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Taxation
TAX EXEMPTION
 It is the grant of immunity, express or implied, to particular persons or
corporations or to persons or corporations of a particular class from a tax
which persons and corporations generally within the same state or taxing
district are obliged to pay.
 It is an immunity or privilege.
 It is a freedom from a financial charge or burden to which others are
subjected.
 It is strictly construed against the tax payer.
 It is the freedom from the imposition and payment of a particular tax as the
government waives their right to collect of amounts that would have been
collectible under our tax laws.

In General
 John Hay Special Economic Zone v. Lim, 414 SCRA 356
 FACTS: Then President Ramos issued Proclamation No. 420 which created the John
Hay Special Economic Zone pursuant to Republic Act No. 7227 entitled Bases and
Development Act of 1992. Republic Act No. 7227 created the Subic Special
Economic Zone and granted it exemptions from local and national taxes.
Proclamation No. 420 also grants tax exemptions similar to that which is
granted to the Subic SEZ by RA 7227.
 ISSUE: Is RA 7277 constitutional?
 RULING: No. While the grant of economic incentives may be essential to the
creation and success of SEZs, free trade zones and the like, the grant thereof
to the John Hay SEZ cannot be sustained. The incentives under R.A. No. 7227
are exclusive only to the Subic SEZ, hence, the extension of the same to the
John Hay SEZ finds no support therein. Neither does the same grant of
privileges to the John Hay SEZ find support in the other laws specified under
Section 3 of Proclamation No. 420, which laws were already extant before the
issuance of the proclamation or the enactment of R.A. No. 7227.
 More importantly, the nature of most of the assailed privileges is one of tax
exemption. It is the legislature, unless limited by a provision of the state
constitution that has full power to exempt any person or corporation or class
of property from taxation, its power to exempt being as broad as its power to
tax. Other than Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on exemption only from
local taxes. The challenged grant of tax exemption would circumvent the
Constitution's imposition that a law granting any tax exemption must have the
concurrence of a majority of all the members of Congress. In the same vein,
the other kinds of privileges extended to the John Hay SEZ are by tradition
and usage for Congress to legislate upon. Contrary to public respondents'
suggestions, the claimed statutory exemption of the John Hay SEZ from taxation
should be manifest and unmistakable from the language of the law on which it
is based; it must be expressly granted in a statute stated in a language too
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clear to be mistaken. Tax exemption cannot be implied as it must be
categorically and unmistakably expressed.
 If it were the intent of the legislature to grant to the John Hay SEZ the same
tax exemption and incentives given to the Subic SEZ, it would have so
expressly provided in the R.A. No. 7227. This Court no doubt can void an act
or policy of the political departments of the government on either of two
grounds-infringement of the Constitution or grave abuse of discretion. This
Court then declares that the grant by Proclamation No. 420 of tax exemption
and other privileges to the John Hay SEZ is void for being violative of the
Constitution.

 CIR vs. Phil. Associated Smelting and Refining Corporation (PASAR)

 FACTS: PASAR is a domestic corporation engaged in the business of processing,
smelting, refining and exporting, refined copper cathodes and other copper
products, and a registered Zone Export Enterprise with the Export Processing
Zone Authority (EPZA). PASAR uses petroleum products for its manufacturing and
other processes, and purchases it from local distributors to its purchasers.
In this particular case, Petron passed on to PASAR the excise taxes it paid on
the petroleum products bought by the latter during the period of January 2005
to October 2005, totalling to P11, 687, 467.62. PASAR filed a claim for refund
and/or tax credit, but this was denied. It then filed a petition for review to
the CTA Second Division for reception of evidence and determination of amount
to be refunded to the petitioner. Since PASAR is an EPZA-registered entity
enjoining tax exemption privilege under PD No. 66 and subsequently, RA 7916,
it is exempt from payment of excise taxes on petroleum products.
 ISSUE: Whether PASAR has the legal personality to file the claim for the
refund of the excise taxes passed on by Petron.
 RULING: YES. Since it is not disputed that petitioner is entitled to tax
exemption, it should not be precluded from presenting evidence to substantiate
the amount of refund it is claiming on mere technicality especially in this
case, where the failure to present invoices at the first instance was
adequately explained by petitioner. Applying the foregoing rulings in this
case, it is therefore undeniable that PASAR is exempted from payment of excise
taxes.
 The next pivotal question then that must be resolved is whether PASAR has the
legal personality to file the claim for the refund of the excise taxes passed
on by Petron. The petitioner insists that PASAR is not the proper party to
seek a refund of an indirect tax, such as an excise tax or Value Added Tax,
because it is not the statutory taxpayer. The petitioner's argument, however,
has no merit.
 The rule that it is the statutory taxpayer which has the legal personality to
file a claim for refund finds no applicability in this case. In Philippine
Airlines, Inc. v. Commissioner of Internal Revenue, the Court distinguished
between the kinds of exemption enjoyed by a claimant in order to determine the
propriety of a tax refund claim. "If the law confers an exemption from both
direct or indirect taxes, a claimant is entitled to a tax refund even if it
only bears the economic burden of the applicable tax. On the other hand, if
the exemption conferred only applies to direct taxes, then the statutory
taxpayer is regarded as the proper party to file the refund claim. In PASAR's
case, Section 17 of P.D. No. 66, as affirmed in Commissioner of Customs,
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specifically declared that supplies, including petroleum products, whether
used directly or indirectly, shall not be subject to internal revenue laws and
regulations. Such exemption includes the payment of excise taxes, which was
passed on to PASAR by Petron. PASAR, therefore, is the proper party to file a
claim for refund.

 Maceda vs. Macaraig jr.

 FACTS: Commonwealth act 120 was enacted which made the National Power
Corporation (NPC) as a public corporation to undertake the development of
hydraulic power and the production of power from other sources. Republic Act
358 granted NPC tax duty and exemption privileges. RA 6395 revised the charter
of NPC, tasking it to carry out the policy of the national electrification and
provided in detail NPC tax exemptions. Presidential Decree 380, then,
specified that NPC’s exemptions include all taxes imposed “directly or
indirectly”. Presidential Decree 938 integrated the exemptions in favor of
Government Owned and Controlled Corporations (GOCCs) including their
subsidiaries, however, empowering the president or minister of finance, upon
recommendation of Fiscal Incentives Review Board (FIRB) to restore, partially
of completely, the exemptions withdrawn or revised. FIRB issued resolution 10-
85 restoring the duty and tax exemptions privileges of NPC from June 1984 to
June 1985. Then, Resolution 1-86 restored such exemption indefinitely
effective July 1985. Executive Order 93, again, withdrew the exemption. FIRB
issued Resolution 17-87 restoring NPC’s exemption which was approved by the
president on October 1987. Since 1976, oil firms never paid excise or specific
and ad valorem taxes for petroleum products sold and delivered to NPC. Oil
companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only in 1984. NPC claimed for a refund of 468.58 million. Only
a portion thereof was approved and released by way of tax credit memo. The
claim for refund taxed paid by PetroPhil, Shell and Caltex amounting to 410.58
million was denied. NPC moved for reconsideration, starting that all
deliveries of petroleum products to NPC are tax exempt, regardless of the
period of delivery.
 ISSUE: Whether or not NPC enjoys exemption from indirect tax even though PD
938 stated exemptions in general terms
 RULING: Yes. NPC enjoys exemption from indirect tax. Here, NPC is a nonprofit
public corporation created for the general good and welfare and wholly owned
by the Philippine government. From the beginning of the corporation’s
existence, NPC enjoyed preferential tax treatment to enable the corporation to
pay indebtedness and obligation and effective implementation of the policy.
The contention of Maceda that the exemption of NPC from indirect taxes under
Section 13 of R.A. No. 6395 andP.D. No. 380, is deemed repealed by P.D. No.
938 when the reference to it was deleted is not well-taken. Repeal by
implication is not favored unless it is manifest that the legislature so
intended. As laws are presumed to be passed with deliberation and with
knowledge of all existing ones on the subject, it is logical to conclude that
in passing a statute it is not intended to interfere with or abrogate a former
law relating to the same subject matter,unless the repugnancy between the two
is not only irreconcilable but also clear and convincing as a result of the
language used, or unless the latter Act fully embraces the subject matter of
the earlier. The first effort of a court must always be to reconcile or adjust
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the provisions of onestatute with those of another so as to give sensible
effect to both provisions. The law mandated that it should be interpreted
liberally so as to enhance the tax exempt status of NPC. It is a recognized
principle that the rule on strict interpretation does not apply in the case of
exemptions in favor of government political subdivision or instrumentality. In
the case of property owned by the state of a city or other public
corporations, the express exceptions contrary to the policy of the State,
since as to such property “exception is the rule and taxation is the
exception”

 PLDT vs. City of Davao

 FACTS: On January 1999, petitioner Philippine Long Distance Telephone Co.,
Inc. (PLDT) applied for a Mayor's Permit to operate its Davao Metro Exchange.
Herein respondent City of Davao withheld action on the application pending
payment by petitioner of the local franchise tax in the amount of
P3,681,985.72 for the first to the fourth quarter of 1999. Petitioner then
protested the assessment of the local franchise tax and requested a refund of
the franchise tax paid by it for the year 1997 and the first to the third
quarters of 1998.
 ISSUE: Whether or not by virtue of Republic Act No. 7925 Section 23, PLDT is
entitled to exemption from payment of local franchise tax in view of the grant
of tax exemption to Globe Telecom and Smart Communications, Inc.
 RULING: The Supreme Court ruled that since R.A. No. 7925 is a legislative
enactment it is thus designed to set the national policy on telecommunications
and provide the structures to implement it to keep up with the technological
advances in the industry and the needs of the public.
 The Court also ruled that there is nothing in the language of §23 nor in the
proceedings of both the House of Representatives and the Senate in enacting
R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to
all telecommunications entities, including those whose exemptions had been
withdrawn by the LGC.
 The Court thus hold that §23 of R.A. No. 7925 cannot be considered as having
amended petitioner's franchise so as to entitle it to exemption from the
imposition of local franchise taxes. The Court also ruled that petitioner is
liable to pay local franchise taxes in the amount of P3,681,985.72 for the
period covering the first to the fourth quarter of 1999 and that it is not
entitled to a refund of taxes paid by it for the period covering the first to
the third quarter of1998.

 Sea-Land Service vs. CA

 FACTS: Petitioner Sea-Land, an American international shipping company,
entered into a contracts with the US Government to transport military
household goods and effects of U.S. military personnel assigned to the Subic
Naval Base. SEA-LAND derived an income and filed with the BIR the corporate
Income Tax Return and paid the income tax due of 1.5%. Claiming it paid the
income tax by mistake, SEA-LAND filed for a refund with the BIR and before the
said claim for refund could be acted upon by Commissioner of Internal Revenue,
they filed a petition for review with the CTA.
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 CTA denied Sea-Land’s claim for refund and the CA dismissed the appeal.
 ISSUE: Whether SEA-LAND is exempted from the payment of income tax.
 RULING: NO. SEA-LAND is not exempted from the payment of income tax.
Jurisprudence provides that taxation is the rule and exemption is the
exception. The law does not look with favor on tax exemptions. Further, under
Article XII (4) of the RP-US Military Bases Agreement, the following are
exempt from payment of Philippine income tax:
 nationals of the United States, or;
 corporations organized under the laws of the United States;
 Residents in the United States in respect of any profit derived under a
contract made in the United States with the Government of the United
States in connection with the construction, maintenance, operation and
defense of the bases.
 From the foregoing, it is obvious that the transport or shipment of household
goods and effects of U.S. military personnel is not included in the term
"construction, maintenance, operation and defense of the bases."

 Maceda vs. Macaraig jr.

 FACTS:
 ISSUE:
 RULING:

LEGAL BASIS
ART. 6, SEC. 28(4) OF 1987 CONSTITUTION – No law granting any tax exemption shall
be passed without concurrence of a majority of all members of the congress.

GROUNDS FOR TAX EXEMPTION

A. It may be based on a contract.
B. It may be based on some ground of public policy.
C. It may be created in a treaty on grounds of reciprocity or to lessen the rigors
of international or multiple taxation.

 But equity is NOT a ground for tax exemption. While equity cannot be used as
basis or justification for tax exemption, a law may validly authorize the
condonation of taxes on equitable considerations. There is no tax exemption
solely on the ground of equity.

 Maceda vs. Macaraig jr.

 FACTS:
 ISSUE:
 RULING:
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NATURE OF TAX EXEMPTION
 A mere personal privilege. It cannot be assigned or transferred without the
consent of the legislature. The legislative consent to the transfer may be
given either in the original act granting the exemption or in a subsequent
law.
 GR: revocable. By the government.
 EXPN: if founded on a contract which is protected from impairment. But
contract must contain the essential elements of other contracts. An exemption
provided for in a franchise, however, may be repealed or amended pursuant to
the Constitution (Sec 11, ART 11). A legislative franchise is a mere
privilege.
 Implies a waiver on part of the government of its rights to collect taxes due
to it, and in this sense, is prejudicial thereto. Hence, it exists only by
virtue of an express grant and must be strictly construed.
 Not necessarily discriminatory, provided it has reasonable foundation or
rational basis. Where, however, no valid distinction exists, exemption may be
challenged as violative of the equal protection guarantee or uniformity rule.

 Maceda vs. Macaraig jr.

 FACTS:
 ISSUE:
 RULING:

KINDS OF TAX EXEMPTION