Erneylou V Ranay

Taxation Law Review February 11, 2023

A. Definition
1. Paseo Realty and Development Corporation vs. CA G.R. No. 119286 October 13,
2004

Facts:
Paseo Realty and Development Corporation filed its Income Tax Return (ITR) for the
calendar year 1989. Petitioner later filed with respondent CTA for a refund of excess
creditable taxes withholding (CTW) and income taxes for the years 1989 and 1990.

Respondent Commissioner (CIR) filed an Answer stating some defenses. The Court
rendered decision in favor of the petitioner. However, CIR filed a Motion for
Reconsideration (MFR) alleging that the amount sought to be refunded “has already
been included in the 172, 447 which the petitioner applied as tax credit for the
succeeding taxable year 1990.

The petitioner filed a MFR which was denied by the RC. Thus, petitioner filed a
petition for Review before the CA. The appellate court held that petitioner is not
entitled to a refund because it appears that the latter did not specify the amount to
be refunded and the amount to be applied as tax credit to the succeeding taxable
year, but only marked an “X” to the box indicating “to be applied as tax credit to the
succeeding taxable year” when the latter filed its income tax return for the year
1989.

The Office of the Solicitor General (OSG) filed a Comment that the claimed refund
was to be applied against its tax liability for 1990.

The OSG filed a Rejoinder that petitioner’s 1989 tax return shows that the latter
included 1988 excess credit which had already been segregated for refund and
specified that the full amount of Php 172, 479.00 be considered as its tax credit for
1990. The OSG further contended that the remaining tax credit for 1989 should be
the excess credit to be applied against its 1990 tax liability.
 The appellate court held that petitioner is not entitled to a refund because it had
already elected to apply the total amount of P172,447.00, which includes the
P54,104.00 refund claimed, against its income tax liability for 1990.

Issue:

Whether or not the petitioner is entitled for a refund.

Ruling:

No. The grant of refund is founded on the assumption that the tax return is valid.
Without the tax return, it is error to grant a refund since it would be impossible to
determine whether the proper taxes have been assessed and paid.

In this case, petitioner did not present evidence to prove that its claimed refund had
already been automatically credited against its 1990 tax liability. The burden of
proof to establish the factual basis of claim for tax credit or refund lies on the
claimant. Tax refunds are construed strictly against the taxpayer.

Taxation is a destructive power which interferes with the personal and property
rights of the people and takes from them a portion of their property for the support
of the government. And since taxes are what we pay for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions from taxation and
statutes granting tax exemptions are thus construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. A claim of refund or
exemption from tax payments must be clearly shown and be based on language in
the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption
therefrom is the exception.

B. Characteristics and purpose of taxation

1. Caltex Philippines , Inc. v Commission on Audit,et al, G.R. No.92585, May 8, 1992

Facts:

In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price
Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of
 the additional tax on petroleum products authorized under the PD 1956. Pending
such remittance, all of its claims for reimbursement from the OPSF shall be held in
abeyance. The grant total of its unremitted collections of the above tax is
P1,287,668,820.

Caltex submitted a proposal to COA for the payment and the recovery of claims. COA
approved the proposal but prohibited Caltex from further offsetting remittances and
reimbursements for the current and ensuing years. Caltex moved for
reconsideration but was denied. Hence, the present petition.

Issue:

Whether or not the amounts due from Caltex to the OPSF may be offsetted against
Caltex’s outstanding claims from said funds.

Ruling:

No. Taxation is no longer envisioned as a measure merely to raise revenue to

support the existence of government. Taxes may be levied with a regulatory purpose
to provide means for the rehabilitation and stabilization of a threatened industry
which is affected with public interest as to be within the police power of the State.

PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is

taxation. A taxpayer may not offset taxes due from the claims he may have against
the government. Taxes cannot be subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for
taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Hence, COA’s decision is affirmed except that Caltex’s claim for reimbursement of
under recovery arising from sales to the National Power Corporation is allowed.

2. Lutz v. Araneta, 98 Phil 48

Facts:

Commonwealth Act No. 567, otherwise known as Sugar Adjustment Act was
promulgated in 1940 “to stabilize the sugar industry so as to prepare it for the
 eventuality of the loss of its preferential position in the United States market and the
imposition of export taxes.”

Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate
of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal Revenue
the sum of P14,666.40 paid by the estate as taxes, under Sec.3 of the Act, alleging
that such tax is unconstitutional and void, being levied for the aid and support of the
sugar industry exclusively, which in plaintiff’s opinion is not a public purpose for
which a tax may be constitutionally levied. The action has been dismissed by the
Court of First Instance.

Issue:

Whether or not the tax imposed is constitutional.

Ruling:

Yes. The act is primarily an exercise of the police power. It is shown in the Act that
the tax is levied with a regulatory purpose, to provide means for the rehabilitation
and stabilization of the threatened sugar industry.

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

The funds raised under the Act should be exclusively spent in aid of the sugar
industry, since it is that very enterprise that is being protected. It may be that other
industries are also in need of similar protection; but the legislature is not required by
the Constitution to adhere to a policy of “all or none.”

3. PAL v. Edu, 164 SCRA 320

Facts:
The Philippine Airlines (PAL) is a corporation engaged in the air transportation business
under a legislative franchise, Act No. 42739. Under its franchise, PAL is exempt from the
payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate
(Elevate) issued a regulation pursuant to Section 8, Republic Act 4136, otherwise known
as the Land and Transportation and Traffic Code, requiring all tax exempt entities,
among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the
amounts imposed under Republic Act 4136 were paid. PAL thus paid, under protest,
registration fees of its motor vehicles. After paying under protest, PAL through counsel,
wrote a letter dated May 19,1971, to Land Transportation Commissioner Romeo Edu
(Edu) demanding a refund of the amounts paid. Edu denied the request for refund.
Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell
(Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in
turn certified the case to the Supreme Court.

Issue:
Whether or not motor vehicle registration fees are considered as taxes.

Ruling:

Yes. They are taxes. Taxes are for revenue, whereas fees are exactions for purposes of
regulation and inspection, and are for that reason limited in amount to what is
necessary to cover the cost of the services rendered in that connection. It is the object
of the charge, and not the name, that determines whether a charge is a tax or a fee. The
money collected under the Motor Vehicle Law is not intended for the expenditures of
the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicles Office
but accrues to the funds for the construction and maintenance of public roads, streets
and bridges. As the fees are not collected for regulatory purposes as an incident to the
enforcement of regulations governing the operation of motor vehicles on public
highways, but to provide revenue with which the Government is to construct and
maintain public highways for everyone’s use, they are veritable taxes, not merely fees.
 PAL is, thus, exempt from paying such fees, except for the period between June 27,
1968 to April 9, 1979, where its tax exception in the franchise was repealed.

4. Tolentino v. Secretary of Finance, 235 SCRA 630; 249 SCRA 628

Facts:

The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or
exchange of services. RA 7716 seeks to widen the tax base of the existing VAT system
and enhance its administration by amending the National Internal Revenue Code (NIRC).
Herein, various petitioners seek to declare RA 7166 as unconstitutional. One of the
reasons is that it violates Article VI, Section 28 (1) which provides that “the rule of
taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation.”

Issue:

Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the Constitution.

Ruling:

No. Lacking empirical data on which to base any conclusion regarding these arguments,
any discussion whether the VAT is regressive in the sense that it will hit the poor and
middle income group in society harder than it will the rich is largely an academic
exercise.

Regressivity is not a negative standard for courts to enforce. “Evolve a progressive

system of taxation” is a directive to Congress. These provisions are placed in the
Constitution as moral incentives to legislation, not as judicially enforceable rights.

5. Tio v. Videogram Regulatory Board 151 SCRA 208

Facts:
PD No. 1994 amended the National Internal Revenue Code providing, inter alia: SEC.
134. 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 blank video tapes shall be subject to sales tax.

The rationale relates to: 1) the proliferation and unregulated circulation of videograms
that have greatly prejudiced the operations of movie houses and theaters, and have
caused a sharp decline in theatrical attendance by at least 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; 2) videogram establishments collectively earn around P600 Million per annum
from rentals, sales and disposition of videograms, and such earnings have not been
subjected to tax, thereby depriving the Government of approximately P180 Million in
taxes each year; 3) proper taxation of the activities of videogram establishments will not
only alleviate the dire financial condition of the movie industry upon which more than
75,000 families and 500,00 workers depend for their livelihood, but also provide an
additional source of revenue for the Government, and at the same time rationalize the
heretofore distribution of videograms; 4) the rampant and unregulated showing of
obscene videogram features constitutes a clear and present danger to the moral and
spiritual well-being of the youth, and impairs the mandate of the Constitution for the
State to support the rearing of the youth for civic efficiency and the development of
moral character and promote their physical, intellectual, and social being; etc.

Tio claimed that Section 10 was unconstitutional because the tax imposed is harsh,
confiscatory, oppressive and/or in unlawful restraint of trade in violationof the due
process clause of the Constitution, etc.

Issue:

Whether or not the power of taxation was validly exercised.

Ruling:

Yes. Tax does not cease to be valid merely because it regulates, discourages, or even
definitely deters the activities taxed. The power to impose taxes is a sovereign right and
it is inherent in the power to tax that a state be free to select the subjects of taxation.
 The tax imposed by the decree is not only a regulatory but also a revenue measure. The
public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another.
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.

”It is inherent in the power to tax that a state be free to select the subjects of taxation,
and it has been repeatedly held that “inequities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation’.”

C. Power of taxation as distinguished from police power and eminent domain

1. Roxas v. CTA, 23 SCRA 331

Facts:

Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the Roxas y
Compania, inherited from their grandparents several properties which included
farmlands. The tenants expressed their desire to purchase the farmland. The tenants,
however, did not have enough funds, so the Roxases agreed to a purchase by
installment. Subsequently, the CIR demanded from the brothers the payment of
deficiency income taxes resulting from the sale, 100% of the profits derived therefrom
was taxed. The brothers protested the assessment but the same was denied. On appeal,
the Court of Tax Appeals sustained the assessment. Hence, this petition.

Issue:

Whether or not the payment of deficiency income taxes resulting from the sale, is a
valid exercise of power of taxation.

Ruling:

No. It should be borne in mind that the sale of the farmlands to the very farmers who
tilled them for generations was not only in consonance with, but more in obedience to
 the request and pursuant to the policy of our Government to allocate lands to the
landless.

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the
"hen that lays the golden egg".

In order to maintain the general public’s trust and confidence in the Government this
power must be used justly and not treacherously. It does not conform to the sense of
justice for the Government to persuade the taxpayer to lend it a helping hand and later
on penalize him for duly answering the urgent call.

2. Tanada v. Angara, G.R. No. 118295, May 2, 1997

Facts:

Petitioners prayed for the nullification, on constitutional grounds, of the concurrence of

the Philippine Senate in the ratification by the President of the Philippines of the
Agreement Establishing the World Trade Organization (WTO Agreement, for brevity)
and for the prohibition of its implementation and enforcement through the release and
utilization of public funds, the assignment of public officials and employees, as well as
the use of government properties and resources by respondent-heads of various
executive offices concerned therewith.

They contended that WTO agreement violates the mandate of the 1987 Constitution to
“develop a self-reliant and independent national economy effectively controlled by
Filipinos x x x (to) give preference to qualified Filipinos (and to) promote the preferential
use of Filipino labor, domestic materials and locally produced goods” as (1) the WTO
requires the Philippines “to place nationals and products of member-countries on the
same footing as Filipinos and local products” and (2) that the WTO “intrudes, limits
and/or impairs” the constitutional powers of both Congress and the Supreme Court.

Issue:

Whether or not provisions of the WTO Agreement limit or impair the exercise of
legislative power by Congress, specifically the power of taxation.
 Ruling:

No. However, the Constitution and UN Charter, as well as other treaties, recognize the
limitation of sovereignty in adopting international laws. The point is that, as shown by
the foregoing treaties, a portion of sovereignty may be waived without violating the
Constitution, based on the rationale that the Philippines "adopts the generally accepted
principles of international law as part of the law of the land and adheres to the policy
of . . . cooperation and amity with all nations."

3. LTO v. City of Butuan, GR No. 131512, January 20, 2000

Facts:

Pursuant to Secs. 129 and 133 of the Local Government Code (LGC), the Sangguniang
Panglungsod of Butuan passed an SP Ordinance providing for, among others, the
payment of franchise fees for the grant of the franchise for tricycles-for-hire, fees for
the registration of the vehicle, and fees for the issuance of a permit for the driving of the
same.

The Land Transportation Authority (LTO) questioned the validity of the subject
ordinance, arguing that the functions of registering motor vehicles and issuing permits
or licenses for the driving of the same have not been devolved by law upon any local
government unit.

Issue:

Whether or not respondent City of Butuan may issue license and permit and collect fees
for the operation of tricycle.

Ruling:

No. The reliance made by the respondents on the broad taxing power of local
government units, specifically under section 133 of the local government code, is
tangential. Police power and taxation, along with eminent domain, are inherent powers
of sovereignty which the state might share with local government units by delegation or
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 respecting
concepts, character, scopes, and limitations. To construe the tax provisions of section
133 (1) indistinctively would result in the repeal to that extent of LTOs 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 LTFRBs power on franchising of tricycles has been
provided. Repeal by implication is not favored. 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 government’s
exclusionary clause contained in the tax provisions of section 133 (1) of the local
government code must be held to have had the effect of withdrawing the express
powers of LTO to cause the registration of all motor vehicles and the issuance of license
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 insuring the road worthiness of these motor vehicles and the
competence of drivers prescribed by RA 4136. Not insignificant is the rule that a statute
must not be construed in isolation but must be taken in harmony with the extent body
of laws.

4. NTC v. CA, 311 SCRA 508

Facts:

In 1988, pursuant to Sec. 40 of the Public Service Act, the National Telecommunications
Commission (NTC) served on the Philippine Long Distance Telephone Company (PLDT)
the assessment notices and demands for supervision and regulation fee and permit fees.
PLDT challenged the assessments, arguing that these were being made to raise revenues
and not as mere reimbursements for actual regulatory expenses, and that the
assessments should only have been on the basis of the par values of PLDT’s outstanding
capital stock.
The NTC denied the protest. Subsequently, the CA modified the NTC's order and
ordered it to recompute its assessments and demands for payment from PLDT.

Issue:

Whether or not NTC is correct in their demand for payment imposed PLDT.

Ruling:

No. Succinct and clear is the ruling of this Court in the case of Philippine Long Distance
Telephone Company vs. Public Service Commission, 66 SCRA 341, that the basis for
computation of the fee to be charged by NTC on PLDT, is " the capital stock subscribed
or paid and not, alternatively, the property and equipment."

The law in point is clear and categorical. There is no room for construction. It simply
calls for application. To repeat, the fee in question is based on the capital stock
subscribed or paid, nothing less nothing more.

It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself.
Since Congress has the power to exercise the State inherent powers of Police Power,
Eminent Domain and Taxation, the distinction between police power and the power to
tax, which could be significant if the exercising authority were mere political
subdivisions (since delegation by it to such political subdivisions of one power does not
necessarily include the other), would not be of any moment when, as in the case under
consideration, Congress itself exercises the power. All that is to be done would be to
apply and enforce the law when sufficiently definitive and not constitutional infirm.