Tolentino v. Secretary of Finance
Its imposition on the press is unconstitutional
Arturo Tolentino v. Secretary of Finance and Commissioner of
Internal Revenue
G.R. No. 115455; October 30, 1995
Mendoza, J.:
FACTS:
The present case involves motions seeking reconsideration of
the Court’s decision dismissing the petitions for the declaration
of unconstitutionality of R.A. No. 7716, otherwise known as the
Expanded Value-Added Tax Law. The motions, of which there
are 10 in all, have been filed by the several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by
removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates
against the press. At any rate, it is averred, “even
nondiscriminatory taxation of constitutionally guaranteed
freedom is unconstitutional”, citing in support of the case
of Murdock v. Pennsylvania.
Chamber of Real Estate and Builders Associations, Invc.,
(CREBA), on the other hand, asserts that R.A. No. 7716 (1)
impairs the obligations of contracts, (2) classifies transactions
as covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and equitable
and that Congress shall “evolve a progressive system of
taxation”.
Further, the Cooperative Union of the Philippines (CUP),
argues that legislature was to adopt a definite policy of granting
tax exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject cooperatives
to the VAT would, therefore, be to infringe a constitutional
policy.
ISSUE:
Whether or not, based on the aforementioned grounds of the
petitioners, the Expanded Value-Added Tax Law should be
declared unconstitutional.
RULING:
No. With respect to the first contention, it would suffice to say
that since the law granted the press a privilege, the law could
take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions, the
State does not forever waive the exercise of its sovereign
prerogative. Indeed, in withdrawing the exemption, the law
merely subjects the press to the same tax burden to which
other businesses have long ago been subject. The PPI asserts
that it does not really matter that the law does not discriminate
against the press because “even nondiscriminatory taxation on
constitutionally guaranteed freedom is unconstitutional.” The
Court was speaking in that case (Murdock v. Pennsylvania) of
a license tax, which, unlike an ordinary tax, is mainly for
regulation.
because it lays a prior restraint on the exercise of its right. The
VAT is, however, different. It is not a license tax. It is not a tax
on the exercise of a privilege, much less a constitutional right.
It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to
its payment is not to burden the exercise of its right any more
than to make the press pay income tax or subject it to general
regulation is not to violate its freedom under the Constitution.
Anent the first contention of CREBA, it has been held in an
early case that even though such taxation may affect particular
contracts, as it may increase the debt of one person and
lessen the security of another, or may impose additional
burdens upon one class and release the burdens of another,
still the tax must be paid unless prohibited by the Constitution,
nor can it be said that it impairs the obligation of any existing
contract in its true legal sense. It is next pointed out that while
Section 4 of R.A. No. 7716 exempts such transactions as the
sale of agricultural products, food items, petroleum, and
medical and veterinary services, it grants no exemption on the
sale of real property which is equally essential. The sale of
food items, petroleum, medical and veterinary services, etc.,
which are essential goods and services was already exempt
under Section 103, pars. (b) (d) (1) of the NIRC before the
enactment of R.A. No. 7716. Petitioner is in error in claiming
that R.A. No. 7716 granted exemption to these transactions
while subjecting those of petitioner to the payment of the VAT.
Finally, it is contended that R.A. No. 7716 also violates Art. VI,
Section 28(1) which provides that “The rule of taxation shall be
uniform and equitable. The Congress shall evolve a
progressive system of taxation”. Nevertheless, equality and
uniformity of taxation mean that all taxable articles or kinds of
property of the same class be taxed at the same rate. The
taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance applies
equally to all persons, firms, and corporations placed in similar
situation. Furthermore, the Constitution does not really prohibit
the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall
“evolve a progressive system of taxation.” The constitutional
provision has been interpreted to mean simply that “direct
taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized.” The mandate to Congress
is not to prescribe, but to evolve, a progressive tax system.
As regards the contention of CUP, it is worth noting that its
theory amounts to saying that under the Constitution
cooperatives are exempt from taxation. Such theory is contrary
to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches, and
parsonages, by reason of Art. VI, §28 (3), and non-stock, non-
profit educational institutions by reason of Art. XIV, §4 (3).
With all the foregoing ratiocinations, it is clear that the subject
law bears no constitutional infirmities and is thus upheld.
 within an ecozone, which by law is considered as a separate
CIR vs. Seagate customs territory. As such, respondent is exempt from all
internal revenue taxes, including the VAT, and regulations
FACTS: Respondent is a resident foreign corporation duly
pertaining thereto. Its sales transactions intended for export
registered with the Securities and Exchange Commission to do
may not be exempt, but like its purchase transactions, they are
business in the Philippines and is registered with the Philippine
zero-rated. No prior application for the effective zero rating of
Export Zone Authority (PEZA). The respondent is Value Added
its transactions is necessary. Being VAT-registered and having
Tax-registered entity and filed for the VAT returns. An
satisfactorily complied with all the requisites for claiming a tax
administrative claim for refund of VAT input taxes in the
refund of or credit for the input VAT paid on capital goods
amount of P28,369,226.38 with supporting documents
purchased, respondent is entitled to such VAT refund or credit.
(inclusive of the P12,267,981.04 VAT input taxes subject of
this Petition for Review), was filed on 4 October 1999, but no
final action has been received by the respondent from the Having determined that respondent’s purchase transactions
petitioner on the claim for VAT refund. CIR asserts that by are subject to a zero VAT rate, the SC has determined that tax
virtue of the PEZA registration alone of respondent, the latter is refund or credit is in order.
not subject to the VAT. Consequently, the capital goods and
services respondent has purchased are not considered used in
the VAT business, and no VAT refund or credit is due.

ISSUE: Whether or not Seagate, a VAT-Registered PEZA

Enterprise is entitled to tax refund or credit.

HELD: Yes, Seagate is entitled to refund or credit. As a PEZA-

registered enterprise within a special economic zone,
respondent is entitled to the fiscal incentives and benefit
provided for in either PD 66 or EO 226. It shall, moreover,
enjoy all privileges, benefits, advantages or exemptions under
both Republic Act Nos. (RA) 7227 and 7844.

Respondent, which as an entity is exempt, is different from its

transactions which are not exempt. The end result, however, is
that it is not subject to the VAT. The non-taxability of
transactions that are otherwise taxable is merely a necessary
incident to the tax exemption conferred by law upon it as an
entity, not upon the transactions themselves.

The petitioner’s assertion that the capital goods and services

respondent has purchased are not considered used in the VAT
business, and thus no VAT refund or credit is due is non
sequitur. On this matter, the SC held that by the VAT’s very
nature as a tax on consumption, the capital goods and services
respondent has purchased are subject to the VAT, although at
zero rate.

Seagate has complied with all the requisites for VAT refund or
credit. First, respondent is a VAT-registered entity. Second, the
input taxes paid on the capital goods of respondent are duly
supported by VAT invoices and have not been offset against
any output taxes.

To summarize, special laws expressly grant preferential tax

treatment to business establishments registered and operating