Nov 8, 2012

Tan v. Del Rosario Digest

Tan v Del Rosario

Facts:

1.  Two consolidated cases assail the validity of RA 7496 or the Simplified Net Income Taxation
Scheme ("SNIT"), which amended certain provisions of the NIRC, as well as the Rules and Regulations
promulgated by public respondents pursuant to said law.

2.   Petitioners posit that RA 7496 is unconstitutional as it allegedly violates the following provisions of
the Constitution:

-Article VI, Section 26(1) — Every bill passed by the Congress shall embrace only one subject which
shall be expressed in the title thereof.
- Article VI, Section 28(1) — The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
- Article III, Section 1 — No person shall be deprived of . . . property without due process of law, nor
shall any person be denied the equal protection of the laws.

3.  Petitioners contended that public respondents exceeded their rule-making authority in applying
SNIT to general professional partnerships. Petitioner contends that the title of HB 34314, progenitor
of RA 7496, is deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the
Self-Employed and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No.
109289) when the full text of the title actually reads,
'An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals
Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal
Revenue Code,' as amended. Petitioners also contend it violated due process.

5.  The Solicitor General espouses the position taken by public respondents.

6.  The Court has given due course to both petitions.

ISSUE: Whether or not the tax law is unconstitutional for violating due process

NO. The due process clause may correctly be invoked only when there is a clear contravention of
inherent or constitutional limitations in the exercise of the tax power. No such transgression is so
evident in herein case.

1.  Uniformity of taxation, like the concept of equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.
Uniformity does not violate classification as long as: (1) the standards that are used therefor are
substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3)
the law applies, all things being equal, to both present and future conditions, and (4) the classification
applies equally well to all those belonging to the same class.

2.  What is apparent from the amendatory law is the legislative intent to increasingly shift the income
tax system towards the schedular approach in the income taxation of individual taxpayers and to
maintain, by and large, the present global treatment on taxable corporations. The Court does not
view this classification to be arbitrary and inappropriate.

ISSUE 2: Whether or not public respondents exceeded their authority in promulgating the RR

No. There is no evident intention of the law, either before or after the amendatory legislation, to
place in an unequal footing or in significant variance the income tax treatment of professionals who
practice their respective professions individually and of those who do it through a general
professional partnership.

Sison v Ancheta G.R. No. L-59431. July 25, 1984.

C. J. Fernando
Declaratory Relief

Facts:

Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended
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 alleged that "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 OSG prayed for dismissal of the petition due to lack of merit.

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

(WON 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)

Held: No. Petition dismissed

Ratio:
 The need for more revenues is rationalized by the government's role to fill the gap not done by public
enterprise in order to meet the needs of the times. It is better equipped to administer for the public
welfare.

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.

The power to tax is an attribute of sovereignty and the strongest power of the government. There are
restrictions, however, diversely affecting as it does property rights, both the due process and equal
protection clauses may properly be invoked, as petitioner does, to invalidate in appropriate cases a
revenue measure. If it were otherwise, taxation would be a destructive power.

The petitioner failed to prove that the statute ran counter to the Constitution. He used arbitrariness
as basis without a factual foundation. This is merely to adhere to the authoritative doctrine that
where the due process and equal protection clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of such persuasive character as would lead
to such a conclusion.

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 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.

For equal protection, the applicable standard to determine whether this was denied in the exercise of
police power or eminent domain was the presence of the purpose of hostility or unreasonable
discrimination.

It suffices then that the laws operate equally and uniformly on all persons under similar circumstances
or that all persons must be treated in the same manner, the conditions not being different, both in
the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall be given to every person under
circumstances, which if not identical are analogous. If law be looks upon in terms of burden or
charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast
on some in the group equally binding on the rest.

The equal protection clause is, of course, inspired by the noble concept of approximating the ideal of
the laws's benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the idea of law.

The equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy arising out
of specific difficulties, addressed to the attainment of specific ends by the use of specific remedies.
The Constitution does not require things which are different in fact or opinion to be treated in law as
though they were the same.

Lutz v Araneta- it is inherent in the power to tax that a state be free to select the subjects of taxation,
and it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.

Petitioner- kindred concept of uniformity- Court- Philippine Trust Company- The rule of uniformity
does not call for perfect uniformity or perfect equality, because this is hardly attainable

Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable
and natural classifications for purposes of taxation

There is quite a similarity then to the standard of equal protection for all that is required is that the
tax "applies equally to all persons, firms and corporations placed in similar situation"

There was a difference between a tax rate and a tax base. There is no legal objection to a broader tax
base or taxable income by eliminating all deductible items and at the same time reducing the
applicable tax rate.

The discernible basis of classification is the susceptibility of the income to the application of

generalized rules removing all deductible items for all taxpayers within the class and fixing a set of
reduced tax rates to be applied to all of them. As there is practically no overhead expense, these
taxpayers are not entitled to make deductions for income tax purposes because they are in the same
situation more or less.

Taxpayers who are recipients of compensation income are set apart as a class.

On the other hand, in the case of professionals in the practice of their calling and businessmen, there
is no uniformity in the costs or expenses necessary to produce their income. It would not be just then
to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income.
There was a lack of a factual foundation, the forcer of doctrines on due process and equal protection,
and he reasonableness of the distinction between compensation and taxable net income of
professionals and businessmen not being a dubious classification.

Sison vs. Ancheta GR L-59431, 25 July 1984 En Banc, Fernando (J): 9 concur, 2 concur in result, 1
concur in separate opinion, 1 took no part

Facts:
Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1)
unduly discriminated against him by the imposition of higher rates upon his income as a
professional, that it amounts to class legislation, and that it transgresses against the equal
protection and due process clauses of the Constitution as well as the rule requiring uniformity in
taxation.

Issue:
Whether BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.

Held:
There is a need for proof of such persuasive character as would lead to a conclusion that there
was a violation of the due process and equal protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes of taxation. Where
the differentitation conforms to the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within the meaning of the clause and is
therefore uniform. Taxpayers may be classified into different categories, such as recipients of
compensation income as against professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as there is no practically no overhead
expense, while professionals and businessmen have no uniform costs or expenses necessaryh to
produce their income. There is ample justification to adopt the gross system of income taxation
to compensation income, while continuing the system of net income taxation as regards
professional and business income.

VILLEGAS v. HIU CHIONG TSAI PAO HO

G.R. No. L-29646, November 10, 1978

FACTS:
On February 22, 1968, the Municipal Board of Manila passed City Ordinance No. 6537. The said city
ordinance was also signed by then Manila Mayor Antonio J. Villegas (Villegas).
Section 1 of the said city ordinance prohibits aliens from being employed or to engage or participate
in any position or occupation or business enumerated therein, whether permanent, temporary or
casual, without first securing an employment permit from the Mayor of Manila and paying the permit
fee of P50.00 except persons employed in the diplomatic or consular missions of foreign countries, or
in the technical assistance programs of both the Philippine Government and any foreign government,
and those working in their respective households, and members of religious orders or congregations,
sect or denomination, who are not paid monetarily or in kind.
Hiu Chiong Tsai Pao Ho (Tsai Pao Ho) who was employed in Manila, filed a petition with the CFI of
Manila to declare City Ordinance No. 6537 as null and void for being discriminatory and violative of
the rule of the uniformity in taxation.
The trial court declared City Ordinance No. 6537 null and void. Villegas filed the present petition.

ISSUE:
            Whether or not City Ordinance No. 6537 is a tax or revenue measure.
RULING:
Yes. The contention that City Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which requires
that the alien shall secure an employment permit from the Mayor involves the exercise of discretion
and judgment in the processing and approval or disapproval of applications for employment permits
and therefore is regulatory in character the second part which requires the payment of P50.00 as
employee's fee is not regulatory but a revenue measure. There is no logic or justification in exacting
P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the
ordinance is to raise money under the guise of regulation.

CIR v CA and ALAHAMBRA

 ALHAMBRA INDUSTRIES, INC. was engaged in the manufacture and sale of cigar and
cigarette products.
 CIR assessed it for deficiency ad valorem tax on the removal of cigarette products from
their place of production from Nov 1990 to Jan 1991.
 Alhambra filed a protest for the withdrawal and cancellation of proposed assessment. CIR
denied its protest stating that the decision was final.
 Alhambra requested for a reconsideration but was also denied. It then paid under protest
and filed a petition for review with the CTA.
 The dispute arose from the discrepancy in the taxable base on which the excise tax is
to apply on account of two incongruous BIR Rulings:
o 1) BIR Ruling 473-88 dated 4 October 1988 which excluded the VAT
from the tax base in computing the 15% excise tax due
o This was issued by the Deputy Commissioners to Yebana Tobacco
Corporation allowing the said Corp to exclude VAT in the determination of
the gross selling price for purposes of computing the ad valorem tax of its
cigar and cigarette products in accordance with Sec. 127 of the Tax Code as
amended by EO273
o 2) BIR Ruling 017-91 dated 11 February 1991 which included back the
VAT in computing the tax base for 15% ad valorem tax.
o CIR issued this ruling to Insular-Yebana Tobacco Corp. revoking BIR Ruling
473-88 for being violative of Sec.142 of the Tax Code
o This is the correct interpretation since sec 127 applies in GENERAL TO
DOMESTIC PRODUCTS while sec 142 refers specifically to cigar and
cigarettes only. Accordingly, sec 142 must prevail over section 127 which is
a general provision of law insofar as the imposition of the ad valorem tax on
cigar and cigarettes is concerned.
 Alhambra relied on the 1st BIR Ruling as a basis for computing the amount of ad valorem
tax.
 However, CIR sought to apply the revocation retroactively to Alhambra’s removals of
cigarettes for Nov 1990 to Jan 1991 on the grounds that the 1st BIR Ruling being an
erroneous interpretation does NOT confer any vested right as to exempt it from the
retroactive application of 2nd Ruling.
 Even if the 1st ruling is not erroneous Alhambra still acted in bad faith, which is an
exception to the rule on non-retroactivity of BIR Rulings. Alhambra had knowledge that
Sec. 142 of the Tax Code was the specific provision applicable to it, yet it applied Sec
127.
 CTA ordered CIR to refund to Alhambra the erroneously paid ad valorem tax.
 CIR appealed to the CA but CA affirmed the CTA ruling, holding that the retroactive
application of BIR Ruling 017-91 CANNOT be allowed since Alhabmra did NOT act in bad
faith, nor was it motivated by fraud.
 I: W/n Alhambra’s reliance on a void BIR ruling conferred upon it a vested right to apply
the same in the computation of its ad valorem tax and claim for tax refund.
 R: YES. CIR must refund Alhambra.
  Sec. 246 of the Tax Code provides that rulings will NOT have a retroactive effect if it would
be prejudicial to taxpayers. The only exceptions are:
o A) where the taxpayer deliberately omits material facts from his return or
any document required by the BIR
o B) where the facts subsequently gathered by the BIR are materially different
from the facts on which the ruling is based or
o C) where the taxpayer acted in bad faith
 In this case, there was NO convincing evidence that Alhambra’s implementation of the
computation mandated by BIR Ruling 473-88 was ill-motivated or attended with a
dishonest purpose.
 In fact, as a sign of good faith, Alhambra immediately reverted to the computation
mandated by BIR Ruling 017-91 upon knowledge of its issuance on 11 February 1991.
 Also, the failure of Alhambra to consult BIR does not imply bad faith on the part of the
former.

Tiu v. Court of Appeals, 301 SCRA 278 (1999)

The constitutionality and validity of EO 97-A, that provides that the grant and enjoyment of the tax
and duty incentives authorized under RA 7227 were limited to the business enterprises and residents
within the fenced-in area of the Subic Special Economic Zone (SSEZ), was questioned.

Nature of the case: A petition for review to reverse the decision of the Court of Appeals which upheld
the constitutionality and validity of the E.O. 97-A.

DOCTRINES:
The Constitution does not require absolute equality among residents. It is enough that all persons
under like circumstances or conditions are given the same privileges and required to follow the same
obligations.
The classification based on a valid and reasonable standard does not violate the equal protection
clause.

FACTS:

1. RA 7227 seeks to accelerate the conversion of military reservations into other productive

uses. Section 12 thereof created the Subic Special Economic Zone (SSEZ),
which includes the City of Olongapo, Municipality of Subic and the lands occupied by
the Subic Naval Base and granted special privileges.
2. Thereafter, EO 97 was issued to clarify the application of the incentives provided by RA
7227. Sec. 1 of EO 97 provides for the tax and duty-free importations shall only be applied
raw materials, capital goods and equipment brought in by business enterprises into the
SSEZ. Except for these items, importations of other goods into the SSEZ, whether by
business enterprises, resident individuals are subject to the taxes and duties under
Philippine laws. The exportation or removal of tax and duty free goods from the territory of
the SSEZ to other parts of the Philippines shall be subject to duties and taxes under
Philippine laws.
3. Section 1.1 thereof grants the enjoyment of the tax and duty incentives to the business and
enterprises and residents within the presently fenced-in former Subic Naval Base only.
It excludes the the first two component cities as provided for by Sec. 12 of RA 7227.
ISSUES:

Whether EO 97-A violates the equal protection of the laws?

RULING:
  No, EO 97-A is not violative of the equal protection of the laws.
 The fundamental right of equal protection of the laws is not absolute, but is subject to
reasonable classification.
 Classification, to be valid, must (1) rest on substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing conditions only, and (4) apply equally to all
members of the same class.
 RA 7227 aims primarily to accelerate the conversion of military reservations into productive
uses.
 The Government provides enticements as to persuade and attract investors to pour in capital
with the said military bases. Among such enticements are: (1) a separate customs territory
within the zone, (2) tax-and-duty-free importations, (3) restructured income tax rates on
business enterprises within the zone, (4) no foreign exchange control, (5) liberalized
regulations on banking and finance, and (6) the grant of resident status to certain investors
and of working visas to certain foreign executives and workers.
 The purpose of the law is to convert former military base to productive use for the benefit of
the Philippine economy. Hence, there was no reasonable basis to extend the tax incentives
in RA 7227.

CLASSIFICATION OF TAXPAYER
INDIVIDUAL TAXPAYER
1.) Resident Citizen
Income derived from sources w/n and w/o the Phil.

2.) Non-resident citizen

From income derived from sources within the Philippines; means a Filipino citizen:
 Establishes the satisfaction of the fact of his physical presence abroad with a definite
intention to reside therein;
 Who leaves the Phil during the taxable year to reside abroad either as an immigrant or for
employment on a permanent basis;
 Work and derives income abroad whose employment requires him to be physically present
abroad during taxable time
 Previously considered as a non-resident and who arrived in the Phil at anytime during taxable
year to reside thereat permanently shall be considered non-resident for the taxable year in
which he arrives in the Phil with respect to his income derived from sources abroad until
date of his arrival

3.) Resident alien

For income derived from sources within the Philippines
 Means an individual whose residence is within the Phil and who is not a citizen thereof
 One who comes to the Phil from a definite purpose which in its nature would require
extended stay, and makes his home permanently in the country becomes a resident alien
 Length of stay is indicative of intention. An alien who shall have stayed in the Phil for more
than 1 year by the end of the calendar year is a resident alien

4.) Non-resident alien / engaged in trade or business

GR: shall be subject to an income tax in the same manner as an individual citizen and a resident alien
individual, on taxable income received all sources within the Philippines.

NOTE: a non-resident alien individual who shall come to the Philippines and stay therein for an
aggregate period of more than 180 days during any calendar year shall be deemed a non-resident
alien doing business in the Philippines.

5.) Non-resident alien / not engaged in trade or business

The entire income received all sources within the Philippines by every non-resident alien individual
not engaged in trade or business within the Philippines as interest, cash, rents, salaries, wages,
premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable
annual or periodic or casual gains, profits, and income, and capital gains.

A tax equal to 25% of such income. Capital gains realized by a non-resident alien individual not
engaged in trade or business in the Philippines the sale of shares of stck in any domestic corporation
and real property shall be subject to the income tax.

CORPORATION
i. Domestic corporation / special corporation
Created and organized in the Philippines or under its law. It is taxable for income derived from
sources within and without the Philippines.

ii. Foreign corporation / resident foreign corporation

Engaged in trade or business within the Philippines. It is taxable for income derived from sources
within the Philippines

iii. Foreign corporation / non-resident foreign corporation

Not engaged in trade or business within the Philippines. It is taxable for income derived from sources
within the Philippines.

PARTNERSHIP
1.) General co-partnership
2.) General professional partnership

TRUST
1.) Revocable trust
2.) Irrevocable trust

ESTATE

1.) Classification of taxpayer

A. INDIVIDUAL TAXPAYER

B. CORPORATION

C. PARTNERSHIP
1.) General co-partnership

2.) General professional partnership

 A general profession partnership as such shall not be subject to the income tax imposed;
 Persons engaging in business as partners in a general professional partnership shall be liable
for income tax only in their separate and individual capacities
 For purposes of computing the distributive share of the partners, the net income of the
partnership shall be computed in the same manner as a corporation.

Each partner shall report as gross income his distributive share actually or constructively received, in
the net income of the partnership.

D. ESTATES

E. TRUST
1. Revocable trust
2. Irrevocable trust
MANILA RACE HORSE TRAINERS ASSOCIATION, INC vs. MANUEL DE LA FUENTE G.R. No. L-2947
January 11, 1951

Facts:
Manila Race Horses Trainers Association, Inc., a non-stock corporation, alleged that they are
owners of boarding stables for race horses and that their rights as such are affected by
Ordinance No. 3065 of the City of Manila. They pleaded that said ordinance be declared invalid
as it is violative under the Constitution. On appeal, it is upheld that the ordinance is a tax on race
horses as distinct from boarding stables. Under Ordinance No. 3065, the tax is assessed not on
the owners of the horses but on the owners of the stables, as counsel admitted in their brief. It is
ordinary that the number of horses is used in the assessment purely as a method of fixing an
equitable and practical distribution of the burden imposed by the measure.

Issue:
Weather or not the Ordinance is constitutional and valid as has been enacted in accordance with
the powers of the Municipal Board granted by the Charter of the City of Manila.

Held:

The Court did not believe that the Ordinance made arbitrary classification. There is equality and
uniformity in taxation if all articles or kinds of property of the same class are taxed at the same
rate. Thus, it was held that, the fact that some places of amusement are not taxed while others
are taxed, is not argument at all against the equality and uniformity of tax imposition." In
applying this to the case, there would be discrimination if some boarding stables of the same
class used for the same number of horses were not taxed or were made to pay less or more than
others.

Eastern Theatrical Co. vs. Alfonso GR L-1104, 31 May 1944 Second Division, Perfecto (J): 5
concur

Facts:

The municipal board of Manila enacted Ordinance 2958 (series of 1946) imposing a fee on the
price of every admission ticket sold by cinematograph theaters, vaudeville companies, theatrical
shows and boxing exhibitions, in addition to fees imposed under Sections 633 and 778 of
Ordinance 1600. Eastern Theatrical Co., among others, question the validity of ordinance, on the
ground that it is unconstitutional for being contrary to the provisions on uniformity and equality
of taxation and the equal protection of the laws inasmuch as the ordinance does not tax other
kinds of amusement, such as race tracks, cockpits, cabarets, concert halls, circuses, and other
places of amusement.

Issue:
Whether the ordinance violates the rule on uniformity and equality of taxation.

Held:

Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation; and the theater companies
cannot point out what places of amusement taxed by the ordinance do not constitute a class by
themselves and which can be confused with those not included in the ordinance. The fact that
somew places of amusement are not taxed while others, like the ones herein, are taxed is no
argument at all against the equality and uniformity of the tax imposition.

Pepsi-Cola Bottling Co. vs. City of Butuan GR L-22814, 28 August 1968 En Banc, Concepcion (J): 5
concur

Facts:
Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles
of softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling
softdrinks or carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or
consignee of any person, association, partnership, company or corporation engaged in selling
softdrinks or carbonated drinks, with “agent or consignee” being particularly defined on the
inserted provision Section 3-A. In effect, merchants engaged in the sale of softdrinks, etc. are not
subject to the tax unless they are agents or consignees of another dealer who must be one
engaged in business outside the City. Pepsi-Cola Bottling Co. filed suit to recover sums paid by it
to the city pursuant to the Ordinance, which it claims to be null and void.

Issue: Whether the Ordinance is discriminatory.

Held:

The Ordinance, as amended, is discriminatory since only sales by “agents or consignees” of

outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of
other merchants, regardless of the volume of their sales , and even if the same exceeded those
made by said agents or consignees of producers or merchants established outside the city, would
be exempt from the tax. The classification made in the exercise of the authority to tax, to be
valid must be reasonable, which would be satisfied if the classification is based upon substantial
distinctions which makes real differences; these are germane to the purpose of legislation or
ordinance; the classification applies not only to present conditions but also to future conditions
substantially identical to those of the present; and the classification applies equally to all those
who belong to the same class. These conditions are not fully met by the ordinance in question.

Shell Co. vs. Vano GR L-6093, 24 February 1954 En Banc, Padilla (J): 10 concur

Facts: The municipal council of Cordova, Cebu adopted Ordinance 10 (1946) imposing an annual
tax of P150 on occupation or the exercise of the privilege of installation manager; Ordinance 9
(1947) imposing an annual tax of P40 for local deposits in drums of combustible and inflammable
materials and an annual tax of P200 for tin can factories; and Ordinance 11 (1948) imposing an
annual tax of P150 on tin can factories having a maximum annual output capacity of 30,000 tin
cans. Shell Co., a foreign corporation, filed suit for the refund of the taxes paid by it, on the
ground that the ordinances imposing such taxes are ultra vires.

Issue: Whether Ordinance 10 is discriminatory and hostile because there is no other person in
the locality who exercise such designation or occupation.

Held:

The fact that there is no other person in the locality who exercises such a “designation” or calling
does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable
to any person or firm who exercises such calling or occupation named or designated as
“installation manager.”
CITY OF BAGUIO vs. DE LEON
25 SCRA 938
GR No. L-24756, October 31, 1968

"There is no double taxation where one tax is imposed by the state and the other is imposed by
the city."

FACTS:
The City of Baguio passed an ordinance imposing a license fee on any person, entity or
corporation doing business in the City. The ordinance sourced its authority from RA No. 329,
thereby amending the city charter empowering it to fix the license fee and regulate businesses,
trades and occupations as may be established or practiced in the City. De Leon was assessed for
P50 annual fee it being shown that he was engaged in property rental and deriving income
therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for there is
no statury authority which expressly grants the City of Baguio to levy such tax, and that there it
imposed double taxation, and violates the requirement of uniformity.

ISSUE: Are the contentions of the defendant-appellant tenable?

HELD:
No. First, RA 329 was enacted amending Section 2553 of the Revised Administrative Code
empowering the City Council not only to impose a license fee but to levy a tax for purposes of
revenue, thus the ordinance cannot be considered ultra vires for there is more than ample
statury authority for the enactment thereof.

   Second, an argument against double taxation may not be invoked where one tax is imposed by
the state and the other is imposed by the city, so that where, as here, Congress has clearly
expressed its intention, the statute must be sustained even though double taxation results.
   And third, violation of uniformity is out of place it being widely recognized that there is nothing
inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the
same occupation, calling or activity by both the state and the political subdivisions thereof.

Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas v.

Tan

 President Aquino issued EO 273, adopting the value-added tax (VAT).

 Four petitions contended that EO 273 is unconstitutional on the grounds that the
President had no authority to issue it; that it is oppressive, discriminatory, unjust,
and regressive.
 I: W/n the EO 273, adopting VAT, is valid.
 R: The EO is valid.
 Under the Provisional and 1987 Constitutions, the President is vested with legislative
powers until a legislature under a new Constitution is convened.
 In this case, the EO was enacted 2 days before Congress convened. Therefore, the
EO was still within the President’s power to issue.
 EO 273 is not oppressive, discriminatory, unjust, or regressive.
 It satisfies all the requirements of a valid tax in that it is uniform and equitable.
 A tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found.
 In this case, the tax 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 tax is also equitable because it is imposed ONLY on sales of goods or services by
persons engaged in business with an aggregate gross annual sales exceeding 200K.
 Thus, small corner sari-sari stores, sales of marine and farm products and basic food
and necessities are not covered by VAT.
 Customs brokers contend that the EO is also discriminatory because it exempts from
VAT services performed in the exercise of one’s profession except customs brokers.
 The distinction is based on material differences in that the activities of customs
brokers partake more of a business rather than a profession.

Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan GR L-81311, 30 June 1988

En Banc, Padilla (J): 12 concur, 2 on leave

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 fro being beyond the President to enact; for being oppressive,
discriminatory, regressive, and violative of the due process and equal protection clauses,
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.

Held:
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.

Villanueva vs. Iloilo City GR L-26521, 28 December 1968 En Banc, Castro (J): 8 concur

Facts:

On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing license
tax fees upon tenement house (P25); tenemen house partly engaged or wholly engaged in and
dedicated to business in Baza, Iznart, and Aldeguer Streets (P24 per apartment); and tenement
house, padtly or wholly engaged in business in other streets (P12 per apartment). The validity of
such ordinance was challenged by Eusebio and Remedios Villanueva, owners of four tenement
houses containing 34 apartments. The Supreme Court held the ordinance to be ultra vires. On 15
January 1960, however, the municipal board, believing that it acquired authority to enact an
ordinance of the same nature pursuant to the Local Autonomy Act, enacted Ordinance 11 (series
of 1960), Eusebio and Remedios Villaniueva assailed the ordinance anew.

Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.

Held:
The Court has ruled that tenement houses constitute a distinct class of property; and that taxes
are uniform and equal when imposed upon all property of the same class or character within the
taxing authority. The fact that the owners of the other classes of buildings in Iloilo are not
imposed upon by the ordinance, or that tenement taxes are imposed in other cities do not
violate the rule of equality and uniformity. The rule does not require that taxes for the same
purpose should be imposed in different territorial subdivisions at the same time. So long as the
burden of tax falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity is accomplished. The presumption that tax
statutes are intended to operate uniformly and equally was not overthrown herein.

Association of Custom Brokers vs. Manila GR L-4376, 22 May 1953 En Banc, Bautista-Angelo (J):
3 concur, 4 concur in result

Facts:
The Association of Customs Brokers, which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, challenges the validity of Ordinance 3379 on
the grounds (1) that while it levies a so-called property tax, it is in reality a license tax which is
beyond the power of the Manila Municipal Board; (2) that said ordinance offends against the rule
on uniformity of taxes; and (3) that it constitutes double taxation.

Issue:
Whether the ordinance infringes on the rule on uniformity of taxes as ordained by the
Constitution.

Held:
While the tax in the Ordinance refers to property tax and it is fixed ad valorem, it is merely
levied on all motor vehicles operating within Manila with the main purpose of raising funds to be
expended exclusively for the repair, maintenance and improvement of the streets and bridges in
said city. The ordinance imposes a license fee although under the cloak of an ad valorem tax to
circumvent the prohibition in the Motor Vehicle Law. Further, it does not distinguish between a
motor vehicle for hire and one which is purely for private use. Neither does it distinguish
between a motor vehicle registered in Manila and one registered in another place but
occasionally comes to Manila and uses its streets and public highways. The distinction is
necessary if he ordinance intends to burden with tax only those registered in Manila as may be
inferred from the word “operating” used therein. There is an inequality in the ordinance which
renders it offensive to the Constitution.