39. British American Tobacco v.

Camacho

Facts:
Petitioner (British American Tobacco, the manufacturer of Lucky Strike) assails the validity of:
(1) Section 145 of the National Internal Revenue Code (NIRC), as amended by RA 8424; (2) RA
9334, which further amended Section 145 of the NIRC on January 1, 2005; (3) Revenue
Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-2003,
for being violative of the equal protection, uniformity and progressivity clauses of the
Constitution.

RA8424 provided a 4-tier tax rate based on the net retail price per pack cigarettes: premium,
high, medium, low. Classification of each brand of cigarettes was based on its average net retail
price as of October 1, 1996 as set forth in Annex “D” of the NIRC.

RA9334 further amended RA8424 which provided a legislative freeze on brands of cigarettes
introduced between the period January 2, 1997 to December 31, 2003, such that said cigarettes
shall remain in the classification under which the BIR has determined them to belong as of
December 31, 2003, until revised by Congress.

Issue:
Is there a violation of Uniformity, Equitability and Progressivity of Taxation?

Ruling:
GQ#1: Is there a violation of Uniformity of Taxation? None
Uniformity of taxation, like the kindred concept of equal protection, merely requires that all
subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and
liabilities. Uniformity does not forfend classification as long as the four-fold test has been met.

In the instant case, there is no question that the classification freeze provision meets the
geographical uniformity requirement because the assailed law applies to all cigarette brands in
the Philippines. And, for reasons already adverted to in our August 20, 2008 Decision, the above
four-fold test has been met in the present case. The classification freeze provision uniformly
applies to all cigarette brands whether existing or to be introduced in the market at some
future time. It does not purport to exempt any brand from its operation nor single out a
brand for the purpose of imposition of excise taxes.

GQ#2: Is there a violation of Equitability of Taxation? None

Under the rational basis test, it is sufficient that the legislative classification is rationally related
to achieving some legitimate State interest. As the Court ruled in the assailed Decision, viz:

A legislative classification that is reasonable does not offend the constitutional guaranty of the
equal protection of the laws. The classification is considered valid and reasonable provided
that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it
applies, all things being equal, to both present and future conditions; and (4) it applies equally
to all those belonging to the same class.

GQ#3: Is there a violation of Progressivity of Taxation? None

Anent the issue of regressivity, it may be conceded that the assailed law imposes an excise tax
on cigarettes which is a form of indirect tax, and thus, regressive in character. Nevertheless,
this does not mean that the assailed law may be declared unconstitutional for being
regressive in character because the Constitution does not prohibit the imposition of indirect
taxes but merely provides that Congress shall evolve a progressive system of taxation. As we
explained in Tolentino v. Secretary of Finance:

Regressivity is not a negative standard for courts to enforce. What Congress is required by the
Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress,
just like the directive to it to give priority to the enactment of laws for the enhancement of
human dignity and the reduction of social, economic and political inequalities [Art. XIII, Section
1] or for the promotion of the right to "quality education" [Art. XIV, Section 1]. These provisions
are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights.