VII.
Basic Principles of Sound Tax System tax system should be capable of being effectively
1. Fiscal Adequacy
2. Administrative Feasibility
a. Diaz v. Secretary of Finance, GR NO. 193007,
19 July 2011
DIAZ V. SECRETARY OF FINANCE
GR NO. 193007, 19 JULY 2011
ABAD, J
FACTS: Petitioners Diaz and Timbol filed petition for
declaratory relief assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of
Internal Revenue (BIR) on the collections of tollway
operators. Petitioners hold the view that Congress did
not, when it enacted the NIRC, intend to include toll fees
within the meaning of "sale of services" that are subject
to VAT; that a toll fee is a "user‘s tax," not a sale of
services; that to impose VAT on toll fees would amount
to a tax on public service. Petitioners point out that
tollway operators cannot be regarded as franchise
grantees under the NIRC since they do not hold
legislative franchises.
Further, the BIR intends to collect the VAT by rounding
off the toll rate and putting any excess collection in an
escrow account. But this would be illegal since only the
Congress can modify VAT rates and authorize its
disbursement. Finally, BIR Revenue Memorandum
Circular 63-2010 (BIR RMC 63-2010), which directs
toll companies to record an accumulated input VAT of
zero balance in their books as of August 16, 2010,
contravenes Section 111 of the NIRC which grants
entities that first become liable to VAT a transitional
input tax credit of 2% on beginning inventory. For this
reason, the VAT on toll fees cannot be implemented.
They assert that the substantiation requirements for
claiming input VAT make the VAT on tollway
operations impractical and incapable of implementation.
They cite the fact that, in order to claim input VAT, the
name, address and tax identification number of the
tollway user must be indicated in the VAT receipt or
invoice. The manner by which the BIR intends to
implement the VAT – by rounding off the toll rate and
putting any excess collection in an escrow account – is
also illegal, while the alternative of giving "change" to
thousands of motorists in order to meet the exact toll rate
would be a logistical nightmare. Thus, according to
them, the VAT on tollway operations is not
administratively feasible
ISSUE: Whether Value-Added Tax on tollways
operations is administratively feasible.
RULING: Administrative feasibility is one of the
canons of a sound tax system. It simply means that the
administered and enforced with the least inconvenience
to the taxpayer. Non-observance of the canon, however,
will not render a tax imposition invalid "except to the
extent that specific constitutional or statutory limitations
are impaired. Thus, even if the imposition of VAT on
tollway operations may seem burdensome to implement,
it is not necessarily invalid unless some aspect of it is
shown to violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will
actually implement the VAT on tollway operations. Any
declaration by the Court that the manner of its
implementation is illegal or unconstitutional would be
premature. Although the transcript of the August 12,
2010 Senate hearing provides some clue as to how the
BIR intends to go about it, the facts pertaining to the
35
matter are not sufficiently established for the Court to
pass judgment on. Besides, any concern about how the
VAT on tollway operations will be enforced must first
be addressed to the BIR on whom the task of
implementing tax laws primarily and exclusively rests.
The Court cannot preempt the BIR‘s discretion on the
matter, absent any clear violation of law or the
Constitution.
In sum, fees paid by the public to tollway operators for
use of the tollways, are not taxes in any sense. A tax is
imposed under the taxing power of the government
principally for the purpose of raising revenues to fund
public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement
for the costs and expenses incurred in the construction,
maintenance and operation of the tollways, as well as to
assure them a reasonable margin of income. Although
toll fees are charged for the use of public facilities,
therefore, they are not government exactions that can be
properly treated as a tax. Taxes may be imposed only by
the government under its sovereign authority, toll fees
may be demanded by either the government or private
individuals or entities, as an attribute of ownership.
3. Theoretical Justice
a. Article VI, Section 28, Phil. Constitution
VIII. Definition of Taxes
IX. Attributes or Characteristics of Taxes
1. It is a forced charge, imposition or
contribution.
a. Panay Electric Co. v. Collector of Internal
Revenue, GR NO. L- 10574, May 28, 1958
PANAY ELECTRIC CO. V. COLLECTOR OF
INTERNAL REVENUE
GR NO. L- 10574, MAY 28, 1958
MONTEMAYOR, J
FACTS: Petitioner is a grantee of a legislative franchise
under Act No. 2983, as amended by Act No. 3665, to
operate, and maintain an electric light, heat and power
system in certain municipalities of Iloilo, for a period of
years from the approved of its franchise on January 22,
1921. Under the franchise, it was required to pay a
franchise tax equal to 1 ½ Per cent of its gross earnings,
during the first twenty years, and 2 per cent during the
remaining thirty years.
Upon the promulgation of Republic Act No. 39,
amending Section 259 of the National Internal Revenue
Code, respondent Collector of Internal Revenue required
petitioner to pay a franchise tax of 5 per cent instead of 2
per cent of its gross earnings. In view of the insistence of
respondent in his demand, petitioner paid the franchise
tax of 5 per cent, as provided for in Section 259 of the
Revenue Code as amended, beginning January 19, 1947
and up to January 18, 1952.
On March 25, 1952, the Supreme Court promulgated its
decision in the case of Philippine Railway vs. Collector
of Internal Revenue, wherein it was held that the rate of
tax provided in Section 259 of the Revenue Code as
amended by Republic Act No. 39, is not applicable to
holders of franchises which fix a specific rate of
franchise tax. On the basis of this decision, petitioner on
April 16, 1952, wrote a letter to the City Treasurer of
Iloilo City, demanding the refund of excess franchise
taxes paid.
Respondent admitted that there had been overpayment,
but contended that it could allow a refund of
overpayment made for a period of only two years prior
to April 16, 1952, when petitioner filed a formal demand
for refund anchored from Sections 306 and 309 of the
Revenue Code which provides:
SEC. 306. Recovery of tax erroneously or
illegally collected. — No suit or proceeding
shall be maintained in any court for the recovery
of any national internal revenue tax hereafter
alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed
to have been collected without authority, or of
any sum alleged to have been excessive or in
any manner wrongfully collected, until a claim
for refund or credit has been duly filed with the
Collector of Internal Revenue; but such suit or
proceeding may be maintained, whether or not
such tax, penalty, or sum has been paid under
protest or duress. In any case, no such suit or
proceeding shall be begun after the expiration of
two years from the date of payment of the tax or
penalty.
SEC. 309. Authority of Collector to make
compromises and to refund taxes. — x x x x the
authority of the Collector of Internal Revenue to
credit or refund taxes or penalties under this
section can only be exercised if the claim for
credit or refund is made in writing and filed with
him within two years after the payment of the
tax or penalty.
Petitioner contends however that the franchise tax
stipulated and payable under its franchise is not an
internal revenue tax and, therefore, Section 306 of the
Tax Code, providing for refund of overpayment for a
period of only two years, is not applicable to it; that the
legislative franchise constitute a contract between itself
and the Government; that the late of franchise tax
payable under it is part of said contract and the
collection of any amount in excess of said rate fixed in
the contract is a violation of the contract itself; and that
under said view, petitioner may tract itself of the regular
ten year period of prescription within which to bring an
action for redress.
ISSUES:
1. Whether a franchise tax is an internal
revenue tax within the meaning of the
Tax Code.
2. Whether petitioner is entitled to the
refund of the entire overpayment.
RULING:
1. Yes.
A tax is a forced charge, imposition or contribution; it
operates in invitum, and is in no way dependent upon the
will or contractual assent, express or implied, of the
person taxed.
Franchise tax is "in consideration of the granting of the
franchise," and it operates because a person taxed
assents expressly or impliedly. It is, in one word, a
contractual assent. As correctly maintained by the
respondent, Section 18 of the Tax Code enumerates what
are National Internal Revenue Taxes, and among others
franchise taxes are clearly listed; Section 259, Tax on
Corporate Franchises, deals with franchise taxes.
It is clear from a reading of Section 259 of the Revenue
Code that the "franchise tax" provided therein refers not
only to the tax imposed in said section but also to the
"taxes, charges, and percentages" prescribed in the
special charters under "which holders of franchises
operate. In fact, the collection of franchise taxes and the
penalty for delinquency are governed by Section 259, in
so far as the provisions thereof are not inconsistent with
the special charters. And Section 18 of the Revenue
Code, as pointed out by the former Board of Tax
Appeals, clearly classifies franchise taxes as national
internal revenue taxes. We might also add that Section
359 of the Revenue Code provides for the disposition of
franchise taxes as other national internal revenue taxes.
We have, therefore, no doubt in our minds that the
franchise taxes prescribed in Act No. 2983, as amended
by Act No. 3665, under which plaintiff operates, is a
national internal revenue tax, and the provisions of law
governing refunds of national internal revenue taxes are
applicable to refunds of the franchise tax here in
question.
2. No.
We do not advocate the refund of the entire overpayment
of P135,872.67, but on moral and equitable grounds, we
believe that the petitioner is entitled to the refund of
P64,607.07, basing on the two-year period, beginning
from the day the claim for refund was made on April 18,
1952.
2. It is assessed in accordance with
some reasonable rule of
apportionment which means that
conformably with the constitutional
mandate for Congress to evolve a
progressive tax system, taxes must be
based on taxpayer‘s ability to pay
[Section 28(A), Article VI, 1987
Constitution]
3. It is pecuniary burden payable
in money.
a. Borja v. Gella, GR NO
L-18330, 31 July 1963; 8 SCRA
602
BORJA V. GELLA
GR NO L-18330, 31 JULY 1963; 8 SCRA 602
BAUTISTA ANGELO, J
FACTS: Jose de Borja has been delinquent in the
payment of his real estate taxes since 1958 for properties
located in the City of Manila and Pasay City and has
offered to pay them with two negotiable, certificates of
indebtedness. Borja was, however, a mere assignee of
the aforesaid negotiable certificates, the applicants for
backpay rights covered by them being respectively
Rafael Vizcaya and Pablo Batario Luna.
The City Treasurer of Manila and Pasay rejected the
certificate of indebtedness on the ground that the law
provides for their acceptance from their backpay holder
only or the original applicant himself, but not his
assignee.
Borja contends that under Republic Act No. 304 the
certificate of indebtedness may be used for the payment
of obligations, this argument was denied by the court a
quo.
ISSUE: May the certificate of indebtedness be used to
pay real estate taxes?
HELD: No.
It cannot be contended that the treasurers of Manila and
Pasay are in duty bound to accept the negotiable
certificates of indebtedness held by Borja in payment of
his real estate taxes for the simple reason that they were
not obligations subsisting at the time of the approval of
Republic Act No. 304 which took effect on June 18,
1948. It should be noted that the real estate taxes in
question have reference to those due in 1958 and
subsequent years. The law is explicit that in order that a
certificate may be used in payment of an obligation the
same must be subsisting at the time of its approval even
if we hold that a tax partakes of this character, neither
can it be contended that Borja can compel the
government to accept the alleged certificates of
indebtedness in payment of his real estate taxes under
the said law for the reason that in order that such
payment may be allowed the tax must be owed by
the applicant himself. This is the correct implication that
may be drawn from the use by the law of the words "his
taxes". Verily, the right to use the back pay certificate in
settlement of taxes is given only to the applicant and not
to any holder of any negotiable certificate to whom the
law only gives the right to have it discounted by a
Filipino citizen or corporation under certain limitations.
Here appellee is not himself the applicant of the
certificate, in question. He is merely an assignee thereof,
or a subsequent holder whose right is at most to have it
discounted upon maturity — or to negotiate it in the
meantime. A fortiori, it may be included that, not having
the right to use said certificates to pay his taxes, appellee
cannot compel appellants to accept them as he requests
in the present petition for mandamus. As a consequence,
we cannot but hold that mandamus does not lie against
appellants because they have in no way neglected to
perform an act enjoined upon them by law as a duty, nor
have they unlawfully excluded appellee from the use or
enjoyment of a right to which he is entitled.
4. It is imposed by the State on person, property, or
excises within its jurisdiction, in accordance with the
principle of territoriality.
5. It is levied by the legislative body of the State.
6. It is levied for a public purpose.
7. It is personal to the taxpayer.
X. Taxes Distinguished from Other Impositions
1. Taxation v. Eminent Domain v.
Police Power
a. Quezon City v. Ericta,
GR NO L-34915, 24 June 1983;
122 SCRA 759
QUEZON CITY V. ERICTA
 GR NO L-34915, 24 JUNE 1983; 122 SCRA 759
GUTIERREZ, JR. J
FACTS: Quezon City issued Ordinance 6118 S-64,
Section 9 of which provides that at least 6% of the total
area of the memorial park cemetery shall be set aside for
charity burial for deceased paupers who have been
residents for at least 5 years. The subject section had not
been expressly enforced until 7 years later when the
council of Quezon City passed a resolution requesting
the Cit Engineer to stop further selling or transacting in
relation to the memorial park lots where owners failed to
donate the required 6% portion. The City Engineer
notified respondent Himalayang Pilipino in writing that
Section 9 be enforced. Thus, respondent filed with CFI
to annul the said section, arguing that it is contrary to the
Constitution, the Quezon City Charter, Local Autonomy
Act, and the Revised Administrative Code,
ISSUE: Whether or not section 9 is valid.
RULING: No. Section 9 is invalid because the taking of
the lots is without compensation. The ordinance
confiscates and prohibits the operation of a memorial
park cemetery. Police power is exercised in the form of
mere regulation or restriction in the use of liberty or
property for the promotion of general welfare, and it
does not involve taking or confiscation of property
unless necessary to destroy it in order to protect the
peace and order. Section 9 is not a mere regulation, but
an outright confiscation since there is no relation
between setting aside the 6% of lots and promotion of
health, morals, good order, safety, or general welfare.
b. Velasco v. Villegas, GR NO. L-
24153, 14 February 1983; 120
SCRA 568
VELASCO V. VILLEGAS
GR NO. L-24153, 14 FEBRUARY 1983; 120 SCRA
568
FERNANDO, C., J
FACTS: Velasco and others are members of the Santa
Cruz Barbershop Association. They question the validity
of Ordinance 4964.
Such ordinance imposes upon them payment of the
license fee for engaging in the business of massage
clinic. They contend that it amounts to a deprivation of
property as the ordinance also states that: ―It shall be
prohibited for any operator of any barber shop to
conduct the business of massaging customers or other
persons in any adjacent room or rooms of said barber
shop, or in any room or rooms within the same building
where the barber shop is located as long as the operator
of the barber shop and the rooms where massaging is
conducted is the same person‖
ISSUE: Whether or not the ordinance is oppressive and
amounts to deprivation of property without due process
of law
RULING: The attack against the validity cannot
succeed. As pointed out in the brief of respondents-
appellees, it is a police power measure. The objectives
behind its enactment are:
(1) To be able to impose payment of the license
fee for engaging in the business of massage
clinic under Ordinance No. 3659 as amended by
Ordinance 4767, an entirely different measure
than the ordinance regulating the business of
barbershops and,
(2) In order to forestall possible immorality
which might grow out of the construction of
separate rooms for massage of customers."
The Court has been most liberal in sustaining ordinances
based on the general welfare clause which delegates in
statutory form the police power to a municipality. As
above stated, this clause has been given wide application
by municipal authorities and has in its relation to the
particular circumstances of the case been liberally
construed by the courts.
c. Tio v. Videogram, GR NO. L-
75697, 18 June 1987; 151 SCRA
208
TIO V. VIDEOGRAM
GR NO. L-75697, 18 JUNE 1987; 151 SCRA 208
MELENCIO-HERRERA, J
FACTS: The case is a petition filed by petitioner on
behalf of videogram operators adversely affected by
Presidential Decree No. 1987, ―An Act Creating the
Videogram Regulatory Board" with broad powers to
regulate and supervise the videogram industry.
A month after the promulgation of the said Presidential
Decree, the amended National Internal Revenue Code
provided that:
"SEC. 134. Video Tapes. — There shall be
collected on each processed video-tape cassette,
ready for playback, regardless of length, an
annual tax of five pesos; Provided, that locally
 manufactured or imported blankvideo tapes shall
be subject to sales tax."
"Section 10. Tax on Sale, Lease or Disposition
of Videograms. — Notwithstanding
any provision of law to the contrary, the
province shall collect a tax of thirty percent
(30%) of the purchase price or rental rate, as the
case may be, for every sale, lease or disposition
of a videogram containing a reproduction of any
motion picture or audiovisual program.‖
―Fifty percent (50%) of the proceeds of the tax
collected shall accrue to the province, and the
other fifty percent (50%) shall accrue to the
municipality where the tax is collected;
PROVIDED, that in Metropolitan Manila, the
tax shall be shared equally by the
City/Municipality and the Metropolitan Manila
Commission.‖
The rationale behind the tax provision is to curb the
proliferation and unregulated circulation of videograms
including, among others, videotapes, discs, cassettes or
any technical improvement or variation thereof, have
greatly prejudiced the operations of movie houses and
theaters. Such unregulated circulation have caused a
sharp decline in theatrical attendance by at least forty
percent (40%) and a tremendous drop in the collection of
sales, contractor's specific, amusement and other taxes,
thereby resulting in substantial losses estimated at P450
Million annually in government revenues.
Videogram establishments collectively earn around P600
Million per annum from rentals, sales and disposition of
videograms, and these earnings have not been subjected
to tax, thereby depriving the Government of
approximately P180 Million in taxes each year.
The unregulated activities of videogram establishments
have also affected the viability of the movie industry.
ISSUES:
1. Whether or not tax imposed by the
DECREE is a valid exercise of police
power.
2. Whether or not the DECREE is
constitutional.
RULING: Taxation has been made the implement of the
state's police power. The levy of the 30% tax is for a
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.
There is no clear violation of the Constitution which
would justify pronouncing Presidential Decree No. 1987
as unconstitutional and void.
The underlying objective of the DECREE is to protect
the moribund movie industry, there is no question that
public welfare is at bottom of its enactment, considering
"the unfair competition posed by rampant film piracy;
the erosion of the moral fiber of the viewing public
brought about by the availability of unclassified and un
reviewed video tapes containing pornographic films and
films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical
attendance, not to mention the fact that the activities of
video establishments are virtually untaxed since mere
payment of Mayor's permit and municipal license fees
are required to engage in business."
The instant petition is dismissed.
2. Tax v. Debt
a. Commissioner of
Internal Revenue v. Carlos
Palanca, Jr., G.R. No. L-16626,
29 October 1966
COMMISSIONER OF INTERNAL REVENUE V.
CARLOS PALANCA, JR.
G.R. NO. L-16626, 29 OCTOBER 1966
REGALA, J
FACTS: This is an appeal by the Government from the
decision of the Court of Tax Appeals ordering the
petitioner to refund to the respondent the amount of
P20,624.01 representing alleged over-payment of
income taxes for the calendar year 1955.
Sometime in July, 1950, the late Don Carlos Palanca, Sr.
donated in favor of his son, the petitioner, herein shares
of stock in La Tondeña, Inc. amounting to 12,500 shares.
For failure to file a return on the donation within the
statutory period, the petitioner was assessed the sums of
P97,691.23, P24,442.81 and P47,868.70 as gift tax, 25%
surcharge and interest, respectively, which he paid on
June 22, 1955.
On March 1, 1956, the petitioner filed with the Bureau
of Internal Revenue his income tax return for the
calendar year 1955, claiming, among others, a deduction
for interest amounting to P9,706.45 and reporting a
taxable income of P65,982.12.
Subsequently, on November 10, 1956, the petitioner
filed an amended return for the calendar year 1955,
claiming therein an additional deduction in the amount
of P47,868.70 representing interest paid on the donee's
gift tax. The claim for deduction was based on the
provisions of Section 30(b) (1) of the Tax Code, which
authorizes the deduction from gross income of interest
paid within the taxable year on indebtedness.
A claim for the refund of alleged overpaid income taxes
for the year 1955 amounting to P17,885.01, which is the
difference between the amount of P21,052.01 he paid as
income taxes under his original return and of P3,167.00,
was filed together with this amended return. In a
communication dated June 20, 1957, the respondent
(BIR) denied the claim for refund.
On August 12, 1958, the petitioner once more filed an
amended income tax return for the calendar year 1955,
claiming, in addition to the interest deduction of
P9,076.45 appearing in his original return, a deduction in
the amount of P60,581.80, representing interest on the
estate and inheritance taxes on the 12,500 shares of
stock, thereby reporting a net taxable income for 1955 in
the amount of P5,400.32 and an income tax due thereon
in the sum of P428.00. Attached to this amended return
was a letter of the petitioner, dated August 11, 1958,
wherein he requested the refund of P20,624.01 which is
the difference between the amounts of P21,052.01 he
paid as income tax under his original return and of
P428.00.
ISSUE: Whether the amount paid by respondent Palanca
for interest on his delinquent estate and inheritance tax is
deductible from the gross income for that year under
Section 30 (b) (1) of the Revenue Code.
RULING: Yes. The Commissioner submits that the
deductibility of "interest on indebtedness" from a
person's income tax under Section 30(b) (1) cannot
extend to "interest on taxes."
We find for the respondent. While "taxes" and "debts"
are distinguishable legal concepts, in certain cases as in
the suit at bar, on account of their nature, the distinction
becomes inconsequential. This qualification is
recognized even in the United States. Thus,
The term "debt" is properly used in a
comprehensive sense as embracing not merely
money due by contract, but whatever one is
bound to render to another, either for contract or
the requirements of the law. (Camden vs. Fink
Coule and Coke Co., 61 ALR 584).
Where statutes impose a personal liability for a
tax, the tax becomes at least in a broad sense, a
debt. (Idem.)
Some American authorities hold that, especially
for remedial purposes, Federal taxes are debts.
(Tax Commission vs. National Malleable
Castings Co., 35 ALR 1448)
In our jurisdiction, the rule is settled that although taxes
already due have not, strictly speaking, the same concept
as debts, they are, however obligations that may be
considered as such. (Sambrano vs. Court of Tax Appeals,
G.R. no. L-8652, March 30, 1957). In a more recent
case Commissioner of Internal Revenue vs. Prieto, G.R.
No. L-13912, September 30, 1960, we explicitly
announced that while the distinction between "taxes" and
"debts" was recognized in this jurisdiction, the variance
in their legal conception does not extend to the interests
paid on them, at least insofar as Section 30 (b) (1) of the
National Internal Revenue Code is concerned. Thus,
Under the law, for interest to be deductible, it must be
shown that there be an indebtedness, that there should be
interest upon it, and that what is claimed as an interest
deduction should have been paid or accrued within the
year. It is here conceded that the interest paid by
respondent was in consequence of the late payment of
her donor's tax, and the same was paid within the year it
is sought to be deducted. The only question to be
determined, as stated by the parties, is whether or not
such interest was paid upon an indebtedness within the
contemplation of Section 30(b) (1) of the Tax Code.
The term "indebtedness" as used in the Tax Code of the
United States containing similar provisions as in the
above-quoted section has been defined as the
unconditional and legally enforceable obligation for the
payment of money. Within the meaning of that
definition, it is apparent that a tax may be considered an
indebtedness. (Emphasis supplied)
"It follows that the interest paid by herein respondent for
the late payment of her donor's tax is deductible from her
gross income under section 30 (b) of the Tax Code
above-quoted."
We do not see any element in this case which can justify
a departure from or abandonment of the doctrine in the
Prieto case above. In both this and the said case, the
taxpayer sought the allowance as deductible items from
the gross income of the amounts paid by them as
interests on delinquent tax liabilities. Of course, what
was involved in the cited case was the donor's tax while
the present suit pertains to interest paid on the estate and
inheritance tax. This difference, however, submits no
appreciable consequence to the rationale of this Court's
previous determination that interests on taxes should be
considered as interests on indebtedness within the
meaning of Section 30(b) (1) of the Tax Code. The
interpretation we have placed upon the said section was
predicated on the congressional intent, not on the nature
of the tax for which the interest was paid.
3. Tax v. Toll
4. Tax v. License Fee
 a. Progressive
Development Corporation v.
Quezon City, G.R. No. L-36081,
24 April 1989
PROGRESSIVE DEVELOPMENT
CORPORATION V. QUEZON CITY
G.R. NO. L-36081, 24 APRIL 1989
FELICIANO, J
FACTS: On 24 December 1969, the City Council of
Quezon City adopted Ordinance No. 7997, Series of
1969, otherwise known as the Market Code of Quezon
City, Section 3 of which provided for the payment of
Supervision Fee from privately owned and operated
public markets to be submitted monthly to the
Treasurer's Office, a certified list of stallholders showing
the amount of stall fees or rentals paid daily by each
stallholder and shall pay 10% of the gross receipts from
stall rentals to the City. Failure to submit said list and to
pay the corresponding amount within the period
prescribed shall subject the operator to the penalties
including revocation of permit to operate.
On March 23 1972, the Market Code was thereafter
amended by Ordinance No. 9236, series of 1972
imposing a five percent (5%) tax on gross receipts on
rentals or lease of space in privately-owned public
markets in Quezon City.
On 15 July 1972, petitioner Progressive Development
Corporation, owner and operator of a public market
known as the "Farmers Market & Shopping Center" filed
a Petition for Prohibition with Preliminary Injunction
against Quezon City before the then Court of First
Instance of Rizal on the ground that the supervision fee
or license tax imposed by the ordinances is in reality a
tax on income which Quezon City may not impose, the
same being expressly prohibited by Republic Act No.
2264, as amended.
In its Answer, Quezon City, through the City Fiscal,
contended that it had authority to enact the questioned
ordinances, maintaining that the tax on gross receipts
imposed therein is not a tax on income. The Solicitor
General also filed an Answer arguing that Progressive
Development Corporation, not having paid the ten
percent (10%) supervision fee prescribed by Ordinance
No. 7997, had no personality to question, and was
estopped from questioning, its validity; that the tax on
gross receipts was not a tax on income but one imposed
for the enjoyment of the privilege to engage in a
particular trade or business which was within the power
of respondent to impose.
In its Supplemental Petition, Progressive Development
Corporation alleged having paid under protest the five
percent (5%) tax under Ordinance No. 9236 for the
months of June to September 1972. Progressive
Development Corporation then moved for judgment on
the pleadings, alleging that the material facts had been
admitted by the parties.
The lower court dismissed the petition, ruling that the
questioned imposition is not a tax on income, but rather
a privilege tax or license fee which local governments,
like respondent, are empowered to impose and collect.
ISSUE: Whether the tax imposed by respondent on
gross receipts of stall rentals is properly characterized as
partaking of the nature of an income tax or, alternatively,
of a license fee.
RULING: The decision of the then Court of First
Instance of Rizal, Quezon City, Branch 18 was affirmed
and the petition was denied for lack of merit.
The five percent (5%) tax imposed in Ordinance No.
9236 constitutes, not a tax on income, not a city income
tax (as distinguished from the national income tax
imposed by the National Internal Revenue Code) within
the meaning of Section 2 (g) of the Local Autonomy
Act, but rather a license tax or fee for the regulation of
the business in which the petitioner is engaged. While it
is true that the amount imposed by the questioned
ordinances may be considered in determining whether
the exaction is really one for revenue or prohibition,
instead of one of regulation under the police power, it
nevertheless will be presumed to be reasonable. Local
governments are allowed wide discretion in determining
the rates of imposable license fees even in cases of
purely police power measures, in the absence of proof as
to particular municipal conditions and the nature of the
business being taxed as well as other detailed factors
relevant to the issue of arbitrariness or unreasonableness
of the questioned rates.
An ordinance carries with it the presumption of validity.
The question of reasonableness though is open to
judicial inquiry. Much should be left thus to the
discretion of municipal authorities. Courts will go slow
in writing off an ordinance as unreasonable unless the
amount is so excessive as to be prohibitory, arbitrary,
unreasonable, oppressive, or confiscatory. A rule which
has gained acceptance is that factors relevant to such an
inquiry are the municipal conditions as a whole and the
nature of the business made subject to imposition.
Progressive Development Corporation has not shown
that the rate of the gross receipts tax is so unreasonably
large and excessive and so grossly disproportionate to
the costs of the regulatory service being performed
Quezon City as to compel the Court to characterize the
imposition as a revenue measure exclusively. The lower
court correctly held that the gross receipts from stall
rentals have been used only as a basis for computing the
fees or taxes due respondent to cover the latter's
administrative expenses, i.e., for regulation and
supervision of the sale of foodstuffs to the public. The
use of the gross amount of stall rentals as basis for
determining the collectible amount of license tax, does
not by itself, upon the one hand, convert or render the
license tax into a prohibited city tax on income. Upon
the other hand, it has not been suggested that such basis
has no reasonable relationship to the probable costs of
regulation and supervision of Progressive Development
Corporation‘s kind of business. For, ordinarily, the
higher the amount of stall rentals, the higher the
aggregate volume of foodstuffs and related items sold in
petitioner's privately owned market; and the higher the
volume of goods sold in such private market, the greater
the extent and frequency of inspection and supervision
that may be reasonably required in the interest of the
buying public.
Section 12, Article III of the Revised Charter of Quezon
City, authorizes the City Council to provide for the levy
and collection of taxes and other city revenues and apply
the same to the payment of city expenses in accordance
with appropriations and to tax, fix the license fee, and
regulate the business preparation and sale of meat,
poultry, fish, game, butter, cheese, lard, vegetables,
bread and other provisions.
The scope of legislative authority conferred upon the
Quezon City Council in respect of businesses like that of
the Progressive Development Corporation, is
comprehensive: the grant of authority is not only "[to]
regulate" and "fix the license fee," but also "to tax.
Moreover, Republic Act No. 2264 confers upon local
governments broad taxing authority extending to almost
"everything, excepting those which are mentioned
therein," provided that the tax levied is "for public
purposes, just and uniform," does not transgress any
constitutional provision and is not repugnant to a
controlling statute. Both the Local Autonomy Act and
the Charter of respondent clearly show that respondent is
authorized to fix the license fee collectible from and
regulate the business of petitioner as operator of a
privately-owned public market.
The term "tax" frequently applies to all kinds of
exactions of monies which become public funds. It is
often loosely used to include levies for revenue as well
as levies for regulatory purposes such that license fees
are frequently called taxes although license fee is a legal
concept distinguishable from tax: the former is imposed
in the exercise of police power primarily for purposes of
regulation, while the latter is imposed under the taxing
power primarily for purposes of raising revenues. Thus,
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
questioned 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 as well. When an activity, occupation or
profession is of such a character that inspection or
supervision by public officials is reasonably necessary
for the safeguarding and furtherance of public health,
morals and safety, or the general welfare, the legislature
may provide that such inspection or supervision or other
form of regulation shall be carried out at the expense of
the persons engaged in such occupation or performing
such activity, and that no one shall engage in the
occupation or carry out the activity until a fee or charge
sufficient to cover the cost of the inspection or
supervision has been paid. Accordingly, a charge of a
fixed sum which bears no relation at all to the cost of
inspection and regulation may be held to be a tax rather
than an exercise of the police power.
Finally, petitioner argues that respondent is without
power to impose a gross receipts tax for revenue
purposes absent an express grant from the national
government. As a general rule, there must be a statutory
grant for a local government unit to impose lawfully a
gross receipts tax, that unit not having the inherent
power of taxation. The rule, however, finds no
application in the instant case where what is involved is
an exercise of, principally, the regulatory power of the
respondent City and where that regulatory power is
expressly accompanied by the taxing power.
b. Land Transportation Office v.
City of Butuan, G.R. No.
131512, 20 January 2000
LAND TRANSPORTATION OFFICE V. CITY OF
BUTUAN
G.R. NO. 131512, 20 JANUARY 2000
VITUG, J
FACTS: City of Butuan asserts that one of the salient
provisions introduced by the Local Government Code is
in the area of local taxation which allows LGUs to
collect registration fees or charges along with, in its
view, the corresponding issuance of all kinds of licenses
or permits for the driving of tricycles.
The Sangguniang Panglungsod of Butuan, on 16 August
1992, passed "An Ordinance Regulating the Operation of
Tricycles-for-Hire, providing mechanism for the
issuance of Franchise, Registration and Permit, and
imposing Penalties for Violations thereof and for other
Purposes." The ordinance provided for, among other
things, the payment of franchise fees for the grant of the
franchise of tricycles-for-hire, fees for the registration of
the vehicle, and fees for the issuance of a permit for the
driving thereof.
City of Butuan, represented by its City Mayor
Democrito D. Plaza, filed with the trial court a petition
for "prohibition, mandamus, injunction with a prayer for
preliminary restraining order ex-parte" seeking the
declaration of the validity of SP Ordinance and the
prohibition of the registration of tricycles-for-hire and
the issuance of licenses for the driving thereof by the
LTO.
LTO explains that one of the functions of the national
government that, indeed, has been transferred to local
government units is the franchising authority over
tricycles-for-hire of the Land Transportation Franchising
and Regulatory Board ("LTFRB") but not, it asseverates,
the authority of LTO to register all motor vehicles and to
issue to qualified persons of licenses to drive such
vehicles.
ISSUE: Whether the power of the Land Transportation
Office ("LTO") to register, tricycles in particular, as well
as to issue licenses for the driving thereof, has likewise
devolved to local government units.
RULING: The LTO is a line agency under the DOTC
whose powers and functions, pursuant to Article III,
Section 4 (d) [1],10 of R.A. No. 4136, otherwise known
as Land Transportation and Traffic Code, as amended,
deal primarily with the registration of all motor vehicles
and the licensing of drivers thereof. The LTFRB, upon
the other hand, is the governing body tasked by E.O. No.
202, dated 19 June 1987, to regulate the operation of
public utility or "for hire" vehicles and to grant
franchises or certificates of public convenience
("CPC").11 Finely put, registration and licensing
functions are vested in the LTO while franchising and
regulatory responsibilities had been vested in the
LTFRB.
LGUs indubitably now have the power to regulate the
operation of tricycles-for-hire and to grant franchises for
the operation thereof.
The newly delegated powers pertain to the franchising
and regulatory powers theretofore exercised by the
LTFRB and not to the functions of the LTO relative to
the registration of motor vehicles and issuance of
licenses for the driving thereof. Clearly unaffected by the
Local Government Code are the powers of LTO under
R.A. No. 4136 requiring the registration of all kinds of
motor vehicles "used or operated on or upon any public
highway" in the country.
Police power and taxation, along with eminent domain,
are inherent powers of sovereignty which the State might
share with local government units by delegation given
under a constitutional or a statutory fiat. All these
inherent powers are for a public purpose and legislative
in nature but the similarities just about end there. The
basic aim of police power is public good and welfare.
Taxation, in its case, focuses on the power of
government to raise revenue in order to support its
existence and carry out its legitimate objectives.
Although correlative to each other in many respects, the
grant of one does not necessarily carry with it the grant
of the other. The two powers are, by tradition and
jurisprudence, separate and distinct powers, varying in
their respective concepts, character, scopes and
limitations. To construe the tax provisions of Section
133(1) indistinctively would result in the repeal to that
extent of LTO's regulatory power which evidently has
not been intended. If it were otherwise, the law could
have just said so in Section 447 and 458 of Book III of
the Local Government Code in the same manner that the
specific devolution of LTFRB's power on franchising of
tricycles has been provided. Repeal by implication is not
favored.20 The power over tricycles granted under
Section 458(8)(3)(VI) of the Local Government Code to
LGUs is the power to regulate their operation and to
grant franchises for the operation thereof. The
exclusionary clause contained in the tax provisions of
Section 133(1) of the Local Government Code must not
be held to have had the effect of withdrawing the express
power of LTO to cause the registration of all motor
vehicles and the issuance of licenses for the driving
thereof. These functions of the LTO are essentially
regulatory in nature, exercised pursuant to the police
power of the State, whose basic objectives are to achieve
road safety by ensuring the road worthiness of these
motor vehicles and the competence of drivers prescribed
by R.A. 4136.
5. Tax v. Penalty
6. Tax v. Special Assessment
 a. Compania General de Tabacos
XI. Classification of Taxes de Filipinas v. City of Manila, GR
1. As to subject matter: L-16619 29 June 1963; 8 SCRA
a. Personal, Capitation, or Poll 367
b. Property
c. Excise or Privilege COMPANIA GENERAL DE TABACOS DE
d. Custom Duties FILIPINAS V. CITY OF MANILA
2. As to purpose: GR L-16619 29 JUNE 1963; 8 SCRA 367
a. General, Fiscal or DIZON, J
Revenue
b. Special or Regulatory FACTS: Compania General de Tabacos de Filipinas —
3. As to who bears the burden: hereinafter referred to simply as Tabacalera, as a duly
a. Direct Tax licensed first class wholesale and retail liquor dealer paid
b. Indirect Tax the City the fixed license fees prescribed by Ordinance
4. As to graduation or rate: No. 3358 for the years 1954 to 1957, inclusive, and, as a
a. Proportional wholesale and retail dealer of general merchandise, it
b. Progressive or also paid the sales taxes required by Ordinances Nos.
graduated 3634, 3301, and 3816.
c. Regressive Tabacalera's action for refund is based on the theory that,
5. As to Taxing Authority in connection with its liquor sales, it should pay the
a. National Tax license fees prescribed by Ordinance No. 3358 but not
b. Local/ Municipal Tax the municipal sales taxes imposed by Ordinances Nos.
6. As to scope: 3634, 3301, and 3816; and since it already paid the
a. General license fees aforesaid, the sales taxes paid by it —
b. Special amounting to the sum of P15,208.00 — under the three
7. As to basis of amount ordinances mentioned heretofore is an overpayment
a. Specific made by mistake, and therefore refundable.
b. Ad Valorem
ISSUE: Whether Tabacalera is entitled to refund.

XII. Double Taxation RULING: No.

1. Kinds:
a. Indirect duplicate taxation The term "tax" applies — generally speaking — to all
b. Direct duplicate taxation kinds of exactions which become public funds. The term
(obnoxious double taxation) is often loosely used to include levies for revenue as well
2. Requisites as levies for regulatory purposes. Thus, license fees are
3. Schemes to Avoid Double Taxation commonly called taxes. Legally speaking,
a. Tax Credit however, license fee is a legal concept quite distinct
b. Tax Deductions from tax; the former is imposed in the exercise of police
c. Tax Reduction power for purposes of regulation, while the latter is
d. Tax Exemption imposed under the taxing power for the purpose of
e. Tax Treaties raising revenues
4. International Juridical Double Ordinance No. 3358 is clearly one that prescribes
Taxation (IJDT) – the imposition of municipal license fees for the privilege to engage in the
comparable taxes in two or more states business of selling liquor or alcoholic beverages, having
on the same taxpayer in respect of the been enacted by the Municipal Board of Manila pursuant
same subject matter and for identical to its charter power to fix license fees on, and regulate,
periods. the sale of intoxicating liquors, whether imported or
5. Approaches to Avoid IJDT: locally manufactured. The license fees imposed by it are
a. Territorial based system – foreign source income essentially for purposes of regulation, and are justified,
is normally exempted from domestic tax considering that the sale of intoxicating liquor is,
b. Imposition of tax on the worldwide income of potentially at least, harmful to public health and morals,
their individual citizens and residents and domestic and must be subject to supervision or regulation by the
corporations state and by cities and municipalities authorized to act in
6. Cases: the premises.
On the other hand, it is clear that Ordinances Nos. 3634,
3301, and 3816 impose taxes on the sales of general
merchandise, wholesale or retail, and are revenue
measures enacted by the Municipal Board of Manila by
virtue of its power to tax dealers for the sale of such
merchandise.
That Tabacalera is being subjected to double taxation is
more apparent than real. As already stated, what is
collected under Ordinance No. 3358 is a license fee for
the privilege of engaging in the sale of liquor, a calling
in which — it is obvious — not anyone or anybody may
freely engage, considering that the sale of liquor
indiscriminately may endanger public health and morals.
On the other hand, what the three ordinances mentioned
heretofore impose is a tax for revenue purposes based on
the sales made of the same article or merchandise. It is
already settled in this connection that both a license fee
and a tax may be imposed on the same business or
occupation, or for selling the same article, this not being
in violation of the rule against double taxation. This is
precisely the case with the ordinances involved in the
case at bar.
b. City of Baguio v. de Leon, G.R.
No. L-24756 31 October 1968
CITY OF BAGUIO V. DE LEON
G.R. NO. L-24756 31 OCTOBER 1968
FERNANDO, J
FACTS: An ordinance was enacted by the City of
Baguio imposing a license fee or tax on any person,
firm, entity, or corporation doing business in Baguio. De
Leon as a real estate dealer was taxed in the amount of
300 for the years of 1958-1962 by virtue of said
ordinance. The validity of the ordinance on
constitutional grounds is challenged because of the
allegation that it imposed double taxation
ISSUE: Is there double taxation?
RULING: There is no double taxation.
At any rate, it has been expressly affirmed by us that
such an "argument against double taxation may not be
invoked where one tax is imposed by the state and the
other is imposed by the city ..., it being widely
recognized that there is nothing inherently obnoxious in
the requirement that license fees or taxes be exacted with
respect to the same occupation, calling or activity by
both the state and the political subdivisions thereof."
c. Serafica v. City Treasurer of
Ormoc, G.R. No. 24813, 28 April
1968
SERAFICA V. CITY TREASURER OF ORMOC
G.R. NO. 24813, 28 APRIL 1968
CONCEPCION, J
Facts: Dr. Hermenegildo Serafica seeks a declaration of
nullity of Ordinance No. 13 of Ormoc City imposing a
"tax of five pesos (P5.00) for every one thousand (1,000)
board feet of lumber sold at Ormoc City. After
appropriate proceedings, the lower court rendered
judgment upholding the validity of said ordinance and
denying the relief prayed for by Dr. Serafica.
Dr. Serafica assails the ordinance in question imposes, in
effect, double taxation, because the business of
lumberyard is already regulated under said Charter and
the sale of lumber is "a mere incident to the business of
lumber yard".
ISSUE: Is there double taxation?
Ruling: None. Regulation and taxation are two different
things, the first being an exercise of police power,
whereas the latter is not, apart from the fact that double
taxation is not prohibited in the Philippines.
d. Acebedo Optical Company v. Court
of Appeals, G.R. No. 100152, 31
March 2000
ACEBEDO OPTICAL COMPANY V. COURT OF
APPEALS
G.R. NO. 100152, 31 MARCH 2000
PURISIMA, J
FACTS: Petitioner applied with the Office of the City
Mayor of Iligan for a business permit. After
consideration of petitioner's application and the
opposition interposed thereto by local optometrists,
respondent City Mayor issued Business Permit No. 5342
subject to the following conditions: (1) Since it is a
corporation, Acebedo cannot put up an optical clinic but
only a commercial store; (2) It cannot examine and/or
prescribe reading and similar optical glasses for patients,
because these are functions of optical clinics; (3) It
cannot sell reading and similar eyeglasses without a
prescription having first been made by an independent
optometrist or independent optical clinic. Acebedo can
only sell directly to the public, without need of a
prescription, Ray-Ban and similar eyeglasses; (4) It
cannot advertise optical lenses and eyeglasses, but can
advertise Ray-Ban and similar glasses and frames; (5) It
is allowed to grind lenses but only upon the prescription
of an independent optometrist.
On December 5, 1988, private respondent Samahan ng
Optometrist Sa Pilipinas (SOPI lodged a complaint
against the petitioner alleging that Acebedo had violated
the conditions set forth in its business permit and
requesting the cancellation and/or revocation of such
permit. On July 19, 1989, the City Mayor sent petitioner
a Notice of Resolution and Cancellation of Business
Permit effective as of said date and giving petitioner
three (3) months to wind up its affairs.
ISSUE: Whether the City Mayor has the authority to
impose special conditions, as a valid exercise of police
power, in the grant of business permits.
RULING: Police power as an inherent attribute of
sovereignty is the power to prescribe regulations to
promote the health, morals, peace, education, good order
or safety and general welfare of the people. It is
essentially regulatory in nature and the power to issue
licenses or grant business permits, if exercised for a
regulatory and not revenue-raising purpose, is within the
ambit of this power. The authority of city mayors to
issue or grant licenses and business permits is beyond
cavil. However, the power to grant or issue licenses or
business permits must always be exercised in accordance
with law, with utmost observance of the rights of all
concerned to due process and equal protection of the
law.
In the case under consideration, the business permit
granted by respondent City Mayor to petitioner was
burdened with several conditions. Petitioner agrees with
the holding by the Court of Appeals that respondent City
Mayor acted beyond his authority in imposing such
special conditions in its permit as the same have no basis
in the law or ordinance. Public respondents and private
respondent SOPI are one in saying that the imposition of
said special conditions is well within the authority of the
City Mayor as a valid exercise of police power.
The issuance of business licenses and permits by a
municipality or city is essentially regulatory in nature.
The authority, which devolved upon local government
units to issue or grant such licenses or permits, is
essentially in the exercise of the police power of the
State within the contemplation of the general welfare
clause of the Local Government Code.
What is sought by petitioner from respondent City
Mayor is a permit to engage in the business of running
an optical shop. It does not purport to seek a license to
engage in the practice of optometry. The objective of the
imposition of subject conditions on petitioner's business
permit could be attained by requiring the optometrists in
petitioner's employ to produce a valid certificate of
registration as optometrist, from the Board of Examiners
in Optometry. A business permit is issued primarily to
regulate the conduct of business and the City Mayor
cannot, through the issuance of such permit, regulate the
practice of a profession. Such a function is within the
exclusive domain of the administrative agency
specifically empowered by law to supervise the
profession, in this case the Professional Regulations
Commission and the Board of Examiners in Optometry.
e. Pepsi Cola Bottling Co. of the
Phils. Inc. vs Municipality of
Tanauan, Leyte G. R. L-31156 27
February 1976
PEPSI COLA BOTTLING CO. OF THE PHILS.
INC. VS MUNICIPALITY OF TANAUAN, LEYTE
G. R. L-31156 27 FEBRUARY 1976
MARTIN, J
Facts: Municipality of Tanauan issued Municipal
Ordinance 23 which levies and collects from soft drinks
producers and manufacturers 1/6 centavo for every
th
bottle of soft drink. On the other hand, Municipal
Ordinance 27 levies and collects on soft drinks produced
and manufactured one centavo on each gallon of volume
capacity. Plaintiff-appellant submits that the two
ordinances in question constitutes an undue delegation
of taxing authority.
Issue: Whether or not the subject ordinances constitute
an undue delegation of taxing authority
Ruling: No. Supreme court held that the power of
taxation is legislative and, while the central legislative
body cannot delegate to either the executive or judicial
department, the exception lies with municipal
corporations with respect to matters of local concern. As
vested by Article XI Sec 5 of the 1973 Constitution,
each LGU has the power to create its own resources of
revenue and to levy tax.
f. Villanueva v. City of Iloilo, GR NO
L-26521 28 December 1968; 26
SCRA 578
VILLANUEVA V. CITY OF ILOILO
GR NO L-26521 28 DECEMBER 1968; 26 SCRA 578
CASTRO, J
FACTS: Spouses Villanueva and co-appellees are
owners of tenement houses. Ordinance 11 was enacted
to impose a license tax upon persons engaged in the
business of operating tenement houses. Plaintiff-
appellees filed a complaint praying that Ordinance 11 be
declared invalid and unconstitutional because it
constitutes double taxation because they also pay for real
estate taxes and income taxes.
ISSUE: Whether or not there is double taxation.
RULING: No. It is a well-settled rule that a license tax
may be levied upon a business or occupation, although
the land or property used in connection is subject to
property tax. The state may collect an ad valorem tax on
property used in calling, and at the same time, impose a
license tax on that calling, the imposition of the latter
kind of tax, being in no sense a double taxation.
g. Nursery Care Corporation v.
Anthony Acevedo, G.R. No.
180651, 30 July 2014
NURSERY CARE CORPORATION V. ANTHONY
ACEVEDO
G.R. NO. 180651, 30 JULY 2014
BERSAMIN, J
FACTS: The issue here concerns double taxation. There
is double taxation when the same taxpayer is taxed twice
when he should be taxed only once for the same purpose
by the same taxing authority within the same jurisdiction
during the same taxing period, and the taxes are of the
same kind or character. Double taxation is obnoxious.
The City of Manila assessed and collected taxes from the
individual petitioners pursuant to Section 15 (Tax on
Wholesalers, Distributors, or Dealers) and Section 17
(Tax on Retailers) of the Revenue Code of Manila. At
the same time, the City of Manila imposed additional
taxes upon the petitioners pursuant to Section 21 of the
Revenue Code of Manila, as amended, as a condition for
the renewal of their respective business licenses for the
year 1999. Section 21 of the Revenue Code of Manila
stated:
Section 21. Tax on Business Subject to the
Excise, Value-Added or Percentage Taxes under
the NIRC - On any of the following businesses
and articles of commerce subject to the excise,
value-added or percentage taxes under the
National Internal Revenue Code, hereinafter
referred to as NIRC, as amended, a tax of FIFTY
PERCENT (50%) OF ONE PERCENT (1%) per
annum on the gross sales or receipts of the
preceding calendar year is hereby imposed: (A)
On person who sells goods and services in the
course of trade or businesses; x x x PROVIDED,
that all registered businesses in the City of
Manila already paying the aforementioned tax
shall be exempted from payment thereof.
The petitioners formally requested the Office of the City
Treasurer for the tax credit or refund of the local
business taxes paid under protest.6 However, then City
Treasurer Anthony Acevedo (Acevedo) denied the
request.
ISSUE: Whether or not the collection of taxes under
Section 21 of ordinance No.7794 constitutes double
taxation.
RULING: Yes. Double taxation means taxing the same
property twice when it should be taxed only once; that
is, "taxing the same person twice by the same
jurisdiction for the same thing." It is obnoxious when the
taxpayer is taxed twice, when it should be but once.
Otherwise described as "direct duplicate taxation," the
two taxes must be imposed on the same subject matter,
for the same purpose, by the same taxing authority,
within the same jurisdiction, during the same taxing
period; and the taxes must be of the same kind or
character.
Using the aforementioned test, the Court finds that there
is indeed double taxation if respondent is subjected to
the taxes under both Sections 14 and 21 of Tax
Ordinance No. 7794, since these are being imposed: (1)
on the same subject matter – the privilege of doing
business in the City of Manila; (2) for the same purpose
– to make persons conducting business within the City
of Manila contribute to city revenues; (3) by the same
taxing authority – petitioner City of Manila; (4) within
the same taxing jurisdiction – within the territorial
jurisdiction of the City of Manila; (5) for the same taxing
periods – per calendar year; and (6) of the same kind or
character – a local business tax imposed on gross sales
or receipts of the business.
The distinction petitioners attempt to make between the
taxes under Sections 14 and 21 of Tax Ordinance No.
7794 is specious. The Court revisits Section 143 of the
LGC, the very source of the power of municipalities and
cities to impose a local business tax, and to which any
local business tax imposed by petitioner City of Manila
must conform. It is apparent from a perusal thereof that
when a municipality or city has already imposed a
business tax on manufacturers, etc. of liquors, distilled
spirits, wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC, said municipality
or city may no longer subject the same manufacturers,
etc.to a business tax under Section 143(h) of the same
Code. Section 143(h) may be imposed only on
businesses that are subject to excise tax, VAT, or
percentage tax under the NIRC, and that are "not
otherwise specified in preceding paragraphs." In the
same way, businesses such as respondent‘s, already
subject to a local business tax under Section 14 of Tax
Ordinance No. 7794 [which is based on Section 143(a)
of the LGC], can no longer be made liable for local
business tax under Section 21 of the same Tax
Ordinance [which is based on Section 143(h) of the
LGC].
Based on the foregoing reasons, petitioner should not
have been subjected to taxes under Section 21 of the
Manila Revenue Code for the fourth quarter of 2001,
considering that it had already been paying local
business tax under Section 14 of the same ordinance.
h. Ferrer v. Bautista, GR no. 210551,
30 June 2015; 760 SCRA 652
FERRER V. BAUTISTA
GR NO. 210551, 30 JUNE 2015; 760 SCRA 652
PERALTA, J
FACTS: On October 17, 2011, respondent Quezon City
Council enacted Ordinance No. SP-2095, S-2011, or the
Socialized Housing Tax of Quezon City, Section 3 of
which provides:
SECTION 3. IMPOSITION. A special
assessment equivalent to one-half percent
(0.5%) on the assessed value of land in excess of
One Hundred Thousand Pesos (Php100,000.00)
shall be collected by the City Treasurer which
shall accrue to the Socialized Housing Programs
of the Quezon City Government. The special
assessment shall accrue to the General Fund
under a special account to be established for the
purpose.
On the other hand, Ordinance No. SP-2235, S-2013 was
enacted on December 16, 2013 and took effect ten days
after when it was approved by respondent City Mayor.
The proceeds collected from the garbage fees on
residential properties shall be deposited solely and
exclusively in an earmarked special account under the
general fund to be utilized for garbage collections.
Petitioner alleges that he is a registered co-owner of a
371-square-meter residential property in Quezon City
which is on January 7, 2014, he paid his realty tax which
already included the garbage fee in the sum of
Php100.00.
Petitioner claims that the SHT and the garbage fee are
actually increases in the property tax which are not based
on the assessed value of the property or its reassessment
every three years; hence, in violation of Sections 232
and 233 of the LGC.
Respondents claim that Ordinance No. S-2235, which is
an exercise of police power. In addition, there is no
double taxation because the ordinance involves a fee.
Even assuming that the garbage fee is a tax, the same
cannot be a direct duplicate tax as it is imposed on a
different subject matter and is of a different kind or
character.
Petitioner contends that the imposition of garbage fee is
tantamount to double taxation because garbage
collection is a basic and essential public service that
should be paid out from property tax, business tax,
transfer tax, amusement tax, community tax certificate,
other taxes, and the IRA of the Quezon City
Government.
ISSUE: Whether or not the ordinances are valid.
RULING: For an ordinance to be valid though, it must
not only be within the corporate powers of the LGU to
enact and must be passed according to the procedure
prescribed by law, it should also conform to the
following requirements: (1) not contrary to the
Constitution or any statute; (2) not unfair or oppressive;
(3) not partial or discriminatory; (4) not prohibit but may
regulate trade; (5) general and consistent with public
policy; and (6) not unreasonable. As jurisprudence
indicates, the tests are divided into the formal (i.e.,
whether the ordinance was enacted within the corporate
powers of the LGU and whether it was passed in
accordance with the procedure prescribed by law), and
the substantive (i.e., involving inherent merit, like the
conformity of the ordinance with the limitations under
the Constitution and the statutes, as well as with the
requirements of fairness and reason, and its consistency
with public policy).
On the Socialized Housing Tax
Ordinance No. SP-2095 imposes a Socialized Housing
Tax equivalent to 0.5% on the assessed value of land in
excess of Php100,000.00. This special assessment is the
same tax referred to in R.A. No. 7279 or the UDHA. The
SHT is one of the sources of funds for urban
development and housing program.
Under the UDHA, socialized housing shall be the
primary strategy in providing shelter for the
underprivileged and homeless. Clearly, the SHT
charged by the Quezon City Government is a tax which
is within its power to impose. The tax is not a pure
exercise of taxing power or merely to raise revenue; it is
levied with a regulatory purpose. The levy is primarily in
the exercise of the police power for the general welfare
of the entire city. It is greatly imbued with public
interest.
In this case, petitioner argues that the SHT is a penalty
imposed on real property owners because it burdens
them with expenses to provide funds for the housing of
informal settlers, and that it is a class legislation since it
favors the latter who occupy properties which is not their
own and pay no taxes.
We disagree.
Further, the reasonableness of Ordinance No. SP-2095
cannot be disputed. It is not confiscatory or oppressive
since the tax being imposed therein is below what the
UDHA actually allows. Far from being obnoxious, the
provisions of the subject ordinance are fair and just.
On the Garbage Fee
The garbage fee is not a tax. In Smart Communications,
Inc. v. Municipality of Malvar, Batangas, the Court had
the occasion to distinguish these two concepts:
In Progressive Development Corporation v.
Quezon City, the Court declared that ―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.‖
In Victorias Milling Co., Inc. v. Municipality of
Victorias, the Court reiterated that the purpose and effect
of the imposition determine whether it is a tax or a fee,
and that the lack of any standards for such imposition
gives the presumption that the same is a tax.
Hence, not being a tax, the contention that the garbage
fee under Ordinance No. SP-2235 violates the rule on
double taxation must necessarily fail.
However, the alleged bases of Ordinance No. S-2235 in
imposing the garbage fee is the volume of waste
currently generated by each person in Quezon City,
which purportedly stands at 0.66 kilogram per day, and
the increasing trend of waste generation for the past
three years. The rates of the imposable fee depend on
land or floor area and whether the payee is an occupant
of a lot, condominium, social housing project or
apartment.
The rates being charged by the ordinance are unjust and
inequitable: a resident of a 200 sq. m. unit in a
condominium or socialized housing project has to pay
twice the amount than a resident of a lot similar in size;
unlike unit occupants, all occupants of a lot with an area
of 200 sq. m. and less have to pay a fixed rate of
Php100.00; and the same amount of garbage fee is
imposed regardless of whether the resident is from a
condominium or from a socialized housing project.
i. City of Manila v. Coca-Cola
Bottlers Philippines, Inc., GR no.
181845, 4 August 2009, 595 SCRA
299
CITY OF MANILA V. COCA-COLA BOTTLERS
PHILIPPINES, INC.
GR NO 181845, 4 AUGUST 2009, 595 SCRA 299
CHICO-NAZARIO, J
FACTS: Coca-Cola Bottlers Philippines, Inc. is a
corporation engaged in the business of manufacturing
and selling beverages, and which maintains a sales office
in the City of Manila. Prior to 25 February 2000,
respondent had been paying the City of Manila local
business tax only under Section 14 of Tax Ordinance
No. 7794 which provides for Tax on Manufacturers,
Assemblers and Other Processors of liquors, distilled
spirits, wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC. On the other
hand, the local business tax under Section 21 of Tax
Ordinance No. 7794 is and expressly exempted from the
business tax under Section 21 of the same tax ordinance
for tax imposed upon persons selling goods and services
in the course of trade or business, and those importing
goods for business or otherwise, who, pursuant to
Section 143(h) of the LGC, are subject to excise tax,
value-added tax (VAT), or percentage tax under the
National Internal Revenue Code (NIRC). These
provisions were under Tax Ordinance No. 7794,
however, it was amended later on by ordinance no. 7988
deleting the proviso in Section 21: "that all registered
businesses in the City of Manila that are already paying
the aforementioned tax shall be exempted from payment
thereof", and the amending ordinance was also later on
amended by Ordinance No. 8011. City of Manila
assessed respondent on the basis of Section 21 of Tax
Ordinance No. 7794, as amended by the aforementioned
tax ordinances, for deficiency local business taxes,
penalties, and interest, in the total amount of
₱18,583,932.04, for the third and fourth quarters of the
year 2000. Respondent filed a protest with petitioner
Toledo, treasurer of Manila, on the ground that the said
assessment amounted to double taxation, as respondent
was taxed twice, i.e., under Sections 14 and 21 of Tax
Ordinance No. 7794, as amended by Tax Ordinances
No. 7988 and No. 8011. Petitioner Toledo did not
respond to the protest of respondent.
ISSUE: Whether or not the enforcement of Section 21
of Ordinance No. 7794 amounts to double taxation.
RULING: The Court finds that there is indeed double
taxation if respondent is subjected to the taxes under
both Sections 14 and 21 of Tax Ordinance No. 7794,
since these are being imposed: (1) on the same subject
matter – the privilege of doing business in the City of
Manila; (2) for the same purpose – to make persons
conducting business within the City of Manila contribute
to city revenues; (3) by the same taxing authority –
petitioner City of Manila; (4) within the same taxing
jurisdiction – within the territorial jurisdiction of the
City of Manila; (5) for the same taxing periods – per
calendar year; and (6) of the same kind or character – a
local business tax imposed on gross sales or receipts of
the business. Tax Ordinances No. 7988 and No. 8011
were declared by the Court null and void in Coca-Cola
Bottlers Philippines, Inc. v. City of Manila (Coca-Cola
8
case) for the following reasons: (1) Tax Ordinance No.
7988 was enacted in contravention of the provisions of
the Local Government Code (LGC) of 1991 and its
implementing rules and regulations; and (2) Tax
Ordinance No. 8011 could not cure the defects of Tax
Ordinance No. 7988, which did not legally exist. This
happened before the assessment was made against the
respondent. Hence, Section 21 of Tax Ordinance No.
7794, as it has been previously worded, with its
exempting proviso, was back in effect.
j. Commissioner of Internal Revenue
v. Central Luzon Drug Corporation,
G.R. No. 159610, 12 June 2008
COMMISSIONER OF INTERNAL REVENUE V.
CENTRAL LUZON DRUG CORPORATION
G.R. NO. 159610, 12 JUNE 2008
CARPIO, J
FACTS: Respondent is a domestic corporation engaged
in the retail of medicines and other pharmaceutical
products. In 1997, it operated eight drugstores under the
business name and style "Mercury Drug.
Pursuant to the provisions of RA 7432 and Revenue
Regulations No. (RR) 2-94 issued by the Bureau of
Internal Revenue (BIR), respondent granted 20% sales
discount to qualified senior citizens on their purchases of
medicines covering the calendar year 1997.
On 19 March 1999, respondent filed with the petitioner a
claim for refund or credit of overpaid income tax for the
taxable year 1997 in the amount of P2,660,829.00.
Respondent alleged that the overpaid tax was the result
of the wrongful implementation of RA 7432.
Respondent treated the 20% sales discount as a
deduction from gross sales in compliance with RR 2-94
instead of treating it as a tax credit as provided under
Section 4(a) of RA 7432.
Respondent reasoned that RR 2-94, which is a mere
implementing administrative regulation, cannot modify,
alter or amend the clear mandate of RA 7432.
ISSUE: Whether or not the tax imposed is a tax credit or
a tax reduction.
RULING: It is a tax credit, and Central Luzon Drug is
entitled to their refund. The CTA stated that in a number
of analogous cases, it has consistently ruled that the 20%
senior citizens' discount should be treated as tax credit
instead of a mere deduction from gross income.
The Court of Appeals distinguished "tax credit" as an
amount subtracted from a taxpayer's total tax liability to
arrive at the tax due while a "tax deduction" reduces the
taxpayer's taxable income upon which the tax liability is
computed. "A credit differs from deduction in that the
former is subtracted from tax while the latter is
subtracted from income before the tax is computed."
RA 7432 expressly allows private establishments to
claim the amount of discounts they grant to senior
citizens as tax credit: Section 4(a) of RA 7432 states:
―SECTION 4. Privileges for the Senior Citizens. - The
senior citizens shall be entitled to the following: a) the
grant of twenty percent (20%) discount… Provided, that
private establishments may claim the cost as tax credit‖
XIII. Exemption from Taxation
1. Classifications:
a. As to source:
1. Constitutional
2. Statutory/Ordinance
3. Treaty/Executive Order
4. Contractual
b. As to manner:
1. Express
2. Implied
c. As to scope:
1. Total/Full
2. Partial
2. Characteristics:
a. It is not presumed.
b. It must be justified by words too plain to be
mistaken.
c. It is a personal privilege.
d. It is not created by implication.
e. There must be convincing proof.
f. Equity does not apply.
g. Tax exemption is not inherent.
h. It cannot be granted by regulation.
i. There is no vested right in a tax exemption,
more so when the latest expression of legislative intent
renders its continuance doubtful.
3. Cases:
a. David Nitafan v. CIR, G.R. No. L-78780, 23
July 1987
DAVID NITAFAN V. CIR
G.R. NO. L-78780, 23 JULY 1987
MERENCIO- HERRERA, J
FACTS: Petitioners, the duly appointed and qualified
Judges, seek to prohibit and/or perpetually enjoin
respondents, the Commissioner of Internal Revenue and
the Financial Officer of the Supreme Court, from
making any deduction of withholding taxes from their
salaries.
In a nutshell, they submit that "any tax withheld from
their emoluments or compensation as judicial officers
constitutes a decrease or diminution of their salaries,
contrary to the provision of Section 10, Article VIII of
the 1987 Constitution mandating that "(d)uring their
continuance in office, their salary shall not be
decreased," even as it is anathema to the Ideal of an
independent judiciary envisioned in and by said
Constitution."
ISSUE: Whether the salaries of members of Judiciary
taxable.
RULING: No. The debates, interpellations and opinions
expressed regarding the constitutional provision in
question until it was finally approved by the
Commission disclosed that the true intent of the framers
of the 1987 Constitution, in adopting it, was to make the
salaries of members of the Judiciary taxable. The
ascertainment of that intent is but in keeping with the
fundamental principle of constitutional construction that
the intent of the framers of the organic law and of the
people adopting it should be given effect. The primary
task in constitutional construction is to ascertain and
thereafter assure the realization of the purpose of the
framers and of the people in the adoption of the
Constitution. It may also be safely assumed that the
people in ratifying the Constitution were guided mainly
by the explanation offered by the framers.
We accord due respect to the intent of the people,
through the discussions and deliberations of their
representatives, in the spirit that all citizens should bear
their aliquot part of the cost of maintaining the
government and should share the burden of general
income taxation equitably.
b. Mactan Cebu International Airport
Authority v. Hon. Ferdinand J.
Marcos, G.R. No. 120082, 11
September 1996 (supra)
c. Meralco v. Vera, GR 29987/ GR L-
23847, 22 October 1975; 67 SCRA
351
MERALCO V. VERA
GR 29987/ GR L-23847, 22 OCTOBER 1975; 67
SCRA 351
MUNOZ, PALMA, J
FACTS: MERALCO is the holder of a franchise to
construct, maintain, and operate an electric light, heat,
and power system in the City of Manila and its suburbs.
On 1962 and again in 1963, MERALCO imported and
received from abroad on various dates copper wires,
transformers, and insulators for use in the operation of
its business.
Both times, the CIR levied and collected a compensating
tax, and both times a claim for refund of said amount
was presented by MERALCO and no action was taken
by the CIR regarding said claim.
ISSUE: Is Manila Electric Company exempt from
payment of a compensating tax on poles, wires,
transformers, and insulators imported by it for use in the
operation of its electric light, heat, and power system?
RULING: No, they are not exempt.
One who claims to be exempt from the payment of a
particular tax must do so under clear and unmistakable
terms found in the statute. Tax exemptions are strictly
construed against the taxpayer, they being highly
disfavored and may almost be said "to be odious to the
law." He who claims an exemption must be able to print
to some positive provision of law creating the right; it
cannot be allowed to exist upon a mere vague
implication or inference.
Petitioner, bases its claim for exemption from the
compensating tax on poles, wires, transformers and
insulators purchased by it from abroad on paragraph 9 of
its franchise:
―PARAGRAPH 9. The grantee shall be liable to
pay the same taxes upon its real estate,
buildings, plant (not including poles, wires,
transformers, and insulators), machinery, and
personal property as other persons are or may be
hereafter by law to pay… ―
Note that what the above provision exempts petitioner
from is the payment of property, tax on its poles, wires,
transformers, and insulators; it does not exempt it from
payment of taxes like the one in question which, by mere
necessity or consequence alone, fall upon property.
The first sentence of paragraph 9 of petitioner's franchise
expressly states that the grantee like any other taxpayer
shall pay taxes upon its real estate, buildings, plant (not
including poles, wires, transformers, and insulators),
machinery, and personal property. These are direct taxes
imposed upon the thing or property itself. Thus, while
the grantee is to pay tax on its plant, its poles, wires,
transformers, and insulators as forming part of the plant
or installation(significantly the enumeration is in
parenthesis and follows the word "plant") are exempt
and as such are not to be included in the assessment of
the property tax to be paid.
Citing jurisprudence, MERALCO is not exempt from
paying the compensating tax provided for in Section 190
of the National Internal Revenue Code, the purpose of
which is to "place casual importers, who are not
merchants on equal putting with established merchants
who pay sales tax on articles imported by them."
d. Commissioner of Internal Revenue
v. A. D. Guerrero, G.R. No. L-
20942, 22 September 1967
COMMISSIONER OF INTERNAL REVENUE V.
A. D. GUERRERO
G.R. NO. L-20942, 22 SEPTEMBER 1967
FERNANDO, J
FACTS: The Commissioner of Internal Revenue, now
petitioner before this Court, denied the claim for refund
in the sum of P2,441.93 filed by the administrator of the
estate of Paul I. Gunn, thereafter substituted by the
present respondent A. D. Guerrero as special
administrator under National Internal Revenue Code
(Sec. 142 of the National Internal Revenue Code
allowing Filipinos a refund of 50% of the specific tax
paid on aviation oil, cannot be availed of by aliens in the
absence of showing that their country grants similar
exemption to Filipino citizens; and where no such
evidence was presented, the case should be remanded to
the court a quo for further proceedings.)
The deceased operated an air transportation business
under the business name and style of Philippine Aviation
Development; his estate, it was claimed, "was entitled to
the same rights and privileges as Filipino citizens
operating public utilities including privileges in the
matter of taxation." The Commissioner of Internal
Revenue disagreed, ruling that such partial exemption
from the gasoline tax was not included under the terms
of the Ordinance and that in accordance with the statute,
to be entitled to its benefits, there must be a showing that
the United States of which the deceased was a citizen
granted a similar exemption to Filipinos. The refund as
already noted was denied.
Upon liberation in 1945 when the ravages of war left the
Philippines economically prostrate and helpless, the
American Congress enacted, by way of aid, the
Philippine Trade Act of 1946, providing, in its Sec. 341,
parity rights with respect to "the disposition,
exploitation, development and utilization" of all the
natural resources of the Philippines as well as the
operation of public utilities. This was embodied in an
Executive Agreement of July 4, 1946, signed by the
President of the Philippines and the plenipotentiary of
the President of the United States, and later appended to
the Philippine Constitution as Ordinance.
There must be recognition of the right of the "citizens of
the United States in the same manner as to, and under
the same conditions imposed upon, citizens of the
Philippines, or corporations or associations owned or
controlled by citizens of the Philippines," in the
disposition, exploitation, development and utilization of
all the natural resources of the Philippines, and the
operation of public utilities. To that grant, the
Philippines is committed. Its terms are to be respected.
Anything further than its categorical wording would not
be warranted. Nothing less would suffice, but anything
more would not be justified. What was not included,
whether by purpose or inadvertence, cannot be judicially
supplied.
ISSUE: Whether or not Section 142 of the National
Internal Revenue Code allowing Filipinos a refund of 50
per centum of the specific tax paid on aviation oil, could
be availed of by citizens of the United States and all
forms of business enterprises owned or controlled
directly or indirectly by them in view of their privilege
under the Ordinance to operate public utilities "in the
same manner as to, and under the same conditions
imposed upon, citizens of the Philippines or corporations
or associations owned or controlled by citizens of the
Philippines.
RULING: At the time then when the Ordinance
(PHILIPPINE TRADE ACT) took effect in April, 1947,
the strict rule against tax exemption was undisputed and
indisputable. Such being the case, it would be a plain
departure from the terms of the Ordinance to predicate a
tax exemption where none was intended. Well settled is
the principle. ‖.. that a constitutional provision must be
presumed to have been framed and adopted in the light
and understanding of prior and existing laws and with
reference to them. ‘Courts are bound to presume that the
people adopting a constitution are familiar with the
previous and existing laws upon the subjects to which its
provisions relate, and upon which they express their
judgment and opinion in its adoption‘."
Respect for and deference to doctrines of such
undeniable force and cogency preclude an affirmance of
the decision of the Court of Tax Appeals. This is not to
say that the scope of the Ordinance is to be restricted or
confined. What it promises must be fulfilled. There must
be recognition of the right of the "citizens of the United
States and to all forms of business enterprise owned or
controlled, directly or indirectly, by citizens of the
United States" to operate public utilities "in the same
manner as to, and under the same conditions imposed
upon, citizens of the Philippines or corporations or
associations owned or controlled by citizens of the
Philippines."
If the language of the Ordinance applies to tax refund or
exemption, then the Court of Tax Appeals should be
sustained. It does not, however. Its terms are clear.
Standing alone, without any franchise to supply that
omission, it affords no warrant for the claim here made.
While good faith, no less than adherence to the
categorical wording of the Ordinance, requires that all
the rights and privileges thus granted to Americans and
business enterprises owned and controlled by them be
respected, anything further would not be warranted.
Nothing less will suffice, but anything more is not
justified.
e. CIR v. Solidbank Corporation, GR
NO 148191, 25 November 2003;
462 SCRA 96 (2003)
CIR V. SOLIDBANK CORPORATION
GR NO 148191, 25 NOVEMBER 2003; 462 SCRA 96
(2003)
PANGANIBAN, J
FACTS: Solidbank Corporation file a claim for tax
refund in the amount of P3, 508, 078.75. The claim
arises when a business tax in the form of Gross Receipts
Tax was collected on the income tax which is already
subject to income tax in the form of Final Withholding
Tax (a tax on the interest of the deposit) which is
withheld and automatically remitted to the government
without passing into the actual possession of the
taxpayer.
ISSUE: Is Solidbank Corporation entitled to the tax
refund?
RULING: No. Tax refunds are in the nature of tax
exemptions. Such exemptions are strictly construed
against the taxpayer, being highly disfavored and almost
said "to be odious to the law." Hence, those who claim to
be exempt from the payment of a particular tax must do
so under clear and unmistakable terms found in the
statute. They must be able to point to some positive
provision, not merely a vague implication, of the law
creating that right.
The right of taxation will not be surrendered, except in
words too plain to be mistaken. The reason is that the
State cannot strip itself of this highest attribute of
sovereignty -- its most essential power of taxation -- by
vague or ambiguous language. Since tax refunds are in
the nature of tax exemptions, these are deemed to be "in
derogation of sovereign authority and to be construed
strictissimi juris against the person or entity claiming the
exemption."
No less than our 1987 Constitution provides for the
mechanism for granting tax exemptions. They certainly
cannot be granted by implication or mere administrative
regulation. Thus, when an exemption is claimed, it must
indubitably be shown to exist, for every presumption is
against it, and a well-founded doubt is fatal to the claim.
In the instant case, respondent has not been able to
satisfactorily show that its FWT on interest income is
exempt from the GRT. Like China Banking Corporation,
its argument creates a tax exemption where none exists.
No exemptions are normally allowed when a GRT is
imposed. It is precisely designed to maintain simplicity
in the tax collection effort of the government and to
assure its steady source of revenue even during an
economic slump.
f. Smart Communications, Inc., v.
The City of Davao, G.R. No.
155491, July 21, 2009
SMART COMMUNICATIONS, INC., V. THE CITY
OF DAVAO
G.R. NO. 155491, JULY 21, 2009
NACHURA, J
FACTS: Smart filed a special civil action for declaratory
relief for the ascertainment of its rights and obligations
under the Tax Code of the City of Davao particularly
Section 1, Article 10 thereof, which reads:
Notwithstanding any exemption granted by any
law or other special law, there is hereby
imposed a tax on businesses enjoying a
franchise, at a rate of seventy-five percent (75%)
of one percent (1%) of the gross annual receipts
for the preceding calendar year based on the
income or receipts realized within the territorial
jurisdiction of Davao City.
Smart contends that its telecenter in Davao City is
exempt from payment of franchise tax to the city
because such imposition would amount to a violation of
the constitutional provision against impairment of
contracts. In their answer, The City of Davao invoked
their power as local government unit to create their own
source of revenue.
The trial court cited Mactan Cebu International Airport
Authority v. Marcos, and declared that the city's power
to tax is based not merely on a valid delegation of
legislative power but on the direct authority granted to it
by the fundamental law. It added that while such power
may be subject to restrictions or conditions imposed by
Congress, any such legislated limitation must be
consistent with the basic policy of local autonomy.
Smart filed a motion for reconsideration which was
denied, hence, this petition for review on certiorari.
ISSUE: Whether the imposition of franchise tax on
Smart violates the constitutional prohibition against
impairment of contracts.
HELD: No, there is no violation of the non-impairment
clause.
The franchise of Smart does not expressly provide for
exemption from local taxes. Absent the express
provision on such exemption under the franchise, we are
constrained to rule against it. Section 9 of R.A. No. 7294
imposes on Smart a franchise tax equivalent to three
percent (3%) of all gross receipts of the business
transacted under the franchise and the said percentage
shall be in lieu of all taxes on the franchise or earnings
thereof. R.A. No 7294 does not expressly provide what
kind of taxes Smart is exempted from. Due to this
ambiguity in the law, the doubt must be resolved against
the grant of tax exemption.
Moreover, Smart's franchise was granted with the
express condition that it is subject to amendment,
alteration, or repeal. The policy of protecting contracts
against impairment presupposes the maintenance of a
government which retains adequate authority to secure
the peace and good order of society.
g. Commissioner of Internal Revenue
v. St. Luke‘s Medical Center, Inc.,
G.R. No. 203514, 13 February 2017
COMMISSIONER OF INTERNAL REVENUE V.
ST. LUKE’S MEDICAL CENTER, INC.
G.R. NO. 203514, 13 FEBRUARY 2017
DEL CASTILLO, J
FACTS: St. Luke‘s Medical Center, Inc. (St. Luke‘s) is
a hospital organized as a non-stock and non-profit
corporation. St. Luke‘s accepts both paying and non-
paying patients. The BIR assessed St. Luke‘s deficiency
taxes for 1998 comprised of deficiency income tax,
value-added tax, and withholding tax. The BIR claimed
that St. Luke‘s should be liable for income tax at a
preferential rate of 10% as provided for by Section
27(B). Further, the BIR claimed that St. Luke‘s was
actually operating for profit in 1998 because only 13%
of its revenues came from charitable purposes.
St. Luke‘s maintained that it is a non-stock and non-
profit institution for charitable and social welfare
purposes exempt from income tax under Section 30(E)
and (G) of the NIRC. It argued that the making of profit
per se does not destroy its income tax exemption.
ISSUE: Whether St. Luke is exempted from payment of
income taxes.
RULING: No. There is no dispute that St. Luke's is
organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt
St. Luke's from paying taxes. This only refers to the
organization of St. Luke's. Even if St. Luke's meets the
test of charity, a charitable institution is not ipso facto
tax exempt. To be exempt from income taxes, Section
30(G) of the NIRC requires that the institution be
'operated exclusively' for social welfare.
The last paragraph of Section 30 provides that if a tax-
exempt charitable institution conducts 'any' activity for
profit, such activity is not tax exempt even as its not-for-
profit activities remain tax exempt. This paragraph
qualifies the requirements in Section 30(E) that the non-
stock corporation or association must be organized and
operated exclusively for . . . charitable . . . purposes. It
likewise qualifies the requirement in Section 30(G) that
the civic organization must be 'operated exclusively' for
the promotion of social welfare.

h. Commissioner of Internal Revenue
v. Philippine-Aluminum Wheels,
Inc., G.R. No. 216161, 9 August
2017
COMMISSIONER OF INTERNAL REVENUE V.
PHILIPPINE-ALUMINUM WHEELS, INC.
G.R. NO. 216161, 9 AUGUST 2017
CARPIO, J
FACTS: Philippine-Aluminum Wheels, Inc is a
corporation organized and existing under Philippine laws
which engages in the manufacture, production, sale, and
distribution of automotive parts and accessories.
On 16 December 2003, the Bureau of Internal Revenue
(BIR) issued a Preliminary Assessment Notice (PAN)
against respondent covering deficiency taxes for the
taxable year 2001. On 28 March 2004, the BIR issued a
Final Assessment Notice (FAN) against respondent in
the amount of ₱32,100,613.42. On 23 June 2004,
respondent requested for reconsideration of the FAN
issued by the BIR. On 8 November 2006, the BIR
issued a Final Decision on Disputed Assessment
(FDDA) and demanded full payment of the deficiency
tax assessment from respondent. On 12 April 2007, the
FDDA was served through registered mail.
On 19 July 2007, respondent filed with the BIR an
application for the abatement of its tax liabilities
under Revenue Regulations No. 13-2001 for the taxable
year 2001.
The BIR later denied respondent's application for tax
abatement on the ground that the FDDA was already
issued by the BIR and that the FDDA had become final
and executory due to the failure of the respondent to
appeal the FDDA with the CTA and contended that the
FDDA had become final, executory, and demandable
because of the failure of the respondent to appeal the
FDDA with the CTA within thirty (30) days from receipt
of the FDDA.
Respondent informed the BIR that it already paid its tax
deficiency on withholding tax amounting to ₱736,726.89
through the Electronic Filing and Payment System of the
BIR and that if was also in the process of availing of the
Tax Amnesty Program under Republic Act No. 9480
(RA 9480) as implemented by Revenue Memorandum
Circular No. 55-2007 to settle its deficiency tax
assessment for the taxable year 2001. On 21 September
2007, respondent complied with the requirements of RA
9480 which include: the filing of a Notice of Availment,
Tax Amnesty Return and Payment Form, and remitting
the tax payment.
However, the BIR denied respondent's request and
ordered respondent to pay the deficiency tax assessment
amounting to ₱29, 108, 767 .63. The BIR demanded the
full payment of the tax assessment and contended that
the respondent's availment of the tax amnesty under RA
9480 had no effect on the assessment due to the finality
of the FDDA prior to respondent's tax amnesty
availment.
ISSUE: Whether respondent is entitled to the benefits of
the Tax Amnesty Program under RA 9480.
RULING: Yes. This Court denies the petition in view of
the respondent's availment of the Tax Amnesty Program
under RA 9480.
A tax amnesty is a general pardon or intentional
overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or
violation of a revenue or tax law. It partakes of an
absolute forgiveness or waiver by the government of its
right to collect what is due it and to give tax evaders who
wish to relent a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never favored
nor presumed in law. The grant of a tax amnesty, similar
to a tax exemption, must be construed strictly against the
taxpayer and liberally in favor of the taxing authority.
In Philippine Banking Corporation v. Commissioner of
Internal Revenue, this Court held that the taxpayer's
completion of the requirements under RA 9480, as
implemented by DO 29-07, will extinguish the
taxpayer's tax liability, additions and all appurtenant
civil, criminal, or administrative penalties under the
National Internal Revenue Code, to wit:
Considering that the completion of these
requirements shall be deemed full compliance
with the tax amnesty program, the law mandates
that the taxpayer shall thereafter be immune
from the payment of taxes, and additions thereto,
as well as the appurtenant civil, criminal or
administrative penalties under the NIRC of
1997, as amended, arising from the failure to
pay any and all internal revenue taxes for
taxable year 2005 and prior years.
The CIR alleges that respondent is disqualified to avail
of the Tax Amnesty Program under Revenue
Memorandum Circular No. 19-2008 (RMC No. 19-
2008) dated 22 February 2008 issued by the BIR which
includes "delinquent accounts or accounts receivable
considered as assets by the BIR or the Government,
including self-assessed tax" as disqualifications to avail
of the Tax Amnesty Program under RA 9480. The
exception of delinquent accounts or accounts
receivable by the BIR under RMC No. 19- 2008
cannot amend RA 9480. As a rule, executive issuances
including implementing rules and regulations cannot
amend a statute passed by Congress.
In National Tobacco Administration v. Commission on
Audit, this Court held that in case there is a discrepancy
between the law and a regulation issued to implement
the law, the law prevails because the rule or regulation
cannot go beyond the terms and provisions of the law, to
wit: "the Circular cannot extend the law or expand its
coverage as the power to amend or repeal a statute is
vested with the legislature." To give effect to the
exception under RMC No. 19-2008 of delinquent
accounts or accounts receivable by the BIR, as
interpreted by the BIR, would unlawfully create a new
exception for availing of the Tax Amnesty Program
under RA 9480.
i. Esso Standard Eastern, Inc. v.
Acting Commissioner of Customs,
GR no. L-21841, 28 October 1966;
18 SCRA 488
ESSO STANDARD EASTERN, INC. V. ACTING
COMMISSIONER OF CUSTOMS
GR NO. L-21841, 28 OCTOBER 1966; 18 SCRA 488
SANCHEZ, J
Facts: Esso claims for the refund of P722.84 paid in
1956 as special import tax on pump parts imported by
them on the ground that the imported articles "consist of
equipment and spare parts for its own exclusive use and
therefore were exempt from special import tax". This
was rejected by the Collector of Customs then affirmed
by the Acting Commissioner of Customs and CTA.
Esso‘s argument is that marketing of its gasoline product
"is corollary to or incidental to its industrial operations."
Issue: Are the imported pump parts exempt from the
payment of special import tax?
Ruling: No. Esso owns gasoline stations with pumps,
which are leased to and operated by gasoline dealers. It
sells gasoline to these dealers. The pump parts imported
in 1956 were intended, installed and actually used by
gasoline dealers in pumping gasoline from under around
tanks into customers' motor vehicles. These pump parts,
in other words, are used in the sale at retail of gasoline
— not by Esso but by lessees of gasoline stations. It is
quite evident that the pump parts are not used in Esso‘s
industry of processing gasoline, or manufacturing
lubricating oil, grease and tin containers.
We cannot indulge in expansive construction and write
into the law an exemption not therein set forth. Rather,
we go by the reasonable assumption that where the State
has granted in express terms certain exemptions, those
are the exemptions to be considered, and no more. Since
the law states that, to be tax exempt, equipment and
spare parts should be "for the use of industries", the
coverage herein should not be enlarged to include
equipment and spare parts for use in dispensing gasoline
at retail. In comparable factual backdrop, this Court has
held that tax exemption in connection with the
manufacture of asbestos roof does not extend to the
installation thereof.
XIV. Tax Laws and Implementing Rules and
Regulations
1. Requisites for validity of regulations:
a. It is issued under authority of law.
b. It must be within the scope and purview of the
law.
c. It is reasonable.
d. It must be published in the Official Gazette or in
a newspaper of general circulation.
e. Where the regulations impose penal sanctions,
the law itself must declare as punishable the violation of
the administrative, and the law should fix or define the
penalty for the violation of the rule or regulation.
2. Section 246
3. Cases:
a. Pilmico-Mauri Foods Corp. v. CIR, GR no.
175651, 14 September 2016; 802 SCRA 618
PILMICO-MAURI FOODS CORP. V. CIR
GR NO. 175651, 14 SEPTEMBER 2016; 802 SCRA
618
REYES, J
FACTS: Pilmico-Mauri (PMFC) was assessed for
deficiency income, value-added (VAT) and withholding
tax liabilities for taxable year 1996 for non-
substantiation of sales and purchases of raw materials.
The Commissioner of Internal Revenue (CIR) found that
aside from non-substantiation through the non-use of
official receipts and non-keeping of sales invoices,
PMFC‘s sales invoices contain alterations particularly in
the name of the purchaser giving rise to serious doubts
regarding their authenticity.
A petition for review to the Court of Tax Appeals (CTA)
was filed by PMFC to assail the assessment. The CTA
ruled that the disallowance of the CIR is proper
anchoring its decision on Section 238 of the NIRC of
1977. Sec 238 imposes for the taxpayer to keep records
of deductions to be claimed as well as invoices issued.
PMFC assails the CTA decision to the Supreme Court
arguing that on the deductibility of Purchases, it is
Section 29 that applies and not Section 238. Citing Atlas
Consolidated Mining and Development Corporation v.
CIR, PMFC argues that Section 29 imposes less
stringent requirements and the presentation of official
receipts as evidence of the claimed deductions
dispensable. Section 29 provides that a business expense
may be deducted from the gross income (business test).
As long as the expense is: (a) both ordinary and
necessary; (b) incurred in carrying a business or trade;
and (c) paid or incurred within the taxable year, then, it
shall be allowed as a deduction from the gross income.
ISSUE: Whether Section 29 applies on the deductibility
of purchases as a deduction.
RULING: NO. The law, intends for Sections 29 and
238 of the 1977 NIRC to be read together, and not for
one provision to be accorded preference over the other.
It is not that the taxpayer must only meet the business
test under Section 29, he must substantially prove by
evidence or records the deductions claimed under the
law under Section 238, otherwise, the same will be
disallowed. The mere allegation of the taxpayer that an
item of expense is ordinary and necessary does not
justify its deduction.
b. Collector v. Fireman‘s Fund
Insurance Co., GR no. L-30644, 9
March 1987; 148 SCRA 315
COLLECTOR V. FIREMAN’S FUND INSURANCE
CO.
GR NO. L-30644, 9 MARCH 1987; 148 SCRA 315
PARAS, J
FACTS: The Fireman‘s Fund Insurance Company is
engaged in the business of issuing insurance policies.
From January 1952 to 1956, documentary stamps were
bought and affixed to the monthly statements of policies
issued; and from 1957-1958, documentary stamps were
bought and affixed to the pages of the policy register.
On July 3, 1959, the insurance company lost its monthly
statements of business and policy register due to a
robbery.
CIR was informed about the incident and found that the
insurance company failed to affix the required
documentary stamps to the individual insurance policies
issued by it and failed to preserve its accounting records
within the time prescribed by Sec. 337 of the Revenue
Code. Hence, Commissioner demanded the insurance
company to pay documentary stamp taxes for the years
1952 to 1958 and compromise penalties for the total
amount of Php 84,406.00.
ISSUE: Whether Fireman‘s Fund Insurance Company is
required to pay again the documentary stamps it has
actually purchased and affixed.
RULING: The petition is devoid of merit.
Although the documentary stamps were affixed on
papers other than those authorized by law, it is not
tantamount to failure to pay the same as the company
purchased and paid the documentary stamps.
The SC cited several provisions of the Revenue Code
which provides that the documentary tax is deemed paid
by: (a) the purchase of documentary stamps; (b) affixture
of documentary stamps to the document or instrument
taxed or to such other paper as may be indicated by law
or regulations; and (c) cancellation of the stamps as
required by law (Rollo, p. 18).
However, the over-riding purpose of these provisions of
law is the collection of taxes. The three steps above-
mentioned are but the means to that end. Thus, the
purchase of the stamps is the form of payment made; the
affixture thereof on the document or instrument taxed is
to insure that the corresponding tax has been paid for
such document while the cancellation of the stamps is to
obviate the possibility that said stamps will be reused for
similar documents for similar purposes.
In the case at bar, there appears to be no dispute on the
fact that the documentary stamps corresponding to the
various policies were purchased and paid for by the
respondent Company. Neither is there any argument that
the same were cancelled as required by law.
c. Hilado v. Collector, GR no. L-9408,
31 October 1956; 100 Phil. 288
HILADO V. COLLECTOR
GR NO. L-9408, 31 OCTOBER 1956; 100 PHIL. 288
BAUTISTA ANGELO, J
FACTS: In 1952, Hilado filed his income tax for 1951
with the treasurer of Bacolod City claiming the amount
of Php 12, 837.65 as a deductible item from his gross
income pursuant to General Circular No. V-123 issued
by the CIR.
On the basis of the return, an assessment notice
demanding the payment of Php 9, 419.00 was sent to
Hilado, who paid the tax in monthly instalments, the last
payment was made in 1953.
In 1952, General Circular No. V-139 was issued which
revoked General Circular No. V-123 which laid down
the rule that losses of property which occurred during
the period of World War 2 from fires, shipwreck or other
casualty, or from robbery, theft or embezzlement are
deductible in the year of actual loss or destruction of said
property.
As a consequence, the Php 12, 837.65 was disallowed as
a deduction from the gross income of Hilado for 1951,
instead the CIR demanded him to pay Php 3, 546 as
deficiency income tax for said year.
Hilado contended that General Circular No. V-139
cannot be given retroactive effect because that would
affect and obliterate the vested right acquired by him
under the previous circular.
CTA affirmed the assessment made by CIR.
ISSUE: Whether General Circular No. V-139 can be
given retroactive effect.
RULING: Yes. General Circular No. V-123, having
been issued on a wrong construction of the law, cannot
give rise to a vested right that can be invoked by a
taxpayer. The reason is, a vested right cannot spring
from a wrong interpretation.
The secretary of finance is vested with authority to
revoke, repeal or abrogate the acts of previous rulings of
his predecessor in office because the construction of a
statute by those administering it is not binding on their
successors if thereafter the latter becomes satisfied that a
different construction should be given.
d. Accenture v. CIR, G.R. No. L-
190102, 11 July 2012
ACCENTURE V. CIR
G.R. NO. L-190102, 11 JULY 2012
SERENO, J
FACTS: Accenture, Inc. (Accenture) is a corporation
engaged in the business of providing management
consulting, business strategies development, and selling
and/or licensing of software. It is duly registered with
the Bureau of Internal Revenue (BIR) as a Value Added
Tax (VAT) taxpayer or enterprise in accordance with
Section 236 of the National Internal Revenue Code (Tax
Code).
The monthly and quarterly VAT returns of Accenture
show that, notwithstanding its application of the input
VAT credits earned from its zero-rated transactions
against its output VAT liabilities, it still had excess or
unutilized input VAT credits. These VAT credits are in
the amounts of P9,355,809.80 for the 1st period and
P27,682,459.38 for the 2nd period, or a total of
P37,038,269.18.
Out of the P37,038,269.18, only P35,178,844.21
pertained to the allocated input VAT on Accenture‘s
"domestic purchases of taxable goods which cannot be
directly attributed to its zero-rated sale of services. ―This
allocated input VAT was broken down to P8,811,301.66
for the 1st period and P26,367,542.55 for the 2nd period.
The excess input VAT was not applied to any output
VAT that Accenture was liable for in the same quarter
when the amount was earned—or to any of the
succeeding quarters. Instead, it was carried forward to
petitioner‘s 2nd Quarterly VAT Return for 2003.
Thus, on 1 July 2004, Accenture filed with the
Department of Finance (DoF) an administrative claim
for the refund or the issuance of a Tax Credit Certificate.
In resolving the sole issue of whether or not Accenture
was entitled to a refund or an issuance of a TCC in the
amount of P35,178,844.21,the Division ruled that
Accenture had failed to present evidence to prove that
the foreign clients to which the former rendered services
did business outside the Philippines.-Ruling that
Accenture‘s services would qualify for zero-rating under
the 1997 National Internal Revenue Code of the
Philippines (Tax Code) only if the recipient of the
services was doing business outside of the
Philippines,1the Division cited Commissioner of Internal
Revenue v. Burmeister and Wain Scandinavian
Contractor Mindanao, Inc. (Burmeister)as basis.
ISSUE: Whether or not Petitioner‘s sales of goods and
services are zero-rated for VAT purposes under Section
108(B)(2)(3) of the 1997 Tax Code.
RULING: The Supreme Court‘s pronouncements in the
Burmeister case requiring that the recipient of the
services must be doing business outside the Philippines
as mandated by law govern the instant case.
Assuming that the foregoing is true, Accenture still
argues that the tax appeals courts cannot be allowed to
apply to Burmeister this Court‘s interpretation of Section
102(b) of the 1977 Tax Code, because the Petition of
Accenture had already been filed before the case was
even promulgated on 22 January 2007, to wit:
x x x. While the Burmeister case forms part of
the legal system and assumes the same authority
as the statute itself, however, the same cannot be
applied retroactively against the Petitioner
because to do so will be prejudicial to the latter.
The CTA en banc is of the opinion that Accenture
cannot invoke the non-retroactivity of the rulings of the
Supreme Court, whose interpretation of the law is part of
that law as of the date of its enactment.
We rule that the recipient of the service must be doing
business outside the Philippines for the transaction to
qualify for zero-rating under Section 108(B) of the Tax
Code.
This Court upholds the position of the CTA en banc that,
because Section 108(B) of the 1997 Tax Code is a
verbatim copy of Section 102(b) of the 1977 Tax Code,
any interpretation of the latter holds true for the former.
Moreover, even though Accenture‘s Petition was filed
before Burmeister was promulgated, the
pronouncements made in that case may be applied to the
present one without violating the rule against retroactive
application. When this Court decides a case, it does not
pass a new law, but merely interprets a preexisting
one.When this Court interpreted Section 102(b) of the
1977 Tax Code in Burmeister, this interpretation became
part of the law from the moment it became effective. It is
elementary that the interpretation of a law by this Court
constitutes part of that law from the date it was
originally passed, since this Court's construction merely
establishes the contemporaneous legislative intent that
the interpreted law carried into effect.
e. Philex Mining Corporation v. CIR,
GR NO 125704, 29 August 1998
PHILEX MINING CORPORATION V. CIR
GR NO 125704, 29 AUGUST 1998
ROMERO, J
FACTS: In a letter dated August 20, 1992, Philex
protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input
credit/refund for the taxes it paid for the years 1989 to
1991 in the amount of P119,977,037.02 plus interest.
Therefore, these claims for tax credit/refund should be
applied against the tax liabilities, citing our ruling
in Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc.
In reply, the BIR, in a letter dated September 7,
1992, found no merit in Philex's position. Since these
pending claims have not yet been established or
determined with certainty, it follows that no legal
compensation can take place. Hence, the BIR reiterated
its demand that Philex settle the amount plus interest
within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's
claim for VAT input credit/refund against its excise tax
obligation, Philex raised the issue to the Court of Tax
Appeals on November 6, 1992. In the course of the
7
proceedings, the BIR issued Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied
to the total tax liabilities of Philex of P123,821,982.52;
effectively lowered the latter's tax obligation to
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still
ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest.
ISSUE: Whether or Not taxes could be subject of a set-
off or legal compensation.
RULING: In several instances prior to the instant case,
the court have already made the pronouncement that
taxes cannot be subject to compensation for the simple
reason that the government and the taxpayer are not
creditors and debtors of each other. There is a material
distinction between a tax and debt. Debts are due to the
Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity. The
court finds no cogent reason to deviate from the
aforementioned distinction.
Prescinding from this premise, in Francia v.
Intermediate Appellate Court, we categorically held that
taxes cannot be subject to set-off or compensation, thus:
We have consistently ruled that there can be no
off-setting of taxes against the claims that the
taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground
that the government owes him an amount equal
to or greater than the tax being collected. The
collection of a tax cannot await the results of a
lawsuit against the government.
f. Commissioner v. Burroughs, GR
NO L-66653, 19 June 1986; 142
SCRA 324
COMMISSIONER V. BURROUGHS
GR NO L-66653, 19 JUNE 1986; 142 SCRA 324
PARAS, J
FACTS: Burroughs Limited is a foreign corporation
authorized to engage in trade or business in the
Philippines through a branch office located at De la Rosa
corner Esteban Streets, Legaspi Village, Makati, Metro
Manila.
Sometime in March 1979, said branch office applied
with the Central Bank for authority to remit to its parent
company abroad, branch profit amounting to
P7,647,058.00. Thus, on March 14, 1979, it paid the
15% branch profit remittance tax, pursuant to Sec. 24 (b)
(2) (ii) and remitted to its head office the amount of P6,
499,999.30.
Claiming that the 15% profit remittance tax should have
been computed on the basis of the amount actually
remitted (P6, 499,999.30) and not on the amount before
profit remittance tax (P7, 647,058.00), private
respondent filed on December 24, 1980, a written claim
for the refund or tax credit of the amount of P172,
058.90 representing alleged overpaid branch profit
remittance tax.
On February 24, 1981, private respondent filed with
respondent court, a petition for review, docketed as
C.T.A. Case No. 3204 for the recovery of the above-
mentioned amount of P172, 058.81.
ISSUE: Whether or not the tax base upon which the
15% branch profit remittance tax shall be imposed under
the provisions of section 24(b) of the Tax Code, as
amended, is the amount applied for remittance on the
profit actually remitted after deducting the 15% profit
remittance tax
RULING: The Supreme Court ruled in the affirmative.
The pertinent provision of the National Revenue Code is
Sec. 24 (b) (2) (ii) which states:
Sec. 24. Rates of tax on corporations....
(b) Tax on foreign corporations. ...
(2) (ii) Tax on branch profits
remittances. Any profit remitted abroad
by a branch to its head office shall be
subject to a tax of fifteen per cent (15
%) ...
It had been interpreted to mean that "the tax base upon
which the 15% branch profit remittance tax shall be
imposed... is the profit actually remitted abroad and not
on the total branch profits out of which the remittance is
to be made. "
Furthermore, the respondent is no longer entitled to a
refund because Memorandum Circular No. 8-82 dated
March 17, 1982 had revoked and/or repealed the BIR
ruling of January 21, 1980. What is applicable in the
case at bar is still the Revenue Ruling of January 21,
1980 because private respondent Burroughs Limited
paid the branch profit remittance tax in question
on March 14, 1979. Memorandum Circular No. 8-82
dated March 17, 1982 cannot be given retroactive effect
in the light of Section 327 of the National Internal
Revenue Code.
g. Secretary of Finance v.
Representative Carmelo F. Lazatin,
G.R. No. 210588, 29 November
2016
SECRETARY OF FINANCE V.
REPRESENTATIVE CARMELO F. LAZATIN,
G.R. NO. 210588, 29 NOVEMBER 2016
BRION, J.
FACTS: In response to reports of smuggling of
petroleum and petroleum products and to ensure the
correct taxes are paid and collected, petitioner Secretary
of Finance Cesar V. Purisima - pursuant to his authority
to interpret tax laws3 and upon the recommendation of
petitioner Commissioner of Internal Revenue (CIR) Kim
S. Jacinto-Henares signed RR 2-2012 on February 17,
2012.
It imposes value-added tax (VAT) and excise tax on the
importation of all petroleum and petroleum products
coming directly from abroad and brought into the
Philippines, including Freeport and economic zones
(FEZs). It then allows the credit or refund of any VAT or
excise tax paid if the taxpayer proves that the petroleum
previously brought in has been sold to a duly registered
FEZ locator and used pursuant to the registered activity
of such locator.
Carmelo F. Lazatin, in his capacity as Pampanga First
District Representative, challenged the validity of RR 2-
2012 contending that it contravenes the tax exempt
status RA 9400 granted to the Clark Special Economic
Zone and Clark Freeport Zone (together hereinafter
referred to as Clark FEZ). These zones are separate
customs territory and allows tax and duty-free
importations of raw materials, capital and equipment
into the zone. Thus, the imposition of VAT and excise
tax, even on the importation of petroleum products into
FEZs (like Clark FEZ), directly contravenes the law.
ISSUE: Whether RR-2-2012 is a valid tax regulation.
RULING: No. The Supreme Court declared RR-2-2012
unconstitutional because it illegally imposes taxes upon
the FEZ enterprises which, by law, enjoy a tax-exempt
status and it effectively amends the law.
The power of the petitioners to interpret tax laws is not
absolute. The rule is that regulations may not enlarge,
alter, restrict, or otherwise go beyond the provisions of
the law they administer; administrators and
implementors cannot engraft additional requirements not
contemplated by the legislature.
It is worthy to note that RR 2-2012 does not even refer
to a specific Tax Code provision it wishes to implement.
While it purportedly establishes mere administration
measures for the collection of VAT and excise tax on the
importation of petroleum and petroleum products, not
once did it mention the pertinent chapters of the Tax
Code on VAT and excise tax.
While the Supreme Court recognize petitioners' essential
rationale in issuing RR 2-2012, the procedures proposed
by the issuance cannot be implemented at the expense of
entities that have been clearly granted statutory tax
immunity.
h. Commissioner of Internal Revenue
v. Philippine-Aluminum Wheels,
 Inc., G.R. No. 216161, 9 August
2017 (supra)
i. CIR v. Filinvest, G.R. No. 163653,
19 July 2011
CIR V. FILINVEST
G.R. NO. 163653, 19 JULY 2011
PEREZ, J
Facts: Filinvest extended advances in favor of its
affiliates, namely, FAI and FLI. They requested a ruling
from the BIR to the effect that no gain or loss should be
recognized in the aforesaid transfer of real properties.
The BIR issued Ruling No. S-34-046-97 dated 3
February 1997, finding that the exchange is among those
contemplated under Section of the old NIRC which
provides that "(n)o gain or loss shall be recognized if
property is transferred to a corporation by a person in
exchange for a stock in such corporation of which as a
result of such exchange said person, alone or together
with others, not exceeding four (4) persons, gains control
of said corporation."
Filinvest then received from the BIR a Formal Notice of
Demand to pay deficiency income and documentary
stamp taxes, plus interests and compromise penalties.
Filinvest argued that not being promissory notes or
certificates of obligations, the instructional letters as well
as the cash and journal vouchers evidencing said cash
advances were not subject to documentary stamp taxes.
The CIR argued that the ruling was later modified in
BIR Ruling No. 108-99 dated 15 July 1999, which
opined that inter-office memos evidencing lendings or
borrowings extended by a corporation to its affiliates are
akin to promissory notes, hence, subject to documentary
stamp taxes.
The CTA partially cancelled the assessment, and ordered
Filinvest to pay more than P5,000,000.
The CA ruled that although BIR Ruling No. 116-98 had
been subsequently modified by BIR Ruling No. 108-99,
dated 15 July 1999, to the effect that documentary stamp
taxes are imposable on inter-office memos evidencing
cash advances similar to those extended by FDC, said
latter ruling cannot be given retroactive application if to
do so would be prejudicial to the taxpayer.
Issue: Whether or not the inter-office memo covering
the advances granted by an affiliate company is subject
to documentary stamp tax imposed by a subsequent BIR
Ruling.
Ruling: No. Rulings, circulars, rules and regulations
promulgated by the BIR have no retroactive application
if to so apply them would be prejudicial to the
taxpayers.
Admittedly, this rule does not apply: (a) where the
taxpayer deliberately misstates or omits material facts
from his return or in any document required of him by
the Bureau of Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which
the ruling is based; or (c) where the taxpayer acted in
bad faith.
Not being the taxpayer who, in the first instance, sought
a ruling from the CIR, however, FDC cannot invoke the
foregoing principle on non-retroactivity of BIR rulings.
j. CIR v. Ledesma, G.R. No. L-
17509, 30 January 1970
CIR V. LEDESMA
G.R. NO. L-17509, 30 JANUARY 1970
ZALDIVAR, J.
FACTS: On July 9, 1949 herein respondents, Carlos
Ledesma, Julieta Ledesma and the spouses Amparo
Ledesma and Vicente Gustilo, Jr., purchased from their
parents, Julio Ledesma and Florentina de Ledesma, the
sugar plantation known as "Hacienda Fortuna,"
consisting of 36 parcels of land, which sugar quota was
included in the sale. By virtue of the purchase,
respondents acquired the one-third (1/3) each undivided
portion of the plantation. After the purchase of the
plantation, the respondents took over the sugar cane
farming on the plantation beginning with the crop year
1948-1949.
For the crop year 1948- 1949 the San Carlos Milling
Co., Ltd. credited the respondents with their shares in the
gross sugar production. The respondents shared equally
the expenses of production, on the basis of their
respective one-third undivided portions of the plantation.
In their individual income tax returns for the year 1949
the respondents included as part of their income their
respective net profits derived from their individual sugar
production from the "Hacienda Fortuna," as herein-
above stated.
The respondents organized themselves into a general co-
partnership under the firm name "Hacienda Fortuna", for
the "production of sugar cane for conversion into sugar,
palay and corn and such other products as may
profitably be produced on said hacienda, which products
shall be sold or otherwise disposed of for the purpose of
realizing profit for the partner-ship." The articles of
general co-partnership were registered in the commercial
register of the office of the Register of Deeds in Bacolod
City, Negros Occidental, on July 14, 1949. Paragraph 14
of the articles of general partnership provides that the
agreement shall have retroactive effect as of January1,
1949.
ISSUE: Whether or not respondent operated the
Hacienda Fortuna as partnership prior to the execution of
articles of co-partnership.
RULING: Yes. Suffice it to say that the conclusion of
the Court of Tax Appeals that the respondents operated
the "Hacienda Fortuna" as a partnership prior to the
execution of the articles of general co-partnership is
based on findings of fact, and the Supreme Court find no
reason in the record to disturb the findings of the tax
court on this matter. On the contrary, the intention of the
respondents to operate the "Hacienda Fortuna" as a
partnership, before July 11, 1949, is clearly shown in
paragraph 14 of the articles of general co-partnership
which provides that the partnership agreement "shall be
retroactive as of January 1, 1949."
The BIR, 1924 published in Official Gazette issued a
ruling that the status or form of organization of a
partnership at the end of the taxable year will determine
its income tax liability for that year
situated on two parcels of land on Ayala Avenue, Makati
City. It is undisputed that CIC authorized Toda, Jr.,
President and owner of 99.991% of CIC, to sell the
Cibeles Building and the two parcels of land on which
the building stands for an amount of not less than P90
million. Toda sold it to Altonaga for 100 million pesos
who then sold it on the same day to Royal Match Inc.
(RMI) for 200 million. All these transactions are
evidenced by notarized deeds of sale. For the sale of the
property to RMI, Altonaga paid capital gains tax in the
amount of P10 million.
CIC paid 26 million pesos for its gains from the sale of
said property. 3 years before Toda died, he had sold his
entire shares of stocks in CIC to Choa for 12.5 million
pesos. The BIR issued the 79-million NOA and demand
letter against CIC. CIC moved to reconsider because it
has a new set of stockholders which it called "new CIC."
It also pointed out Toda's undertaking to keep CIC and
its stockholdings free from all tax liabilities during the
period within which the realty was sold. The issued a
NOA against the Estate of Toda. The Estate filed a
protest but the BIR rejected arguing that a fraudulent
scheme was deliberately perpetuated by the CIC wholly
owned and controlled by Toda by covering up the
additional gain of P100 million, which resulted in the
change in the income structure of the proceeds of the
sale of the two parcels of land and the building thereon
to an individual capital gains, thus evading the higher
corporate income tax rate of 35%

ISSUE: Is this a case of tax evasion or tax avoidance?

XV. Escape from Taxation RULING: Yes, there is tax evasion in this case.
1. Forms:
a. Tax Shifting Tax evasion connotes the integration of three factors: (1)
b. Tax Capitalization or Amortization payment of tax less than legally due; (2) a state of mind
c. Tax Transformation being evil, in bad faith, wilful, or deliberate and not
d. Transfer Pricing accidental; and (3) unlawful course of action. The
e. Resorting to Tax Haven intermediary transaction, i.e., the sale of Altonaga,
f. Tax Deferral which was prompted more on the mitigation of tax
g. Tax Shelter liabilities than for legitimate business purposes,
h. Doctrine of Equitable Recoupment constitutes one of tax evasion. Generally, a sale or
i. Tax Avoidance exchange of assets will have an income tax incidence
j. Tax Dodging or Tax Evasion only when it is consummated.
2. Cases:
a. CIR v. The Estate of Benigno P. Toda, Jr., G.R. The incidence of taxation depends upon the substance of
No. L-147188, 14 September 04 a transaction. The tax consequences arising from gains
from a sale of property are not finally to be determined
CIR V. THE ESTATE OF BENIGNO P. TODA, JR. solely by the means employed to transfer legal title.
G.R. NO. L-147188, 14 SEPTEMBER 04 Rather, the transaction must be viewed as a whole, and
DAVIDE, JR., C.J each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one
FACTS: The case at bar stemmed from an NOA sent to person cannot be transformed for tax purposes into a sale
CIC arising from an alleged simulated sale of a 16- by another by using the latter as a conduit through which
storey commercial building known as Cibeles Building, to pass title.

To allow a taxpayer to deny tax liability on the ground
that the sale was made through another and distinct
entity when it is proved that the latter was merely a
conduit is to sanction a circumvention of our tax laws.
Hence, the sale to Altonaga should be disregarded for
income tax purposes.
b. CIR v. Seagate Technology (Phils.),
G.R. No. 153866, 11 February 2005
CIR V. SEAGATE TECHNOLOGY (PHILS.),
G.R. NO. 153866, 11 FEBRUARY 2005
PANGANIBAN. J
FACTS: Seagate is a resident foreign corporation duly
registered with the Securities and Exchange Commission
to do business in the Philippines, with principal office
address at the new Cebu Township One, Special
Economic Zone, Barangay Cantao-an, Naga, Cebu.
Seagate is registered with the Philippine Export Zone
Authority (PEZA) and has been issued PEZA Certificate
to engage in the manufacture of recording components
primarily used in computers for export. Its business is
not subject to VAT pursuant to Section 24 of Republic
Act No. 7916 in relation to Section 103 of the Tax Code,
as amended.
An administrative claim for refund of VAT input taxes
in the amount of P28,369,226.38 with supporting
documents (inclusive of the P12,267,981.04 VAT input
taxes subject of this Petition for Review) was filed on
October 4, 1999 in Talisay, Cebu. Hence, no final action
has been received by respondent from petitioner on
respondent‘s claim for VAT refund.
The administrative claim for refund by Seagate on
October 4, 1999 was not acted upon by the
Commissioner of Internal Revenue prompting the
Seagate to elevate the case on July 21, 2000 by way of
Petition for Review in order to toll the running of the
two-year prescriptive period.
The Commissioner contends that the Seagate alleged
claim for tax refund/credit is subject to administrative
routinary investigation/examination by the Bureau; and
since ‗taxes are presumed to have been collected in
accordance with laws and regulations,‘ Seagate has the
burden of proof that the taxes sought to be refunded
were erroneously or illegally collected.
On July 19, 2001, the Tax Court rendered a decision
granting the claim for refund.
ISSUE: Whether or not respondent is entitled to the
refund or issuance of Tax Credit Certificate in the
amount of P12, 122,922.66 representing alleged
unutilized input VAT paid on capital goods purchased
for the period April 1, 1998 to June 30, 1999.
RULING: No doubt, as a PEZA-registered enterprise
within a special economic zone, respondent is entitled to
the fiscal incentives and benefits provided for in either
PD 66 or EO 226. It shall, moreover, enjoy all
privileges, benefits, advantages or exemptions under
both Republic Act Nos. (RA) 7227 and 7844.
Zero-Rated and Effectively Zero-Rated Transactions
Although both are taxable and similar in effect, zero-
rated transactions differ from effectively zero-rated
transactions as to their source.
Zero-rated transactions generally refer to the export sale
of goods and supply of services. The tax rate is set at
zero. When applied to the tax base, such rate obviously
results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax, but can
claim a refund of or a tax credit certificate for the VAT
previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the
sale of goods or supply of services to persons or entities
whose exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate.
Again, as applied to the tax base, such rate does not
yield any tax chargeable against the purchaser. The seller
who charges zero output tax on such transactions can
also claim a refund of or a tax credit certificate for the
VAT previously charged by suppliers.
In terms of the VAT computation, zero rating and
exemption are the same, but the extent of relief that
results from either one of them is not.
Applying the destination principle to the exportation of
goods, automatic zero rating is primarily intended to be
enjoyed by the seller who is directly and legally liable
for the VAT, making such seller internationally
competitive by allowing the refund or credit of input
taxes that are attributable to export sales. Effective zero
rating, on the contrary, is intended to benefit the
purchaser who, not being directly and legally liable for
the payment of the VAT, will ultimately bear the burden
of the tax shifted by the suppliers.
In both instances of zero rating, there is total relief for
the purchaser from the burden of the tax. But in an
exemption there is only partial relief, because the
purchaser is not allowed any tax refund of or credit for
input taxes paid.
c. CIR v. PLDT, GR no. 140230, 15
December 2005
CIR V. PLDT
GR NO. 140230, 15 DECEMBER 2005
GARCIA, J
FACTS: PLDT is a grantee of a franchise under
Republic Act (R.A.) No. 7082 to install, operate and
maintain a telecommunications system throughout the
Philippines.
PLDT paid the BIR for compensating tax, advance sales
tax, and VAT. On 1994, PLDT addressed a letter to the
BIR seeking a confirmatory ruling on its tax exemption
privilege under Section 12 of R.A. 7082. Responding,
the BIR issued a Ruling holding that PLDT is exempt
from VAT on its importation of equipment, machineries
and spare parts needed in its franchise operations.
PLDT filed a claim for tax credit/refund. The CTA ruled
in favor of PLDT and affirmed by the Court of Appeals.
ISSUE: Whether or not PLDT is exempt from paying
VAT, compensating taxes, advance sales taxes and
internal revenue taxes on its importations.
RULING: It is important to determine if the tax
exemption granted to a taxpayer specifically includes the
indirect tax which is shifted to him as part of the
purchase price, otherwise it is presumed that the tax
exemption embraces only those taxes for which the
buyer is directly liable.
The clause "in lieu of all taxes" in Section 12 of RA
7082 is immediately followed by the limiting or
qualifying clause "on this franchise or earnings thereof",
suggesting that the exemption is limited to taxes
imposed directly on PLDT since taxes pertaining to
PLDT‘s franchise or earnings are its direct liability.
Accordingly, indirect taxes, not being taxes on PLDT‘s
franchise or earnings, are outside the purview of the "in
lieu" provision.
d. Contex v. CIR, GR no. 151135, 02
July 2004
CONTEX V. CIR
GR NO. 151135, 02 JULY 2004
QUISUMBING, J
FACTS: Contex Corporation is a domestic corporation
engaged in the business of manufacturing hospital
textiles and garments and other hospital supplies for
export, and its place of business is at the Subic Bay
Freeport Zone (SBFZ). It is duly registered with the
Subic Bay Metropolitan Authority (SBMA) as a Subic
Bay Freeport Enterprise. As an SBMA-registered firm,
Contex is exempt from all local and national internal
revenue taxes except for the preferential tax provided for
in Section 12c 5 of RA 7227. Contex also registered
with the BIR as a non-VAT taxpayer under Certificate of
Registration. Acting on the belief that it was exempt
from all national and local taxes, including VAT,
pursuant to RA 7227, Contex filed two applications for
tax refund or tax credit of the VAT it paid. In opposing
the claim for tax refund or tax credit, the BIR alleged
that refund is strictly construed against the taxpayer.
Since Contex failed to establish both its right to a tax
refund or tax credit and its compliance with the rules on
tax refund as provided for in the Tax Code, its claim
should be denied.
ISSUE: Whether Contex is entitled to VAT refund.
RULING: No. Contex claim for exemption from VAT
for its purchases of supplies and raw materials is
incongruous with its claim that it is VAT-Exempt, for
only VAT-Registered entities can claim Input VAT
Credit/Refund. While it is true that Contex should not
have been liable for the VAT inadvertently passed on to
it by its supplier since such is a zero-rated sale on the
part of the supplier, Contex is not the proper party to
claim such VAT refund. Section 4.100-2 of BIRs
Revenue Regulations 7-95, as amended, or the
Consolidated Value-Added Tax Regulations provides
that a zero-rated sale by a VAT- registered person,
which is a taxable transaction for VAT purposes, shall
not result in any output tax. However, the input tax on
his purchases of goods, properties or services related to
such zero-rated sale shall be available as tax credit or
refund in accordance with these regulations. Since
contex is registered as a NON-VAT taxpayer, thus, it is
exempt from VAT.
e. Republic v. Mambulao Lumber
Company, GR no. L-17725, 28
February 1962; 4 SCRA 622
REPUBLIC V. MAMBULAO LUMBER
COMPANY
GR NO. L-17725, 28 FEBRUARY 1962; 4 SCRA 622
BARRERA, J
FACTS: Mambulao Lumber Company paid the
Government a total of P9,127.50 as reforestation
charges. Having found liable for an aggregate amount of
P4,802.37 for forest charges, it contended that since the
Republic (Government) has not made use of the
reforestation charges for reforesting the denuded area of
the land covered by the company‘s license, the Republic
should refund said amount or, if it cannot be refunded, at
least the company should be compensated with what it
owed the Republic for reforestation charges.
ISSUE: Whether taxes may be subject of set-off or
compensation.
RULING: Internal revenue taxes, such as forest charges,
cannot be the subject of set-off or compensation. A
claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of
set-off, which are construed uniformly, in the light of
public policy, to exclude the remedy in an action or any
indebtedness of the State or municipality to one who is
liable to the State or municipality for taxes. Neither are
they subject of recoupment since they do not arise out of
the contract or transaction sued on.
Taxes are not in the nature of contracts between the
parties but grow out of a duty to, and are the positive
acts of the government, to the making and enforcing of
which, the personal consent of individual taxpayers is
not required.
WHEREFORE, the decision appealed from is hereby
affirmed.
f. Francia v. Intermediate Appellate
Court, G.R. No. 76749, 28 June 1988
FRANCIA V. INTERMEDIATE APPELLATE
COURT
G.R. NO. 76749, 28 JUNE 1988
GUTIERREZ, JR., J
FACTS: Engracio Francia is the registered owner of a
residential lot and a two-story house built upon it. The
lot, has an area of about 328 square meters.
On October 15, 1977, a 125 square meter portion of
Francia's property was expropriated by the Republic of
the Philippines for the sum of P4,116.00 representing the
estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive they also found out that
Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public
auction by the City Treasurer of Pasay in order to satisfy
a tax delinquency of P2,400.00. During the public
auction Ho Fernandez was the announced as the highest
bidder for the property. Francia contended that he was
not present during the auction sale since he was in Iligan
City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing
filed by Ho Fernandez, seeking the cancellation of TCT
No. 4739 (37795) and the issuance in his name of a new
certificate of title. Upon verification through his lawyer,
Francia discovered that a Final Bill of Sale had been
issued in favor of Ho Fernandez by the City Treasurer on
December 11, 1978. On March 20, 1979, Francia filed a
complaint to annul the auction sale. He later amended
his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision
in favor of Ho Fernandez
The Intermediate Appellate Court affirmed the decision
of the lower court in toto.
Hence, this petition for review.
Here, Francia contended that his tax delinquency of
P2,400.00 has been extinguished by legal compensation.
He claims that the government owed him P4,116.00
when a portion of his land was expropriated on October
15, 1977. Hence, his tax obligation had been set-off by
operation of law as of October 15, 1977.
ISSUE: Whether they are proper subject of recoupment
RULING: In the case of Republic v. Mambulao Lumber
Co. (4 SCRA 622), this Court ruled that Internal
Revenue Taxes cannot be the subject of set-off or
compensation:
A claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed
uniformly, in the light of public policy, to
exclude the remedy in an action or any
indebtedness of the state or municipality to one
who is liable to the state or municipality for
taxes. Neither are they a proper subject of
recoupment since they do not arise out of the
contract or transaction sued on. "The general
rule based on grounds of public policy is well-
settled that no set-off admissible against
demands for taxes levied for general or local
governmental purposes. The reason on which the
general rule is based, is that taxes are not in the
nature of contracts between the party and party
but grow out of duty to, and are the positive acts
of the government to the making and enforcing
of which, the personal consent of individual
taxpayers is not required. ..."