f.

Scope and Limitations of Taxation

i. Inherent Limitations

NOTE: Those titles that are in BOLD ITALIC are the ones for recitation.

1. Planters Products, Inc. vs. Fertiphil Corporation, G.R. No. 166006, 14

March 2008

DOCTRINE/S:
(1) If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax.
(2) The power to tax exists for the general welfare; hence, implicit in its power is the limitation
that it should be used only for a public purpose.

FACTS:

Petitioner PPI and private respondent Fertiphil are private corporations incorporated
under Philippine laws. They are both engaged in the importation and distribution of fertilizers,
pesticides and agricultural chemicals.

On 3 June 1985, then President Ferdinand Marcos, exercising his legislative powers,
issued LOI No. 1465 which provided, among others, for the imposition of a capital
recovery component (CRC) on the domestic sale of all grades of fertilizers in the
Philippines. The LOI provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing
formula a capital contribution component of not less than P10 per bag. This capital
contribution shall be collected until adequate capital is raised to make PPI viable.
Such capital contribution shall be applied by FPA to all domestic sales of fertilizers
in the Philippines. (Underscoring supplied)

Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount
collected to the Far East Bank and Trust Company, the depositary bank of PPI.Fertiphil
paid P6,689,144 to FPA from July 8, 1985 to January 24, 1986

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy.
With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to accede to the demand.

Fertiphil filed a complaint for collection and damagesagainst FPA and PPI with the RTC
in Makati. It 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.
Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which
used the proceeds to maintain its monopoly of the fertilizer industry.

In its Answer, FPA, through the Solicitor General, countered that the issuance of LOI No.
1465 was a valid exercise of the police power of the State in ensuring the stability of the
fertilizer industry in the country. It also averred that Fertiphil did not sustain any damage
from the LOI because the burden imposed by the levy fell on the ultimate consumer, not the
seller.

RTC: the imposition of the P10 CRC was an exercise of the State’s inherent power of
taxation; invalidated the levy for violating the basic principle that taxes can only be
levied for public purpose. (PPI filed a M.R. -> denied; In a separate but related proceeding,
SC allowed appeal but remanded to CA)

CA: affirmed with modification; even on the assumption that LOI No. 1465 was issued under
the police power of the state, it is still unconstitutional because it did not promote public
welfare; the levy was NOT for the benefit, as alleged, of Planters Foundation, Inc. (on the
strength of the Letter of Understanding (LOU) issued by then Prime Minister Cesar Virata
on 18 April 1985 and affirmed by the Secretary of Justice in an Opinion dated 12 October
1987.(PPI filed a M.R. -> denied)

ISSUE/S:
(1) Whether the imposition of the levy was an exercise by the State of its taxation power.
(2) Whether LOI 1465 constitutes a valid legislation pursuant to the exercise of taxation.
(3) Whether LOI 1465 constitutes a valid legislation pursuant to the exercise of police power.

RULING:
(1) Yes;
The imposition of the levy was an exercise by the State of its taxation power. While it is true
that the power of taxation can be used as an implement of police power,the primary purpose of
the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least,
one of the real and substantial purposes, then the exaction is properly called a tax.

In Philippine Airlines, Inc. v. Edu, it was held that the imposition of a vehicle registration fee is
not an exercise by the State of its police power, but of its taxation power, thus:

It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of
the Land Transportation and Traffic Code that the legislative intent and purpose behind
the law requiring owners of vehicles to pay for their registration is mainly to raise funds
for the construction and maintenance of highways and to a much lesser degree, pay for
the operating expenses of the administering agency. x xx Fees may be properly
regarded as taxes even though they also serve as an instrument of regulation.
 Taxation may be made the implement of the state's police power (Lutz v. Araneta, 98
Phil. 148). If the purpose is primarily revenue, or if revenue is, at least, one of the real
and substantial purposes, then the exaction is properly called a tax. Such is the case of
motor vehicle registration fees. The same provision appears as Section 59(b) in the Land
Transportation Code. It is patent therefrom that the legislators had in mind a regulatory
tax as the law refers to the imposition on the registration, operation or ownership of a
motor vehicle as a "tax or fee." x xx Simply put, if the exaction under Rep. Act 4136 were
merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax.
Rep. Act 4136 also speaks of other "fees" such as the special permit fees for certain
types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec.
11). These are not to be understood as taxes because such fees are very minimal
to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as taxes
like the motor vehicle registration fee and chauffeurs’ license fee. Such fees are to go
into the expenditures of the Land Transportation Commission as provided for in the last
proviso of Sec. 61. (Underscoring supplied)

The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose.
The levy, no doubt, was a big burden on the seller or the ultimate consumer. It increased the
price of a bag of fertilizer by as much as five percent. A plain reading of the LOI also supports
the conclusion that the levy was for revenue generation. The LOI expressly provided that
the levy was imposed "until adequate capital is raised to make PPI viable."

(2) No;
The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed
to give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only
for a public purpose. They cannot be used for purely private purposes or for the exclusive
benefit of private persons. The reason for this is simple. The power to tax exists for the
general welfare; hence, implicit in its power is the limitation that it should be used only
for a public purpose.

The term "public purpose" is not defined. It is an elastic concept that can be hammered to
fit modern standards. Jurisprudence states that "public purpose" should be given a
broad interpretation. It does not only pertain to those purposes which are traditionally
viewed as essentially government functions, such as 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.
While the categories of what may constitute a public purpose are continually expanding in light
of the expansion of government functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a
tax law is only a mask to exact funds from the public when its true intent is to give undue
benefit and advantage to a private enterprise, that law will not satisfy the requirement of
"public purpose."

Indications that it is not for the public purpose

1. The LOI expressly provided that the levy be imposed to benefit PPI, a private company.
2. The LOI provides that the imposition of the P10 levy was conditional and dependent upon
PPI becoming financially "viable."
3. The levies paid under the LOI were directly remitted and deposited by FPA to Far East
Bank and Trust Company, the depositary bank of PPI which proves that PPI benefitted
from the LOI
4. The levy was used to pay the corporate debts of PPI.

(3) No;
Even if We consider LOI No. 1695 enacted under the police power of the State, it would still
be invalid for failing to comply with the test of "lawful subjects" and "lawful means."
Jurisprudence states the test as follows: (1) the interest of the public generally, as distinguished
from those of particular class, requires its exercise; and (2) the means employed are reasonably
necessary for the accomplishment of the purpose and not unduly oppressive upon individuals.

For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote
public interest. The law was enacted to give undue advantage to a private corporation.

Dispositive Portion: WHEREFORE, the petition is DENIED. The Court of Appeals Decision
dated November 28, 2003 is AFFIRMED.

2. Gomez vs. Palomar, G.R. No. L-23645, 29 October 1968

FACTS:
-This appeal puts in issue 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 nineteen to September thirty 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 Enrico Palomar, in implementation of the law,

issued four (4) administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August
28, 1958), and 10 (July 15, 1960). All these administrative orders were issued with the approval
of the respondent Secretary of Public Works and Communications.
-On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post
office in San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino
of 1014 Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by
the statute, it was returned to the petitioner.
- In view of this development, the petitioner brought suit for declaratory relief in the Court
of First Instance of Pampanga, to test the constitutionality of the statute, as well as the
implementing administrative orders issued, contending that it violates the equal protection
clause of the Constitution as well as the rule of uniformity and equality of taxation.
-The lower court declared the statute and the orders unconstitutional; hence this appeal
by the respondent postal authorities.

ISSUES:
WON the statute is violative of the equal protection clause of the Constitution. More specifically
the claim is made that it constitutes mail users into a class for the purpose of the tax while
leaving untaxed the rest of the population and that even among postal patrons the statute
discriminatorily grants exemption to newspapers while Administrative Order 9 of the respondent
Postmaster General grants a similar exemption to offices performing governmental functions.

RULING:
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As
such the objections levelled against it must be viewed in the light of applicable principles of
taxation.

To begin with, it is settled that the legislature has the inherent power to select the subjects
of taxation and to grant exemptions. This power has aptly been described as "of wide range
and flexibility." Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and usages
in order to achieve an equitable distribution of the tax burden.

It is not accurate to say that the statute constituted mail users into a class. Mail users
were already a class by themselves even before the enactment of the statue and all that the
legislature did was merely to select their class. Legislation is essentially empiric and Republic
Act 1635, as amended, no more than reflects a distinction that exists in fact. As Mr. Justice
Frankfurter said, "to recognize differences that exist in fact is living law; to disregard [them] and
concentrate on some abstract identities is lifeless logic."
 As for the Government and its instrumentalities, their exemption rests on the State's
sovereign immunity from taxation. The State cannot be taxed without its consent and such
consent, being in derogation of its sovereignty, is to be strictly construed.12 Administrative Order
9 of the respondent Postmaster General, which lists the various offices and instrumentalities of
the Government exempt from the payment of the anti-TB stamp, is but a restatement of this
well-known principle of constitutional law.

It is never a requirement of equal protection that all evils of the same genus be eradicated
or none at all. As this Court has had occasion to say, "if the law presumably hits the evil where
it is most felt, it is not to be overthrown because there are other instances to which it might have
been applied."

ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.

3. Lutz vs. Araneta, G.R. No. L-7859, 22 December 1955

FACTS: Promulgated in 1940, the law in question opens (section 1) with a declaration of
emergency, due to the threat to our industry by the imminent imposition of export taxes upon
sugar as provided in the Tydings-McDuffie Act, and the "eventual loss of its preferential position
in the United States market"; wherefore, the national policy was expressed "to obtain a
readjustment of the benefits derived from the sugar industry by the component elements
thereof" and "to stabilize the sugar industry so as to prepare it for the eventuality of the loss of
its preferential position in the United States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the
manufacture of sugar, on a graduated basis, on each picul of sugar manufactures; while section
3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and
ceded to others for a consideration, on lease or otherwise.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of
P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-
1949 and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid
and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose
for which a tax may be constitutionally levied. The action having been dismissed by the Court
of First Instance, the plaintiffs appealed the case directly to this Court
ISSUE: Whether or not taxes imposed by Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act is legal?
RULING: YES. As the protection and promotion of the sugar industry is a matter of public
concern the Legislature may determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative must be allowed full play,
subject only to the test of reasonableness; and it is not contended that the means provided in
section 6 of Commonwealth Act No. 567 bear no relation to the objective pursued or are
oppressive in character. If objective and methods are alike constitutionally valid, no reason is
seen why the state may not levy taxes to raise funds for their prosecution and attainment.
Taxation may be made the implement of the state's police power.
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.

4. Tio vs. Videogram Regulatory Board, GR No. L-75697, 18 June 1997

FACTS: Petitioner, on his own behalf and purportedly on behalf of other videogram operators
adversely affected, assailed the constitutionality of Presidential Decree No. 1987 entitled “An
Act Creating the Videogram Regulatory Board” with broad powers to regulate and supervise
the videogram industry.
Petitioner questioned the constitutionality of the decree on the grounds that: (a) Section
10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government
is a rider and the same is not germane to the subject matter thereof; (b) the tax imposed is
harsh, confiscatory, oppressive and/or in unlawful restraint to trade in violation of the due
process clause of the Constitution;(c) there is undue delegation of power.

ISSUE: Whether or not the assailed Decree is unconstitutional?

RULING: NO. The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it. In imposing a tax, the
legislature acts upon its constituents. This is, in general, a sufficient security against erroneous
and oppressive taxation.
On the other hand, the levy of the 30% tax is for public purpose. It was imposed primarily
to answer the need for regulating the video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic
video tapes and while it was also an objective of the Decree to protect the movie industry, the
tax remains a valid imposition.
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 industry over the other.
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 inequities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation. Taxation has been made the
implement of the state’s police power.
With regard to the issue that the Decree contains an undue delegation of legislative
power, there is really no delegation of the power to legislate but merely a conferment functions
of authority or discretion as to its execution, enforcement, and implementation.
It is important to note that only congressional power or competence, not the wisdom of the
action taken, maybe the basis for declaring a statute invalid. The principle of separation of
powers has in the main wisely allocated the respective authority to each department and
confined its jurisdiction to such a sphere. The attack on the validity of the challenged provision
likewise insofar as there may be objections, even if valid and cogent on its wisdom cannot be
sustained.

5. Citizen’s Alliance for Consumer Protection vs. ERB, G.R. Nos. 78888-
90, 23 June 1988

FACTS: Private respondent Caltex filed with the public respondent Energy Regulatory Board
(ERB) an Application formally seeking a provisional increase in the prices of its petroleum
products. Similar applications for provisional price increases were submitted by Petrophil
Corporation and Shell. Public respondent Board issued Orders in the ERB cases authorizing
the increase of the prices of their petroleum products. A part of this increase in the value of
P0.311 per liter shall paid to the the OPSF. Petitioners filed a petition seeking to enjoin
enforcement of that portion directing private respondent oil companies to pay P0.311 out of the
price increases granted to the OPSF. Petitioner assailed the constitutionality of both the OPSF
and the laws establishing said fund.

ISSUE: WON the OPSF and the laws which establish it should be declared unconstitutional.

RULING: NO, it is not unconstitutional. The OPSF is a trust account "which was established
"for the purpose of minimizing frequent price changes brought about by exchange rate
adjustment and/or changes in World market prices of crude oil and imported petroleum
products." The fact that the world market prices of oil vary from day to day is of judicial notice.
These fluctuations in world market prices and in tanker rates and foreign exchange rates would
in a completely free market translate into corresponding adjustments in domestic prices of oil
and petroleum products with sympathetic frequency. But domestic prices which vary from day
to day or even only from week to week would result in a chaotic market with unpredictable
effects upon the country's economy in general.

The OPSF was established precisely to protect local consumers from the adverse
consequences that such frequent oil price adjustments may have upon the economy. It appears
to the Court that the establishment and maintenance of the OPSF is well within that pervasive
and non-waivable power and responsibility of the government to secure the physical and
economic survival and well-being of the community, that comprehensive sovereign authority
we designate as the police power of the state. The stabilization and subsidy of domestic prices
of petroleum products and fuel oil - clearly critical in importance considering, among other
things, the continuing high level of dependence of the country on imported crude oil - are
appropriately regarded as public purposes

Doctrine: The establishment and maintenance of the OPSF is a public purpose, for the
OPSF was created precisely to protect local consumers from the adverse effects of
frequent oil price adjustments on our economy.
6. ABAKADA Guro Party List vs. Ermita, GR No. 168056, 1 September
2005

FACTS:
RA 9337, an act amending certain sections of the National Internal Revenue Code of 1997, is
questioned by petitioners for being unconstitutional. Procedural issues raised by petitioners are
the legality of the bicameral proceedings, exclusive origination of revenue measures and the
power of the Senate concomitant thereto.
Also, Substantive issue was raised with regard to the undue delegation of legislative power to
the President to increase the rate of value-added tax to 12%.
Petitioners also argue that the increase to 12%, as well as the 70% limitation on the creditable
input tax, the 60- month amortization on the purchase or importation of capital goods exceeding
P1,000,000.00, and the 5% final withholding tax by government agencies, is arbitrary,
oppressive, and confiscatory, and that it violates the constitutional principle on progressive
taxation, among others.
ISSUE:
WON Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12%
when a certain condition is met, constitutes undue delegation of the legislative power to tax.
RULING:
NO. The case before the Court is not a delegation of legislative power. It is simply a delegation
of ascertainment of facts upon which enforcement and administration of the increase 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.Where the law is clear and unambiguous, it must be taken to mean exactly
what it says, and courts have no choice but to see to it that the mandate is obeyed 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. Inasmuch as the law specifically uses the word shall, the exercise of discretion by
the President does not come into play. It is a clear directive to impose the 12% VAT rate when
the specified conditions are present. The time of taking into effect of the 12% VAT rate is based
on the happening of a certain specified contingency, or upon the ascertainment of certain facts
or conditions by a person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that
the law effectively nullified the Presidents power of control over the Secretary of Finance by
mandating the fixing of the tax rate by the President upon the recommendation of the Secretary
of Finance. The Court cannot also subscribe to the position of petitioners Pimentel, et al. that
the word shall should be interpreted to mean may in view of the phrase upon the
recommendation of the Secretary of Finance.

Furthermore, Congress simply granted the Secretary of Finance the authority to ascertain the
existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as
a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth
percent (24/5%) or the national government deficit as a percentage of GDP of the previous year
exceeds one and one-half percent (1%). If either of these two instances has occurred, the
Secretary of Finance, by legislative mandate, must submit such information to the President.
Then the 12% VAT rate must be imposed by the President effective January 1, 2006. 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 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.

As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the
President the legislative power to tax is contrary to the principle of republicanism, the same
deserves scant consideration. Congress did not delegate the power to tax but the mere
implementation of the law. The intent and will to increase the VAT rate to 12% came from
Congress and the task of the President is to simply execute the legislative policy. That Congress
chose to do so in such a manner is not within the province of the Court to inquire into, its task
being to interpret the law.

7. Gerochi vs. Department of Energy, G.R. No. 159796, 17 July 2007

FACTS: Petitioners Romeo P. Gerochi, Katulong Ng Bayan (KB), and Environmentalist

Consumers Network, Inc. come before this Court in this original action praying that Section 34
of Republic Act 9136, otherwise known as the “Electric Power Industry Reform Act of 2001”,
imposing the Universal Charge, and Rule 18 of the Rules and Regulations which seeks to
implement the said imposition, be declared unconstitutional.

SECTION 34. Universal Charge. — Within one (1) year from the effectivity of this Act, a
universal charge to be determined, fixed and approved by the ERC, shall be imposed on all
electricity end-users for the following purposes:

(a) Payment for the stranded debts in excess of the amount assumed by the National
Government and stranded contract costs of NPC and as well as qualified stranded contract
costs of distribution utilities resulting from the restructuring of the industry;
(b) Missionary electrification;[6]
(c) The equalization of the taxes and royalties applied to indigenous or renewable sources of
energy vis-à-vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per kilowatt-hour
(P0.0025/kWh), which shall accrue to an environmental fund to be used solely for watershed
rehabilitation and management. Said fund shall be managed by NPC under existing
arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not exceeding three (3)
years

The universal charge shall be a non-bypassable charge which shall be passed on and collected
from all end-users on a monthly basis by the distribution utilities. Collections by the distribution
utilities and the TRANSCO in any given month shall be remitted to the PSALM Corp. on or
before the fifteenth (15th) of the succeeding month, net of any amount due to the distribution
utility. Any end-user or self-generating entity not connected to a distribution utility shall remit its
corresponding universal charge directly to the TRANSCO. The PSALM Corp., as administrator
of the fund, shall create a Special Trust Fund which shall be disbursed only for the purposes
specified herein in an open and transparent manner. All amount collected for the universal
charge shall be distributed to the respective beneficiaries within a reasonable period to be
provided by the ERC.

Petitioners submit that the assailed provision of law and its IRR which sought to implement the
same are unconstitutional on the ground that the universal charge provided for under Sec. 34
of the EPIRA and sought to be implemented under Sec. 2, Rule 18 of the IRR of the said law
is a tax which is to be collected from all electric end-users and self-generating entities. The
power to tax is strictly a legislative function and as such, the delegation of said power to any
executive or administrative agency like the ERC is unconstitutional, giving the same unlimited
authority. The assailed provision clearly provides that the Universal Charge is to be determined,
fixed and approved by the ERC, hence leaving to the latter complete discretionary legislative
authority.

ISSUE: Whether or not there is undue delegation of legislative power to tax on the part of the
ERC

RULING: No. If generation of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue
is incidentally raised does not make the imposition a tax. In exacting the assailed Universal
Charge through Sec. 34 of the EPIRA, the State's police power, particularly its regulatory
dimension, is invoked. Such can be deduced from Sec. 34 which enumerates the purposes for
which the Universal Charge is imposed and which can be amply discerned as regulatory in
character. From the Declaration pf Policy of EPIRA (Section 2), it can be gleaned that the
assailed Universal Charge is not a tax, but an exaction in the exercise of the State's police
power. Public welfare is surely promoted. Moreover, it is a well-established doctrine that the
taxing power may be used as an implement of police power.

The principle of separation of powers ordains that each of the three branches of government
has exclusive cognizance of and is supreme in matters falling within its own constitutionally
allocated sphere. A logical corollary to the doctrine of separation of powers is the principle of
non-delegation of powers, as expressed in the Latin maxim potestas delegata non delegari
potest (what has been delegated cannot be delegated). This is based on the ethical principle
that such delegated power constitutes not only a right but a duty to be performed by the
delegate through the instrumentality of his own judgment and not through the intervening mind
of another.

In the face of the increasing complexity of modern life, delegation of legislative power to various
specialized administrative agencies is allowed as an exception to this principle. Given the
volume and variety of interactions in today's society, it is doubtful if the legislature can
promulgate laws that will deal adequately with and respond promptly to the minutiae of
everyday life. Hence, the need to delegate to administrative bodies - the principal agencies
tasked to execute laws in their specialized fields - the authority to promulgate rules and
regulations to implement a given statute and effectuate its policies. All that is required for the
valid exercise of this power of subordinate legislation is that the regulation be germane to the
objects and purposes of the law and that the regulation be not in contradiction to, but in
conformity with, the standards prescribed by the law. These requirements are denominated as
the completeness test and the sufficient standard test.

Under the first test, the law must be complete in all its terms and conditions when it leaves the
legislature such that when it reaches the delegate, the only thing he will have to do is to enforce
it. The second test mandates adequate guidelines or limitations in the law to determine the
boundaries of the delegate's authority and prevent the delegation from running riot.

The Court finds that the EPIRA, read and appreciated in its entirety, in relation to Sec. 34
thereof, is complete in all its essential terms and conditions, and that it contains sufficient
standards.

Although Sec. 34 of the EPIRA merely provides that “within one (1) year from the effectivity
thereof, a Universal Charge to be determined, fixed and approved by the ERC, shall be imposed
on all electricity end-users,” and therefore, does not state the specific amount to be paid as
Universal Charge, the amount nevertheless is made certain by the legislative parameters
provided in the law itself. Thus, the law is complete and passes the first test for valid delegation
of legislative power.

RATIO: Doctrine of non-delegation not absolute: Requisites for Delegation. - The requisites for
such delegation are: (a) the completeness of the statute making the delegation; and (b) the
presence of sufficient standard.

8. CIR vs. San Miguel Corporation, G.R. No. 184428, 23 November 2011

FACTS: Respondent San Miguel Corporation, a domestic corporation engaged in the

manufacture and sale of fermented liquor, produces as one of its products "Red Horse" beer
which is sold in 500-ml. and 1-liter bottle variants. On January 1, 1998, Republic Act (R.A.) No.
8424 or the Tax Reform Act of 1997 took effect. It reproduced, as Section 143 thereof, the
provisions of Section 140 of the old National Internal Revenue Code as amended by R.A. No.
8240 which became effective on January 1, 1997. Part of Section 143 of the Tax Reform Act of
1997 reads:
The excise tax from any brand of fermented liquor within the next three (3) years from the
effectivity of Republic Act No. 8240 shall not be lower than the tax which was due from each
brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall be
increased by twelve percent (12%) on January 1, 2000.
Thereafter, on December 16, 1999, the Secretary of Finance issued Revenue
Regulations No. 17-99 increasing the applicable tax rates on fermented liquor by 12%. This
increase, however, was qualified by the last paragraph of Section 1 of Revenue Regulations
No. 17-99 which reads:
Provided, however, that the new specific tax rate for any existing brand of cigars, 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.
For the period June 1, 2004 to December 31, 2004, respondent was assessed and paid
excise taxes amounting to P2,286,488,861.58. Respondent, however, later contended that the
said qualification in the last paragraph of Section 1 of Revenue Regulations No. 17-99 has no
basis in the plain wording of Section 143 and filed before the BIR a claim for refund or tax credit
of the amount of P60,778,519.56 as erroneously paid excise taxes for the period of May 22,
2004 to December 31, 2004. Later, said amount was reduced to P58,213,294.92 because of
prescription.
On September 26, 2007, the CTA Second Division granted the petition and ordered
petitioner to refund P58,213,294.92 to respondent or to issue in the latter’s favor a Tax Credit
Certificate for the said amount for the erroneously paid excise taxes. The CTA held that
Revenue Regulations No. 17-99 modified or altered the mandate of Section 143 of the Tax
Reform Act of 1997. The CTA En Banc affirmed the Decision. Hence, this petition for review on
certiorari.
ISSUE: Whether or not Section 1 of Revenue Regulations No. 17-99 is an invalid administrative
interpretation of Section 143 of the Tax Reform Act of 1997.
RULING: Yes. Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It provides
for two periods: the first is the 3- year transition period beginning January 1, 1997, the date
when R.A. No. 8240 took effect, until December 31, 1999; and the second is the period
thereafter. During the 3-year transition period, Section 143 provides that "the excise tax from
any brand of fermented liquor...shall not be lower than the tax which was due from each brand
on October 1, 1996." After the transitory period, Section 143 provides that the excise tax rate
shall be the figures provided under paragraphs (a), (b) and (c) of Section 143 but increased by
12%, without regard to whether the revenue collection starting January 1, 2000 may turn out to
be lower than that collected prior to said date. Revenue Regulations No. 17-99, however,
created a new tax rate when it added in the last paragraph of Section 1 thereof, the
qualification that the tax due after the 12% increase becomes effective "shall not be lower than
the tax actually paid prior to January 1, 2000."
 It bears reiterating that tax burdens are not to be imposed, nor presumed to be imposed
beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government. In case of discrepancy between the basic law and a rule or
regulation issued to implement said law, the basic law prevails as said rule or regulation cannot
go beyond the terms and provisions of the basic law.
As there is nothing in Section 143 of the Tax Reform Act of 1997 which clothes the BIR
with the power or authority to rule that the new specific tax rate should not be lower than the
excise tax that is actually being paid prior to January 1, 2000, such interpretation is clearly an
invalid exercise of the power of the Secretary of Finance to interpret tax laws and to promulgate
rules and regulations necessary for the effective enforcement of the Tax Reform Act of 1997.

ii. Constitutional Limitations

1. American Bible Society vs. City of Manila, GR No. L-9637, 30 April 1997

FACTS: Plaintiff's Philippine agency has been distributing and selling bibles and/or gospel
portions thereof throughout the Philippines and translating the same into several Philippine
dialects. On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that
it was conducting the business of general merchandise since November, 1945, without
providing itself with the necessary Mayor's permit and municipal license, in violation of
Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364, and required
plaintiff to secure, within three days, the corresponding permit and license fees, together with
compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the
total sum of P5,821.45.
Plaintiff protested against this requirement, but the City Treasurer demanded that plaintiff
deposit and pays under protest the sum of P5, 891.45, if suit was to be taken in court regarding
the same. To avoid the closing of its business as well as further fines and penalties in the
premises on October 24, 1953, plaintiff paid to the defendant under protest the said permit and
license fees in the aforementioned amount, giving at the same time notice to the City Treasurer
that suit would be taken in court to question the legality of the ordinances under which, the said
fees were being collected which was done on the same date by filing the complaint that gave
rise to this action. In its complaint plaintiff prays that judgment be rendered declaring the said
Municipal Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal
and unconstitutional, and that the defendant be ordered to refund to the plaintiff the sum of P5,
891.45 paid under protest, together with legal interest thereon, and the costs, plaintiff further
praying for such other relief and remedy as the court may deem just equitable.
Defendant answered the complaint, maintaining in turn that said ordinances were
enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by
section 2444, subsection (m-2) of the Revised Administrative Code, superseded on June 18,
1949, by section 18, subsection (1) of Republic Act No. 409, known as the Revised Charter of
the City of Manila.
ISSUE: Whether or not the ordinances were unconstitutional and provide for religious
censorship and restrain the free exercise and enjoyment of its religious profession?
RULING:
Section 1, subsection (7) of Article III of the Constitution of the Republic of the Philippines,
provides that: No law shall be made respecting an establishment of religion, or prohibiting the
free exercise thereof, and the free exercise and enjoyment of religious profession and worship,
without discrimination or preference, shall forever be allowed. No religion test shall be required
for the exercise of civil or political rights.
Article III, section 1, clause (7) of the Constitution of the Philippinesaforequoted,
guarantees the freedom of religious profession and worship. "Religion has been spoken of as
a profession of faith to an active power that binds and elevates man to its Creator".It has
reference to one's views of his relations to His Creator and to the obligations they impose of
reverence to His being and character, and obedience to His Will. The constitutional guaranty of
the free exercise and enjoyment of religious profession and worship carries with it the right to
disseminate religious information. Any restraints of such right can only be justified like other
restraints of freedom of expression on the grounds that there is a clear and present danger of
any substantive evil which the State has the right to prevent". In the case at bar the license fee
herein involved is imposed upon appellant for its distribution and sale of bibles and other
religious literature.
It may be true that in the case at bar the price asked for the bibles and other religious
pamphlets was in some instances a little bit higher than the actual cost of the same but this
cannot mean that appellant was engaged in the business or occupation of selling said
"merchandise" for profit. For this reason, we believe that the provisions of City of Manila
Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair
its free exercise and enjoyment of its religious profession and worship as well as its rights of
dissemination of religious beliefs.
With respect to Ordinance No. 3000, as amended, which requires the Mayor's permit before
any person can engage in any of the businesses, trades or occupations enumerated therein,
we do not find that it imposes any charge upon the enjoyment of a right granted by the
Constitution, nor tax the exercise of religious practices.
It seems clear, therefore, that Ordinance No. 3000(mayor’s permit) cannot be considered
unconstitutional, even if applied to plaintiff Society. But as Ordinance No. 2529( license fee) of
the City of Manila, as amended, is not applicable to plaintiff-appellant and defendant-appellee
is powerless to license or tax the business of plaintiff Society involved herein for, as stated
before, it would impair plaintiff's right to the free exercise and enjoyment of its religious
profession and worship, as well as its rights of dissemination of religious beliefs, We find that
Ordinance No. 3000, as amended is also inapplicable to said business, trade or occupation of
the plaintiff.
2. Tolentino vs. Sec. of Finance, GR No. 115455, 25 Aug 1994

FACTS: The valued-added tax is levied on the sale, barter or exchange of goods and properties
as well as on the sale or exchange of services. It is equivalent to 10% of the gross selling price
or gross value in money of goods or properties sold, bartered or exchanged or of the gross
receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National
Internal Revenue Code.
ISSUES:
a. Whether or not the law violates the provision of the constitution regarding the freedom
of religion and its exercise thereof?
b. Whether or not the law violates the provisions of the constitution regarding the
Uniformity, Equitability and Progressivity of Taxation?
RULING:
a. Claims of Freedom of Thought and Religious Freedom

The case of American Bible Society v. City of Manila is cited by both the PBS and the
PPI in support of their contention that the law imposes censorship. There, this Court held that
an ordinance of the City of Manila, which imposed a license fee on those engaged in the
business of general merchandise, could not be applied to the appellant's sale of bibles and
other religious literature. This Court relied on Murdock v. Pennsylvania in which it was held
that, as a license fee is fixed in amount and unrelated to the receipts of the taxpayer, the license
fee, when applied to a religious sect, was actually being imposed as a condition for the exercise
of the sect's right under the Constitution. For that reason, it was held, the license fee "restrains
in advance those constitutional liberties of press and religion and inevitably tends to suppress
their exercise."
But, in this case, the fee in although a fixed amount (P1,000), is not imposed for the
exercise of a privilege but only for the purpose of defraying part of the cost of registration. The
registration requirement is a central feature of the VAT system. It is designed to provide a record
of tax credits because any person who is subject to the payment of the VAT pays an input tax,
even as he collects an output tax on sales made or services rendered. The registration fee is
thus a mere administrative fee, one not imposed on the exercise of a privilege, much less a
constitutional right.
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the ground
that it offends the free speech, press and freedom of religion guarantees of the Constitution to
be without merit. For the same reasons, we find the claim of the Philippine Educational
Publishers Association (PEPA) in G.R. No. 115931 that the increase in the price of books and
other educational materials as a result of the VAT would violate the constitutional mandate to
the government to give priority to education, science and technology (Art. II, sec. 17) to be
untenable.
 b. Claims of Progressivity, Denial of Due Process, Equal Protection, and Impairment of
Contracts

There is basis for passing upon claims that on its face the statute violates the guarantees
of freedom of speech, press and religion. The possible "chilling effect" which it may have on
the essential freedom of the mind and conscience and the need to assure that the channels of
communication are open and operating importunately demand the exercise of this Court's
power of review.
There is, however, no justification for passing upon the claims that the law also violates
the rule that taxation must be progressive and that it denies petitioners' right to due process
and the equal protection of the laws. The reason for this different treatment has been cogently
stated by an eminent authority on constitutional law thus: "When freedom of the mind is
imperiled by law, it is freedom that commands a moments of respect; when property is imperiled
it is the lawmakers' judgment that commands respect. This dual standard may not precisely
reverse the presumption of constitutionality in civil liberties cases, but obviously it does set up
a hierarchy of values within the due process clause."
What Congress is required by the Constitution to do is to "evolve a progressive system
of taxation." This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of social, economic
and political inequalities or for the promotion of the right to "quality education". These provisions
are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights.
To sum it all up, we hold that the procedural requirements of the Constitution have been
complied with by Congress in the enactment of the statute; that judicial inquiry whether the
formal requirements for the enactment of statutes - beyond those prescribed by the Constitution
- have been observed is precluded by the principle of separation of powers; that the law does
not abridge freedom of speech, expression or the press, nor interfere with the free exercise of
religion, nor deny to any of the parties the right to an education; and that, in view of the absence
of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory
and that it violates vested rights protected under the Contract Clause are prematurely raised
and do not justify the grant of prospective relief by writ of prohibition.

3. CREBA vs. Sec. Romulo, GR No. 160756, 9 March 2010;

FACTS:

Petitioner is an association of real estate developers and builders in the Philippines. It assails
the validity of the imposition of minimum corporate income tax (MCIT) on corporations and
creditable withholding tax (CWT) on sales of real properties classified as ordinary assets.

Petitioner argues that the MCIT violates the due process clause because it levies income tax
even if there is no realized gain. Petitioner also asserts that the enumerated provisions of the
subject revenue regulations violate the due process clause because, like the MCIT, the
government collects income tax even when the net income has not yet been determined. They
contravene the equal protection clause as well because the CWT is being levied upon real
estate enterprises but not on other business enterprises, more particularly those in the
manufacturing sector.

ISSUE:

Whether the imposition of the MCIT on domestic corporations and CWT on income from sales
of real properties classified as ordinary assets are unconstitutional.

RULING:

NO. MCIT is not violative of due process. The MCIT is imposed on gross income which is
arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost
of goods and other direct expenses from gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal
net income tax, and only if the normal income tax is suspiciously low. The MCIT merely
approximates the amount of net income tax due from a corporation, pegging the rate at a very
much reduced 2% and uses as the base the corporation’s gross income.

It is also stressed that the CWT is creditable against the tax due from the seller of the property
at the end of the taxable year. The seller will be able to claim a tax refund if its net income is
less than the taxes withheld. Nothing is taken that is not due so there is no confiscation of
property repugnant to the constitutional guarantee of due process. More importantly, the due
process requirement applies to the power to tax. The CWT does not impose new taxes nor
does it increase taxes. It relates entirely to the method and time of payment. Petitioner, in
insisting that its industry should be treated similarly as manufacturing enterprises, fails to realize
that what distinguishes the real estate business from other manufacturing enterprises,
for purposes of the imposition of the CWT, is not their production processes but the
prices of their goods sold and the number of transactions involved. The income from the
sale of a real property is bigger and its frequency of transaction limited, making it less
cumbersome for the parties to comply with the withholding tax scheme.

4. PAGCOR vs. BIR, GR No. 172087, 15 March 2011

FACTS:
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977.
Simultaneous to its creation, P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued
exempting PAGCOR from the payment of any type of tax, except a franchise tax of five percent
(5%) of the gross revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding
the scope of PAGCOR's exemption.5
To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No.
18696 was issued. PAGCOR's tax exemption was removed in June 1984 through P.D. No.
1931, but it was later restored by Letter of Instruction No. 1430, which was issued in September
1984. On January 1, 1998, R.A. No. 8424,8 otherwise known as the National Internal Revenue
Code of 1997, took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned
and controlled corporations (GOCCs) shall pay corporate income tax, except petitioner
PAGCOR, the Government Service and Insurance Corporation, the Social Security System,
the Philippine Health Insurance Corporation, and the Philippine Charity Sweepstakes Office.

With the enactment of R.A. No. 933710 on May 24, 2005, certain sections of the National
Internal Revenue Code of 1997 were amended. The particular amendment that is at issue in
this case is Section 1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal
Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that are
exempt from payment of corporate income tax.

Different groups came to this Court via petitions for certiorari and prohibition11 assailing the
validity and constitutionality of R.A. No. 9337, in particular:

Section 4, Section 5, and Section 6, were alleged to be violative of Section 28 (2), Article VI of
the Constitution, which section vests in Congress the exclusive authority to fix the rate of taxes,
and of Section 1, Article III of the Constitution on due process, as well as of Section 26 (2),
Article VI of the Constitution, which section provides for the "no amendment rule" upon the last
reading of a bill. Sections 8 and 12 were alleged to be violative of Section 1, Article III of the
Constitution, or the guarantee of equal protection of the laws, and Section 28 (1), Article VI of
the Constitution; On September 1, 2005, the Court dismissed all the petitions and upheld the
constitutionality of R.A. No. 9337.12 On the same date, respondent BIR issued Revenue
Regulations (RR) No. 16-2005,13 specifically identifying PAGCOR as one of the franchisees
subject to 10% VAT imposed under Section 108 of the National Internal Revenue Code of 1997,
as amended by R.A. No. 9337.

Hence, the present petition for certiorari.

ISSUE:
The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT
with the enactment of R.A. No. 9337.

RULING:
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue
Code of 1977, petitioner is no longer exempt from corporate income tax as it has been
effectively omitted from the list of GOCCs that are exempt from it. Taxation is the rule and
exemption is the exception.23 The burden of proof rests upon the party claiming exemption to
prove that it is, in fact, covered by the exemption so claimed.24 Exemptions must be shown to
exist clearly and categorically, and supported by clear legal provision.26 In this case, PAGCOR
failed to prove that it is still exempt from the payment of corporate income tax, considering that
Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of
1997 by omitting PAGCOR from the exemption.
The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to
require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR
from exemption from the payment of corporate income tax. 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.27 PAGCOR
cannot find support in the equal protection clause of the Constitution, as the legislative records
of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on Ways and
Means, show that PAGCOR’s exemption from payment of corporate income tax, as provided
in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue Code of 1997, was not
made pursuant to a valid classification based on substantial distinctions and the other
requirements of a reasonable classification by legislative bodies, so that the law may operate
only on some, and not all, without violating the equal protection clause. The legislative records
show that the basis of the grant of exemption to PAGCOR from corporate income tax was
PAGCOR’s own request to be exempted.

The non-impairment clause is limited in application to laws that derogate from prior acts or
contracts by enlarging, abridging or in any manner changing the intention of the parties.29 There
is impairment if a subsequent law changes the terms of a contract between the parties, imposes
new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement
of the rights of the parties.30 As regards franchises, Section 11, Article XII of the
Constitution31 provides that no franchise or right shall be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the Congress when the common
good so requires.32 In this case, PAGCOR was granted a franchise and under Section 11,
Article XII of the Constitution, PAGCOR’s franchise is subject to amendment, alteration or
repeal by Congress such as the amendment under Section 1 of R.A. No. 9377. Hence, the
provision in Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by
withdrawing the exemption of PAGCOR from corporate income tax, which may affect any
benefits to PAGCOR’s transactions with private parties, is not violative of the non-impairment
clause of the Constitution.

Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR
to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it
provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal
of petitioner's exemption from the payment of corporate income tax, which was already
addressed above by this Court.

It is settled rule that in case of discrepancy between the basic law and a rule or regulation
issued to implement said law, the basic law prevails, because the said rule or regulation cannot
go beyond the terms and provisions of the basic law. 43RR No. 16-2005, therefore, cannot go
beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No.
9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-
2005; hence, the said regulatory provision is hereby nullified.

WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337,
amending Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner
Philippine Amusement and Gaming Corporation from the enumeration of government-owned
and controlled corporations exempted from corporate income tax is valid and constitutional,
while BIR Revenue Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is
null and void for being contrary to the National Internal Revenue Code of 1997, as amended by
Republic Act No. 9337.

5. CIR vs. Fortune Tobacco Corporation, G.R. No. 180006, 28 September 2011

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.

ISSUES:

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

part of the CIR.

2. Whether or not Fortune Tobacco is entitled to tax refund.

RULING:
1. 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.


2. Yes. Although tax refund partakes the nature of a tax exemption, this rule does not apply to
Fortune Tobacco’s claim. The parity between tax refund and tax exemption exists only when
the former is based either on a tax exemption statute or a tax refund statute. In the present
case, Fortune Tobacco’s claim for refund is premised on its erroneous payment of the tax, or
the government’s exaction in the absence of a law.

Tax exemption is granted by the legislature thus, the one who claims an exemption from the
burden of taxation must justify his claim by showing that the legislature intended to exempt him
by words too plain to be mistaken. In the same manner, a claim for tax refund may also be
based on statutes granting tax exemption or tax refund. In this case, the rule of strict
interpretation against the taxpayer is applicable as the claim for refund partakes of the nature
of an exemption.

However, tax refunds (or tax credits) are not founded principally on legislative grant but on the
legal principle of solutio indebiti, the government cannot unjustly enrich itself at the expense
of the taxpayers. Under the Tax Code, in recognition of the pervasive quasi-contract principle,
a claim for tax refund may be based on the following:
(a) erroneously or illegally assessed or collected internal revenue taxes;
(b) penalties imposed without authority; and
(c) any sum alleged to have been excessive or in any manner wrongfully collected.

6. CIR vs. CA,YMCA Gr NO. 123043

FACTS:
1. Young Men’s Christian Association of the Philippines, Inc. is a non-stock, non-profit
institution which conducts various programs and activities that are beneficial to the public,
 especially the young people, pursuant to its religious, educational and charitable
objectives.

2. In 1980, the private respondent earned, among others an income from the leasing out of
a portion of its premises to small shop owners, like restaurants and canteen operators
and parking fees collected from non-members.

3. CIR issued an assessment to private respondent for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and deficiency withholding
tax on wages. Private respondent protested the assessment. CIR denied the claims of
YMCA considering that it was no engaged in the business of operating or contracting
parking lot as it is only for members with stickers. The rentals and parking fees were only
enough to cover the costs of operation and maintenance.

4. CIR elevated the case to the CA who decided in favor of CIR, reversing the CTA decision.
YMCA asked for reconsideration, which CA granted. CTA decision now affirmed.

5. CIR then filed motion for reconsideration which was denied by CA.

ISSUE:
WON the income derived from the rentals of real property owned by YMCA (a welfare,
educational and charitable non-profit corporation) is subject to income tax under NIRC and the
constitution.

RULING:
YES. The exemption claimed by YMCA is expressly disallowed by the very wording of the last
paragraph of the then section 27 of the NIRC which mandates that the income of exempt
organizations (such as the YMCA) from any of their properties, real or personal, be subject to
the tax imposed by the same Code. The last paragraph of said section unequivocally subjects
to tax the rent income of the YMCA from its real property. Thus the Court is duty-bound to abide
strictly by its literal meaning and to refrain from resorting to any convoluted attempt at
construction.

The CA committed reversible error when it allowed on reconsideration, the tax exemption
claimed by YMCA on income it derived from renting out its real property, on the solitary but
unconvincing ground that the said income is not collected for profit byt is merely incidental to
its operation. The law does not make a distinction. The rental income is taxable regardless of
whence such income is derived and how it is used or disposed of. Where the law does not
distinguish, neither should we.

On YMCA’s argument that the constitution gives tax exemption on charitable institutions, the
Court is not persuaded. Justice Hilario Davide, Jr., stressed during the Concom debates that
“…what is exempted is not the institution itself…; those exempted from real estate taxes are
lands, buildings and improvements actually, directly and exclusively used for religious
charitable or education purposes.” Father Joaquin Bernas adhered to the same view (in short,
only property taxes).
YMCA is only exempt from payment of property tax, but not income tax on the rentals from its
property. Laws allowing tax exemptions are construed strictissimi juris as taxes are the lifeblood
of the government.

ADDITIONAL: For YMCA to be granted the exemption it claims, it must prove with substantial
evidence that 1) it falls under the classification non-stock, non-profit educational institution; and
2) the income it seeks to be exempted from taxation is used actually, directly and exclusively
for educational purposes. Such was not proven by the YMCA.

Sec. 27 of the NIRC (NOW SEC. 26) provides:

Exemptions from tax on corporations- the following organizations shall not be taxed under this
title in respect to income received by them as such-

(g) Civic league organization not organized for profit but operated exclusively for the promotion
of social welfare
(h) club organized and operated exclusively for pleasure, recreation, and other non-profittable
purposes, no part of the net income of which inures to the benefit of any private stockholder or
member

xxx

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organization from any of their properties, real or personal, or from
any of their activities conducted for profit, regardless of the disposition made of such income,
shall be subject to the tax imposed under this code.

The CA decision is reversed.

7. CIR VS. DLSU, GR NO,196596, 9 Nov 2016; La Sallian Educational

Innovators Foundation vs. CIR,GR No. 202792, 27 Feb 2019

FACTS:
• BIR issued to DLSU Letter of Authority (LOA) No. 2794 authorizing its revenue officers to
examine the latter's books of accounts and other accounting records for all internal revenue
taxes for the period Fiscal Year Ending 2003 and Unverified Prior Years
• May 19, 2004, BIR issued a Preliminary Assessment Notice (PAN) to DLSU.
• August 18, 2004, the BIR through a Formal Letter of Demand assessed DLSU the following
deficiency taxes: (1) income tax on rental earnings from restaurants/canteens and
bookstores operating within the campus;
(2) value-added tax (VAT) on business income; and
(3) documentary stamp tax (DST) on loans and lease contracts.
• The BIR demanded the payment of P17,303,001.12, inclusive of surcharge, interest and
penalty for taxable years 2001, 2002 and 2003.
• DLSU protested the assessment. The Commissioner failed to act on the protest; thus, DLSU
filed petition for review with the CTA Division
CTA Division and CTA En Banc: DST assessment on the loan transactions but retained other
deficiency taxes. CTA En Banc ruled the ff:

Tax on rental income

DLSU was able to prove that a portion of the assessed rental income was used actually, directly
and exclusively for educational purposes; hence, exempt from tax. Rental income had indeed
been used to pay the loan it obtained to build the university's Physical Education - Sports
Complex.
However, other unsubstantiated claim for exemption must be subjected to income tax and VAT.

DST on loan and mortgage transactions

Contrary to the Commissioner's contention, DLSU proved its remittance of the DST due on its
loan and mortgage documents, evidenced by the stamp on the documents made by a DST
imprinting machine.

Admissibility of DLSU's supplemental evidence

Supplemental pieces of documentary evidence were admissible even if DLSU formally offered
them upon MR. Law creating the CTA provides that proceedings before it shall not be governed
strictly by the technical rules of evidence. (Affirmed by SC)

On the validity of the Letter of Authority

LOA should cover only one taxable period and that the practice of issuing a LOA covering audit
of unverified prior years is prohibited. If the audit includes more than one taxable period, the
other periods or years shall be specifically indicated in the LOA.
In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. Hence, the assessments for deficiency income tax, VAT and DST for taxable years
2001 and 2002 are void, but the assessment for taxable year 2003 is valid.

On the CTA Division's appreciation of the evidence

The CTA En Banc affirmed the CTA Division's appreciation of DLSU's evidence. It held that
while DLSU successfully proved that a portion of its rental income was transmitted and used to
pay the loan obtained to fund the construction of the Sports Complex, the rental income from
other sources were not shown to have been actually, directly and exclusively used for
educational purposes. (Affirmed by SC)

ISSUE #1: Whether DLSU's income and revenues proved to have been used actually, directly
and exclusively for educational purposes are exempt from duties and taxes

CIR’s Arguments:
DLSU's rental income is taxable regardless of how such income is derived, used or disposed
of. Section 30 (H) of the Tax Code, which states among others, that the income of whatever
kind and character of a non-stock and non-profit educational institution from any of its
properties, real or personal, or from any of its activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax. Commissioner posits that a tax-
exempt organization like DLSU is exempt only from property tax but not from income tax on the
rentals earned from property.
DLSU’s Arguments:
Article XIV, Section 4 (3) of the Constitution is clear that all assets and revenues of non-stock,
non-profit educational institutions used actually, directly and exclusively for educational
purposes are exempt from taxes and duties.

HELD: Article XIV, Section 4 (3) of the Constitution refers to 2 kinds of institutions; (1) non-
stock, non-profit educational institutions and (2) proprietary educational institutions. DLSU falls
on the first category. The difference is that The tax exemption granted to non-stock, non-profit
educational institutions is conditioned only on the actual, direct and exclusive use of their
revenues and assets for educational purposes. While tax exemptions may also be granted to
proprietary educational institutions, these exemptions may be subject to limitations imposed by
Congress.

The tax exemption granted by the Constitution to non-stock, non-profit educational institutions,
unlike the exemption that may be availed of by proprietary educational institutions, is not subject
to limitations imposed by law.

Article XIV, Section 4 (3) does not require that the revenues and income must have also been
sourced from educational activities or activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any reference to the source of revenues.
Thus, so long as the revenues and income are used actually, directly and exclusively for
educational purposes, then said revenues and income shall be exempt from taxes and
duties.

Court laid down the requisites for availing the tax exemption under Article XIV, Section 4
(3), namely:
(1) the taxpayer falls under the classification non-stock, non-profit educational institution; and
(2) the income it seeks to be exempted from taxation is used actually, directly and exclusively
for educational purposes.

We find that unlike Article VI, Section 28 (3) of the Constitution (pertaining to charitable
institutions, churches, parsonages or convents, mosques, and non-profit cemeteries), which
exempts from tax only the assets, i.e., "all lands, buildings, and improvements, actually,
directly, and exclusively used for religious, charitable, or educational purposes...," Article XIV,
Section 4 (3) categorically states that "all revenues and assets... used actually, directly, and
exclusively for educational purposes shall be exempt from taxes and duties."

ISSUE #2: Whether the entire assessment should be voided because of the defective LOA

DLSU’s Argument:
First, RMO No. 43-90 prohibits the practice of issuing a LOA with any indication of unverified
prior years. An assessment issued based on such defective LOA must also be void.
CIR’s Argument:
Commissioner submits that DLSU is estopped from questioning the LOA's validity because it
failed to raise this issue in both the administrative and judicial proceedings.

RULING: The LOA issued to DLSU is not entirely void. The assessment for taxable year 2003
is valid.
A LOA is the authority given to the appropriate revenue officer to examine the books of account
and other accounting records of the taxpayer in order to determine the taxpayer's correct
internal revenue liabilities and for the purpose of collecting the correct amount of tax, in
accordance with Section 5 of the Tax Code, which gives the CIR the power to obtain
information, to summon/examine, and take testimony of persons. The LOA commences the
audit process and informs the taxpayer that it is under audit for possible deficiency tax
assessment.

What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified
prior years. RMO 43-90 does not say that a LOA which contains unverified prior years is void.
It merely prescribes that if the audit includes more than one taxable period, the other periods
or years must be specified.

In the present case, the LOA issued to DLSU is for Fiscal Year Ending 2003 and Unverified
Prior Years. The LOA does not strictly comply with RMO 43-90 because it includes unverified
prior years. This does not mean, however, that the entire LOA is void. As the CTA correctly
held, the assessment for taxable year 2003 is valid because this taxable period is specified in
the LOA. DLSU was fully apprised that it was being audited for taxable year 2003. Corollarily,
the assessments for taxable years 2001 and 2002 are void for having been unspecified on
separate LOAs as required under RMO No. 43-90.

Wherefore, SC denied the petition of CIR and affirmed the ruling of CTA En Banc.

8. Abra Valley College Inc. vs. Aquino, GR No. L-39086, June 15, 1988;
Herrera vs. QC BOAA; Lung Center of the Philippines vs. QC, G.R. No.
144104. June 29, 2004

FACTS: Petitioner, an educational corporation and institution of higher learning duly

incorporated with the Securities and Exchange Commission in 1948, filed a complaint to annul
and declare void the “Notice of Seizure’ and the “Notice of Sale” of its lot and building located
at Bangued, Abra, for non-payment of real estate taxes and penalties amounting to P5,140.31.
Said “Notice of Seizure” by respondents Municipal Treasurer and Provincial Treasurer,
defendants below, was issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in
its questioned decision. The trial court ruled for the government, holding that the second floor
of the building is being used by the director for residential purposes and that the ground floor
used and rented by Northern Marketing Corporation, a commercial establishment, and thus the
property is not being used exclusively for educational purposes. Instead of perfecting an appeal,
petitioner availed of the instant petition for review on certiorari with prayer for preliminary
injunction before the Supreme Court, by filing said petition on 17 August 1974.

ISSUE: Whether or not the lot and building are used exclusively for educational purposes.
RULING: No. Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution,
expressly grants exemption from realty taxes for cemeteries, churches and parsonages or
convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable or educational purposes. Reasonable emphasis has always been made
that the exemption extends to facilities which are incidental to and reasonably necessary for
the accomplishment of the main purposes. The use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence. In the case at bar, the lease of
the first floor of the building to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of education. The test of exemption from
taxation is the use of the property for purposes mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of
the assessed tax be returned to the petitioner. The modification is derived from the fact that the
ground floor is being used for commercial purposes (leased) and the second floor being used
as incidental to education (residence of the director).

9. Mandanas, et al. v. Executive Secretary, et al., GR Nos. 199802 and

208488, 3 July 2018; MR: 10 April 2019

FACTS:

One of the key features of the 1987 Constitution is its push towards decentralization
of government and local autonomy. Local autonomy has two facets, the
administrative and the fiscal.
Implementing the constitutional mandate for decentralization and local autonomy,
Congress enacted Republic Act No. 7160, otherwise known as the Local
Government Code (LGC).
The share of the LGUs, heretofore known as the Internal Revenue Allotment (IRA),
has been regularly released to the LGUs. According to the implementing rules and
regulations of the LGC, the IRA is determined on the basis of the actual collections
of
the National Internal Revenue Taxes (NIRTs) as certified by the Bureau of Internal
Revenue (BIR).
Mandanas, et al. allege herein that certain collections of NIR Ts by the Bureau of
Customs (BOC) - specifically: excise taxes, value added taxes (VATs) and
documentary stamp taxes (DSTs) - have not been included in the base amounts for
the computation of the IRA; that such taxes, albeit collected by the BOC, should form
part of the base from which the IRA should be computed because they constituted
NIRTs; that, consequently, the release of the additional amount of
₱60,750,000,000.00 to the LGUs as their IRA for FY 2012 should be ordered; and
 that for the same reason the LGUs should also be released their unpaid IRA for FY
1992 to FY 2011, inclusive, totaling ₱438,103,906,675.73.

ISSUES:
1. Is Section 284 of the LGC unconstitutional for being repugnant to Section 6, Article X
of the 1987 Constitution? YES.
2. Can the LGUs’ just share in the national taxes be automatically released without the need of
an appropriation? YES.

RULING:

1. There is no issue as to what constitutes the LGUs' just share expressed in percentages of
the national taxes (i.e.,30%, 35% and 40% stipulated in subparagraphs (a), (b), and (c) of
Section 284 ). Yet, Section 6, supra, mentions national taxes as the source of the just share of
the LGUs while Section 284 ordains that the share of the LG Us be taken from national internal
revenue taxes instead. Although the power of Congress to make laws is plenary in nature,
congressional lawmaking remains subject to the limitations stated in the 1987 Constitution.

The phrase national internal revenue taxes engrafted in Section 284 is undoubtedly more
restrictive than the term national taxes written in Section 6. As such, Congress has actually
departed from the letter of the 1987 Constitution stating that national taxes should be the base
from which the just share of the LGU comes. Such departure is impermissible. Verba legis non
est recedendum (from the words of a statute there should be no departure). Equally
impermissible is that Congress has also thereby curtailed the guarantee of fiscal autonomy in
favor of the LGUs under the 1987 Constitution.

Although it has the primary discretion to determine and fix the just share of the LGUs in the
national taxes (e.g., Section 284 of the LGC), Congress cannot disobey the express mandate
of Section 6, Article X of the 1987 Constitution for the just share of the LGUs to be derived from
the national taxes. The phrase as determined by law in Section 6 follows and qualifies the
phrase just share, and cannot be construed as qualifying the succeeding phrase in the national
taxes. The intent of the people in respect of Section 6 is really that the base for reckoning the
just share of the LGUs should include all national taxes. To read Section 6 differently as
requiring that the just share of LGUs in the national taxes shall be determined by law is
tantamount to the unauthorized revision of the 1987 Constitution.

2. Section 6, Article X of the 1987 Constitution commands that the just share of the LGUs in
national taxes shall be automatically released to them. The term automatic connotes something
mechanical, spontaneous and perfunctory; and, in the context of this case, the LGUs are not
required to perform any act or thing in order to receive their just share in the national taxes.
Section 6 does not mention of appropriation as a condition for the automatic release of the just
share to the LGUs. This is because Congress not only already determined the just share
through the LGC's fixing the percentage of the collections of the NIRTs to constitute such fair
share subject to the power of the President to adjust the same in order to manage public sector
deficits subject to limitations on the adjustments, but also explicitly authorized such just share
to be "automatically released" to the LGUs in the proportions and regularity set under Section
285 of the LGC without need of annual appropriation. The 1987 Constitution is forthright and
unequivocal in ordering that the just share of the LGUs in the national taxes shall be
automatically released to them. With Congress having established the just share through the
LGC, it seems to be beyond debate that the inclusion of the just share of the LGUs in the annual
GAAs is unnecessary, if not superfluous. Hence, the just share of the LGUs in the national
taxes shall be released to them without need of yearly appropriation.

g. Stages or Aspects of Taxation

h. Definition, Nature and Characteristics of Taxes
i. Requisites of a Valid Tax
j. Tax vs. Other Forms of Exactions

i. Progressive Dev’t Corp. vs. Quezon City, G.R. No. L-36081, 24 April 1989

FACTS:
The City Council of QC passed an ordinance known as the Market Code of QC, which imposed
a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces
in QC. In case of failure of the owners of the market spaces to pay the tax for three consecutive
months, the City shall revoke the permit of the privately-owned market to operate. Progressive
Development Corp, owner and operator of Farmer’s Market, filed a petition for prohibition
against QC on the ground that the tax imposed by the Market Code was in reality a tax on
income, which the municipal corporation was prohibited by law to impose.

ISSUE: Whether or not the supervision fee is an income tax or a license fee.

RULING: It is a license fee. A LICENSE FEE is imposed in the exercise of the police power
primarily for purposes of regulation, while TAX is imposed under the taxing power primarily for
purposes of raising revenues. If the generating of revenue is the primary purpose and regulation
is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that
incidentally, revenue is also obtained does not make the imposition a tax. To be considered a
license fee, the imposition must relate to an occupation or activity that so engages the public
interest in health, morals, safety, and development as to require regulation for the protection
and promotion of such public interest; the imposition must also bear a reasonable relation to
the probable expenses of regulation, taking into account not only the costs of direct regulation
but also its incidental consequences.

In this case, the Farmers’ Market is a privately-owned market established for the rendition of
service to the general public. It warrants close supervision and control by the City for the
protection of the health of the public by insuring the maintenance of sanitary conditions,
prevention of fraud upon the buying public, etc. Since the purpose of the ordinance is primarily
regulation and not revenue generation, the tax is a license fee. The use of the gross amount of
stall rentals as basis for determining the collectible amount of license tax does not, by itself,
convert the license tax into a prohibited tax on income. Such basis actually has a reasonable
relationship to the probable costs of regulation and supervision of Progressive’s kind of
business, since ordinarily, the higher the amount of rentals, the higher the volume of items sold.
The higher the volume of goods sold, the greater the extent and frequency of supervision and
inspection may be required in the interest of the buying public.
[ADDITIONAL DIGEST]

FACTS: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately
owned and operated public markets to pay 10% of the gross receipts from stall rentals to the
City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which
imposed a 5% tax on gross receipts on rentals or lease of space in privately-owned public
markets in Quezon City. Progressive Development Corp., owned and operator of Farmer’s
Market and Shopping Center, filed a petition for prohibition against the city on the ground that
the supervision fee or license tax imposed is in reality a tax on income the city cannot impose.

ISSUE: Whether the supervision fee / license tax is a tax on income?

RULING: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a
city income tax (distinguished from the national income tax by the Tax Code) within the meaning
of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of
business in which the company is engaged. To be considered a license fee, the imposition must
relate to an occupation or activity that so engages the public interest in health, morals, safety
and development as to require regulations for the protection and promotion of such public
interest; the imposition must also bear a reasonable relation to the probable expenses of the
regulation, taking into account not only the costs of direct regulation but also its incidental
consequences as well. The gross receipts from stall rentals have been used only as a basis for
computing the fees or taxes due to the city to cover the latter’s administrative expenses. The
use of the gross amount of stall rentals, as basis for the determination of the collectible amount
of license tax, does not by itself convert or render the license tax into a prohibited city tax on
income. For ordinarily, the higher the amount of stall rentals, the higher the aggregate volume
of foodstuffs and related items sold in the privately owned market; and the higher the volume
of goods sold in such market, the greater extent and frequency of inspection and supervision
that may be reasonably required in the interest of the buying public.

ii. Gerochi vs. Department of Energy, GR No. 159796, 17 July 2007

[SAME AS THE ONE ABOVE BUT HERE IS ANOTHER DIGEST ANYWAY]

FACTS:
On June 8, 2001 Congress enacted RA 9136 or the Electric Power Industry Act of 2001.
Petitioners Romeo P. Gerochi and company assail the validity of Section 34 of the EPIRA Law
for being an undue delegation of the power of taxation. Section 34 provides for the imposition
of a “Universal Charge” to all electricity end users after a period of (1) one year after the
effectively of the EPIRA Law. The universal charge to be collected would serve as payment for
government debts, missionary electrification, equalization of taxes and royalties applied to
renewable energy and imported energy, environmental charge and for a charge to account for
all forms of cross subsidies for a period not exceeding three years. The universal charge shall
be collected by the ERC on a monthly basis from all end users and will then be managed by
the PSALM Corp. through the creation of a special trust fund.

ISSUE:
Whether or not there is an undue delegation of the power to tax on the part of the ERC.
RULING:
No, the universal charge as provided for in section 34 is not a tax but an exaction of the
regulatory power (police power) of the state. The universal charge under section 34 is incidental
to the regulatory duties of the ERC, hence the provision assailed is not for generation of revenue
and therefore it cannot be considered as tax, but an execution of the states police power thru
regulation.

Moreover, the amount collected is not made certain by the ERC, but by the legislative
parameters provided for in the law (RA 9136) itself, it therefore cannot be understood as a rule
solely coming from the ERC. The ERC in this case is only a specialized administrative agency
which is tasked of executing a subordinate legislation issued by congress; which before
execution must pass both the completeness test and the sufficiency of standard test. The court
in appreciating Section 34 of RA 9136 in its entirety finds the said law and the assailed portions
free from any constitutional defect and thus deemed complete and sufficient in form.

iii. Chevron Philippines, Inc. vs. BCDA, G.R. No. 173863, 15 September 2010

FACTS:
On June 28, 2002, the Board of Directors of respondent Clark Development Corporation
(CDC) issued and approved Policy Guidelines on the Movement of Petroleum Fuel to and from
the Clark Special Economic Zone. In one of its provisions, it levied royalty fees to suppliers
delivering Coastal fuel from outside sources for Php0.50 per liter for those delivering fuel to
Clark Special Economic Zone (CSEZ) locators not sanctioned by CDC and Php1.00 per litter
for those bringing-in petroleum fuel from outside sources. The policy guidelines were
implemented effective July 27, 2002.
The petitioner Chevron Philippines Inc (formerly Caltex Philippines Inc) received a
Statement of Account from CDC billing them to pay the royalty fees amounting to Php115,000
for its fuel sales from Coastal depot to Nanox Philippines from August 1 to September 21, 2002.
Petitioner, contending that nothing in the law authorizes CDC to impose royalty fees
based on a per unit measurement of any commodity sold within the special economic zone,
protested against the CDC and Bases Conversion Development Authority (BCDA). They
alleged that the royalty fees imposed had no reasonable relation to the probably expenses of
regulation and that the imposition on a per unit measurement of fuel sales was for a revenue
generating purpose, thus, akin to a “tax”.
Upon appeal, CA dismissed the case. CA held that in imposing the royalty fees, CDC
was exercising its right to regulate the flow of fuel into CSEZ under the vested exclusive right
to distribute fuel within CSEZ pursuant to its Joint Venture Agreement (JVA) with Subic Bay
Metropolitan Authority (SBMA) and Coastal Subic Bay Terminal, Inc. (CSBTI) dated April 11,
1996. The fact that revenue is incidentally also obtained does not make the imposition a tax as
long as the primary purpose of such imposition is regulation. Respondents contended that the
purpose of royalty fees is to regulate the flow of fuel to and from the CSEZ and revenue (if any)
is just an incidental product. They viewed it as a valid exercise of police power since it is aimed
at promoting the general welfare of public.

ISSUE:
Whether the act of CDC in imposing royalty fees can be considered as valid exercise of
the police power.
RULING:
Yes. SC held that CDC was within the limits of the police power of the State when it
imposed royalty fees.
In distinguishing tax and regulation as a form of police power, the determining factor is
the purpose of the implemented measure. If the purpose is primarily to raise revenue,
then it will be deemed a tax even though the measure results in some form of regulation.
On the other hand, if the purpose is primarily to regulate, then it is deemed a regulation
and an exercise of the police power of the state, even though incidentally, revenue is
generated.
In this case, SC held that the subject royalty fee was imposed for regulatory purposes and not
for generation of income or profits. The Policy Guidelines was issued to ensure the safety,
security, and good condition of the petroleum fuel industry within the CSEZ. The questioned
royalty fees form part of the regulatory framework to ensure “free flow or movement” of
petroleum fuel to and from the CSEZ. The fact that respondents have the exclusive right to
distribute and market petroleum products within CSEZ pursuant to its JVA with SBMA and
CSBTI does not diminish the regulatory purpose of the royalty fee for fuel products supplied by
petitioner to its client at the CSEZ.

iv. Angeles University Foundation vs. Angeles City, G.R. No. 189999, 27 June 2012

FACTS:
Angeles University was converted into a non-stock, non-profit education foundation under the
provisions of Republic Act (R.A.) No. 6055. Petitioner filed with the Office of the City Building
Official an application for a building permit for the construction of an 11-storey building of the
Angeles University Foundation Medical Center in its main campus the said office issue a
Building permit fee and Locational Clearance Fee. Petitioner make a letter to respondent
City Tresurer Juliet G. Quinssat and City Building Official Donato Z. Dizon alleging that it is
exempt from payment of the building permit and locational clearance fee. Petitioner also
reminded the respondent that they have previously issued building permit acknowledging such
exemption from payment of building permit fees. The DOJ and trial court render decision in
favor to petitioner for exempting in payment. But the CA reverse the decision of court in favor
to respondent. Petitioner file a MR but it was denied by CA.

ISSUE:
WON the Angeles University is exempted in Building permit fee and Locational Clearance
Fee.
RULING:
No.
Under R.A. No. 6055, petitioner was granted exemption only from income tax derived from its
educational activities and real property used exclusively for educational purposes. Regardless
of the repealing clause in the National Building Code, the CA held that petitioner is still not
exempt because a building permit cannot be considered as the other “charges” mentioned in
Sec. 8 of R.A. No. 6055 which refers to impositions in the nature of tax, import duties,
assessments and other collections for revenue purposes, following the ejusdem generisrule.
The CA further stated that petitioner has not shown that the fees collected were excessive and
more than the cost of surveillance, inspection and regulation. And while petitioner may be
exempt from the payment of real property tax, petitioner in this case merely alleged that “the
subject property is to be used actually, directly and exclusively for educational purposes,”
declaring merely that such premises is intended to house the sports and other facilities of the
university but by reason of the occupancy of informal settlers on the area, it cannot yet utilize
the same for its intended use. Thus, the CA concluded that petitioner is not entitled to the
refund of building permit and related fees, as well as real property tax it paid under protest.

R.A. No. 6055 granted tax exemptions to educational institutions like petitioner which converted
to non-stock, non-profit educational foundations. Section 8 of said law provides:
SECTION 8. The Foundation shall be exempt from the payment of all taxes, import duties,
assessments, and other charges imposed by the Government onall income derived from or
property, real or personal, used exclusively for the educational activities of the
Foundation.(Emphasis supplied.)

A “charge” is broadly defined as the “price of, or rate for, something,” while the word “fee”
pertains to a “charge fixed by law for services of public officers or for use of a privilege under
control of government.” As used in the Local Government Code of 1991 (R.A. No. 7160),
charges refers to pecuniary liability, as rents or fees against persons or property, whilefee
means a charge fixed by law or ordinance for the regulation or inspection of a business or
activity.

k. Kinds of Taxes
l. Situs of Taxation
m. Construction and Interpretation

i. CIR vs. Puregold Duty Free, Inc. G.R. No. 202789, June 22, 2015

SUMMARY: Puregold is engaged in the sale of various consumer goods exclusively within the
Clark Special Economic Zone (CSEZ). certificates were issued pursuant to Sec. 5 of Executive
Order No. (EO) 80,5 extending to business enterprises operating within the CSEZ all the
incentives granted to enterprises within the Subic Special Economic Zone (SSEZ) under RA
7227, otherwise known as the "Bases Conversion and Development Act of 1992. Thus,
Puregold only paid the preferential tax of 5%. However, in a latter ruling (Coconut Oil case), the
SC annulled the tax incentives of Sec. 5 EO 80. Thereafter, Congress enacted RA 9399 to
grant tax amnesty to those affected by the SC ruling. Puregold complied with the requirements
of the tax amnesty but the BIR still imposed taxes. The CTA ruled in favor of Puregold. The SC
also ruled in favor of Puregold.

FACTS:
Puregold is engaged in the sale of various consumer goods exclusively within the Clark Special
Economic Zone (CSEZ), and operates its store under the authority and jurisdiction of Clark
Development" Corporation (CDC) and CSEZ.

As an enterprise located within CSEZ and registered with the CDC, Puregold had been issued
Certificate of Tax Exemption No. 94-4, later superseded by Certificate of Tax Exemption No.
98-54, which enumerated the tax incentives granted to it, including tax and duty-free importation
of goods. The certificates were issued pursuant to Sec. 5 of Executive Order No. (EO)
80, extending to business enterprises operating within the CSEZ all the incentives granted to
enterprises within the Subic Special Economic Zone (SSEZ) under RA 7227, otherwise known
as the "Bases Conversion and Development Act of 1992."

Notably, Sec. 12 of RA 7227 provides duty-free importations and exemptions of businesses

within the SSEZ from local and national taxes. Thus, in accordance with the tax exemption
certificates granted to respondent Puregold, it filed its Annual Income Tax Returns and paid the
five percent (5%) preferential tax, in lieu of all other national and local taxes for the period of
January 1998 to May 2004.

On July 25, 2005, in Coconut Oil Refiners v. Torre, however, this Court annulled the adverted
Sec. 5 of EO 80, in effect withdrawing the preferential tax treatment heretofore enjoyed by all
businesses located in the CSEZ.

On November 7, 2005, then Deputy Commissioner for Special Concerns/OIC-Large Taxpayers

Service of the Bureau of Internal Revenue (BIR) Kim Jacinto-Henares issued a Preliminary
Assessment Notice regarding unpaid VAT and excise tax on wines, liquors and tobacco
products imported by Puregold from January 1998 to May 2004. In due time, Puregold
protested the assessment.

Pending the resolution of Puregold's protest, Congress enacted RA 9399, specifically to grant
a tax amnesty to business enterprises affected by this Court's rulings in John Hay People's
Coalition v. Limand Coconut Oil Refiners. Under RA 9399, availment of the tax amnesty relieves
the qualified taxpayers of any civil, criminal and/or administrative liabilities arising from, or
incident to, nonpayment of taxes, duties and other charges.

On July 27, 2007, Puregold availed itself of the tax amnesty under RA 9399, filing for the
purpose the necessary requirements and paying the amnesty tax.

Nonetheless, on October 26, 2007, Puregold received a formal letter of demand from the BIR
for the payment of Two Billion Seven Hundred Eighty Million Six Hundred Ten Thousand One
Hundred Seventy-Four Pesos and Fifty-One Centavos (P2,780,610,174.51), supposedly
representing deficiency VAT and excise taxes on its importations of alcohol and tobacco
products from January 1998 to May 2004.

In its response-letter, Puregold, thru counsel, requested the cancellation of the assessment on
the ground that it has already availed of the tax amnesty under RA 9399. This notwithstanding,
the BIR issued on June 23, 2008 a Final Decision on Disputed Assessment stating that the
availment of the tax amnesty under RA 9399 did not relieve Puregold of its liability for deficiency
VAT, excise taxes, and inspection fees under Sec. 13l(A) of the 1997 National Internal Revenue
Code (1997 NIRC).

ISSUE: Whether or not Puregold is entitled to avail of the tax amnesty under RA 9399.

RULING:

The allegation of the CIR regarding the principal place of business of Puregold cannot be
considered on appeal; Puregold is entitled to avail of the tax amnesty under RA 9399
It is well settled that matters that were neither alleged in the pleadings nor raised during the
proceedings below cannot be ventilated for the first time on appeal13 and are barred by
estoppel.14 To allow the contrary would constitute a violation of the other party's right to due
process, and is contrary to the principle of fair play. In Ayala Land Incorporation v. Castillo,15
this Court held that:

It is well established that issues raised for the first time on appeal and not raised in the
proceedings in the lower court are barred by estoppel. Points of law, theories, issues, and
arguments not brought to the attention of the trial court ought not to be considered by a
reviewing court, as these cannot be raised for the first time on appeal. To consider the alleged
facts and arguments belatedly raised would amount to trampling on the basic principles of fair
play, justice, and due process.

During the proceedings in the CTA, the CIR never challenged Puregold's eligibility to avail of
the tax amnesty under RA 9399 on the ground that its principal place of business, per its Articles
of Incorporation, is in Metro Manila and not in Clark Field, Pampanga.

RA 9399, as couched, does not prescribe that the amnesty-seeking taxpayer has its principal
office inside the CSEZ. It merely requires that such taxpayer be registered and operatingwithin
the said zone, stating that "registered business enterprises operating x x x within the special
economic zones and freeports created pursuant to Section 15 of Republic Act No. 7227, as
amended, such as the Clark Special Economic Zone x x x may avail themselves of the benefits
of remedial tax amnesty herein granted."

The following evidence also satisfactorily show that Puregold has been selling its goods
exclusively within the CSEZ: (1) Exhibit "T' - Puregold's BIR Certificate of Registration; (2)
Exhibits "U", "U-1" to "U-16" Several BIR Permits issued to Puregold for use of cash registers;
and (3) Exhibit "W"- BIR Certification that Puregold has no branch.

Clearly, the location of Puregold's principal office is not, standing alone, an argument against
its availment of the tax amnesty under RA 9399 because there is no question that its
actual operations were within the jurisdiction of the CSEZ.

RA 9399 grants amnesty from liability to pay VAT and excise tax under Section 131 of the 1997
NIRC
Anent the second error raised by petitioner, it is worth noting that the CTA has ruled that the
amnesty provision of RA 9399 covers the deficiency taxes assessed on Puregold and rejected
the arguments raised on the matter by the CIR. It cannot be emphasized enough that the
findings of the CTA merit utmost respect, considering that its function is by nature dedicated
exclusively to the consideration of tax problems. The Court said as much in Toshiba v.
Commissioner of Internal Revenue:

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA
with the highest respect. In Sea-Land Service Inc. v. Court of Appeals, [G.R. No. 122605, 30
April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals,
which by the very nature of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject, and its conclusions will not
be overturned unless there has been an abuse or improvident exercise of authority. Such
findings can only be disturbed on appeal if they are not supported by substantial evidence or
there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any
clear and convincing proof to the contrary, this Court must presume that the CTA rendered a
decision which is valid in every respect.

The petitioner, however, would have this Court rule that Puregold's liability to pay the assessed
deficiency taxes remains since these were not incurred by respondent due to this Court's
decisions in John
Hay and Coconut Oil, but are clearly imposable taxes and duties on
Puregold's importation of alcohol and tobacco products under the 1997 NIRC. As adopted by
the dissent, it is the CIR's position that even without the aforesaid rulings, respondent as a non-
chartered SEZ remains liable for the payment of VAT and excise taxes on its importation of
alcohol and tobacco products from January 1998 to May 2004.

We cannot sanction the CIR's position as it would amount to nothing less than an emasculation
of an otherwise clear and valid law RA 9399. Clearly, if the Court would uphold the CIR's
argument that even before the rulings in John Hay and Coconut Oil, respondent's duty-free
privileges were already withdrawn by the 1997 NIRC, this Court would in effect be negating the
remedial measure contemplated in RA 9399 against these rulings.

Furthermore, to review the factual milieu, Puregold enjoyed duty free importations and
exemptions from local and national taxes under EO 80, a privilege which extended to business
enterprises operating within the CSEZ all the incentives granted to enterprises within SSEZ by
RA 7227. Hence, Puregold was repeatedly issued tax exemption certificates and the BIR itself
did not assess any deficiency taxes from the time the 1997 NIRC took effect in January 1998.

Had the BIR believed that these tax incentives were already withdrawn, it would have
immediately assessed the required tax deficiency assessments against Puregold after the
promulgation of the 1997 NIRC. Yet, the BIR itself, one year after the 1997 NIRC took
effect, confirmed through BIR Ruling No. 149-99 signed by then CIR Beethoven L. Rualo that
the tax incentives extended to CSEZ operators by EO 80 were not affected by the 1997 NIRC:

While E.O. 80 and R.A. No. 7227, as implemented by Revenue Regulations No. 1-95, and as
further implemented by 12-97, were approved and made effective prior to January 1, 1998, the
date of effectivity of R.A. No. 8424, otherwise known as the Tax Code of 1997, the same are not
covered by the above cited repealing provision of the said Code. Since it is settled that a special
and local statute, providing for a particular case or class of cases, is not repealed by a
subsequent statute, general in its terms, provisions and applications, unless the intent to repeal
or alter is manifest, although the terms of the general law are broad enough to include the cases
embraced in the special law. It is a canon of statutory construction that a later statute, general
in its terms and not expressly repealing prior special statute, will ordinarily not affect the special
provisions of such earlier statute. (Steamboat Company vs. Collector, 18 Wall (US)., 478; Cass
County vs. Gillet, 100 US 585; Minnesota vs. Hitchcock, 185 US 373, 396)

Such being the case, the special income tax regime or tax incentives granted to enterprises
registered within the secured area o( Subic and Clark Special Economic Zones have not been
repealed by R.A. 8424. (emphasis supplied)

A holding to the contrary, as proposed by the dissent, will only perpetuate the nauseating,
revolting, and circuitous exercise of governmental departments limiting, offsetting, and
ultimately cancelling each other's official acts and enactments. Consider: in Coconut Oil, this
Court annulled Sec. 5 of EO 80; then, Congress enacted RA 9399 to offset the full effect of
such annulment by granting an amnesty; and, now, the petition would have this Court nullify
the amnesty in RA 9399 by withdrawing the protection extended by the law to CSEZ operators
from its liabilities for the period prior to the promulgation of John Hay and Coconut Oil.

WHEREFORE, the instant petition is DENIED and the May 9, 2012 Decision and July 18, 2012
Resolution of the Court of Tax Appeals (CTA) en banc in CTA EB No. 723 (CTA Case No.
7812) are hereby AFFIRMED.

Accordingly, the assessment against respondent Puregold Duty Free, Inc. in the amount of Two
Billion Seven Hundred Eighty Million Six Hundred Ten Thousand One Hundred Seventy-Four
Pesos and Fifty-One Centavos (P2,780,610,174.51), supposedly representing deficiency value
added tax (VAT) and excise taxes on its importations of alcohol and tobacco products from
January 1998 to May 2004, is hereby CANCELLED and SET ASIDE.

n. Sources of Tax Laws