Tax Case Part II Summary

1. MARSHALL DOCTRINE

US Chief Justice Marshall dictum - The power to tax involves the power to destroy.

It is a destructive power which interferes with the personal and property rights of the people and takes
from them a portion of their property for the support of the government (Paseo Realty & Development
Corporation v. CA, G.R. No. 119286, October 13, 2004).

Therefore, it should be exercised with caution to minimize injury to the proprietary rights of the
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the ‘hen that lays
the golden egg’ (McCulloch v. Maryland, 4 Wheat, 316 4 L ed. 579, 607) (Roxas v. CTA, 23 SCRA 276).

NOTE: It is more reasonable to say that the maxim “the power to tax is the power to destroy” is to
describe degree of vigor with which the taxing power may be employed in order to raise revenue, and
not the purposes for which the taxing power may be used (Cooley, 1876).

 McCulloch vs Maryland
Facts:
In 1816, Congress chartered The Second Bank of the United States. In 1818, the state of
Maryland passed legislation to impose taxes on the bank. James W. McCulloch, the cashier of
the Baltimore branch of the bank, refused to pay the tax. The state appeals court held that the
Second Bank was unconstitutional because the Constitution did not provide a textual
commitment for the federal government to charter a bank.

Issues:
Did Congress have the authority to establish the bank?
Did the Maryland law unconstitutionally interfere with congressional powers?

Held:
In a unanimous decision, the Court held that Congress had the power to incorporate the bank
and that Maryland could not tax instruments of the national government employed in the
execution of constitutional powers.

Pursuant to the Necessary and Proper Clause (Art. I, Section 8), Chief Justice Marshall noted that
Congress possessed powers not explicitly outlined in the U.S. Constitution. Marshall redefined
“necessary” to mean “appropriate and legitimate,” covering all methods for furthering
objectives covered by the enumerated powers. Marshall also held that while the states retained
the power of taxation, the Constitution and the laws made in pursuance thereof are supreme
and cannot be controlled by the states.

 Roxas vs CTA
Facts: Don Pedro Roxas and Dona Carmen Ayala, both Spanish, transmitted to their
grandchildren by hereditary succession the following properties:
a. Agricultural lands with a total area of 19,000 hectares in Nasugbu, Batangas
b. Residential house and lot at Wright St., Malate, Manila
 After the marriage of Antonio and Eduardo, Jose lived in the house where he paid rentals
of 8K/year to Roxas y Cia
c. Shares of stocks in different corporations

To manage the properties, Antonio Roxas, Eduardo Roxas and Jose Roxas, the children, formed a
partnership called Roxas y Compania

· On 1958, CIR demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 amtg to
P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities plus
P10.00 compromise penalty for late payment.

- Basis: house rentals received from Jose, pursuant to Art. 194 of the Tax Code stating that an
owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or
more is considered a real estate dealer and is liable to pay the corresponding fixed tax

· The Commissioner further assessed deficiency income taxes against the brothers for 1953 and
1955, resulting from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits
derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions
from gross income of various business expenses and contributions claimed by Roxas y Cia and the Roxas
brothers

· The brothers protested the assessment but was denied, thus appealing to the CTA

· CTA decision: sustained the assessment except the demand for the payment of the fixed tax on
dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force
Chapel and Hijas de Jesus' Retiro de Manresa

Issue: W/N the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100%
taxable?

W/N Roxas y Cia liable for the payment of deficiency income for the sale of Nasugbu farmlands?

Held:

I. NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its
peculiar circumstances inspite of the fact that there were hundreds of vendees. Although they paid for
their respective holdings in installment for the period of 10 years, it would nevertheless make the
vendor Roxas y Cia. a real estate dealer during the 10-year amortization period. It should be borne in
mind that the sale of the Nasugbu farmlands to the very farmers who tilled them for generations was
not only in consonance with, but more in obedience to the request and pursuant to the policy of our
Government to allocate lands to the landless. It was the bounden duty of the Government to pay the
agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently
subdivide them among the farmers at very reasonable terms and prices. However, the Government
could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government’s
burden, went out of its way and sold lands directly to the farmers in the same way and under the same
terms as would have been the case had the Government done it itself. For this magnanimous act, the
municipal council of Nasugbu passed a resolution expressing the people’s gratitude.
In fine, Roxas y Cia cannot be considered a real estate dealer for the sale in question. Hence, pursuant to
section 34 of the Tax Code, the land sold to the farmers are capital assets, and the gain derived from the
sale thereof is capital gain, taxable only to the extent of 50%.

2. TAX LAWS CONSTRUED

Tax Laws

GR: Tax statutes must be construed strictly against the government and liberally in favor of the taxpayer
(MCIAA v. Marcos, G.R. No. 120082 September 11, 1996). The imposition of a tax cannot be presumed.

XPN: Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally
wellsettled rule that the imposition of a tax cannot be presumed. Where there is doubt, tax laws must
be construed strictly against the government and in favor of the taxpayer. This is because taxes are
burdens on the taxpayer, and should not be unduly imposed or presumed beyond what the statutes
expressly and clearly import (CIR v. The Philippine American Accident Insurance, Inc., 453 SCRA 668, G.R.
No. 141658 March 18, 2005).

The rule that, in case of doubt of legislative intent, the doubt must be liberally construed in favor of
taxpayer does not extend to cases involving the issue of the validity of the tax law itself which, in every
case, is presumed valid.

Tax exemption and exclusion

GR: Statutes granting tax exemptions are construed in strictissimi juris against the taxpayers and liberally
in favor of the taxing authority (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996).

Tax refunds are in the nature of tax exemptions which are construed in strictissimi juris against the
taxpayer and liberally in favor of the government (Kepco Philippines Corporation v. CIR, G.R. No. 179961,
January 31, 2011).

It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.
Thus, the omission or removal of PAGCOR from exemption from the payment of corporate income tax is
to require it to pay corporate income tax (PAGCOR v. BIR, G.R. No. 172087, March 15, 2011).

XPNs:

a. If the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of
construction does not apply because the practical effect of the exemption is merely to reduce
the amount of money that has to be handled by the government in the course of its operations
(MCIAA v. Marcos, G.R. No. 120082, September 11, 1996).
b. The exemption granted in favor of NAPOCOR must be liberally construed. It is a recognized
principle that the rule on strict interpretation does not apply in the case of exemptions in favor
of a government political subdivision or instrumentality. In the case of property owned by the
state or a city or other public corporations, the express exemption should not be construed with
 the same degree of strictness that applies to exemptions contrary to the policy of the state,
since as to such property "exemption is the rule and taxation the exception” (Maceda v.
Macaraig, G.R. No. 88291, May 31, 1991).
c. Erroneous payment of the tax, or absence of law for the government’s exaction (CIR v. Fortune
Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008).

Tax rules and regulations

The construction placed by the office charged with implementing and enforcing the provisions of a
Code should be given controlling weight unless such interpretation is clearly erroneous.

It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the
provisions of the enabling statute if such rule or regulation is to be valid. In case of conflict between
a statute and an administrative order, the former must prevail. To be valid, an administrative rule or
regulation must conform, not contradict, the provisions of the enabling law. An implementing rule
or regulation cannot modify, expand, or subtract from the law it is intended to implement. Any rule
that is not consistent with the statute itself is null and void (Fort Bonifacio Development Corporation
v. CIR, G.R. No. 175707, November 19, 2014).

Revenue Memorandum Circulars (RMCs) must not override, supplant, or modify the law, but must
remain consistent and in harmony with the law they seek to apply and implement (CIR v. SM Prime
Holdings, Inc., 613 SCRA 774, 2010).

Admittedly the government is not estopped from collecting taxes legally due because of mistakes or
errors of its agents. But like other principles of law, this admits of exceptions in the interest of
justice and fair play, as where injustice will result to the taxpayer (CIR v. CA, G.R. No. 117982,
February 6, 1997).

Penal provisions of tax laws

In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to
prosecute. They receive strict construction in favor of the Government and limitations in such cases will
not be presumed in the absence of clear legislation (Lim v. CA, G.R. No. 48134-37, October 18, 1990).

CASES

 Philippine Health Care vs Commissioner

Facts:

Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract
for the provision on a prepaid basis of medical services, including medical check-up, that are not based
on loss or damage. Petitioner also insists that it is not engaged in the insurance business. It is a health
maintenance organization regulated by the Department of Health, not an insurance company under the
jurisdiction of the Insurance Commission. For these reasons, petitioner asserts that the health care
agreement is not subject to DST.

CA: Yes, subject to tax

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

Held:

Yes, it is subject to tax. The DST under Section 185 of the 1997 Tax Code is imposed on the privilege of
making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or
obligation in the nature of indemnity for loss, damage, or liability. It is an excise on the facilities used in
the transaction of the business, separate and apart from the business itself.

In this case petitioner’s health care agreement is not a contract for the provision of medical services.
Petitioner does not actually provide medical or hospital services but merely arranges for the same and
pays for them up to the stipulated maximum amount of coverage.

a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify

another against loss, damage or liability arising from an unknown or contingent event. The event insured
against must be designated in the contract and must either be unknown or contingent.

 Republic vs. Caguioa

Facts:

R.A. No. 7227 granted private domestic corporations doing business in the Subic Bay Free Port
exemption from local and national taxes, including excise taxes, on their importations of general
merchandise, for which reason they enjoyed tax-exempt status until the effectivity of R.A. No. 9334
which withdrew such tax exemption privilege on the importations of cigars, cigarettes, distilled spirits,
fermented liquors and wines. Republic Act (R.A.) No. 9334, AN ACT INCREASING THE EXCISE TAX RATES
IMPOSED ON ALCOHOL AND TOBACCO PRODUCTS, AMENDING FOR THE PURPOSE SECTIONS 131, 141,
142, 143, 144, 145 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997

Issue: W/N they are tax exempt.

Held:

No, they are not tax exempt.

There is no vested right in a tax exemption, more so when the latest expression of legislative intent
renders its continuance doubtful. Being a mere statutory privilege, a tax exemption may be modified or
withdrawn at will by the granting authority.

In this case, by subsequently enacting R.A. No. 9334, Congress expressed its intention to withdraw
private respondents’ tax exemption privilege on their importations of cigars, cigarettes, distilled spirits,
fermented liquors and wines.

3. SCOPE OF LEGISLATIVE TAXING POWER

1. The determination of: [ASK-MAPS]

a. Amount or Rate of tax

b. Subjects of taxation (persons, property, occupation, excises or privileges to be taxed, provided they
are within the taxing jurisdiction)

c. Kind of tax to be collected

d. Method of collection (This is not exclusive to Congress.)

e. Apportionment of the tax (whether the tax shall be of general application or limited to a particular
locality, or partly general and partly local)

f. Purposes for which taxes shall be levied, provided they are public purposes

g. Situs of taxation

2. The grant of tax exemptions and condonations

3. The power to specify or provide for administrative as well as judicial remedies (Philippines Petroleum
Corporation v. Municipality of Pililla, G.R. No. 85318, June 3, 1991).

CASES

 CIR vs Santos

Facts: Guild of Philippine Jewelers, Inc. contention is that the existing Tariff and tax structure increases
manufacturing costs and render local jewelry manufacturers uncompetitive against other countries. They
submitted what they purported to be an exhaustive study of the tax rates on jewelry prevailing in other Asian
countries, in comparison to tax rates levied in the country.

Issue:W/N the state has the power to select the rate

of taxation.

Held: Yes.

It should be pointed out that in imposing the aforementioned taxes and duties, the State, acting through
the legislative and executive branches, is exercising its sovereign prerogative. It is inherent in the power
to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that
“inequalities which result from a singling out of one particular class for taxation, or exemption, infringe
no constitutional limitation.”

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.

 Ferrer vs Bautista

Facts:

Quezon City Council enacted Ordinance No. SP-2095, S-2011 imposes a Socialized Housing Tax
equivalent to 0.5% on the assessed value of land in excess of Php100,000.00.

Ordinance No. SP-2235, S-20135 was enacted on December 16, 2013 which provides that the proceeds
collected from the garbage fees on residential properties shall be deposited solely and exclusively in an
earmarked special account under the general fund to be utilized for garbage collections.
Petitioner argues that the collection of the SHT is a kind of class legislation that violates the right of
property owners to equal protection of the laws since it favors informal settlers who occupy property
not their own and pay no taxes over law-abiding real property owners who pay income and realty taxes.

Issue: W/N the imposition of SHT is under the scope of legislative power to tax.

Held: YES.

It is inherent in the power to tax that a State is free to select the subjects of taxation. Inequities which
result from a singling out of one particular class for taxation or exemption infringe no constitutional
limitation.

For the purpose of undertaking a comprehensive and continuing urban development and housing
program, the disparities between a real property owner and an informal settler as two distinct classes
are too obvious and need not be discussed at length. The differentiation conforms to the practical
dictates of justice and equity and is not discriminatory within the meaning of the Constitution. Notably,
the public purpose of a tax may legally exist even if the motive which impelled the legislature to impose
the tax was to favor one over another.

 Manila Electric Co. vs Province of Laguna

Facts:
Certain municipalities of the Province of Laguna, by virtue of existing laws then in effect, issued
resolutions through their respective municipal councils granting franchise in favor of petitioner
Manila Electric Company (“MERALCO”) for the supply of electric light, heat and power within
their concerned areas.
Laguna Provincial Ordinance No. 01-92, effective 01 January 1993, providing, in part, as follows
“Sec. 2.09. Franchise Tax.—There is hereby imposed a tax on businesses enjoying a franchise, at
a rate of fifty percent (50%) of one percent (1%) of the gross annual receipts, which shall include
both cash sales and sales on account realized during the preceding calendar year within this
province, including the territorial limits on any city located in the province.”
RTC: Dismissed complaint, valid ang tax ordinance
Issue:
Whether the imposition of a franchise tax under Section 2.09 of Laguna Provincial Ordinance No.
01-92, insofar as petitioner is concerned, is violative of the non-impairment clause of the
Constitution and Section 1 of Presidential Decree No. 551
Held: NO
While the Court has not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on the
franchise, these exemptions, nevertheless, are far from being strictly contractual in nature.
Contractual tax exemptions, in the real sense of the term and where the non-impairment clause
of the Constitution can rightly be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its private capacity, sheds its cloak
of authority and waives its governmental immunity.
Truly, tax exemptions of this kind may not be revoked without impairing the obligations of
contracts.14 These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is
 beyond the purview of the non-impairment clause of the Constitution.15 Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to amendment, alteration or
repeal by Congress as and when the common good so requires.

 Batangas Power vs Batangas City

Facts:
National Power Corporation (NPC), sought to attract investors in power plant operations by
providing them with incentives, one of which was through the NPC’s assumption of payment of
their taxes in the Build Operate and Transfer (BOT) Agreement.
Petitioners insist that NPC’s exemption from all taxes under its Charter had not been repealed
by the LGC. They argue that NPC’s Charter is a special law which cannot be impliedly repealed by
a general and later legislation like the LGC. They likewise anchor their claim of tax-exemption on
Section 133 (o) of the LGC which exempts government instrumentalities, such as the NPC, from
taxes imposed by local government units (LGUs), citing in support thereof the case of Basco v.
PAGCOR
Issue: W/N petitioner is exempted from paying tax
Held:
The Court recognized the removal of the blanket exclusion of government instrumentalities
from local taxation as one of the most significant provisions of the 1991 LGC. Specifically, we
stressed that Section 193 of the LGC,22 an express and general repeal of all statutes granting
exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the
NPC under its Charter.

4. POWER OF THE PRESIDENT TO IMPOSE TAXES

Grant by Congress of authority to the president to impose tariff rates

Basis: The Congress may, by law, authorize the President to fix within specified limits and subject to
such limitations and restrictions at it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues and other duties or imposts within the framework of the national development program
of the Government (Art. VI, Sec. 28 [2]).

Flexible Tarrif Clause

This clause provides the authority given to the President to adjust tariff rates under Sec. 401 of the Tariff
and Customs Code [now Sec. 1608 of R.A. 10863, known as Customs Modernization and Tariff Act
(CMTA) of 2016] (Garcia v. Executive Secretary, G.R. No. 101273, July 3, 1992). This authority, however,
is subject to limitations and restrictions indicated within the law itself.

Requisites on the authority of the President in imposing tax

a) Delegated by Congress through a law – The authorization granted to the President must be embodied
in a law. Hence, the justification cannot be supplied simply by inherent executive powers.
It is Congress which authorizes the President to impose tariff rates, import and export quotas, tonnage
and wharfage dues, and other duties or imposts. Thus, the authority cannot come from the Finance
Department, the National Economic Development Authority, or the World Trade Organization, no
matter how insistent or persistent these bodies may be (Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Phil., G.R. No. 158540, August 3, 2005).

b) Subject to Congressional limits and restrictions – The authorization to the President can be exercised
only within the specified limits set in the law and is further subject to limitations and restrictions which
Congress may impose. Consequently, if Congress specifies that the tariff rates should not exceed a given
amount, the President cannot impose a tariff rate that exceeds such amount.

Assuming there is a conflict between the specific limitation in the Constitution and the general executive
power of control and supervision, the former prevails in the specific instance of safeguard measures
such as tariffs and imposts, and would thus serve to qualify the general grant to the President of the
power to exercise control and supervision over his/her subalterns (Southern Cross Cement Corporation
v. Cement Manufacturers Association of the Phil., G.R. No. 158540, August 3, 2005).

c) Within the framework of national development program.

SECTION 28. (2) The Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government.

CASES

 Southern Cross vs Cement Manufacturers

Facts:
The Bureau of Import Services of the DTI, determined that critical circumstances existed
justifying the imposition of provisional measures. the DTI then issued an Order, imposing a
provisional measure equivalent to Twenty Pesos and Sixty Centavos (P20.60) per forty (40)
kilogram bag on all importations of gray Portland cement for a period not exceeding two
hundred (200) days from the date of issuance by the Bureau of Customs (BOC) of the
implementing Customs Memorandum Order.
Issue: W/N DTI can impose safety measures
Held:

The SMA empowered the DTI Secretary, as alter ego of the President,103 to impose definitive
general safeguard measures, which basically are tariff imposts of the type spoken of in the
Constitution. However, the law did not grant him full, uninhibited discretion to impose such
measures. The DTI Secretary authority is derived from the SMA; it does not flow from any
inherent executive power. Thus, the limitations imposed by Section 5 are absolute, warranted
as they are by a constitutional fiat.
 Sec. 5. Conditions for the Application of General Safeguard Measures.—The Secretary shall
apply a general safeguard measure upon a positive final determination of the [Tariff]
Commission

The safeguard measures which the DTI Secretary may impose under the SMA may take the
following variations, to wit: (a) an increase in, or imposition of any duty on the imported
product; (b) a decrease in or the imposition of a tariff-rate quota on the product; (c) a
modification or imposition of any quantitative restriction on the importation of the product into
the Philippines; (d) one or more appropriate adjustment measures, including the provision of
trade adjustment assistance; and (e) any combination of the above-described actions. Except for
the provision of trade adjustment assistance, the measures enumerated by the SMA are
essentially imposts, which precisely are the subject of delegation under Section 28(2), Article VI
of the 1987 Constitution.

 Abakada vs Ermita

Facts: On May 24, 2005, the President signed into law Republic Act 9337 or the VAT Reform
Act. Before the law took effect on July 1, 2005, the Court issued a TRO enjoining government
from implementing the law in response to a slew of petitions for certiorari and prohibition
questioning the constitutionality of the new law. 

The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6: “That
the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to 12%, after any of the following conditions has been
satisfied: 

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); 

or (ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1½%)” 

Petitioners allege that the grant of stand-by authority to the President to increase the VAT rate is
an abdication by Congress of its exclusive power to tax because such delegation is not covered
by Section 28 (2), Article VI Consti. They argue that VAT is a tax levied on the sale or exchange
of goods and services which can’t be included within the purview of tariffs under the exemption
delegation since this refers to customs duties, tolls or tribute payable upon merchandise to the
government and usually imposed on imported/exported goods. They also said that the President
has powers to cause, influence or create the conditions provided by law to bring about the
conditions precedent. Moreover, they allege that no guiding standards are made by law as to
how the Secretary of Finance will make the recommendation. 
Issue: Whether or not the RA 9337's stand-by authority to the Executive to increase the VAT
rate, especially on account of the recommendatory power granted to the Secretary of Finance,
constitutes undue delegation of legislative power? NO 

Held: The powers which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power which can never be delegated is
the authority to make a complete law- complete as to the time when it shall take effect and as to
whom it shall be applicable, and to determine the expediency of its enactment. It is the nature of
the power and not the liability of its use or the manner of its exercise which determines the
validity of its delegation. 

The exceptions are: 

(a) delegation of tariff powers to President under Constitution

(b) delegation of emergency powers to President under Constitution

(c) delegation to the people at large 

(d) delegation to local governments 

(e) delegation to administrative bodies 

For the delegation to be valid, it must be complete and it must fix a standard. A sufficient
standard is one which defines legislative policy, marks its limits, maps out its boundaries and
specifies the public agency to apply it. 

In this case, it is not a delegation of legislative power BUT a delegation of ascertainment of facts
upon which enforcement and administration of the increased rate under the law is contingent.
The legislature has made the operation of the 12% rate effective January 1, 2006, contingent
upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate
upon factual matters outside of the control of the executive. No discretion would be exercised by
the President. Highlighting the absence of discretion is the fact that the word SHALL is used in
the common proviso. The use of the word SHALL connotes a mandatory order. Its use in a
statute denotes an imperative obligation and is inconsistent with the idea of discretion. 

Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the
existence of any of the conditions specified by Congress. This is a duty, which cannot be
evaded by the President. It is a clear directive to impose the 12% VAT rate when the specified
conditions are present. 
Congress just granted the Secretary of Finance the authority to ascertain the existence of a
fact--- whether by December 31, 2005, the VAT collection as a percentage of GDP of the
previous year exceeds 2 4/5 % or the national government deficit as a percentage of GDP of the
previous year exceeds one and 1½%. If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit such information to the President. 

In making his recommendation to the President on the existence of either of the two conditions,
the Secretary of Finance is not acting as the alter ego of the President or even her subordinate.
He is acting as the agent of the legislative department, to determine and declare the event upon
which its expressed will is to take effect. The Secretary of Finance becomes the means or tool
by which legislative policy is determined and implemented, considering that he possesses all
the facilities to gather data and information and has a much broader perspective to properly
evaluate them. His function is to gather and collate statistical data and other pertinent
information and verify if any of the two conditions laid out by Congress is present. 

Congress does not abdicate its functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his authority; in our complex economy
that is frequently the only way in which the legislative process can go forward. 

There is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible. Congress did not delegate the power to tax but the
mere implementation of the law. 

5. EXTENT OF ADMINISTRATIVE AGENCIES POWER TO TAX

3. Delegation to administrative agencies – When the delegation relates merely to administrative

implementation that may call for some degree of discretionary powers under sufficient standards
expressed by law (Cervantes v. Auditor General, G.R. No. L-4043, May 26, 1952) or implied from the
policy and purpose of the act (Maceda v. Macaraig, G.R. No. 88291, June 8, 1993).

NOTE: Technically, this does not amount to a delegation of the power to tax because the questions
which should be determined by Congress are already answered by Congress before the tax law leaves
Congress.

CIR vs Fortune Tobacco

Facts: Prior to January 1, 1997, the excises taxes on cigarettes were in the form of ad valorem taxes,
pursuant to Section 142 of the 1977 National Internal Revenue Code (1977 Tax Code). Beginning
January 1, 1997, RA 8240 took effect and a shift from ad valorem to specific taxes was made. A
portion of Section 142(c) of the 1977 Tax Code, as amended by RA 8240, reads in part:

“The specific tax from any brand of cigarettes within the next three (3) years of effectivity of this
Act shall not be lower than the tax [which] is due from each brand on October 1, 1996.
 xxx

The rates of specific tax on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall
be increased by twelve percent (12%) on January 1, 2000.”

To implement the 12% increase in specific taxes mandated under Section 145 of the 1997 Tax Code
and again pursuant to its rule-making powers, the CIR issued RR 17-99, which reads partly:

“Provided, however, that the new specific tax rate for any existing brand of cigars [and] cigarettes
packed by machine, distilled spirits, wines and fermented liquors shall not be lower than the excise
tax that is actually being paid prior to January 1, 2000.”

Pursuant to these laws, respondent Fortune Tobacco Corporation paid in advance excise taxes and
filed an administrative claim for tax refund with the CIR for erroneously and/or illegally collected
taxes in the amount of P491 million.

In its decision, the CTA First Division ruled in favor of Fortune Tobacco and granted its claim for
refund. The CTA First Divisions ruling was upheld on appeal by the CTA en banc. The CIR’s motion
for reconsideration of the CTA en banc’s decision was denied in a resolution.

Issue: Whether or not Section 1 of RR 17-99 is an unauthorized administrative legislation on the

part of the CIR.

Ruling: Yes. The proviso in Section 1 of RR 17-99 clearly went beyond the terms of the law it was
supposed to implement, and therefore entitles Fortune Tobacco to claim a refund of the overpaid
excise taxes collected pursuant to this provision.

The rule on uniformity of taxation is violated by the proviso in Section 1, RR 17-99. Uniformity in
taxation requires that all subjects or objects of taxation, similarly situated, are to be treated alike
both in privileges and liabilities. Although the brands all belong to the same category, the proviso in
Section 1, RR 17-99 authorized the imposition of different (and grossly disproportionate) tax rates.
It effectively extended the qualification stated in the third paragraph of Section 145(c) of the 1997
Tax Code that was supposed to apply only during the transition period. In the process, the CIR also
perpetuated the unequal tax treatment of similar goods that was supposed to be cured by the shift
from ad valorem to specific taxes.

The Court further said that the omission in the law in fact reveals the legislative intent not to adopt
the higher tax rule. It appears that despite its awareness of the need to protect the increase of
excise taxes to increase government revenue, Congress ultimately decided against adopting the
higher tax rule.

Fortune Tobacco Corporation (Fortune Tobacco) was granted a tax refund or tax credit representing
specific taxes erroneously collected from its tobacco products. The tax refund is being re-claimed by the
Commissioner of Internal Revenue (Commissioner) in this petition.

the above-mentioned cigarette brands were subject to ad valorem tax pursuant to then Section 142 of