her capacity as
Acting Municipal Treasurer of the
Municipality of Las Piñas,
respondents, REALTY OWNERS
ASSOCIATION OF THE
PHILIPPINES, INC., petitioner-
intervenor.
Facts:
The petition seeks to declare
unconstitutional Executive Order No.
73 dated November 25, 1986, which
We quote in full, as follows (78 O.G.
5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF
REAL PROPERTY TAXES BASED ON
THE 1984 REAL PROPERTY VALUES,
AS PROVIDED FOR UNDER SECTION
21 OF THE REAL PROPERTY TAX
CODE, AS AMENDED
On March 31, 1987, Memorandum
Order No. 77 was issued suspending
the implementation of Executive Order
No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1
is a taxpayer and an owner of three
parcels of land. He alleges the
following: that Executive Order No. 73
accelerated the application of the
general revision of assessments to
January 1, 1987 thereby mandating
an excessive increase in real property
taxes by 100% to 400% on
improvements, and up to 100% on
land; that any increase in the value of
real property brought about by the
revision of real property values and
assessments would necessarily lead to
a proportionate increase in real
property taxes; that sheer oppression
is the result of increasing real property
taxes at a period of time when harsh
economic conditions prevail; and that
the increase in the market values of
real property as reflected in the
schedule of values was brought about
only by inflation and economic
recession.
The intervenor Realty Owners
Association of the Philippines, Inc.
(ROAP), which is the national
association of owners-lessors, joins
Chavez in his petition to declare
unconstitutional Executive Order No.
73, but additionally alleges the
following: that Presidential Decree No.
464 is unconstitutional insofar as it
imposes an additional one percent
(1%) tax on all property owners to
raise funds for education, as real
property tax is admittedly a local tax
for local governments; that the
General Revision of Assessments does
not meet the requirements of due
process as regards publication, notice
of hearing, opportunity to be heard
and insofar as it authorizes
"replacement cost" of buildings
(improvements) which is not provided
in Presidential Decree No. 464, but
only in an administrative regulation of
the Department of Finance; and that
the Joint Local Assessment/Treasury
Regulations No. 2-86 2 is even more
oppressive and unconstitutional as it
imposes successive increase of 150%
over the 1986 tax.
Issue:
Whether or not Executive Order No.
73 is unconstitutional?
Ruling:
NO. Petitioner Chavez and intervenor
ROAP question the constitutionality of
Executive Order No. 73 insofar as the
revision of the assessments and the
effectivity thereof are concerned. It
should be emphasized that Executive
Order No. 73 merely directs, in
Section 1 thereof, that:
SECTION 1. Real property values as of
December 31, 1984 as determined by
the local assessors during the latest
general revision of assessments shall
take effect beginning January 1, 1987
for purposes of real property tax
collection.
The general revision of assessments
completed in 1984 is based on Section
21 of Presidential Decree No. 464. The
attack on Executive Order No. 73 has
no legal basis as the general revision
of assessments is a continuing process
mandated by Section 21 of
Presidential Decree No. 464. If at all,
it is Presidential Decree No. 464 which
should be challenged as
constitutionally infirm. However,
Chavez failed to raise any objection
against said decree. It was ROAP
which questioned the constitutionality
thereof. Furthermore, Presidential
Decree No. 464 furnishes the
procedure by which a tax assessment
may be questioned.
Chavez argues further that the
unreasonable increase in real property
taxes brought about by Executive
Order No. 73 amounts to a process and equal protection clauses,
confiscation of property repugnant to
the constitutional guarantee of due
process, invoking the cases of Ermita-
Malate Hotel, et al. v. Mayor of Manila.
The reliance on these two cases is
certainly misplaced because the due
process requirement called for therein
applies to the "power to tax."
Executive Order No. 73 does not
impose new taxes nor increase taxes.
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 revenues must be adequate
to meet government expenditures and
their variations.
•       Administrative feasibility
 
 Kapatiran ng mga Naglilingkod sa
Pamahalaan vs. Tan
GR L-81311, 30 June 1988-Raya
FACTS: EO 273 was issued by the
President of the Philippines which
amended the Revenue Code, adopting
the value-added tax (VAT) effective 1
January 1988. Four petitions assailed
the validity of the VAT Law for being
beyond the President to enact; for
being oppressive, discriminatory,
regressive, and violative of the due
among others, of the Constitution. The
Integrated Customs Brokers
Association particularly contend that it
unduly discriminate against customs
brokers (Section 103 [r]) as the
amended provision of the Tax Code
provides that “service performed in
the exercise of profession or calling
(except custom brokers) subject to
occupational tax under the Local Tax
Code, and professional services
performed by registered general
professional partnerships are exempt
from VAT.
ISSUE: Whether the E-VAT law
discriminates against customs brokers.
RULING: NO. The phrase “except
custom brokers” is not meant to
discriminate against custom brokers
but to avert a potential conflict
between Sections 102 and 103 of the
Tax Code, as amended. The distinction
of the customs brokers from the other
professionals who are subject to
occupation tax under the Local Tax
Code is based upon material
differences, in that the activities of
customs brokers partake more of a
business, rather than a profession and
were thus subjected to the percentage
tax under Section 174 of the Tax Code
prior to its amendment by EO 273. EO
273 abolished the percentage tax and
replaced it with the VAT. If the
Association did not protest the
classification of customs brokers then,
there is no reason why it should
protest now.
Petitioners have failed to show that EO
273 was issued capriciously and
whimsically or in an arbitrary or
despotic manner by reason of passion
or personal hostility. It appears that a
comprehensive study of the VAT had
been extensively discussed by this
framers and other government
agencies involved in its
implementation, even under the past
administration. As the Solicitor
General correctly sated. "The signing
of E.O. 273 was merely the last stage
in the exercise of her legislative
powers. The legislative process started
long before the signing when the data
were gathered, proposals were
weighed and the final wordings of the
measure were drafted, revised and
finalized. Certainly, it cannot be said
that the President made a jump, so to
speak, on the Congress, two days
before it convened."
Next, the petitioners claim that EO
273 is oppressive, discriminatory,
unjust and regressive.
The petitioners" assertions in this
regard are not supported by facts and
circumstances to warrant their
conclusions. They have failed to
adequately show that the VAT is
oppressive, discriminatory or unjust.
Petitioners merely rely upon
newspaper articles which are actually
hearsay and have evidentiary value.
To justify the nullification of a law,
there must be a clear and unequivocal
breach of the Constitution, not a
doubtful and argumentative
implication.
As the Court sees it, EO 273
satisfies all the requirements of a
valid tax. It is uniform. A tax is
considered uniform when it
operates with the same force and
effect in every place where the
subject may be found." The sales
tax adopted in EO 273 is applied
similarly on all goods and services
sold to the public, which are not
exempt, at the constant rate of
0% or 10%.
The disputed sales tax is also
equitable. It is imposed only on sales
of goods or services by persons
engage in business with an aggregate
gross annual sales exceeding
P200,000.00. Small corner sari-sari
stores are consequently exempt from
its application. Likewise exempt from
the tax are sales of farm and marine
products, spared as they are from the
incidence of the VAT, are expected to
be relatively lower and within the
reach of the general public.
The Court likewise finds no merit in
the contention of the petitioner
Integrated Customs Brokers
Association of the Philippines that EO
273, more particularly the new Sec.
103 (r) of the National Internal
Revenue Code, unduly discriminates
against customs brokers.
At any rate, the distinction of the
customs brokers from the other
professionals who are subject to
occupation tax under the Local Tax
Code is based upon material
differences, in that the activities of
customs brokers (like those of stock,
real estate and immigration brokers)
partake more of a business, rather
than a profession and were thus
subjected to the percentage tax under
Sec. 174 of the National Internal
Revenue Code prior to its amendment
by EO 273. EO 273 abolished the
percentage tax and replaced it with
the VAT.
RENATO V. DIAZ and AURORA MA.
F. TIMBOL, Petitioners,
vs.
THE SECRETARY OF FINANCE and
THE COMMISSIONER OF
INTERNAL REVENUE, Respondents
Said
FACTS:
Petitioners Renato V. Diaz and Aurora
Ma. F. Timbol (petitioners) filed this
petition for declaratory relief assailing
the validity of the impending
imposition of value-added tax (VAT)
by the Bureau of Internal Revenue
(BIR) on the collections of tollway
operators.
Petitioners claim that, since the VAT
would result in increased toll fees,
they have an interest as regular users
of tollways in stopping the BIR action.
Petitioners hold the view that
Congress did not, when it enacted the
NIRC, intend to include toll fees within
the meaning of "sale of services" that
are subject to VAT; that a toll fee is a
"user’s tax," not a sale of services;
that to impose VAT on toll fees would
amount to a tax on public service; and
that, since VAT was never factored
into the formula for computing toll
fees, its imposition would violate the
non-impairment clause of the
constitution.
Petitioners point out that tollway
operators cannot be regarded as
franchise grantees under the NIRC
since they do not hold legislative
franchises. Further, the BIR intends to
collect the VAT by rounding off the toll
rate and putting any excess collection
in an escrow account. But this would
be illegal since only the Congress can
modify VAT rates and authorize its
disbursement. Finally, BIR Revenue
Memorandum Circular 63-2010 (BIR
RMC 63-2010), which directs toll
companies to record an accumulated
input VAT of zero balance in their
books as of August 16, 2010,
contravenes Section 111 of the NIRC
which grants entities that first become
liable to VAT a transitional input tax
credit of 2% on beginning inventory.
For this reason, the VAT on toll fees
cannot be implemented.
ISSUE:
Whether or not the imposition
of VAT on tollway operators is
not administratively feasible
and cannot be implemented.
RULING: NO
Petitioners assert that the
substantiation requirements for
claiming input VAT make the VAT on
tollway operations impractical and
incapable of implementation. They cite
the fact that, in order to claim input
VAT, the name, address and tax
identification number of the tollway
user must be indicated in the VAT
receipt or invoice. The manner by
which the BIR intends to implement
the VAT – by rounding off the toll rate
and putting any excess collection in an
escrow account – is also illegal, while
the alternative of giving "change" to
thousands of motorists in order to
meet the exact toll rate would be a
logistical nightmare. Thus, according
to them, the VAT on tollway
operations is not administratively
feasible.
Administrative feasibility is one of
the canons of a sound tax system. It
simply means that the tax system
should be capable of being effectively
administered and enforced with the
least inconvenience to the taxpayer.
Non-observance of the canon,
however, will not render a tax
imposition invalid "except to the
extent that specific constitutional or
statutory limitations are impaired."
Thus, even if the imposition of VAT on
tollway operations may seem
burdensome to implement, it is not
necessarily invalid unless some aspect
of it is shown to violate any law or the
Constitution.
Here, it remains to be seen how the
taxing authority will actually
implement the VAT on tollway
operations. Any declaration by the
Court that the manner of its
implementation is illegal or
unconstitutional would be premature.
Although the transcript of the August
12, 2010 Senate hearing provides
some clue as to how the BIR intends
to go about it, the facts pertaining to
the matter are not sufficiently
established for the Court to pass
judgment on. Besides, any concern
about how the VAT on tollway
operations will be enforced must first
be addressed to the BIR on whom the
task of implementing tax laws
primarily and exclusively rests. The
Court cannot preempt the BIR’s
discretion on the matter, absent any
clear violation of law or the
Constitution.
BIR explained that BIR RMC 63-2010
is actually the product of negotiations
with tollway operators who have been
assessed VAT as early as 2005, but
failed to charge VAT-inclusive toll fees
which by now can no longer be
collected. The tollway operators
agreed to waive the 2% transitional
input VAT, in exchange for
cancellation of their past due VAT
liabilities. Notably, the right to claim
the 2% transitional input VAT belongs
to the tollway operators who have not
questioned the circular’s validity. They
are thus the ones who have a right to
challenge the circular in a direct and
proper action brought for the purpose.
VI.   Nature of the Power of
Taxation
•       Inherent in sovereignty
 
THE PHILIPPINE GUARANTY CO.,
INC. vs. THE COMMISSIONER OF
INTERNAL REVENUE and THE
COURT OF TAX APPEALS, ET AL.
Serrano
G.R. No. L-22074            
September 6, 1965
BENGZON, J.P., J.:
FACTS:
The Philippine Guaranty Co.,
Inc., entered into reinsurance
contracts, on various dates, with
foreign insurance companies not doing
business in the Philippines, thereby
agreed to cede to the foreign
reinsurers a portion of the premiums
on insurance it has originally
underwritten in the Philippines, in
consideration for the assumption by
the latter of liability on an equivalent
portion of the risks insured. Said
reinsurrance contracts were signed by
Philippine Guaranty Co., Inc. in Manila
and by the foreign reinsurers outside
the Philippines, except the contract
with Swiss Reinsurance Company,
which was signed by both parties in
Switzerland.
The reinsurance contracts made
the commencement of the reinsurers'
liability simultaneous with that of
Philippine Guaranty Co., Inc. under
the original insurance. Philippine
Guaranty Co., Inc. was required to
keep a register in Manila where the
risks ceded to the foreign reinsurers
where entered, and entry therein was
binding upon the reinsurers. A
proportionate amount of taxes on
insurance premiums not recovered
from the original assured were to be
paid for by the foreign reinsurers. The
foreign reinsurers further agreed, in
consideration for managing or
administering their affairs in the
Philippines, to compensate the
Philippine Guaranty Co., Inc., in an
amount equal to 5% of the
reinsurance premiums. Pursuant to
the aforesaid reinsurance contracts,
Philippine Guaranty Co., Inc. ceded to
the foreign reinsurers premiums. Said
premiums were excluded by Philippine
Guaranty Co., Inc. from its gross
income when it filed its income tax
returns for 1953 and 1954.
Furthermore, it did not withhold or
pay tax on them. Consequently, per
letter dated April 13, 1959, the
Commissioner of Internal Revenue
assessed against Philippine Guaranty
Co., Inc. withholding tax on the ceded
reinsurance premiums. Philippine
Guaranty Co., Inc. protested the
assessment on the ground that
reinsurance premiums ceded to
foreign reinsurers not doing business
in the Philippines are not subject to
withholding tax. Its protest was
denied and it appealed to the Court of
Tax Appeals.
The Court of Tax Appeals
rendered judgment ordering petitioner
Philippine Guaranty Co., Inc. to pay to
the CIR the withholding income taxes
for the years 1953 and 1954, plus the
statutory delinquency penalties
thereon. Philippine Guaranty Co, Inc.
has appealed, questioning the legality
of the Commissioner of Internal
Revenue's assessment for withholding
tax on the reinsurance premiums
ceded in 1953 and 1954 to the foreign
reinsurers. Petitioner maintains that
the reinsurance premiums in question
did not constitute income from sources
within the Philippines because the
foreign reinsurers did not engage in
business in the Philippines, nor did
they have office here.
ISSUE:
Whether or not the reinsurance
premiums in question constitute
income from sources within the
Philippines?
RULING:
YES. The reinsurance contracts
show that the transactions or activities
that constituted the undertaking to
reinsure Philippine Guaranty Co., Inc.
against losses arising from the original
insurances in the Philippines was
performed in the Philippines.
Section 24 of the Tax Code
subjects foreign corporations to tax on
their income from sources within the
Philippines. The word "sources" has
been interpreted as the activity,
property or service giving rise to the
income. The reinsurance premiums
were income created from the
undertaking of the foreign reinsurance
companies to reinsure Philippine
Guaranty Co., Inc., against liability for
loss under original insurances. Such
undertaking, as explained above, took
place in the Philippines. These
insurance premiums, therefore, came
from sources within the Philippines
and, hence, are subject to corporate
income tax.
The foreign insurers' place of
business should not be confused with
their place of activity. Business should
not be continuity and progression of
transactions while activity may consist
of only a single transaction. An activity
may occur outside the place of
business. Section 24 of the Tax Code
does not require a foreign corporation
to engage in business in the
Philippines in subjecting its income to
tax. It suffices that the activity
creating the income is performed or
done in the Philippines. What is
controlling, therefore, is not the place
of business but the place of activity
that created an income.
Petitioner further contends that
the reinsurance premiums are not
income from sources within the
Philippines because they are not
specifically mentioned in Section 37 of
the Tax Code. Section 37 is not an all-
inclusive enumeration, for it merely
directs that the kinds of income
mentioned therein should be treated
as income from sources within the
Philippines but it does not require that
other kinds of income should not be
considered likewise.
The power to tax is an
attribute of sovereignty. It is a
power emanating from necessity.
It is a necessary burden to
preserve the State's sovereignty
and a means to give the citizenry
an army to resist an aggression, a
navy to defend its shores from
invasion, a corps of civil servants
to serve, public improvement
designed for the enjoyment of the
citizenry and those which come
within the State's territory, and
facilities and protection which a
government is supposed to
provide. Considering that the
reinsurance premiums in question
were afforded protection by the
government and the recipient
foreign reinsurer’s exercised
rights and privileges guaranteed
by our laws, such reinsurance
premiums and reinsurers should
share the burden of maintaining
the state.
In respect to the question of
whether or not reinsurance premiums
ceded to foreign reinsurers not doing
business in the Philippines are subject
to withholding tax under Section 53
and 54 of the Tax Code, suffice it to
state that this question has already
been answered in the affirmative in
Alexander Howden & Co., Ltd. vs.
Collector of Internal Revenue, L-
19393, April 14, 1965.
Finally, petitioner contends that
the withholding tax should be
computed from the amount actually
remitted to the foreign reinsurers
instead of from the total amount
ceded. And since it did not remit any
amount to its foreign insurers in 1953
and 1954, no withholding tax was due.
Section 54 of the Tax Code
allows no deduction from the income
therein enumerated in determining the
amount to be withheld. According, in
computing the withholding tax due on
the reinsurance premium in question,
no deduction shall be recognized.  of the municipality of Pasig was
•       Essentially a legislative
function
 
•       Subject to constitutional
and inherent limitations
 
VII. Inherent Limitations of Taxation
 
•       Public purpose
 
Pascual v. Secretary of Public
Works
110 Phil. 331 (G.R. No. L-10405)
December 29, 1960-Yu
Doctrine:    Taxes are exacted only
for public purpose. The power to tax
exists for the general welfare; implicit
in its power is the limitation that it
should be used only for a public
purpose. The rule is that if the public
advantage or benefit is merely
incidental in the promotion of a
particular enterprise such defect shall
render the law invalid. On the other
hand, if what is incidental is the
promotion of a private enterprise, the
tax law shall be deemed “for a public
purpose”. (Tax Principles and
Remedies, Dimaampo)
 
Facts: Wenceslao Pascual, then
Governor of the Province of Rizal and
petitioner herein, challenged a certain
line item contained in Republic Act No.
920, entitled "An Act Appropriating
Funds for Public Works” for
appropriating P85, 000.00 “for the
construction, reconstruction, repair,
extension and improvement" of Pasig
feeder road terminals within Antonio
Subdivision which were the private
property of Senator Jose Zulueta. At
the time that RA was passed the
planned roads were unconstructed.
Further, no deed of donation in favor
executed. Hence, Pascual averred that
the donation violated the provision
prohibiting members of Congress from
being directly or indirectly financially
interested in any contract with the
Government for the construction of
the projected feeder roads in question
with public funds would greatly
enhance or increase the value of the
aforementioned subdivision of
Zulueta, aside from relieving him from
the burden of constructing his
subdivision streets or roads at his own
expense.
 
Petitioner prayed that the
contested item of Republic Act
No. 920 be declared null and
void and that the alleged deed
of donation of the feeder roads
in question be affirmed as
unconstitutional. Petitioner also
prayed for an injunction
enjoining Secretary of Public
Works and Communications,
Director of Public Works and
Highways and the disbursing
officers of the latter department
from making and securing any
further release of funds.
Respondents moved to dismiss
the petition upon several
grounds; the most relevant is
that the constitutional provision
invoked by petitioner is
inapplicable to the donation in
 question, the same being a pure
act of liberality, not a contract
and that petitioner has not
shown that he has a personal
and substantial interest nor will
its enforcement caused or will
cause him a direct injury." The
Lower Court decided in favor of
respondents. This conclusion is,
presumably, based upon the
following premises, namely: (1)
that, if valid, said donation
cured the constitutional
infirmity of the aforementioned
appropriation; (2) that the
latter may not be annulled
without a previous declaration
of unconstitutionality of the said
donation; and (3) that the rule
set forth in Article 1421 of the
Civil Code is absolute, and
admits of no exception.
 
Issue:     A. Whether or not the challenged
item contained in RA No.920 is
unconstitutional
B. Whether or not the Lower
Court erred in
dismissing the
petition
C. Whether or not Pascual has
the legal capacity
or to sue
(Note: Only letter A is related
to the subject,
letters B and C are
included to
expound on the
premises used to
reverse initial
ruling)
Ruling:         YES TO ALL.
 
A. It is a general rule that the
legislature is without power to
appropriate public revenue for
anything but a public purpose.
It is the essential character of
the direct object of the
expenditure which must
determine its validity as
justifying a tax, and not the
magnitude of the interest to be
affected nor the degree to which
the general advantage of the
community, and thus the public
welfare, may be ultimately
benefited by their promotion.
Incidental to the public or to the
state, which results from the
promotion of private interest
and the prosperity of private
enterprises or business, does
not justify their aid by the use
of public money. In
accordance with the rule
that the taxing power must
be exercised for public
purposes only, money raised
by taxation can be expended
only for public purposes and
not for the advantage of
private individuals.
Generally, under the express or
implied provisions of the
constitution, public funds may
be used only for public purpose.
The right of the legislature to
appropriate funds is correlative
with its right to tax, and, under
constitutional provisions against
taxation except for public
purposes and prohibiting the
collection of a tax for one
purpose and the devotion
thereof to another purpose, no
appropriation of state funds can
be made for other than for a
public purpose. The test of the
constitutionality of a statute
requiring the use of public
funds is whether the statute
is designed to promote the
public interest, as opposed
to the furtherance of the
advantage of individuals, have sufficient interest in
although each advantage to preventing the illegal
individuals might expenditure of moneys raised
incidentally serve the public. by taxation and may therefore
question the constitutionality of
B. The Supreme Court further statutes requiring expenditure
ruled that the validity of a of public moneys. Petitioner
statute depends upon the herein is not merely a taxpayer.
powers of Congress at the time The Province of Rizal, which he
of its passage or approval, not represents officially as its
upon events occurring, or acts Provincial Governor, is our most
performed, subsequently populated political subdivision,
thereto, unless the latter 8and, the taxpayers therein
consists of an amendment of bear a substantial portion of the
the organic law, removing, with burden of taxation, in the
retrospective operation, the Philippines. Hence, it is our
constitutional limitation considered opinion that the
infringed by said statute. circumstances surrounding this
Inasmuch as the land on which case sufficiently justify
the projected feeder roads were petitioner’s action in contesting
to be constructed belonged then the appropriation and donation
to respondent Zulueta, the in question; that this action
result is that said appropriation should not have been dismissed
sought a private purpose, and by the lower court; and that the
hence, was null and void. The writ of preliminary injunction
donation to the Government, should have been maintained.
over five (5) months after the
approval and effectivity of said Conclusion:Wherefore, the
Act, made, according to the decision appealed from is
petition, for the purpose of hereby reversed, and the
giving a "semblance of legality", records are remanded to the
or legalizing, the appropriation lower court for further
in question, did not cure its proceedings.
aforementioned basic defect.
Consequently, a judicial
nullification of said donation
need not precede the
declaration of
unconstitutionality of said
appropriation.
Gaston vs Republic Planter’s Bank
C. In the determination of the 158 SCRA 622-Zambrano
degree of interest essential to
give the requisite standing to Facts:
attack the constitutionality of a Petitioners are sugar producers and
statute, the general rule is that planters and millers filed a
not only persons individually MANDAMUS to implement the
affected, but also taxpayers, privatization of Republic Planters
Bank, and for the transfer of the
shares in the government bank to
sugar producers and planters.
(because they are allegedly the true
beneficial owners of the bank since
they pay P1.00 per picul of sugar from
the proceeds of sugar producers as
STABILIZATION FEES)
The shares are currently held by
Philsucom / Sugar Regulatory Admin.
The Solgen countered that the
stabilization fees are considered
government funds and that the
transfer of shares to from Philsucom
to the sugar producers would be
irregular.
Issue:
What is the nature of the P1.00
stabilization fees collected from sugar
producers?
Are they funds held in trust for them,
or are they public funds?
Are the shares in the bank (paid using
these fees) owned by the government
Philsucom or privately by the different
sugar planters from whom such fees
were collected?
Ruling:
PUBLIC FUNDS. While it is true that
the collected fees were used to buy
shares in RPB, it did not collect said
fees for the account of sugar
producers. The stabilization fees were
charged on sugar produced and milled
which ACCRUED TO PHILSUCOM,
under PD 338.
The fees collected ARE IN THE
NATURE OF A TAX., which is within the
power of the state to impose FOR THE
PROMOTION OF THE SUGAR
INDUSTRY. They constitute sugar
liens. The collections accrue to a
SPECIAL FUNDS. It is levied not purely
for taxation, but for regulation, to
provide means TO STABILIZE THE
SUGAR INDUSTRY. The levy is
primarily an exercise of police powers.
The fact that the State has taken
money pursuant to law is sufficient to
constitute them as STATE FUNDS,
even though held for a special
purpose. Having been levied for a
special purpose, the revenues are
treated as a special fund, administered
in trust for the purpose intended.
Once the purpose has been fulfilled or
abandoned, the balance will be
transferred to the general funds of
gov’t.
It is a special fund since the funds are
deposited in PNB, not in the National
Treasury.
The sugar planters are NOT
BENEFICIAL OWNERS. The money is
collected from them only because they
it is also they who are to be benefited
from the expenditure of funds derived
from it. The investing of the funds in
RPB is not alien to the purpose since
the Bank is a commodity bank for
sugar, conceived for the sugar
industry’ growth and development.
Revenues derived from taxes cannot
be used purely for private purposes or
for the exclusive benefit of private
persons. The Stabilization Fund is to
be utilized for the benefit of the
ENTIRE SUGAR INDUSTRY, and all its
components, stabilization of domestic
and foreign markets, since the sugar
industry is of vital importance to the
country’s economy and national
interest. 
Product v. Fertiphil Corp. Banggat
G.R. No. 166006  March 14, 2008 Fertiphil did NOT sustain
REYES, R.T., J. damages since the burden
imposed fell on the ultimate
Lessons Applicable:  Between private consumers.
and public suit, easier to file public  RTC and CA favored Fertiphil
suit, Apply real party in interest test holding that it is an exercise of
for private suit and direct injury test the power of taxation ad is as
for public suit. Validity test varies such because it  is NOT for
depending on which inherent power. public purpose as PPI is a
private corporation.
Laws Applicable:
 ISSUE:
FACTS:
1. W/N Fertiphil has locus standi
 President Ferdinand Marcos,
exercising his legislative 2. W/N LOI No. 1465 is an invalid
powers, issued LOI No. 1465 exercise of the power of taxation
which provided, among others, rather the police power.
for the imposition of a capital
recovery component (CRC) on
the domestic sale of all grades
of fertilizers which resulted in Held:
having Fertiphil paying P 10/bag
1. Yes.  In private suits, locus standi
sold to the Fertilizer and
requires a litigant to be a "real party
Perticide Authority (FPA).
in interest" or party who stands to be
 FPA remits its collection to Far
benefited or injured by the judgment
East Bank and Trust Company
in the suit.  In public suits, there is the
who applies to the payment of
right of the ordinary citizen to petition
corporate debts of Planters
the courts to be freed from unlawful
Products Inc. (PPI)
government intrusion and illegal
 After the Edsa Revolution, FPA
official action subject to the  direct
voluntarily stopped the
injury test or where there must be
imposition of the P10 levy. 
personal and substantial interest in
Upon return of democracy,
the case such that he has sustained or
Fertiphil demanded a refund but
will sustain direct injury as a result. 
PPI refused.  Fertiphil filed a
Being a mere procedural technicality,
complaint for collection and
it has also been held that locus standi
damages against FPA and PPI
may be waived in the public interest
with the RTC on the ground that
such as cases of transcendental
LOI No. 1465 is unjust,
importance or with far-reaching
unreaonable oppressive, invalid
implications whether  private or public
and unlawful resulting to denial
suit, Fertiphil has locus standi.
of due process of law.  
 FPA answered that it is a valid
exercise of the police power of
the state in ensuring the 2. As a seller, it bore the ultimate
stability of the fertilizing burden of paying the levy which made
industry in the country and that its products more expensive and harm
its business.  It is also of paramount
public importance since it involves the
constitutionality of a tax law and use
of taxes for public purpose.
Contention: Fertiphil questioned the
constitutionality of LOI No. 1465 for
being unjust, unreasonable,
oppressive, invalid and an unlawful
imposition that amounted to a denial
of due process of law.9 Fertiphil
alleged that the LOI solely favored
PPI, a privately owned corporation,
which used the proceeds to maintain
its monopoly of the fertilizer industry.
Court’s Ruling 3. Yes. Police power
and the power of taxation are inherent
powers of the state but distinct and
have different tests for validity.  Police
power is the power of the state to
enact the legislation that may
interfere with personal liberty on
property in order to promote general
welfare.  While, the power of taxation
is the power to levy taxes as to be
used for public purpose.  The main
purpose of police power is the
regulation of a behavior or
conduct, while taxation is revenue
generation. The lawful subjects and
lawful means tests are used to
determine the validity of a law
enacted under the police power.  The
power of taxation, on the other hand,
is circumscribed by inherent and
constitutional limitations.
In this case, it is for purpose of
revenue.  But it is a robbery for the
State to tax the citizen and use the
funds generation for a private
purpose.  Public purpose does NOT
only pertain to those purpose which
are traditionally viewed as essentially
governmental function such as  Vera for the latter has no power to
building roads and delivery of basic
services, but also includes those
purposes designed to promote social
justice. Thus, public money may now
be used for the relocation of illegal
settlers, low-cost housing and urban
or agrarian reform.
•       Inherently legislative
PEOPLE VS. VERA (1937) | EQUAL
PROTECTION CLAUSE
February 5, 2017
G.R. No. 45685, 65 Phil 56, November
16, 1937
Doctrine: Requites for a valid class
legislation: (1) must rest on
substantial distinctions; (2) must be
germane to the purposes of the law;
(3) must not be limited to existing
conditions only; (4) must apply
equally to all members of the same
class.
Facts:
Private respondent (Cu-Unjieng) was
convicted of a criminal charge by trial
court of Manila.
He filed several motions for
reconsideration or new trial but was
denied. On 1936, the SC remanded
the case to the original court of origin
for the execution of judgment.
While waiting for the new trial, he
appealed to Insular Probation Office
(IPO) for probation but was denied.
However, Judge Vera, upon another
request by petitioner, allowed the
petition to be set for hearing for
probation.
Petitioners then filed a case to Judge
place the petitioner under probation
because it is in violation of Sec. 11 of
the Act 4221 (i.e., the grant to the flow from the unwarranted delegation
provincial boards the power to provide of legislative power. Each provincial
a system of probation to convicted board has its own discretion to provide
person.) or not to provide a probation system,
allocate funds for the probation
Petitioner’s contentions: officers based on the discretion of
Judge Vera has no power to place the each provincial boards as regards their
petitioner under probation because it own locality, etc. What if the other
is in violation of Sec. 11 of the Act province decides not to adopt
4221 because nowhere it states that it probation system, or it decides not to
is to be made applicable to chartered have salary for the probation officer?
cities like the City of Manila. it is clear that in section 11 of the
Probation Act creates a situation in
Assuming if includes cities, it violates which discrimination and inequality
equal protection clause for being an are permitted or allowed. Section 11
invalid classification because its of Act No. 4221 permits of the denial
applicability is not uniform throughout of the equal protection of the law and
the country for each provincial board is on that account bad.
has its own discretion to provide or
not to provide a probation system,
allocate funds for the probation G.R. No. 119252 August 18, 1997
officers based on the discretion of COMMISSIONER OF INTERNAL
each provincial boards as regards their REVENUE and COMMISSIONER OF
own locality, etc. CUSTOMS, petitioners, 
vs.
Issue: WON the assailed provision is HON. APOLINARIO B. SANTOS, in
unconstitutional for being violative of his capacity as Presiding Judge of
the equal protection clause. the Regional Trial Court, Branch
67, Pasig City; ANTONIO M.
Held: MARCO; JEWELRY BY MARCO &
YES, the assailed provision is CO., INC., and GUILD OF
unconstitutional for being violative of PHILIPPINE JEWELLERS, INC.,
the equal protection clause. respondents.
Class legislation discriminating against  
some and favoring others in
prohibited. But classification on a FACTS
reasonable basis, and nor made
arbitrarily or capriciously, is permitted.  Private respondent Guild of
The classification, however, to be Philippine Jewelers, Inc., is an
reasonable must be based on association of Filipino jewelers
substantial distinctions which make engaged in the manufacture of
real differences; it must be germane jewelries (sic) and allied undertakings.
to the purposes of the law; it must not Among its members are Hans
be limited to existing conditions only, Brumann, Inc., Miladay Jewels, Inc.,
and must apply equally to each Mercelles, Inc., Solid Gold
member of the class. International Traders, Inc., Diagem
In the case at bar, however, the Trading Corporation, and private
resultant inequality may be said to respondent Jewelry by Marco & Co.,
Inc. Private respondent Antonio M.
Marco is the President of the Guild.
 On August 5, 1988, Felicidad L.
Viray, then Regional Director, Region
No. 4-A of the Bureau of Internal
Revenue, acting for and in behalf of
the Commissioner of Internal
Revenue, issued Regional Mission
Order No. 109-88 to BIR officers, led
by Eliseo Corcega, to conduct
surveillance, monitoring, and
inventory of all imported articles of
Hans Brumann, Inc., and place the
same under preventive embargo. The
duration of the mission was from
August 8 to August 20, 1988 (Exhibit
"1"; Exhibit "A").
On August 17, 1988, pursuant
to the aforementioned Mission Order,
the BIR officers proceeded to the
establishment of Hans Brumann, Inc.,
served the Mission Order, and
informed the establishment that they
were going to make an inventory of
the articles involved to see if the
proper taxes thereon have been paid.
They then made an inventory of the
articles displayed in the cabinets with
the assistance of an employee of the
establishment. They listed down the
articles, which list was signed by the
assistant employee. They also
requested the presentation of proof of
necessary payments for excise tax and
value-added tax on said articles
The BIR officers requested the
establishment not to sell the articles
until it can be proven that the
necessary taxes thereon have been
paid. Accordingly, Mr. Hans Brumann,
the owner of the establishment,
signed a receipt for Goods, Articles,
and Things Seized under Authority of
the National Internal Revenue Code
(dated August 17, 1988),
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 Commissioner of
Internal Revenue pending
investigation.3
Subsequently, BIR officer Eliseo
Corcega submitted to his superiors a
report of the inventory conducted and
a computation of the value-added tax
and ad valorem tax on the articles for
evaluation and disposition.4
Mr. Hans Brumann, the owner
of the establishment, never filed a
protest with the BIR on the preventive
embargo of the articles.5
 On October 17, 1988, Letter of
Authority No. 0020596 was issued by
Deputy Commissioner Eufracio D.
Santos to BIR officers to examine the
books of accounts and other
accounting records of Hans Brumann,
Inc., for "stocktaking investigation for
excise tax purposes for the period
January 1, 1988 to present" (Exhibit
"C"). In a letter dated October 27,
1988, in connection with the physical
count of the inventory (stocks on
hand) pursuant to said Letter of
Authority, Hans Brumann, Inc. was
requested to prepare and make
available to the BIR the documents
indicated therein (Exhibit "D").
Hans Brumann, Inc., did not
produce the documents requested by
the BIR.6
Similar Letter of Authority were
issued to BIR officers to examine the
books of accounts and other
accounting records of Miladay Jewels,
Inc., Mercelles, Inc., Solid Gold
International Traders, Inc., (Exhibits
"E", "G" and "N") and Diagem Trading
Corporation7 for
"stocktaking/investigation far excise
tax purpose for the period January 1, and the
1988 to present." Customs
In the case of Miladay Jewels, Code of the
Inc. and Mercelles, Inc., there is no Philippines,
account of what actually transpired in Hdg. 71.01,
the implementation of the Letters of 71.02,
Authority. In the case of Solid Gold 71.03, and
International Traders Corporation, the 71.04,
BIR officers made an inventory of the Chapter 71
articles in the establishment.8 The as amended
same is true with respect to Diagem by Executive
Traders Corporation.9 Order No.
470,
On November 29, 1988, private imposing
respondents Antonio M. Marco and three to ten
Jewelry By Marco & Co., Inc. filed with (3% to
the Regional Trial Court, National 10%)
Capital Judicial Region, Pasig City, percent tariff
Metro Manila, a petition for declaratory and customs
relief with writ of preliminary duty on
injunction and/or temporary natural and
restraining order against herein cultured
petitioners and Revenue Regional pearls and
Director Felicidad L. Viray (docketed precious or
as Civil Case No. 56736) praying that semi-
Sections 126, 127(a) and (b) and precious
150(a) of the National Internal stones, and
Revenue Code and Hdg. No. 71.01, Section 150
71.02, 71.03, and 71.04, Chapter 71 par. (a) the
of the Tariff and Customs Code of the National
Philippines be declared Internal
unconstitutional and void, and that the Revenue
Commissioner of Internal Revenue and Code of
Customs be prevented or enjoined 1977, as
from issuing mission orders and other amended,
orders of similar nature. . . . renumbered
On February 16, 1995, public and
respondents rendered a decision, the rearranged
dispositive portion of which reads: by Executive
Order 273,
In view of the foregoing imposing
reflections, judgment is twenty
hereby rendered, as (20%)
follows: percent
excise tax
1. Declaring on jewelry,
Section 104 pearls and
of the Tariff other
 precious mounted
stones, as and fitted
INOPERATIV with,
E and precious
WITHOUT metals or
FORCE and imitations
EFFECT thereof or
insofar as ivory (not
petitioners including
are surgical and
concerned. dental
instruments,
  silver-plated
wares,
Section 150 (a) of Executive Order No. frames or
273 reads: mountings
for
Sec. 150. Non-essential spectacles or
goods. — There shall be eyeglasses,
levied, assessed and and dental
collected a tax equivalent gold or gold
to 20% based on the alloys and
wholesale price or the other
value of importation used precious
by the Bureau of metals used
Customs in determining in filling,
tariff and customs duties; mounting or
net of the excise tax and fitting of the
value-added tax, of the teeth);
following goods: opera
glasses and
(a) All goods lorgnettes.
commonly or The term
commerciall "precious
y known as metals" shall
jewelry, include
whether real platinum,
or imitation, gold, silver,
pearls, and other
precious and metals of
semi- similar or
precious greater
stones and value. The
imitations term
thereof; "imitations
goods made thereof"
of, or shall include
ornamented, platings and
 alloys of ornamented,
such metals. mounted or
fitted with,
Section 150 (a) of Executive Order No. precious
273, which took effect on January 1, metals or
1988, amended the then Section 163 imitations
(a) of the Tax Code of 1986 which thereof or
provided that: ivory (not
including
Sec. 163. Percentage tax surgical and
on sales of non-essential dental
articles. — There shall be instruments,
levied, assessed and silver-plated
collected, once only on wares,
every original sale, frames or
barter, exchange or mounting for
similar transaction for spectacles or
nominal or valuable eyeglasses,
consideration intended to and dental
transfer ownership of, or gold or gold
title to, the articles herein alloys and
below enumerated a tax other
equivalent to 50% of the precious
gross value in money of metal used
the articles so sold, in filling,
bartered, exchanged or mounting or
transferred, such tax to fitting of the
be paid by the teeth);
manufacturer or opera
producer: glasses, and
lorgnettes.
(a) All The term
articles "precious
commonly or metals" shall
commerciall include
y known as platinum,
jewelry, gold, silver,
whether real and other
or imitation, metals of
pearls, similar or
precious and greater
semi- value. The
precious term
stones, and "imitations
imitations thereof"
thereof, shall include
articles platings and
made of, or
 alloys of 2.       Whether the issuance of the
such metals; Mission Order and Letters of Authority
is valid and legal. NO
Section 163 (a) of the 1986 Tax Code
was formerly Section 194(a) of the  HELD
1977 Tax Code and Section 184(a) of
the Tax code, as amended by 1.   The public respondent
Presidential Decree No. 69, which took ruled that the laws in question
effect on January 1, 1974. are confiscatory and oppressive.
It will be noted that, while under the Again, virtually adopting
present law, jewelry is subject to a verbatim the reasons presented
20% excise tax in addition to a 10% by the private respondents in
value-added tax under the old law, it their position paper, the lower
was subjected to 50% percentage tax. court stated:
It was even subjected to a 70%
percentage tax under then Section The Court finds that
184(a) of the Tax Code, as amended indeed government
by P.D. 69. taxation policy trats(sic)
Section 104, Hdg. Nos. 17.01, 17.02, hewelry(sic) as non-
17.03 and 17.04, Chapter 71 of the essential luxury item and
Tariff and Customs Code, as amended therefore, taxed heavily.
by Executive Order No. 470, dated Aside from the ten (10%)
July 20, 1991, imposes import duty on percent value added tax
natural or cultured pearls and precious (VAT), local jewelry
or semi-precious stones at the rate of manufacturers contend
3% to 10% to be applied in stages with the (manufacturing)
from 1991 to 1994 and 30% in 1995. excise tax of twenty
Prior to the issuance of E.O. 470, the (20%) percent (to be
rate of import duty in 1988 was 10% applied in stages)
to 50% when the petition was filed in customs duties on
the court a quo. imported raw materials,
In support of their petition before the the highest in the Asia-
lower court, the private respondents Pacific region. In
submitted a position paper purporting contrast, imported
to be an exhaustive study of the tax gemstones and other
rates on jewelry prevailing in other precious metals are duty
Asian countries, in comparison to tax free in Hongkong,
rates levied on the same in the Thailand, Malaysia and
Philippines. 10 Singapore.

ISSUE To illustrate, shown hereunder is the

Philippine tariff and tax structure on
1.       Whether Section 150, par. (a) of jewelry and other precious and semi-
the NIRC and Section 104, Hdg. precious stones compared to other
71.01, 71.02, 71.03 and 71.04 of the neighboring countries, to wit:
Tariff and Customs Code are
unconstitutional. YES Tariff on imported
 Jewelry and Worthy of note is the fact that indeed
(Manufacturing) Sales no evidence was adduced by
Tax 10% (VAT) respondents to disprove the foregoing
precious stones Excise allegations of fact. Under the
tax foregoing factual circumstances, the
Philippines 3% to 10% to Court finds the questioned statutory
be 20% 10% VAT provisions confiscatory and destructive
applied in stages of the proprietary right of the
Malaysia None None None petitioners to engage in business in
Thailand None None None violation of Section 1, Article III of the
Singapore None None Constitution which states, as follows:
None No person shall be deprived of the life,
Hongkong None None liberty, or property without due
None process of law . . . . 12

In this connection, the present tariff 2. The petitioners now assail the
and tax structure increases decision rendered by the public
manufacturing costs and renders the respondent, contending that the latter
local jewelry manufacturers has no authority to pass judgment
uncompetitive against other countries upon the taxation policy of the
even before they start manufacturing government. In addition, the
and trading. Because of the prohibitive petitioners impugn the decision in
cast (sic) of taxation, most question by asserting that there was
manufacturers source from black no showing that the tax laws on
market for smuggled goods, and that jewelry are confiscatory and
while manufacturers can avail of tax destructive of private respondent's
exemption and/or tax credits from the proprietary rights.
(manufacturing) excise tax, they have We rule in favor of the petitioners.
no documents to present when filing It is interesting to note that public
this exemption because, or pointed respondent, in the dispositive portion
out earlier, most of them source their of his decision, perhaps keeping in
raw materials from the block market, mind his limitations under the law as a
and since many of them do not legally trial judge, did not go so far as to
exist or operate onofficially (sic), or declare the laws in question to be
underground, again they have no unconstitutional. However, therein he
records (receipts) to indicate where declared the laws to be inoperative
and when they will utilize such tax and without force and effect insofar as
credits. (Cited in Exhibit "M" — the private respondents are
Buencamino Report). concerned. But, respondent judge, in
Given these constraints, the local the body of his decision, unequivocally
manufacturer has no recourse but to but wrongly declared the said
the back door for smuggled goods if provisions of law to be violative of
only to be able to compete even Section 1, Article III of the
ineffectively, or cease manufacturing Constitution. In fact, in their
activities and instead engage in the Supplemental Comment on the
trading (sic) of smuggled finished Petition for Review, 14 the private
jewelry. respondents insist that Judge Santos,
in his capacity as judge of the
Regional Trial Court, acted within his
authority in passing upon the issues,
to wit:
A perusal of the appealed
decision would
undoubtedly disclose that
public respondent did not
pass judgment on the
soundness or wisdom of
the government's tax
policy on jewelry. True,
public respondent, in his
questioned decision,
observed, inter alia, that
indeed government tax
policy treats jewelry as
non-essential item, and
therefore, taxed heavily;
that the present tariff and
tax structure increase
manufacturing cost and
renders the local jewelry
manufacturers
uncompetitive against
other countries even
before they start
manufacturing and
trading; that many of the
local manufacturers do
not legally exist or
operate unofficially or
underground; and that
the manufacturers have
no recourse but to the
back door for smuggled
goods if only to be able
to compete even if
ineffectively or cease
manufacturing activities.
BUT, public respondent
did not, in any manner,
interfere with or encroach
upon the prerogative of
the legislature to
determine what should be
the tax policy on jewelry.
On the other hand, the
issue raised before, and
passed upon by, the
public respondent was
whether or not Section
150, paragraph (a) of the
National Internal
Revenue Code (NIRC)
and Section 104, Hdg.
71.01, 71.02, 71.03 and
71.04 of the Tariff and
Customs Code are
unconstitutional, or
differently stated,
whether or not the
questioned statutory
provisions affect the
constitutional right of
private respondents to
engage in business.
It is submitted that public
respondent confined
himself on this issue
which is clearly a judicial
question.
We find it incongruous, in the face of
the sweeping pronouncements made
by Judge Santos in his decision, that
private respondents can still persist in
their argument that the former did not
overreach the restrictions dictated
upon him by law. There is no doubt in
the Court's mind, despite protestations
to the contrary, that respondent 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 in this country,
and these reasons, deliberated upon
by our legislature, are beyond the
reach of judicial questioning. As held
in Macasiano vs. National Housing
Authority: 15
The policy of the 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
which enjoins upon each
department a becoming
respect for the acts of the
other departments. 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 low before it
was finally enacted.
(emphasis ours)
The trial court is not the proper forum
for the ventilation of the issues raised
by the private respondents. The
arguments they presented focus on
the wisdom of the provisions of law
which they seek to nullify. Regional
Trial Courts can only look into the
validity of a provision, that is, whether
or not it has been passed according to
the procedures laid down by law, and
thus cannot inquire as to the reasons
for its existence. Granting arguendo
that the private respondents may have
provided convincing arguments why
the jewelry industry in the Philippines
should not be taxed as it is, it is to the
legislature that they must resort to for
relief, since with the legislature
primarily lies the discretion to
determine the nature (kind), object
(purpose), extent (rate), coverage
(subjects) and situs (place) of
taxation. This Court cannot freely
delve into those matters which, by
constitutional fiat, rightly rest on
legislative judgment. 22
The respondents presented an
exhaustive study on the tax rates on
jewelry levied by different Asian
countries. This is meant to convince us
that compared to other countries, the
tax rates imposed on said industry in
the Philippines is oppressive and
confiscatory. This Court, however,
cannot subscribe to the theory that
the tax rates of other countries should
be used as a yardstick in determining
what may be the proper subjects of
taxation in our own country. It should
be pointed out that in imposing the
aforementioned taxes and duties, the
State, acting through the legislative
and executive branches, is exercising
its sovereign prerogative. It is
inherent in the power to tax that the
State be free to select the subjects of
taxation, and it has been repeatedly
held that "inequalities which result
from a singling out or one particular
class for taxation, or exemption,
infringe no constitutional limitation." 25
WHEREFORE, premises considered,
the petition is hereby GRANTED, and
the Decision in Civil Case No. 56736 is
hereby REVERSED and SET ASIDE. No R
costs. A
SO ORDERED.
7
  1
6
  0
)
Basco v. PAGCOR,
G.R. No. 91649, May
Exceptions 14, 1991- Hibaler
Re: Principle of
 
Local Autonomy
i.            Delegation to the local
government Sec. 5, Article X, 1987 FACTS: The PH
Constitution Amusement and
  Gaming Corp. was
B created by PD 1067-A
o and granted a
o franchise under PD
k 1067-B.
Subsequently, under
I PD 1869, the
I Government enabled
, it to regulate and
centralize all games of
L chance authorized by
o existing franchise or
c permitted by law,
a under declared policy.
l But the petitioners
think otherwise, that
G is why, they filed the
o instant petition
v seeking to annul the
e PAGCOR Charter — PD
r 1869, because it is
n allegedly contrary to
m morals, public policy
e and order, and
n because of the
t following issues:
C ISSUES:
o
d (1) WON it waived the
e Manila City gov't's
right to impose taxes
(
and license fees, Congress as they are
which is recognized by mere creatures of
law. Congress. Congress,
therefore, has the
(2) WON it has power of control over
intruded into the LGUs. And if Congress
LGUs' right to impose can grant the City of
local taxes and license Manila the power to
fees, and thus tax certain matters, it
contrary to the can also provide for
principle of local exemptions or even
autonomy enshrined take back the power.
in the Constitution.
(2) No. LGUs' right to
(3) WON it violates impose license fees on
the equal protection "gambling", has long
clause as it allows been revoked. As
some gambling acts early as 1975, the
but also prohibits power of local
other gaming acts. governments to
regulate gambling
(4) WON it violates thru the grant of
the Cory  gov't's "franchise, licenses or
policy of being away permits" was
from monopolistic and withdrawn by P.D. No.
crony economy, and 771 and was vested
toward free enterprise exclusively on the
and privatization. National Government.
Furthermore, LGUs'
HELD: have no power to tax
instrumentalities of
(1) No. The fact that the gov't such as
PAGCOR, under its PAGCOR which
charter, is exempt exercises
from paying tax of any governmental
kind is not violative of functions of regulating
the principle of local gambling activities.
autonomy. LGUs' have
no inherent right to (3) No.  The clause
impose taxes. LGUs' does not preclude
power to tax must classification of
always yield to a individuals who may
legislative act which is be accorded different
superior having been treatment under the
passed by the state law as long as the
itself which has the classification is not
inherent power to tax. unreasonable or
The charter of LGUs is arbitrary. A law does
subject to control by
not have to operate in prohibiting
equal force on all monopolies.
persons or things to
be conformable to
Article III, Section 1
of the Constitution. Quezon City, et al. v.
The Constitution does Bayantel, G.R. No.
not require situations 162015, March 6,
which are different in 2006- Jueves
fact or opinion to be
treated in law as  G.R. No. 162015             March 6,
though they were the 2006
same. THE CITY GOVERNMENT OF
QUEZON CITY, AND THE CITY
(4) No. The judiciary TREASURER OF QUEZON CITY, DR.
does not settle policy VICTOR B. ENRIGA, Petitioners,
issues. The Court can vs.
only declare what the BAYAN TELECOMMUNICATIONS,
law is and not what INC., Respondent.
the law should be. Facts: Respondent Bayan
Under our system of Telecommunications, Inc.3 (Bayantel)
government, policy is a legislative franchise holder under
issues are within the Republic Act (Rep. Act) No. 3259 4 to
domain of the political establish and operate radio stations
branches of for domestic telecommunications,
government and of radiophone, broadcasting and
the people themselves telecasting.
as the repository of all Of relevance to this controversy is the
state power. On the tax provision of Rep. Act No. 3259,
issue of monopoly, the embodied in Section 14 thereof, which
same is not reads:
necessarily prohibited
by the Constitution. SECTION 14. (a) The grantee shall be
The state must still liable to pay the same taxes on its real
decide whether public estate, buildings and personal
interest demands that property, exclusive of the franchise, as
monopolies be other persons or corporations are now
"regulated" or or hereafter may be required by law to
prohibited. Again, this pay. (b) The grantee shall further pay
is a matter of policy to the Treasurer of the Philippines
for the Legislature to each year, within ten days after the
decide. The judiciary audit and approval of the accounts as
can only intervene prescribed in this Act, one and one-
when there are half per centum of all gross receipts
violations of the from the business transacted under
statutes passed by this franchise by the said grantee
Congress regulating or (Emphasis supplied).
On January 1, 1992, Rep. Act No.
7160, otherwise known as the "Local
Government Code of 1991" (LGC),
took effect. Section 232 of the Code
grants local government units within
the Metro Manila Area the power to
levy tax on real properties.
Complementing the aforequoted
provision is the second paragraph of
Section 234 of the same Code which
withdrew any exemption from realty
tax heretofore granted to or enjoyed
by all persons, natural or juridical.
On July 20, 1992, barely few months
after the LGC took effect, Congress
enacted Rep. Act No. 7633, amending
Bayantel’s original franchise. The
amendatory law (Rep. Act No. 7633)
contained the following tax provision:
SEC. 11. The grantee, its successors
or assigns shall be liable to pay the
same taxes on their real estate,
buildings and personal property,
exclusive of this franchise, as other
persons or corporations are now or
hereafter may be required by law to
pay. In addition thereto, the grantee,
its successors or assigns shall pay a
franchise tax equivalent to three
percent (3%) of all gross receipts of
the telephone or other
telecommunications businesses
transacted under this franchise by the
grantee, its successors or assigns and
the said percentage shall be in lieu of
all taxes on this franchise or earnings
thereof. Provided, That the grantee,
its successors or assigns shall continue
to be liable for income taxes payable
under Title II of the National Internal
Revenue Code …. xxx.  operation of petitioner’s franchise
In 1993, the government of Quezon
City, pursuant to the taxing power
vested on local government units by
Section 5, Article X of the 1987
Constitution, infra, in relation to
Section 232 of the LGC, supra,
enacted City Ordinance No. SP-91, S-
93, otherwise known as the Quezon
City Revenue Code (QCRC), 5 imposing,
under Section 5 thereof, a real
property tax on all real properties in
Quezon City, and, reiterating in its
Section 6, the withdrawal of
exemption from real property tax
under Section 234 of the LGC, supra.
Furthermore, much like the LGC, the
QCRC, under its Section 230, withdrew
tax exemption privileges in general.
On January 7, 1999, Bayantel wrote
the office of the City Assessor seeking
the exclusion of its real properties in
the city from the roll of taxable real
properties. With its request having
been denied, Bayantel interposed an
appeal with the Local Board of
Assessment Appeals (LBAA). And,
evidently on its firm belief of its
exempt status, Bayantel did not pay
the real property taxes assessed
against it by the Quezon City
government. On account thereof, the
Quezon City Treasurer sent out notices
of delinquency for the total amount of
P43,878,208.18, followed by the
issuance of several warrants of levy
against Bayantel’s properties
preparatory to their sale at a public
auction set on July 30, 2002.
Lower Court: Pursuant to the
enabling franchise under Section 11 of
Republic Act No. 7633, the real estate
properties and buildings of petitioner
[now, respondent Bayantel] which
have been admitted to be used in the
described in the following tax
declarations are hereby DECLARED
exempt from real estate taxation.
Issue: Whether or not Bayantel’s real
properties in Quezon City are exempt
from real property taxes under its
legislative franchise.
Held: There seems to be no issue as
to Bayantel’s exemption from real
estate taxes by virtue of the term
"exclusive of the franchise" qualifying
the phrase "same taxes on its real
estate, buildings and personal
property," found in Section 14, supra,
of its franchise, Rep. Act No. 3259, as
originally granted.
The legislative intent expressed in the
phrase "exclusive of this franchise"
cannot be construed other than
distinguishing between two (2) sets of
properties, be they real or personal,
owned by the franchisee, namely, (a)
those actually, directly and exclusively
used in its radio or
telecommunications business, and (b)
those properties which are not so
used. It is worthy to note that the
properties subject of the present
controversy are only those which are
admittedly falling under the first
category.
To the mind of the Court, Section 14
of Rep. Act No. 3259 effectively works
to grant or delegate to local
governments of Congress’ inherent
power to tax the franchisee’s
properties belonging to the second
group of properties indicated above,
that is, all properties which, "exclusive
of this franchise," are not actually and
directly used in the pursuit of its
franchise. As may be recalled, the
taxing power of local governments
under both the 1935 and the 1973
Constitutions solely depended upon an
enabling law. Absent such enabling
law, local government units were
without authority to impose and
collect taxes on real properties within
their respective territorial jurisdictions.
While Section 14 of Rep. Act No. 3259
may be validly viewed as an implied
delegation of power to tax, the
delegation under that provision, as
couched, is limited to impositions over
properties of the franchisee which are
not actually, directly and exclusively
used in the pursuit of its franchise.
Necessarily, other properties of
Bayantel directly used in the pursuit of
its business are beyond the pale of the
delegated taxing power of local
governments. In a very real sense,
therefore, real properties of Bayantel,
save those exclusive of its franchise,
are subject to realty taxes. Ultimately,
therefore, the inevitable result was
that all realties which are actually,
directly and exclusively used in the
operation of its franchise are
"exempted" from any property tax.
Bayantel’s franchise being national in
character, the "exemption" thus
granted under Section 14 of Rep. Act
No. 3259 applies to all its real or
personal properties found anywhere
within the Philippine archipelago.
However, with the LGC’s taking effect
on January 1, 1992, Bayantel’s
"exemption" from real estate taxes for
properties of whatever kind located
within the Metro Manila area was, by
force of Section 234 of the Code,
supra, expressly withdrawn. But, not
long thereafter, however, or on July
20, 1992, Congress passed Rep. Act
No. 7633 amending Bayantel’s original
franchise. Worthy of note is that
Section 11 of Rep. Act No. 7633 is a
virtual reenacment of the tax
provision, i.e., Section 14, supra, of
Bayantel’s original franchise under
Rep. Act No. 3259. Stated otherwise,
Section 14 of Rep. Act No. 3259 which
was deemed impliedly repealed by
Section 234 of the LGC was expressly
revived under Section 14 of Rep. Act
No. 7633. In concrete terms, the
realty tax exemption heretofore
enjoyed by Bayantel under its original
franchise, but subsequently withdrawn
by force of Section 234 of the LGC,
has been restored by Section 14 of
Rep. Act No. 7633.
Bayantel’s posture is well-taken. While
the system of local government
taxation has changed with the onset of
the 1987 Constitution, the power of
local government units to tax is still
limited. As we explained in Mactan
Cebu International Airport Authority:10
The power to tax is primarily vested in
the Congress; however, in our
jurisdiction, it may be exercised by
local legislative bodies, no longer
merely be virtue of a valid delegation
as before, but pursuant to direct
authority conferred by Section 5,
Article X of the Constitution. Under the
latter, the exercise of the power may
be subject to such guidelines and
limitations as the Congress may
provide which, however, must be
consistent with the basic policy of local
autonomy.
Clearly then, while a new slant on the
subject of local taxation now prevails
in the sense that the former doctrine
of local government units’ delegated
power to tax had been effectively
modified with Article X, Section 5 of
the 1987 Constitution now in place,
.the basic doctrine on local taxation
remains essentially the same. For as
the Court stressed in Mactan, "the
power to tax is [still] primarily vested
in the Congress."
In net effect, the controversy
presently before the Court involves, at
bottom, a clash between the inherent
taxing power of the legislature, which
necessarily includes the power to
exempt, and the local government’s
delegated power to tax under the
aegis of the 1987 Constitution.
Now to go back to the Quezon City
Revenue Code which imposed real
estate taxes on all real properties
within the city’s territory and removed
exemptions theretofore "previously
granted to, or presently enjoyed by all
persons, whether natural or juridical
….,"12 there can really be no dispute
that the power of the Quezon City
Government to tax is limited by
Section 232 of the LGC which
expressly provides that "a province or
city or municipality within the
Metropolitan Manila Area may levy an
annual ad valorem tax on real
property such as land, building,
machinery, and other improvement
not hereinafter specifically exempted."
Under this law, the Legislature
highlighted its power to thereafter
exempt certain realties from the
taxing power of local government
units. An interpretation denying
Congress such power to exempt would
reduce the phrase "not hereinafter
specifically exempted" as a pure
jargon, without meaning whatsoever.
Needless to state, such absurd
situation is unacceptable.
As we see it, then, the issue in this
case no longer dwells on whether
Congress has the power to exempt
Bayantel’s properties from realty taxes
by its enactment of Rep. Act No. 7633
which amended Bayantel’s original
franchise. The more decisive question
turns on whether Congress actually
did exempt Bayantel’s properties at all
by virtue of Section 11 of Rep. Act No.
7633.
Admittedly, Rep. Act No. 7633 was
enacted subsequent to the LGC.
Perfectly aware that the LGC has
already withdrawn Bayantel’s former
exemption from realty taxes, Congress
opted to pass Rep. Act No. 7633
using, under Section 11 thereof,
exactly the same defining phrase
"exclusive of this franchise" which was
the basis for Bayantel’s exemption
from realty taxes prior to the LGC. In
plain language, Section 11 of Rep. Act
No. 7633 states that "the grantee, its
successors or assigns shall be liable to
pay the same taxes on their real
estate, buildings and personal
property, exclusive of this franchise,
as other persons or corporations are
now or hereafter may be required by
law to pay." The Court views this
subsequent piece of legislation as an
express and real intention on the part
of Congress to once again remove
from the LGC’s delegated taxing
power, all of the franchisee’s
(Bayantel’s) properties that are
actually, directly and exclusively used
in the pursuit of its franchise.
 
ii.         Delegation to the
President
 
Sec. 28(2), Article VI,
1987 Constitution
 
Sec. 1608, Customs
Modernization and
Tariff Act (CMTA)
 
Abakada Guro Party
List v. Ermita, G.R.
No. 168056,
September 1, 2005-
Miranda
Facts:
 Three legislative bills -- two in the
House and one in the Senate-- were
approved to restructure the value-
added tax by amending the National
Internal Revenue Code (NIRC) of
1997. Because of disagreeing
provisions between the House and the
Senate bills, a Bicameral Conference
Committee (BCC) was created. Before
long, the BCC came up with its Report,
which was submitted and approved by
the both houses of Congress. The
enrolled copy of the consolidated bills
was then transmitted to the President,
who signed it into law on May 24,
2005. The E-VAT Law, RA 9337, was
to become effective on July 1, 2005.
On that same day, however, the
Supreme Court issued a TRO, effective
immediately and to continue until
further orders. Five Petitions, all
alleging the unconstitutionality of
certain sections of the law, and
seeking to enjoin respondents from
enforcing and implementing it,
prompted the TRO.
 Petitioners Abakada Guro Party
List et al.(AGPL) and Senator
Aquilino Q. Pimentel Jr. et
al.questioned the constitutionality
of Sections 4, 5 and 6 of RA 9337.
Those provisions, which amended the
NIRC’s Sections 106, 107 and 108,
contained a uniform proviso (the
so-called “standby authority”)
authorizing the President, upon
the recommendation of the
finance secretary, to raise the VAT
rate from 10 percent to 12
percent, effective January 1, 2006,
after any of the following conditions
would have been satisfied: “
(1) VAT collection as a percentage of
Gross Domestic Product (GDP) of the
previous year (meaning 2005)
exceeds two and four-fifth percent (2
4/5%); or
“(2) National government deficit as a
percentage of GDP of the previous
year (2005) exceeds one and one-half
percent (1 ½ %).”
Petitioner argued that the E-VAT
law was unconstitutional, because
it (1) constituted an abdication by
Congress of its exclusive authority
to fix the rate of taxes under
Section 28(2) of Article VIof the
Constitution; (2) amounted to an
undue delegation of legislative power;
and (3) imposed an unfair and
additional tax burden on the people, in
violation of the due process clause and
the “no-amendment” rule[14] of the
Constitution.
On its part, Petitioner Association
of Pilipinas Shell Dealers, Inc., et
al. (APSDI)[15] submitted that
Section 8 -- which had amended
Sections 110(A)(2)[16] and 110(B) of
the NIRC) -- and Section 12 of the E-
VAT Law were arbitrary, oppressive,
excessive and confiscatory. The
amendments allegedly transgressed
the constitutional guarantees of due
process and equal protection of the
law.In particular, petitioners charged
that the 70 percent limit on the
amount of input tax that could be
credited against the output tax
(Section 12) was regressive and,
hence, contrary to Section 28(1) of
Article VI of the Constitution.
Aside from challenging Sections 4, 5
and 6 of RA 9337, another group of
petitioners -- led by Representative
Francis Joseph G. Escudero --
assailed the deletion by the BCC of the
“no-pass-on” provisions that were
present in Senate Bill (SB) 1950 and
House Bill (HB) 3705. The group
added that the BCC’s insertion of 13
Sections that were extant only in the
Senate bill had run counter to Section
24(1) of Article VI of the Constitution.
According to that provision, all
appropriation, revenue or tariff bills
shall originate exclusively from the
House of Representatives.
Lastly, Petitioner Enrique T. Garcia,
the governor of Bataan, contended
that the law was unconstitutional,
because the limitation on the
creditable input tax would in effect
allow VAT-registered entities to retain
a portion of the taxes they would
collect and thus violate the “public
purpose” principle in allocating tax
collection and revenue.
Appearing for the respondents, the
Office of the Solicitor General
(OSG) contended that (1) RA 9337
enjoyed the presumption of
constitutionality; (2) the procedural
issues on the legality of the bicameral
proceedings, the exclusive origination
of revenue measures, and the power
of the Senate in relation to those
issues had already been settled in
Tolentino v. Secretary of Finance; and
(3) the law was complete and left
no discretion to the President. Also
refuted was the alleged arbitrary,
oppressive and confiscatory character
of the increase to 12 percent, the 70
percent limitation on the creditable
input tax, the 60-month amortization
of purchases or importation of capital
goods amounting to more than P1
million, and the 5 percent final
withholding tax by government
agencies. Finally, it was stressed that
the E-VAT Law was the anchor of the
government’s fiscal reform agenda.
Issues
ISSUE: WON there was undue
delegation of legislative power such
that RA 9337 violated Sections 28(1)
and 28(2) of Article VI of the
Constitution.
RULING: Petitioners argued that the
grant to the President of a standby
authority to increase the VAT rate was
a virtual abdication by Congress of its
exclusive power to tax, because the
VAT was not within the purview of
tariffs. They further contended that
the delegation to the Chief Executive
of the legislative power to tax was
contrary to the principle of
republicanism;[28] and that “the
President has ample powers to cause,
influence or create the conditions
provided by the law to bring about
either or both conditions precedent.”
Petitioners Escudero et al. added that
to subject the imposition of the 12
percent VAT rate to the whim of the
finance secretary, an unelected
bureaucrat, was contrary to the
principle of “no taxation without
representation.”
After a brief discourse on the principle
of non-delegation of powers, the
Supreme Court pointed out that the
general rule barring the delegation
of legislative powers was subject
to certain recognized limitations
or exceptions. In every case of
permissible delegation, it said, “there
must be a showing that the delegation
itself [was] valid”; that is, (a) the law
was complete in itself -- it spelled out
the policy to be executed, carried out,
or implemented by the delegate; and
(b) the law fixed a standard to which
the performance of a delegate’s
functions must conform – a standard
whose limits were sufficiently
determinate and determinable. Citing
People v. Vera and Edu v. Ericta, the
Court then declared that “[w]hile the
power to tax cannot be delegated
to executive agencies, details as
to the enforcement and
administration of an exercise of
such power may be left to them,
including the power to determine
the existence of facts on which its
operation depends.” Here, the
common proviso in Sections 4, 5 and
6 of RA 9337 involved simply a
delegation of the ascertainment of
facts upon which the operation of the
12 percent VAT rate effective January
1, 2006, would be made contingent.
There was no discretion to be
exercised by the President, as may be
gleaned from the use of the word
“shall.” The Court held that in making
recommendations to the President on
the existence of either of the two
specified conditions, the finance
secretary was not acting as the Chief
Executive’s alter ego or even
subordinate. Rather, the finance
chief was acting as the “agent of
the legislative department, to
determine and declare the event
upon which its expressed will is to
take effect.” This being so, the
findings of the secretary could not be
altered, modified, nullified or set aside
by the President; much less could the
judgment of the former be substituted
for that of the latter
iii.       Delegation to
administrative
agencies
 
Maceda v. Macaraig,
G.R. No. 88291, May
31, 1991 & June 8,
1993- Muana
Commissioner of
Internal Revenue v.
Court of Appeals, G.R.
 No. 119761, August
29, 1996- Nuneza
 
Phil. Comm. Satellite
Corp. v. Alcuaz, 180
SCRA 218- Obinay
•       Territorial; situs of
taxation; exceptions
 
Commissioner of Internal
Revenue v. British Overseas
Airways Corp., G.R. Nos.
65773-74, April 30, 1987-
Padilla
CIR v. BRITISH OVERSEAS AIRWAYS
CORPORATION 
[ G.R. Nos. 65773-74, April 30, 1987 ]
COMMISSIONER OF INTERNAL
REVENUE, PETITIONER, VS.
BRITISH OVERSEAS AIRWAYS
CORPORATION AND COURT OF
TAX APPEALS, RESPONDENTS.
 FACTS
BOAC is a 100% British Government-
owned corporation organized and
existing under the laws of the United
Kingdom.
It operates air transportation service
and sells transportation tickets over
the routes of the other airline
members.
BOAC had no landing rights for traffic
purposes in the Philippines, and was
not granted a Certificate of public
convenience and necessity to operate
in the Philippines
Consequently, it did not carry
passengers and/or cargo to or from
the Philippines, although during the
period covered by the assessments, it
maintained a general sales agent in
the Philippines Warner Barnes and
Company, Ltd., and later Qantas
Airways which was responsible for
selling BOAC tickets covering
passengers and cargoes.
On 7 May 1968, petitioner
Commissioner of Internal Revenue
(CIR, for brevity) assessed BOAC the
aggregate amount of P2,498,358.56
for deficiency income taxes covering
the years 1959 to 1963.  This was
protested by BOAC.  Subsequent
investigation resulted in the issuance
of a new assessment, dated 16
January 1970 for the years 1959 to
1967 in the amount of P858,307.79. 
BOAC paid this new assessment under
protest.
BOAC filed a claim for refund of the
amount of P858,307.79, which claim
was denied by the CIR
BOAC was assessed deficiency income
taxes, interests, and penalty for the
fiscal years 1968-1969 to 1970-1971
in the aggregate amount of
P549,327.43, and the additional
amounts of P1,000.00 and P1,800.00
as compromise penalties for violation
of Section 46 (requiring the filing of
corporation returns) penalized under
Section 74 of the National Internal
Revenue Code (NIRC).
TAX COURT
The Tax Court held that the proceeds
of sales of BOAC passage tickets in the
Philippines by Warner Barnes and
Company, Ltd., and later by Qantas
Airways, during the period in question,
do not constitute BOAC income from
Philippine sources "since no service of It is our considered opinion that BOAC
carriage of passengers or freight was is a resident foreign corporation. 
performed by BOAC within the
Philippines" and, therefore, said BOAC, during the periods covered by
income is not subject to Philippine the subject assessments, maintained a
income tax. general sales agent in the Philippines.

ISSUES  

"1.  Whether or not the revenue Those activities were in exercise of the
derived by private respondent British functions which are normally incident
Overseas Airways Corporation (BOAC) to, and are in progressive pursuit of,
from sales of tickets in the Philippines the purpose and object of its
for air transportation, while having no organization as an international air
landing rights here, constitute income carrier.  In fact, the regular sale of
of BOAC from Philippine sources, and, tickets, its main activity, is the very
accordingly, taxable. lifeblood of the airline business, the
generation of sales being the
"2.  Whether or not during the fiscal paramount objective.  There should be
years in question BOAC is a resident no doubt then that BOAC was
foreign corporation doing business in "engaged in" business in the
the Philippines or has an office or Philippines through a local agent
place of business in the Philippines. during the period covered by the
assessments.  Accordingly, it is a
"3.  In the alternative that private resident foreign corporation subject to
respondent may not be considered a tax upon its total net income received
resident foreign corporation but a non- in the preceding taxable year from all
resident foreign corporation, then it is sources within the Philippines.
liable to Philippine income tax at the
rate of thirty-five per cent (35%) of its The Tax Code defines "gross income"
gross income received from all sources thus:
within the Philippines."
"'Gross income' includes gains, profits,
RULING Under Section 20 of the 1977 and income derived from salaries,
Tax Code: wages or compensation for personal
service of whatever kind and in
"(h)  the term 'resident foreign whatever form paid, or from
corporation' applies to a foreign profession, vocations, trades,
corporation engaged in trade or business, commerce, sales, or
business within the Philippines or dealings in property, whether real or
having an office or place of business personal, growing out of the
therein. ownership or use of or interest in such
property; also from interests, rents,
"(i)  The term 'non-resident foreign dividends, securities, or the
corporation' applies to a foreign transactions of any business carried
corporation not engaged in trade or on for gain or profit, or gains, profits,
business within the Philippines and not and income derived from any source
having any office or place of business whatever"
therein."
The source of an income is the
property, activity or service that
produced the income.[8] For the
source of income to be considered as
coming from the Philippines, it is
sufficient that the income is derived
from activity within the Philippines.  In
BOAC's case, the sale of tickets in the
Philippines is the activity that
produces the income.  The tickets
exchanged hands here and payments
for fares were also made here in
Philippine currency.  The situs of the
source of payments is the Philippines.  The test of taxability is the "source",
The flow of wealth proceeded from,
and occurred within, Philippine
territory, enjoying the protection
accorded by the Philippine
government.  In consideration of such
protection, the flow of wealth should
share the burden of supporting the
government.
 A transportation ticket is not a mere
piece of paper.
The ordinary ticket issued to members
of the travelling public in general
embraces within its terms all the
elements to constitute it a valid
contract, binding upon the parties
entering into the relationship
Section 37(a) of the Tax Code, which
enumerates items of gross income
from sources within the Philippines,
namely:  (1) interest, (2) dividends,
(3) service, (4) rentals and royalties,
(5) sale of real property, and (6) sale
of personal property, does not
mention income from the sale of
tickets for international
transportation.  However, that does
not render it less an income from
sources within the Philippines.  Section
37, by its language, does not intend
the enumeration to be exclusive.  It
merely directs that the types of
income listed therein be treated as
income from sources within the
Philippines.  A cursory reading of the
section will show that it does not state
that it is an all-inclusive enumeration,
and that no other kind of income
maybe so considered.
The absence of flight operations to
and from the Philippines is not
determinative of the source of income
or the situs of income taxation.
and the source of an income is that
activity x x x which produced the
income.
The assessments upheld herein apply
only to the fiscal years covered by the
questioned deficiency income tax
assessments in these cases, or, from
1959 to 1967, 1968-69 to 1970-71. 
For, pursuant to Presidential Decree
No. 69, promulgated on 24 November,
1972, international carriers are now
taxed as follows:
"x x x Provided, however, That
international carriers shall pay a tax of
2-1/2 percent on their gross Philippine
billings." (Sec. 24[b][2], Tax Code).
Presidential Decree No. 1355,
promulgated on 21 April, 1978,
provided a statutory definition of the
term "gross Philippine billings", thus:
"x x x 'Gross Philippine billings'
includes gross revenue realized from
uplifts anywhere in the world by any
international carrier doing business in
the Philippines of passage documents
sold therein, whether for passenger,
excess baggage or mail, provided the
cargo or mail originates from the
Philippines.  x x x
The 2 1/2% tax on gross Philippine
billings is an income tax.  If it had
been intended as an excise or
percentage tax it would have been
placed under Title V of the Tax Code
covering Taxes on Business.
The common carrier's tax is an excise
tax, being a tax on the activity of
transporting, conveying or removing
passengers and cargo from one place
to another.  It purports to tax the
business of transportation.[14] Being
an excise tax, the same can be levied
by the State only when the acts,
privileges or businesses are done or
performed within the jurisdiction of
the Philippines.  The subject matter of
the case under consideration is income
tax, a direct tax on the income of
persons and other entities "of
whatever kind and in whatever form
derived from any source."
 
G.R. No. 45697             November
1, 1939.
MANILA ELECTRIC COMPANY,
plaintiff-appellant,
vs.
A.L. YATCO, Collector of Internal
Revenue, defendant-appellee.
Rapisura
Facts: Manila Electric Company
insured with the city of New York
Insurance Company and the United
States Guaranty Company, certain
real and personal properties situated
in the Philippines. The insurance was
entered into in behalf of said plaintiff
by its broker in New York City. The
insurance companies are foreign
corporations not licensed to do
business in the Philippines and having
no agents therein.
Plaintiff through its broker paid, in
New York, to said insurance company
premiums in the sum of P91,696. The
Collector of Internal Revenue, under
the authority of section 192 of act No.
2427, as amended, assessed and
levied a tax of one per centum on said
premiums, which plaintiff paid under
protest. The protest having been
overruled, plaintiff instituted the
present action to recover the tax. The
trial court dismissed the complaint,
and from the judgment thus rendered,
plaintiff took the instant appeal.
Appellant maintains that the second
paragraph of the provisions of the Act
aforecited is unconstitutional, and has
been so declared by the Supreme
Court of the United States:
The Tobacco Company, through its
head office in Barcelona, insured
against fire with the London Company
the merchandise it had in deposit in
the warehouse in the Philippines. As
the merchandise were from time to
time shipped to Europe, the head
office at Barcelona insured the same
with the Paris Company against
marine risks while such merchandise
were in transit from the Philippines to
Spain. The London Company, unlike
the Paris Company, was licensed to do
insurance business in the Philippines
and had an agent therein. Losses, if
any, on policies were to be paid to the
Tobacco Company in Paris. The tax
assessed and levied by the Collector of
Internal Revenue, under the same law
now involved, was challenged as
unconstitutional. The Supreme Court
of the united States sustained the tax
with respect to premiums paid to the
London Company and held it
erroneous with respect to premiums
paid to the Paris Company.
It is an imposition upon a
contract not made in the
Philippines and having no situs
there and to be measured by
money paid as premiums in
Paris, with the place of payment
of loss, if any, in Paris. We are
very clear that the contract and
the premiums paid under it are
not within the jurisdiction of the
government of the Philippine
Islands.
 
Issue: Whether or not the disputed
tax is one imposed by the
Commonwealth of the Philippines upon
a contract beyond its jurisdiction?
Ruling: YES. The ruling in the Paris
Company case is obviously not
applicable in the instant one, for
there, not only was the contract
executed in a foreign country, but the
merchandise insured was in transit
from the Philippines to Spain, and
nothing was to be done in the
Philippines in pursuance of the
contract. However, the rule laid down
in connection with the London
Company may, by analogy, be applied
in the present case, the essential facts
of both cases being similar. Here, the
insured is a corporation organized
under the laws of the Philippines, its
principal office and place of business
being in the City of Manila. The New
York Insurance Company and the
United States Guaranty Company may
be said to be doing policies issued by
them cover risks on properties within
the Philippines, which may require
adjustment and the activities of
agents in the Philippines with respect
to the settlement of losses arising
thereunder.
For instance, it is therein stipulated
that "the insured, as often as may be
reasonably required, shall exhibit to
any person designated by the
company all the remains of any
property therein described and submit
to examination under oath by any
person named by the company, and
as often as may be reasonably
required, shall exhibit to any person
designated by the company all the
remains of any property therein
described and submit to an
examination all books of accounts . . .
at such reasonable time and place as
may be designated by the company or
its representative." And, in case of
disagreement as to the amount of
losses or damages as to require the
appointment of appraisers, the
insurance contract provides that "the
appraisers shall first select a
competent umpire; and failure for
fifteen days to agree to such umpire,
then, on request of the insured or of
the company, such umpire shall be
selected by a judge of the court of
record in the state in which the
property insured is located.".
The controlling consideration,
therefore, in the decision of the
London Company case was that said
company, by making and carrying out
policies covering risks located in this
country which might require
adjustment or the making of proof of
loss therein, did business in the
Philippines and subjected itself to its
jurisdiction, a rule that can perfectly
be applied in the present case to the
new York Insurance Company and the
United States Guaranty Company.
It is argued, however, that the
sending of an unjuster to the
Philippines to fix the amount of losses,
is a mere contingency and not an
actual fact, as such, it cannot be a
ground for holding that the insurance
companies subjected themselves to
the taxing jurisdiction of the
Philippines. This argument could have
been made in the London Company
case where no adjuster appears to
have ever been sent to the Philippines
nor any adjustment ever made, and
yet the stipulations to that effect were
held to be sufficient to bring the
foreign corporation within the taxing
jurisdiction of the Philippines.
Where the insured against also within
the Philippines, the risk insured
against also within the Philippines, and
certain incidents of the contract are to
be attended to in the Philippines, such
as, payment of dividends when
received in cash, sending of an
unjuster into the Philippines in case of
dispute, or making of proof of loss, the
Commonwealth of the Philippines has
the power to impose the tax upon the
insured, regardless of whether the
contract is executed in a foreign
country and with a foreign
corporation.
Substantial elements of the contract
may be said to be so situated in the
Philippines as to give its government
the power to tax. And, even if it be
assumed that the tax imposed upon
the insured will ultimately be passed
on the insurer, thus constituting an
indirect tax upon the foreign
corporation, it would still be valid,
because the foreign corporation, by
the stipulations of its contract, has
subjected itself to the taxing
jurisdiction of the Philippines.
 
COMMISSIONER OF INTERNAL
REVENUE versus JULIANE BAIER-
NICKEL
G.R. No. 153793, August 29, 2006
Raya
If the income is from the sale of
capital assets, the place where the
sale is made should be likewise
decisive. “Source” is not a place, it is
an activity or property. As such, it has
a situs or location, and if that situs or
location is within the United States the
resulting income is taxable to non-
resident aliens and foreign
corporations.
The source of an income is the
property, activity or service that
produced the income. For the source
of income to be considered as coming
from the Philippines, it is sufficient
that the income is derived from
activity within the Philippines.
FACTS: The Commissioner of Internal
Revenue appeals the Court of Appeals
decision, which granted the tax refund
of respondent and reversed that of the
Court of Tax Appeals . Juliane Baier-
Nickel, a non-resident German, is the
president of Jubanitex, a domestic
corporation engaged in the
manufacturing, marketing and selling
of embroidered textile products.
Through Jubanitex’s general manager,
Marina Guzman, the company
appointed respondent as commission
agent with 10% sales commission on
all sales actually concluded and
collected through her efforts.
In 1995, respondent received P1, 707,
772. 64 as sales commission from w/c
Jubanitex deducted the 10%
withholding tax of P170, 777.26 and
remitted to BIR. Respondent filed her
income tax return but then claimed a
refund from BIR for the P170K,
alleging this was mistakenly withheld
by Jubanitex and that her sales
commission income was compensation
for services rendered in Germany not
Philippines and thus not taxable here.
She filed a petition for review with
CTA for alleged non-action by BIR.
CTA denied her claim but decision was
reversed by CA on appeal, holding
that the commission was received as
sales agent not as President and that
the “source” of income arose from
marketing activities in Germany.
ISSUE: Whether or not respondent’s
sales commission income is taxable in
the Philippines.
RULING: YES.
Respondent income is subject to tax
hence she cannot claim refund.  against the taxpayer. To those
Pursuant to Section 25 of NIRC, non-
resident aliens, whether or not
engaged in trade or business, are
subject to the Philippine income
taxation on their income received from
all sources in the Philippines. In
determining the meaning of “source”,
the Court resorted to origin of Act
2833 (the first Philippine income tax
law), the US Revenue Law of 1916, as
amended in 1917.
US SC has said that income may be
derived from three possible sources
only: (1) capital and/or (2) labor;
and/or (3) the sale of capital assets. If
the income is from labor, the place
where the labor is done should be
decisive; if it is done in this country,
the income should be from “sources
within the United States.” If the
income is from capital, the place
where the capital is employed should
be decisive; if it is employed in this
country, the income should be from
“sources within the United States.” If
the income is from the sale of capital
assets, the place where the sale is
made should be likewise decisive.
“Source” is not a place, it is an activity
or property. As such, it has a situs or
location, and if that situs or location is
within the United States the resulting
income is taxable to nonresident
aliens and foreign corporations. 
The source of an income is the
property, activity or service that
produced the income. For the source
of income to be considered as coming
from the Philippines, it is sufficient
that the income is derived from
activity within the Philippines. 
The settled rule is that tax refunds are
in the nature of tax exemptions and
are to be construed strictissimi juris
therefore, who claim a refund rest the
burden of proving that the transaction
subjected to tax is actually exempt
from taxation. 
In the instant case, respondent failed
to give substantial evidence to prove
that she performed the incoming
producing service in Germany, which
would have entitled her to a tax
exemption for income from sources
outside the Philippines. The petition
was granted.