Topic: Extent of Power

CIR v. Santos

Facts
Petitioner Antero Sison questioned the constitutionality of B.P. 135. The assailed
provision amends section 21 of the National Internal Revenue Code, which provides for
rates of tax on citizens or residents on (a) taxable compensation income, (b) taxable net
income, x x x. Under this law, salaried individuals are subject to a graduated tax rates
from 1% to 35% whereas a much higher graduated tax rates of 5% to 60% are applied to
self-employed/Professionals.

 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-à-vis those which are imposed upon fixed income or
salaried individual taxpayer." For him, there is a transgression of both the equal
protection and due process clauses of the constitution as well as of the rule requiring
uniformity in taxation.

Issue:

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

Held:

The Supreme Court ruled in the negative. In summary, both the due process and equal
protection clauses were not violated. On the concept of uniformity, it was held that
indeed, there is a substantial distinction between the two groups that set them apart as
a class. In addition, the Supreme Court held that what misled petitioner is his failure to
take into consideration the distinction between a tax rate and a tax base. This is true
considering that the tax on salaried individuals is computed based on gross
compensation income (after deducting the allowable and additional exemptions)
whereas professionals/self-employed are taxed on the basis of their net income.