1.
Taxation definition
2. Power to tax is inherent in nature
a. Pepsi Cola vs Municipality of Tanauan
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte.
In September 1962, the Municipality approved Ordinance No. 23
which levies and collects “from soft drinks producers and
manufacturers a tax of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked.”
In December 1962, the Municipality also approved Ordinance No. 27
which levies and collects “on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of one
centavo () on each gallon of volume capacity.”
Pepsi Cola assailed the validity of the ordinances as it alleged that
they constitute double taxation in two instances: a) double taxation
because Ordinance No. 27 covers the same subject matter and impose
practically the same tax rate as with Ordinance No. 23, b) double
taxation because the two ordinances impose percentage or specific
taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264
which allows for the delegation of taxing powers to local government
units; that allowing local governments to tax companies like Pepsi
Cola is confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It
argued, among others, that only Ordinance No. 27 is being enforced
and that the latter law is an amendment of Ordinance No. 23, hence
there is no double taxation.
ISSUE:
Whether or not there is undue delegation of taxing powers.
Whether or not there is double taxation.
HELD:
1. No. There is no undue delegation. The Constitution even allows
such delegation.
Legislative powers may be delegated to local governments in
respect of matters of local concern. By necessary implication, the
legislative power to create political corporations for purposes of
local self-government carries with it the power to confer on such
local governmental agencies the power to tax.
Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and
to levy taxes.
Section 5, Article XI provides: “Each local government
unit shall have the power to create its sources of revenue
and to levy taxes, subject to such limitations as may be
provided by law.”
Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact
and vest in local governments the power of local taxation.
2. NO. There is no double taxation. The argument of the
Municipality is well taken. Further, Pepsi Cola’s assertion that the
delegation of taxing power in itself constitutes double taxation cannot
be merited.
It must be observed that the delegating authority specifies the
limitations and enumerates the taxes over which local taxation may
not be exercised.
The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not
forbidden by our fundamental law unlike in other jurisdictions.
Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity or by
the same jurisdiction for the same purpose, but not in a case
where one tax is imposed by the State and the other by the city or
municipality.
3. Power to tax is the most powerful among the 3 inherent powers
of the State
a. Tio vs Videogram Regulatory Board
FACTS:
On September 1, 1986, Petitioner Valentin Tio, a videogram operator,
assailed the constitutionality of Presidential Decree No. 1987 entitled
"An Act Creating the Videogram Regulatory Board" with broad
powers to regulate and supervise the videogram industry.
On November 5, 1985, a month after the promulgation of the
abovementioned decree, Presidential Decree No. 1994 amended the
National Internal Revenue Code providing, inter alia: 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
blank video tapes shall be subject to sales tax.
Petitioner, Valentin Tio is a videogram operator, attacks the
constitutionality of the decree on the ground that the tax imposed is
harsh, confiscatory, oppressive and/or in unlawful restraint of
trade in violation of the due process clause of the Constitution.
Issue: Whether or not the said taxation law is valid.
Ruling:
Yes, it is valid. it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even
definitely deters the activities taxed. 8 The power to impose taxes is
one so unlimited in force and so searching in extent, that the courts
scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority
which exercises it. “
The power to impose taxes is one so unlimited in force and so
searching in extent, that the courts scarcely venture to declare that
it is subject to any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. In imposing a tax, the
legislature acts upon its constituents. This is, in general, a sufficient
security against erroneous and oppressive taxation.
The tax imposed by the DECREE is not only a regulatory but
also a revenue measure prompted by the realization that earnings
of videogram establishments of around P600 million per annum
have not been subjected to tax, thereby depriving the
Government of an additional source of revenue. It is an end-user
tax, imposed on retailers for every videogram they make available for
public viewing. 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.
It is inherent in the power to tax that a state be free to select the
subjects of taxation, and it has been repeatedly held that "inequities
which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". Taxation has been
made the implement of the state's police power.
4. Marshall Doctrine vs Holmes Doctrine - Is the Power to Tax
the Power to Destroy?
 MARSHALL DOCTRINE: Justice Malcolm believed that the
power to tax "is an attribute of sovereignty. It is the strongest of all
the powers of government." This led Chief Justice Marshall of the
U.S. Supreme Court, in the celebrated case of McCulloch v.
Maryland, to declare: "The power to tax involves the power to
destroy." This might well be construed to mean that the power to tax
includes the power to regulate even to the extent of prohibition or
destruction, since the inherent power to tax vested in the
legislature includes the power to determine who to tax, what to
tax and how much tax is to be imposed.
This dictum was to be refuted later by Justice Holmes.
HOLMES DOCTRINE: Justice Holmes pronounced that "the
power to tax does not include the power to destroy as long as this
Court sits."
Both statements may be regarded as correct, but from different
viewpoints. The power to tax may include the power to destroy if it is
used validly as an implement of the police power in discouraging and
in effect ultimately prohibiting certain things or enterprises inimical
to the public welfare. Thus, if massage parlors are found to be mere
fronts for prostitution, they may be subjected to such onerous taxes as
to practically force them to stop operating.
A similar imposition, for the same purpose, may be levied upon non-
useful businesses or things, like pool halls, slot machines, or idle
lands.
But where the power to tax is used solely for the purpose of raising
revenues, the modern view is that it cannot be allowed to
confiscate or destroy. If this is sought to be done, the tax may be
successfully attacked as an inordi nate and unconstitutional exercise
of the discretion that is usually vested exclusively in the legislature in
ascertain ing the amount of the tax.
5. Golden Egg Principle - 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."
a. Philippine Healthcare vs Commissioner
ISSUE: imposition of Documentary Stamp Taxes (DST).
When the SC 1st decided the case, it said that the PhilHealth should
pay the tax imposed. The PhilHealth filed a Motion for
Reconsideration.
The SC granted the MR. Naawa sya sa PhilHealth. For the reason
that, the deficiency assessment is around 300M, it assets is only
259M.
“As a general rule, the power to tax is an incident of sovereignty and
is unlimited in its range, acknowledging in its very nature no limits,
so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the
constituency who is to pay it. So potent indeed is the power that it
was once opined that "the power to tax involves the power to
destroy."
But: “Given the realities on the ground, imposing the DST on
petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the
government ought to encourage private enterprise.
Petitioner, just like any concern organized for a lawful economic
activity, has a right to maintain a legitimate business.” “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."
6. Lifeblood Theory
a. Republic vs Caguioa
7. Power to tax is legislative in nature
a. Pepsi Cola vs Municipality of Tanauan
8. Power to Tax vs Police Power
a. Republic vs Murcia
b. Gerochi vs Dept. of Energy
DOCTRINE:
:The power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so
that security against its abuse is to be found onlyin the responsibility
of the legislature which imposes the taxon the constituency that is to
pay it.
The principle of separation of powers ordains that each of the three
branches of government has exclusive cognizance of and is
supreme in matters falling within its own constitutionally
allocated sphere”
FACTS:
On June 8, 2001 Congress enacted RA 9136 or the Electric Power
Industry Act of 2001. Petitioners Romeo P. Gerochi and company
assail the validity of Section 34 of the EPIRA Law for being an
undue delegation of the power of taxation.
Section 34 provides for the imposition of a “Universal Charge” to all
electricity end users after a period of (1) one year after the effectively
of the EPIRA Law.
SECTION 34. Universal Charge. — Within one (1)
yearfrom the effectivity of this Act, a universal charge to
bedetermined, fixed and approved by the ERC, shall be
imposed on all electricity end-users for the
following purposes:
(a) Payment for the stranded debts in excess of theamount
assumed by the National Government andstranded
contract costs of NPC and as well asqualified
stranded contract costs of distributionutilities
resulting from the restructuring of theindustry;(b)
Missionary electrification; (c) The equalization of the taxes
and royalties appliedto indigenous or renewable sources of
energy vis-à-vis imported energy fuels;(d) An
environmental charge equivalent to one-fourthof one
centavo per kilowatt-hour (P0.0025/kWh),which shall
accrue to an environmental fund to beused solely for
watershed rehabilitation andmanagement. Said fund
shall be managed by NPCunder existing arrangements;
and(e) A charge to account for all forms of cross-
subsidiesfor a period not exceeding three (3) years
The universal charge to be collected would serve as payment for
government debts, missionary electrification, equalization of taxes
and royalties applied to renewable energy and imported energy,
environmental charge and for a charge to account for all forms of
cross subsidies for a period not exceeding three years. The universal
charge shall be collected by the ERC on a monthly basis from all end
users and will then be managed by the PSALM Corp. through the
creation of a special trust fund.
Petitioners assail the validity of Section 34 that imposes a monthly
“Universal Charge” to all electricity end users that would serve as
payment for government debts, equalization of taxes, and,
environmental charge, among others, for being an undue
delegation of the power of taxation
Petitioners' arguments:
 The power to tax is strictly a legislative function and as
such, the delegation of said power to any executive or
administrative agency like the ERC is unconstitutional,
giving the same unlimited authority.
 ERC is also empowered to approve and determine where
the funds collected should be used.
 Imposition of the Universal Charge on all end-users is
oppressive and confiscatory and amounts to taxation
without representation as the consumers were not given a
chance to be heard and represented.
Respondents' counter-arguments:
 PSALM contends that unlike a tax, the assailed Universal
Charge is levied for a specific regulatory purpose, which is
to ensure the viability of the country's electric power
industry.
 Thus, it is exacted by the State in the exercise of its
inherent police power.
 There is no undue delegation of legislative power to the
ERC since the latter merely exercises a limited authority or
discretion as to the execution and implementation of the
provisions of the EPIRA.
ISSUE:
Whether or not the Universal Charge imposed under Sec. 34
of the EPIRA is a tax
Whether or not there is an undue delegation of the power to tax on
the part of the ERC
HELD:
1. No. To resolve the first issue, it is necessary to distinguish the
State's power of taxation from the police power.
Power to tax is an incident of sovereignty and is unlimited in its
range, acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency that is to pay
it. It is based on the principle that taxes are the lifeblood of the
government, and their prompt and certain availability is an
imperious need.
Police power is the power of the state to promote public welfare by
restraining and regulating the use of liberty and property. It is the
most pervasive, the least limitable, and the most demanding of the
three fundamental powers of the State. As an inherent attribute of
sovereignty which virtually extends to all public needs, police power
grants a wide panoply of instruments through which the State, as
parens patriae, gives effect to a host of its regulatory powers
The conservative and pivotal distinction between these two powers
rests in the purpose for which the charge is made. If generation of
revenue is the primary purpose and regulation is merely incidental,
the imposition is a tax; but if regulation is the primary purpose, the
fact that revenue is incidentally raised does not make the imposition
a tax.
In exacting the assailed Universal Charge through Sec. 34 of the
EPIRA, the State's police power, particularly its regulatory
dimension, is invoked.
Such can be deduced from Sec. 34 which enumerates the purposes
for which the Universal Charge is imposed and which can be amply
discerned as regulatory in character. The EPIRA resonates such
regulatory purposes (Sec. 2). From the purposes, it can be gleaned
that the assailed Universal Charge is not a tax, but an exaction in
the exercise of the State's police power. Public welfare is surely
promoted.
The Court ruled that evidently, the establishment and maintenance of
the Special Trust Fund, under the last paragraph of Section 34, R.A.
No.9136, is well within the pervasive and non-waivable
power and responsibility of the government to secure the physical
and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police
power of theState.”2. SC: “The STF reasonably serves and
assures the attainment and perpetuity of the purposes for
whichthe Universal Charge is imposed, i.e., to ensure the
viability of the country's electric power industry.
2. No, the universal charge as provided for in section 34 is not a
tax but an exaction of the regulatory power (police power) of the
state.
The universal charge under section 34 is incidental to the regulatory
duties of the ERC, hence the provision assailed is not for generation
of revenue and therefore it cannot be considered as tax, but an
execution of the states police power thru regulation.
Moreover, the amount collected is not made certain by the ERC,
but by the legislative parameters provided for in the law (RA
9136) itself, it therefore cannot be understood as a rule solely
coming from the ERC.
The ERC in this case is only a specialized administrative agency
which is tasked of executing a subordinate legislation issued by
congress; which before execution must pass both the completeness
test and the sufficiency of standard test. The court in appreciating
Section 34 of RA 9136 in its entirety finds the said law and the
assailed portions free from any constitutional defect and thus deemed
complete and sufficient in form.
Xxxx
TEST:
Under the first test, the law must be complete in all its terms
and conditions when it leaves the legislature such that
when it reaches the delegate, the only thinghe will have to do
is to enforce it.
The second test mandates adequate guidelines or limitations in
the lawto determine the boundaries of the delegate's
authorityand prevent the delegation from running riot.”
“Thus, the law is complete and passes the first testfor valid
delegation of legislative power.”
“As to the second test, this Court had, in the past,accepted as
sufficient standards the following: "interest of law and order;"
"adequate and efficient instruction;""public interest;"
"justice and equity;" "public convenience and welfare;"
"simplicity, economy andefficiency;" "standardization and
regulation of medicaleducation;" and "fair and equitable
employmentpractices."
Provisions of the EPIRA such as, amongothers, "to ensure
the total electrification of the countryand the quality, reliability,
security and affordability ofthe supply of electric power"
and "watershedrehabilitation and management" meet
therequirements for valid delegation, as they provide
thelimitations on the ERC's power to formulate the
IRR.These are sufficient standards.4. SC: “Finally, every law has
in its favor the presumptionof constitutionality, and to justify its
nullification, theremust be a clear and unequivocal breach
of theConstitution and not one that is doubtful, speculative,or
argumentative. Indubitably, petitioners failed toovercome
this presumption in favor of the EPIRA. Wefind no clear
violation of the Constitution which wouldwarrant a
pronouncement that Sec. 34 of the EPIRA andRule 18 of its IRR
are unconstitutional and void.
now or in the future, including but not limited to the
following:
xxx xxx xxx
(5) All taxes, fees and other charges on the registration,
license, acquisition, and transfer of airtransport equipment,
motor vehicles, and all other personal or real property of
the gravitates

c. PAL vs Edu
Doctrine: Originally vehicle registration fees were exactions
intended for regulatory purposes, but over the years, as vehicular
traffic exploded in number and motor vehicles became a necessity,
the Congress found the registration of vehicles as a convenient way
of raising revenue. Hence, the nature of registration payment as
“fees” has become that of “taxes”
FACTS:
The Philippine Airlines filed a complaint for refund of registration
fees paid under protest, arguing that under Act No. 4271 as amended,
provides that the grantee of a franchise shall pay the national
government a tax of 2% of the gross revenue or gross earning derived
from its operations. Such tax is in lieu of all taxes of any kind, nature
or description.
Hence, PAL is arguing that is it exempted from payment of taxes
under its franchise. It also invokes the ruling in Calalang v. Lorenzo
where it was held that motor vehicle registration fees are actually
taxes, so PAL is exempt by virtue of its legislative franchise.
However, appellee Romeo Edu in his capacity as Land
Transportation Commissioner argued that the Supreme Court held in
the case of Republic v. Philippine Rabbit Bus Lines, motor vehicle
registration fees are regulatory exactions and not revenue measure.
Hence, it is not included within the exemption granted to PAL under
its franchise
PAL's current franchise is clear and specific. It has removed the
ambiguity found in the earlier law. PAL is now exempt from the
payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in
the basic tax or franchise tax provided in Subsections (a) and (b) of
Section 13, P.D. 1590, and may no longer be exacted.
d. Chevron PH vs Bases Conversion Devt Authority & Clark Devt
Corp
e. City of Cagayan de Oro vs Cagayan Electric Power & Light Co.,
Inc., GR 224825 (2018)
f. Municipality of San Mateo, Isabela vs Smart Communications Inc.,
GR 219506 (2021)
9. Power to Tax vs Power of Eminent Domain – Senior Citizen’s
Discount
a. CIR vs Central Luzon
b. Manila Memorial vs Sec of DSWD
c. Southern Luzon Drug vs DSWD, 824 SCRA 164 (2017)
10.Power to Tax vs Police Power vs Power of Eminent Domain

Issue of the case:

Whether or not motor vehicle registration fees are in the nature of
taxes or regulatory fees
WON respondent administrative agency be required to refund the
amounts stated in the complaint of PAL

RULING:
1. YES. The Supreme Court held that motor vehicle registration fees
are actually taxes intended for additional revenues of the government.

The court explained that if the purpose of exaction is primarily

revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called as tax. Originally
vehicle registration fees were exactions intended for regulatory
purposes, but over the years, as vehicular traffic exploded in number
and motor vehicles became a necessity, the Congress found the
registration of vehicles as a convenient way of raising revenue.
Hence, the nature of registration payment as “fees” has become that
of “taxes”.

2. NO. Any registration fees collected between June 27, 1968 and
April 9, 1979, were correctly imposed because the tax exemption in
the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979.

Section 13 of Presidential Decree No. 1590

The tax paid by the grantee under either of the above
alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges
of any kind, nature or description imposed, levied,
established, assessed, or collected by any municipal, city,
provincial, or national authority or government, agency,
 2ND MEETING (2-8)
11.GENERAL RULE: Power To Tax Cannot Be Delegated;
 The power to tax is exclusively vested in the legislative body
and cannot be delegated to other branches of the
government. (Pepsi Col V. Municipality of Tanuan)
EXCPTN:
1. Delegation to the LGU
2. Delegation to the President
3. Delegation to the administrative agencies
4. Delegation to the people at large
5. Emergency powers of the President
How are tax laws passed?
1. It is in the House of Representative and
2. It is submitted to the Congress and the latter may make
amendments and propose its amendments and then Senate.
Scope of the legislative power to tax (PSAA-M)
1. Discretion as to purposes for which taxes shall be levied
2. Discretion as to subjects of taxation
3. Discretion as to amount or rate of tax
4. Discretion as to the manner, means and agencies of
collection of taxes
5. Place or Situs of Taxation.
12.EXCEPTIONS:
1. Delegation to LGUs
SEC 5 ARTICLE 10, CONSTITUTION:
Each local government unit shall have the power to create its own
sources of revenue, fees, charges, subject to such guidelines and
limitations as the Congress may provide consistent with the basic
policy of local autonomy. Such taxes, fees and other charges shall
accrue exclusively to the local government.
what is the nature of the LGU’s power to tax?
 LGU has no inherent power to tax. ARGUEMENTABLE IF
DELEGATED OR DIRECT GRANT
A. MANILA ELECTRIC CORPORATION V. PROVINCE OF
LAGUNA, 1999
DOCTRINE: The explicit language of section 137 which authorizes the
province to impose franchise tax ‘notwithstanding any exemption granted
by any law or other special law’ is all-encompassing and clear. The
franchise tax is imposable despite any exemption enjoyed under special
laws.
The local governments do not have the inherent power to tax except to the
extent that such power might be delegated to them either by the basic law
or by statute
CONTRACTUAL EXEMPTIONS V. FRANCHISE GRANTS
Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are
those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its
PRIVATE CAPACITY, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind may not be
revoked without impairing the obligations of contracts.
These contractual tax exemptions, however, are not to be confused with
tax exemptions granted under franchises.
A franchise partakes the nature of a GRANT which is beyond the purview
of the non-impairment clause of the Constitution. Indeed, Article XII,
Section 11,Constitution is explicit that no franchise for the operation of a
public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress
as and when the common good so requires
SYNOPSIS: The case involves the imposition of a franchise tax on
Manila Electric Company (MERALCO) by the Province of Laguna, which
MERALCO argues is violative of the non-impairment clause of the
Constitution and a previous decree granting tax exemptions to electric
companies. The Supreme Court dismisses the petition, ruling that
franchise tax exemptions are not strictly contractual in nature and can be
subject to amendment or repeal by Congress.
Facts:
Certain municipalities of the Province of Laguna by virtue of
existing laws then in effect, issued resolutions through their
respective municipal councils granting franchise in favor of
petitioner for the supply of electric light, heat and power within
their concerned areas.
MERALCO was likewise granted a franchise by the National
Electrification Administration to operate an electric light and
power service in the Municipality of Calamba, Laguna.
In 1991, RA 7160, otherwise known as the “Local Government
Code of 1991,” was enacted to take effect enjoining local
government units to create their own sources of revenue and
to levy taxes, fees and charges, subject to the limitations
expressed therein, consistent with the basic policy of local
autonomy.
Pursuant to the provisions of the Code, respondent enacted an
Ordinance imposing a tax on businesses enjoying a franchise
(Franchise Tax .5%).
Respondent Provincial Treasurer sent a demand letter to
MERALCO for the corresponding tax payment. Petitioner paid the
tax under protest.
Petitioner filed a formal claim for refund to the Provincial
Treasurer claiming that the franchise tax it had paid and
continued to pay to the National Government pursuant to P.D.
551 already included the franchise tax imposed by the
Provincial Tax Ordinance.
,The claim for refund of petitioner was denied based from RA
7160 which is a more recent law that PS 551.
Petitioner filed with the RTC a complaint for refund, with a prayer
for the issuance of a writ of preliminary injunction and/or TRO,
against the Respondent.
RTC: Denied claim for refund and upheld the validity of Laguna
Provincial Tax Ordinance.
PETITIONER’S CONTENTION:
Cited several jurisprudence, where court ruled that the phrase “in
lieu of all taxes and assessments of whatever nature imposed by
any national or local authority on earnings, receipts, income and
privilege of generation, distribution and sale of electric current.”
Is interepreted as an EXEMPTION.
Issue:
1. Whether Republic Act No. 7160, otherwise known Local
Government Code of 1991, has repealed, amended or
modified Presidential Decree No. 551
2. Whether the imposition of a franchise tax under Provincial
Ordinance authorized by RA 7160, otherwise known Local
Government Code of 1991, insofar as petitioner is concerned,
is violative of the non-impairment clause of the Constitution.
HELD:
YES. The explicit language of section 137 which authorizes the
province to impose franchise tax ‘notwithstanding any
exemption granted by any law or other special law’ is all-
encompassing and clear. The franchise tax is imposable despite
any exemption enjoyed under special laws.

The local governments do not have the inherent power to tax
except to the extent that such power might be delegated to
them either by the basic law or by statute.
Section 193 buttresses the withdrawal of extant tax exemption
privileges. By stating that unless otherwise provided in this Code,
tax exemptions or incentives granted to or presently enjoyed by all
persons, whether natural or juridical, including government-owned
or controlled corporations except
1. local water districts,
2. cooperatives duly registered under R.A. 6938,
3. non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this
code, the obvious import is to limit the exemptions to
the three enumerated entities.
It is a basic precept of statutory construction that the express
mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maxim expressio unius est
exclusio alterius. In the absence of any provision of the Code to
the contrary, and no other provision in point, any existing tax
exemption or incentive enjoyed by MERALCO under existing
law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude
that under the LGC the local government unit may now impose a
local tax at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar based on the incoming
receipts realized within its territorial jurisdiction. The legislative
purpose to withdraw tax privileges enjoyed under existing law or
charter is clearly manifested by the language used on (sic)
Sections 137 and 193 categorically withdrawing such exemption
subject only to the exceptions enumerated.
Since it would be not only tedious and impractical to attempt to
enumerate all the existing statutes providing for special tax
exemptions or privileges, the LGC provided for an express, albeit
general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used
2. NO. While the Court has, not too infrequently, referred to tax
exemptions contained in special franchises as being in the
nature of contracts and a part of the inducement for carrying on
the franchise, tax exemptions, nevertheless, are far from being
strictly contractual in nature.
Contractual tax exemptions, in the real sense of the term and
where the non-impairment clause of the Constitution can rightly
be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or
debentures, lawfully entered into by them under enabling laws in
which the government, acting in its PRIVATE CAPACITY,
sheds its cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be
revoked without impairing the obligations of contracts.
These contractual tax exemptions, however, are not to be
confused with tax exemptions granted under franchises.
A franchise partakes the nature of a GRANT which is beyond
the purview of the non-impairment clause of the Constitution.
Indeed, Article XII, Section 11,Constitution is explicit that no
franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the
common good so requires
Presently, under Article X of the 1987 Constitution, a general delegation
of that power has been given in favor of local government units. Under the
now
prevailing Constitution, where there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist although Congress may
provide statutory limitations and guidelines.
The basic rationale for the current rule is to safeguard the viability and
self-sufficiency of local government units by directly granting them
general and broad tax powers. Nevertheless, the fundamental law did not
intend the delegation to be absolute and unconditional;
The constitutional objective obviously is to ensure that, while the local
government units are being strengthened and made more autonomous, the
legislature must still see to it that
a) the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions;
b) each local government unit will have its fair share of available
resources;
c) the resources of the national government will not be unduly
disturbed; and
d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by
and large, the provisions of the now repealed Local Tax Code. The Local
Government Code explicitly authorizes provincial governments,
notwithstanding any exemption granted by any law or other special law,
the province may impose a tax on businesses enjoying a franchise”
Indicative of the legislative intent to carry out the Constitutional mandate
of vesting broad tax powers to local government units, the Local
Government Code has effectively withdrawn under Section 193 thereof,
tax exemptions or incentives theretofore enjoyed by certain entities.
The Code, in addition, contains a general repealing which all general and
special laws, acts, city charters, decrees, executive orders, proclamations
and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or
modified accordingly.
These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they
enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals.
The power to tax is the most effective instrument to raise needed revenues
to finance and support myriad activities if local government units for the
delivery of basic services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of the people.
It may also be relevant to recall that the original reasons for the
withdrawal of tax exemption privileges granted to government-owned
and controlled corporations and all other units of government were that
such privilege resulted in serious tax base erosion and distortions in the
tax treatment of similarity situated enterprises, and there was a need for
these entities to share in the requirements of development, fiscal or
otherwise, by paying the taxes and other charges due from them.
B. BATANGAS POWER V. BATANGAS, 2004
The removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most significant
provisions of the 1991 LGC.
Section 193 of the LGC, an express and general repeal of all
statutes granting exemptions from local taxes, withdrew the
sweeping tax privileges previously enjoyed by the NPC under its
Charter.
SYPNOSIS:
FACTS:
In the early 1990’s, the country suffered from a crippling power
crisis. Power outages lasted 8-12 hours daily and power generation
was badly needed.
Addressing the problem, the government, through the National
Power Corporation (NPC), sought to attract investors in power
plant operations by providing them with incentives, one of which
was through the NPC’s assumption of payment of their taxes in
the Build Operate and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation
(Enron) and petitioner NPC entered into a Fast Track BOT
Project. Enron agreed to supply a power station to NPC and
transfer its plant to the latter after ten (10) years of operation.
Section 11.02 of the BOT Agreement provided that NPC shall be
responsible for the payment of all taxes that may be imposed on
the power station, EXCEPT income taxes and permit fees.
Subsequently, Enron assigned its obligation under the BOT
Agreement to petitioner Batangas Power Corporation (BPC).
On September 13, 1992, BPC registered itself with the Board
of Investments (BOI) as a pioneer enterprise. On September 23,
1992, the BOI issued a certificate of registration to BPC as a
pioneer enterprise entitled to a tax holiday for a period of six
(6) years.
The construction of the power station in respondent Batangas City
was then completed. BPC operated the station.
Respondent, Batangas City (the city, for brevity), thru its legal
officer, sent a letter to BPC demanding payment of business
taxes and penalties, commencing from the year 1994 as
provided under Ordinance XI or the 1992 Batangas City Tax
Code.
BPC refused to pay, citing its TAX-EXEMPT STATUS as a
pioneer enterprise for six (6) years under Section 133 (g) of the
Local Government Code (LGC).
Furthermore, BPC asserted that the city should collect the tax
from the NPC as the latter assumed responsibility for its
payment under their BOT Agreement. The matter was not put
to rest.
The City alleged that:
 BPC’s tax holiday has already expired , while the city
argued that it directed its tax claim to BPC as it is the
entity doing business in the city and hence liable to pay
the taxes
 it was not privy to NPC’s assumption of BPC’s tax
payment under their BOT Agreement as the only parties
thereto were NPC and BPC.
The NPC intervened. While admitting assumption of BPC’s
tax obligations under their BOT Agreement, NPC refused to pay
BPC’s business tax as it allegedly constituted an indirect tax on
NPC which is a tax-exempt corporation under its Charter.
In view of the deadlock, BPC filed a petition for declaratory relief
w/ the RTC against respondent BC & NPC.
Petitioner alleged that under the BOT Agreement, NPC is
responsible for the payment of such taxes but as NPC is
exempt from taxes, both the BPC and NPC are not liable for
its payment.
While the case was still pending, the city refused to issue a
permit to BPC for the operation of its business unless it paid the
assessed business taxes.
RTC: Dismissed the petition for injunction and held BPC liable to
pay;
 NPC’s tax exemption was withdrawn with the passage
of R.A. No. 7160;
 6-year tax holiday granted to pioneer business
enterprises starts on the date of registration with the
BOI as provided in Section 133 (g) of R.A. No. 7160,
and not on the date of its actual business operations.
PETITIONER’S CONTENTION:
 BPC’s 6-year tax holiday should commence on the
date of its actual commercial operations as certified to
by the BOI, not on the date of its BOI registration.
 NPC’s Charter is a special law which cannot be
impliedly repealed by a general and later legislation
like the LGC. They likewise anchor their claim of tax-
exemption on Section 133 (o) of the LGC which exempts
government instrumentalities, such as the NPC, from
taxes imposed by local government units (LGUs)
ISSUE:
1. whether BPC’s 6-year tax holiday commenced on the
date of its BOI registration as a pioneer enterprise or on
the date of its actual commercial operation as certified
by the BOI
2. Whether or not NPC’s tax exemption privileges under
its Charter were withdrawn by Section 193 of the Local
Government Code
RULING:
1. It is the provision of the Local Government Code that
should apply to the tax claim of Batangas City against the
BPC.
Sec. 133 (g) of the LGC, which proscribes local government
units (LGUs) from levying taxes on BOI-certified pioneer
enterprises for a period of six years from the date of
registration, applies specifically to taxes imposed by the local
government, like the business tax imposed by Batangas City on
BPC in the case at bar.
Reliance of BPC on the provision of Executive Order No. 226,
specifically Section 1, Article 39, Title III, is clearly misplaced as
the six-year tax holiday provided therein which commences from
the date of commercial operation refers to income taxes imposed
by the national government on BOI-registered pioneer firm
Therefore, the 6-year tax exemption of BPC should thus
commence from the date of BPC’s registration with the BOI.
2. YES. Section 193 of the LGC, an express and general repeal
of all statutes granting exemptions from local taxes, withdrew
the sweeping tax privileges previously enjoyed by the NPC
under its Charter.
The removal of the blanket exclusion of government
instrumentalities from local taxation as one of the most
significant provisions of the 1991 LGC.
Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power
to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes,
fees and other charges pursuant to Article X, section 5 of the
1987 Constitution
the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of
local autonomy, set the guidelines and limitations to this grant of
taxing powers.
The LGC is the most revolutionary piece of legislation on local
autonomy, the LGC effectively deals with the fiscal constraints
faced by LGUs. It widens the tax base of LGUs to include
taxes which were prohibited by previous law.
Consequently, when NPC assumed the tax liabilities of the
BPC under their 1992 BOT Agreement, the LGC which
removed NPC’s tax exemption privileges had already been in
effect for six (6) months.
Thus, while BPC remains to be the entity doing business in
said city, it is the NPC that is ultimately liable to pay said
taxes under the provisions of both the 1992 BOT Agreement
and the 1991 Local Government Code
C. NPC V. PROVINCE OF CABANATUAN
DOCTRINE:
As a rule, tax exemptions are construed strongly against the
claimant. Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provisions.
SYNOPSIS: The Supreme Court ruled that the City of
Cabanatuan has the authority to impose a franchise tax on the
National Power Corporation (NPC), a government-owned
corporation, and that NPC is not exempt from paying taxes as a
non-profit organization.
FACTS:
Petitioner, National Power Corporation, is a government-owned
and controlled corporation created under C.A. 120, as amended.
Petitioner sells electric power to the residents of Cabanatuan City.
Accordingly, pursuant to Section 37 of Ordinance No. 165-92,
the respondent assessed the petitioner of franchise tax
amounting to P808,606.41, representing 75% of 1% of the latter’s
gross receipts for the preceding year. The petitioner refused to
pay the tax assessment arguing that the respondent has no
authority to impose tax on government entities. It also
contended that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees in
accordance with Sec. 13 of RA No. 6395, as amended
This prompted Respondent to file a collection suit before the
RTC, demanding petitioner to pay the assed tax due and that
petitioner's exemption from local taxes has been repealed by
section 193 of RA 7160.
RTC: Upheld NPC’s tax exemption
CA: reversed RTC’S decision; LGC expressly repealed NPC’s tax
exemption
PETITIONER’S CONTENTION:
 Section 193 of Rep. Act No. 7160, withdrawing the tax
privileges of government-owned or controlled
corporations, is in the nature of an implied repeal. A
special law, its charter cannot be amended or modified
impliedly by the local government code which is a
general law.
 its exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC
 NPC, being a valid exercise of police power, should
prevail over the LGC.
ISSUE:
W/N the respondent city government has the authority to issue
Ordinance No. 165-92 and impose an annual tax on «businesses
enjoying a franchise
RULING:
YES. As a rule, tax exemptions are construed strongly against the
claimant. Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provisions.
In the case at bar, the petitioner's sole refuge is Section 13 of RA
No. 6395 exempting itself from, among others, all income taxes,
franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other
government agencies and instrumentalities.
It must be noted, however, that Section 193 of the LGC
withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public
corporations.
Contrary to the contention of petitioner, Section 193 of the LGC
is an express, albeit general, repeal of all statutes granting tax
exemptions from local taxes.
It is a basic precept of statutory construction that the express
mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maxim expressio unius est
exclusio alterius.
Not being a local water district, a cooperative registered under
R.A. No. 6938, or a non-stock and non-profit hospital or
educational institution, petitioner clearly does not belong to
the exception.
It is therefore incumbent upon the petitioner to point to some
provisions of the LGC that expressly grant it exemption from local
taxes. This, however, would be an exercise in futility. Section 137
of the LGC clearly states that the LGUs can impose franchise
tax notwithstanding any exemption granted by any law or
other special law. The said provision does not admit any
exception
2. Delegation to the President
ARTICLE VI, SECTION 28(2) OF THE CONSTITUTION
The Congress may, by law, authorize the President to impose tariff
rates, import and export quotas, etc. [custom duties], subject to the
limitations and guidelines as the Congress may impose, consistent
with the national development program of the government.
A. GARCIA V. EXECUTIVE SECRETARY
DOCTRINE:
The President is vested with authority by law to increase tariff
rates, even for revenue purposes only.
Article VI, Section 8(2) of the Constitution expressly grants
permission to Congress to authorize the President "to fix within
specified limits and subject to such limitations and restrictions as
it may impose, tariff rates xxx and other duties and imposts xxx."
Custom duties which are assessed at the prescribed tariff rates are
very much like taxes which are imposed for both revenue raising
and regulatory purpose.
SYNOPSIS: EO 438 was issued by the President imposing
import duties. The rate was increased; then decreased by EO 475
with the exception of crude oil and other oil products. Cong.
Garcia challenged constitutionality of the EO on the ground that in
issuing those EOs the President is in effect exercising the power to
tax which is vested exclusively in the Congress. SC upheld the
constitutionality of the EOs based on Art. VI, Sec. 28(2)
FACTS:
In November 1990, President Corazon Aquino issued EO No. 438
which imposed, in addition to any other duties, taxes and charges
imposed by law on all articles imported into the Philippines, an
additional duty of 5% ad valorem tax. This additional duty was
imposed across the board on all imported articles, including crude
oil and other oil products imported into the Philippines. In 1991,
EO 443 increased the additional duty to 9%. In the same year, EO
475 was passed reinstating the previous 5% duty except that crude
oil and other oil products continued to be taxed at 9%.
Later, EO 478 was issued levied a special duty of P0.95/liter or
P151.05/barrel of imported crude oil and P1/L of imported oil
products.
Enrique Garcia, a representative from Bataan, avers that EO 475
and 478 are unconstitutional for they violate Section 24 of Article
VI of the Constitution which provides:
All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively
in the House of Representatives, but the Senate may
propose or concur with amendments.
He contends that since the Constitution vests the authority to
enact revenue bills in Congress, the President may not assume
such power by issuing EOs Nos. 475 and 478 which are in the
nature of revenue-generating measures.
Further, Garcia argues that the EOs contravene Section 401 of
TCC which authorizes the President to increase, reduce or
remove tariff duties or to impose additional duties ONLY when
necessary to protect local industries or products but not for
the purpose of raising additional revenue for the government.
ISSUE:
WON the President can validly increase tariff rates
RULING:
YES. Customs duties which are assessed at the prescribed tariff
rates are very much like taxes which are frequently imposed for
both revenue-raising and for regulatory purposes. Thus, it has
been held that "customs duties" is "the name given to taxes on the
importation and exportation of commodities, the tariff or tax
assessed upon merchandise imported from, or exported to, a
foreign country.
Section 28(2) of Article VI of the Constitution is an explicit
constitutional permission to Congress to authorize the
President "subject to such limitations and restrictions as
[Congress] may impose" to fix "within specific limits" "tariff
rates and other duties or imposts”.
(2) The Congress may, by law, authorize the President to fix
within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export
quotas, tonage and wharfage dues, and other duties or
imposts within the framework of the national development
program of the Government.
.
Furthermore, Section 401 of the Tariff and Customs Code
establishes general standards with which the exercise of the
authority delegated by that provision to the President must be
consistent: that authority must be exercised in "the interest of
national economy, general welfare and/or national security."
Tariff rates are commonly established and the corresponding
customs duties levied and collected upon articles and goods which
are not found at all and not produced in the Philippines. The Tariff
and Customs Code is replete with such articles and commodities.
In such cases, customs duties may be seen to be imposed either for
revenue purposes purely or perhaps, in certain cases, to discourage
any importation of the items involved. In either case, it is clear
that customs duties are levied and imposed entirely apart from
whether or not there are any competing local industries to protect.
EO Nos. 475 and 478 which may be conceded to be
substantially moved by the desire to generate additional public
revenues, are not, for that reason alone, either constitutionally
flawed, or legally infirm under Section 401 of the Tariff and
Customs Code. Petitioner has not successfully overcome the
presumptions of constitutionality and legality to which those
Executive Orders are entitled.
3. Delegation to administrative bodies
a. ABAKADA v. ERMITA
DOCTRINE: There is no undue delegation of legislative power
but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way
in which the legislative process can go forward. The case before
the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon
factual matters outside of the control of the executive.
FACTS:
Petitioners assail sections 5, 4 to 6 of Republic Act No. 9337 as
violative of the principle of nondelegation of legislative power.
(Section 4 imposes a 10% VAT on sale of goods and properties,
Section 5 imposes a 10% VAT on importation of goods, and
Section 6 imposes a 10% VAT on sale of services and use or
lease of properties.)
These sections authorize the President, upon recommendation
of the Secretary of Finance, to RAISE the value-added tax
(VAT) rate to 12% effective January 1, 2006, upon satisfaction
of the following conditions: viz:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½%).
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et
al., and Escudero, et al. contend in common that Sections 4, 5 and
6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative
power to tax.
Petitioners argue that the law is unconstitutional, as it constitutes
abandonment by Congress of its exclusive authority to fix the
rate of taxes under Article VI, Section 28(2) of the 1987
Philippine Constitution.
Petitioner ABAKADA also argue that the law also effectively
nullified the President’s power of control, which includes the
authority to set aside and nullify the acts of her subordinates like
the Secretary of Finance, by mandating the fixing of the tax rate
by the President upon the recommendation of the Secretary of
Finance.
On the other hand, respondents contend that there is no undue
delegation of legislative power since the law is complete and
leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.
ISSUE:
1. WON Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC
giving the President the stand-by authority to raise the
VAT rate from 10% to 12% when a certain condition is
met, constitutes undue delegation of the legislative
power to tax.
2. WON the President losses its power of control under RA
9337 by mandating the fixing of the tax rate by the
President upon the recommendation of the Secretary of
Finance.
RULING:
1. NO. There is no undue delegation of legislative power but
only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only
way in which the legislative process can go forward.
In this case, Congress did not delegate the power to tax but the
mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the
task of the President is to simply execute the legislative policy.
What exits is simply a delegation of ascertainment of facts
upon which enforcement and administration of the increase
rate under the law is contingent. The legislature has made the
operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition.
The Court ruled that the law leaves the entire operation or
nonoperation of the 12% rate upon factual matters outside of
the control of the executive. No discretion would be exercised
by the President.
Highlighting the absence of discretion is the fact that the word
“shall” is used in the common proviso. The use of the word
“shall” connotes a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent with the
idea of discretion, x x x Where the law is clear and
unambiguous, it must be taken to mean exactly what it says,
and courts have no choice but to see to it that the mandate is
obeyed
Therefore, the Supreme Court sustained the constitutionality of
R.A. 9337 authorizing the President to increase the VAT rate from
10% to 12% effective January 1, 2006 upon recommendation of
the Secretary of Finance on the existence of either of the two
conditions.
2. NO. In making his recommendation to the President on the
existence of either of the two conditions, the Secretary of
Finance is not acting as the alter ego of the President or even
her subordinate.
In such instance, he is not subject to the power of control and
direction of the President. He is acting as the agent of the
legislative department, to determine and declare the event upon
which its expressed will is to take effect.
The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering
that he possesses all the facilities to gather data and
information and has a much broader perspective to properly
evaluate them.
XXXX
The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its
own constitutionally allocated sphere. A logical corollary to the doctrine of
separation of powers is the principle of non-delegation of powers, as expressed in the
Latin maxim: potestas delegata non delegari potest which means "what has been
delegated, cannot be delegated."
This doctrine is based on the ethical principle that such as delegated power
constitutes not only a right but a duty to be performed by the delegate through the
instrumentality of his own judgment and not through the intervening mind of another.
The powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power, which can
never be delegated, has been described as the authority to make a complete law –
complete as to the time when it shall take effect and as to whom it shall be
applicable – and to determine the expediency of its enactment. Thus, the rule is
that in order that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is purely
legislative in nature – that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability of its use or the manner
of its exercise, which determines the validity of its delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the
following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of
Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23
(2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that
the delegation itself is valid. It is valid only if the law:
a) is complete in itself, setting forth therein the policy to be
executed, carried out, or implemented by the delegate; and
b) fixes a standard — the limits of which are sufficiently
determinate and determinable — to which the delegate must
conform in the performance of his functions.
A sufficient standard is one which defines legislative policy, marks its
limits, maps out its boundaries and specifies the public agency to apply it.
It indicates the circumstances under which the legislative command is to
be effected.
Both tests are intended to prevent a total transference of legislative
authority to the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.
The legislature may delegate to executive officers or bodies the power to
determine certain facts or conditions, or the happening of contingencies,
on which the operation of a statute is, by its terms, made to depend, but the
legislature must prescribe sufficient standards, policies or limitations on
their authority.
Moreover, while the power to tax cannot be delegated to executive
agencies, details as to the enforcement and administration of an exercise of
such power may be left to them, including the power to determine the
existence of facts on which its operation depends.
b. CIR v Fortune Tobacco
DOCTRINE: An administrative agency issuing regulations may
not enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional requirements not
contemplated by the legislature.
SYNOPSIS: The Supreme Court ruled in favor of Fortune
Tobacco Corporation in a tax refund dispute, affirming that the
interpretation of the National Internal Revenue Code should be
based on the literal wording of the law and rejecting the authority
of the Commissioner to promulgate rules and regulations that
amend or expand statutory requirements.
FACTS:
Fortune Tobacco is a domestic corporation duly organized and
existing under and by virtue of the laws of the Republic of the
Philippines. It is engaged in manufacturing of various
cigarette brands.
Prior to January 1, 1997, its cigarette brands were subject to ad
valorem tax pursuant to then Section 142 of the Tax Code of 1977
but on January 1, 1997, R.A. No. 8240 took effect whereby a shift
from the ad valorem tax (AVT) system to the specific tax
system was made and subjecting its cigarette brands to specific
tax under SEC 145 of TAX CODE thereof:” The excise tax
from any brand of cigarettes within the next three (3) years from
the effectivity of R.A. No. 8240 shall not be lower than the tax,
which is due from each brand on October 1, 1996. …… the rates
of excise tax on cigars and cigarettes…shall be increased by
twelve percent (12%) on January 1, 2000.
To implement the provisions for a twelve percent (12%)
increase of excise tax on, among others, cigars and cigarettes
packed by machines by January 1, 2000, the Secretary of
Finance, upon recommendation of the respondent
Commissioner of Internal Revenue, issued Revenue
Regulations No. 17-99.
Revenue Regulations No. 17-99 likewise provides in the last
paragraph of Section 1 thereof, "(t)hat the new specific tax rate
for any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquor shall not be lower
than the excise tax that is actually being paid prior to January 1,
2000."
For the period covering January 1-31, 2000, Fortune Tobacco paid
specific taxes on all brands manufactured so it filed a claim for
refund or tax credit of its overpaid excise tax for the month of
January 2000.
CTA: granted the tax refund; revenue regulation issued by the
Commissioner of Internal Revenue exceeded legislative delegation
and that the interpretation of SEC. 145 of the (NIRC) was
incorrect.;
CA: granted the tax refund or tax credit representing specific taxes
erroneously collected from its tobacco products.
CIR: reversed the decision.
PETITIONER’S CONTENTION:
Fortune Tobacco argues that the CTA and the Court of Appeals
merely followed the letter of the law when they ruled that the basis
for the 12% increase in the tax rate should be the net retail price of
the cigarettes in the market as outlined in paragraph C, sub
paragraphs (1)-(4), Section 145 of the Tax Code
Commissioner allegedly has gone beyond his delegated rule-
making power when he promulgated, enforced and implemented
Revenue Regulation No. 17-99, which effectively created a
separate classification for cigarettes based on the excise tax
"actually being paid prior to January 1, 2000."
Hence, this petition.
ISSUE:
Whether or not the revenue regulation has exceeded the allowable
limits of legislative delegation.
WON Fortune Tobacco was entitled to the refund of the overpaid
excise taxes.
RULING:
YES. The Court ruled that Revenue Regulation No. 17-99 is
indeed indefensibly flawed. By adding the qualification that
the tax due after the 12% increase becomes effective shall not
be lower than the tax actually paid prior to 1 January 2000,
Revenue Regulation No. 17-99 effectively imposes a tax which
is the higher amount between the ad valorem tax being paid at
the end of the three (3)-year transition period and the specific
tax, as increased by 12%—a situation not supported by the
plain wording of Section 145 of the Tax Code.
Tax administrators are not allowed to expand or contract the
legislative mandate and that the "plain meaning rule" or
verba legis in statutory construction should be applied such
that where the words of a statute are clear, plain and free
from ambiguity, it must be given its literal meaning and
applied without attempted interpretation.
An administrative agency issuing regulations may not enlarge,
alter or restrict the provisions of the law it administers, and it
cannot engraft additional requirements not contemplated by the
legislature.
Rule-making power must be confined to details for regulating
the mode or proceedings in order to carry into effect the law
as it has been enacted, and it cannot be extended to amend or
expand the statutory requirements or to embrace matters not
covered by the statute. Administrative regulations must
always be in harmony with the provisions of the law because
any resulting discrepancy between the two will always be
resolved in favor of the basic law.
Section 145 of the Tax Code insofar as it mandates a 12%
increase effective on 1 January 2000. However, Revenue
Regulation No. 17-99 went further and added that “The new
specific tax rate for any existing brand of cigars, cigarettes
packed by machine, distilled spirits, wines and fermented
liquor shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000."
The Commissioner cannot seek refuge in his claim that the
purpose behind the passage of the Tax Code is to generate
additional revenues for the government. Revenue generation has
undoubtedly been a major consideration in the passage of the Tax
Code. However, as borne by the legislative record, 25the shift from
the ad valorem system to the specific tax system is likewise meant
to promote fair competition among the players in the industries
concerned, to ensure an equitable distribution of the tax burden
and to simplify tax administration by classifying cigarettes, among
others, into high, medium and low-priced based on their net retail
price and accordingly graduating tax rates.
2. YES. Although tax refund partakes the nature of a tax
exemption, this rule does not apply to Fortune Tobacco’s
claim. The parity between tax refund and tax exemption exists
only when the former is based either on a tax exemption
statute or a tax refund statute.
Tax exemption is granted by the legislature thus, the one who
claims an exemption from the burden of taxation must justify his
claim by showing that the legislature intended to exempt him by
words too plain to be mistaken. In the same manner, a claim for
tax refund may also be based on statutes granting tax exemption or
tax refund. In this case, the rule of strict interpretation against the
taxpayer is applicable as the claim for refund partakes of the
nature of an exemption.
However, tax refunds (or tax credits) in this case is not
founded principally on legislative grant but on the legal
principle of solutio indebiti, the government cannot unjustly
enrich itself at the expense of the taxpayers.
Under the Tax Code, in recognition of the pervasive quasi-
contract principle, a claim for tax refund may be based on the
following:
(a) erroneously or illegally assessed or collected
internal revenue taxes;
(b) penalties imposed without authority; and
(c) any sum alleged to have been excessive or in any
manner wrongfully collected.
In the present case, Fortune Tobacco’s claim for refund is
premised on its erroneous payment of the tax, or the
government’s exaction in the absence of a law.
4. Delegation to the people at large (People’s initiative and
referendum under RA 6735)
13.INHERENT LIMITATIONS (PITIE)
A. PUBLIC PURPOSE
I. PLANTERS PRODUCTS VS FERTIPHIL
DOCTRINE:
An inherent limitation on the power of taxation is public purpose.
Taxes are exacted only for a public purpose. They cannot be
used for purely private purposes or for the exclusive benefit of
private persons. The reason for this is simple. The power to tax
exists for the general welfare; hence, implicit in its power is the
limitation that it should be used only for a public purpose. It
would be a robbery for the State to tax its citizens and use the
funds generated for a private purpose. As an old United States
case bluntly put it: "To lay with one hand, the power of the
government on the property of the citizen, and with the other to
bestow it upon favored individuals to aid private enterprises and
build up private fortunes, is nonetheless a robbery because it is
done under the forms of law and is called taxation.
SYNOPSIS:
President Ferdinand Marcos, exercising his legislative powers, issued
LOI No. 1465 which provided, among others, for the imposition of a
Capital Recovery Component (CRC) on the domestic sale of all grades
of fertilizers in the Philippines. The Supreme Court ruled that a levy
imposed on fertilizer sales was unconstitutional as it solely benefited a
private corporation, ordering the refund of the amounts paid under the
levy.
FACTS:
Petitioner PLANTERS PRODUCT INC. and private
respondent FERTIPHIL are private corporations incorporated
under Philippine laws. They are both engaged in the importation
and distribution of fertilizers, pesticides and agricultural
chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising
his legislative powers, issued LOI No. 1465 which provided,
among others, for the imposition of a Capital Recovery
Component (CRC) on the domestic sale of all grades of
fertilizers in the Philippines.
The LOI provides: 3. The Administrator of the Fertilizer
Pesticide Authority to include in its fertilizer pricing formula a
capital contribution component of not less than ₱10 per bag.
This capital contribution shall be collected until adequate
capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the
Philippines.
Pursuant to the LOI, Fertiphil paid ₱10 for every bag of
fertilizer it sold in the domestic market to the Fertilizer and
Pesticide Authority (FPA). FPA then remitted the amount
collected to the Far East Bank and Trust Company, the depositary
bank of PPI.
Fertiphil paid ₱6,689,144 to FPA from July 8, 1985 to January 24,
1986. After the 1986 Edsa Revolution, FPA voluntarily
stopped the imposition of the ₱10 levy. With the return of
democracy, Fertiphil demanded from PPI a REFUND of the
amounts it paid under LOI No. 1465, but PPI refused to accede
to the demand.
Fertiphil filed a complaint for Collection and Damages against
FPA and PPI with the RTC in Makati. It QUESTIONED THE
CONSTITUTIONALITY OF LOI NO. 1465 for being unjust,
unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process of law.
Fertiphil alleged that the LOI solely favored PPI, a privately
owned corporation, which used the proceeds to maintain its
monopoly of the fertilizer industry.
In its Answer, FPA, through the Solicitor General, countered that
the issuance of LOI No. 1465 was a valid exercise of the police
power of the State in ensuring the stability of the fertilizer
industry in the country. It also averred that Fertiphil did not
sustain any damage from the LOI because the burden imposed
by the levy fell on the ultimate consumer, not the seller
RTC: Ruled in favor of Respondent - imposition of the levy
was an exercise by the State of its taxation power not police
power; One of the inherent limitations is that a tax may be levied
only for public purposes
CA: Affirmed decision of RTC – The LOI is still
unconstitutional even if enacted under the police power; it did not
promote public interest.
ISSUE:
1. WON LOI is constitutional
2. WON LOI was a valid exercise of police power
RULING:
NO. LOI is unconstitutional because it was not for public
purposes. Taxes are exacted only for a public purpose. The
₱10 levy is unconstitutional because it was not for a public
purpose. The levy was imposed to give undue benefit to PPI.
It is a settled principle that the power of taxation by the state is
plenary. Comprehensive and supreme, the principal check upon its
abuse resting in the responsibility of the members of the
legislature to their constituents. However, there are two kinds of
limitations on the power of taxation: the inherent limitations and
the constitutional limitations.
One of the inherent limitations is that a tax may be levied only
for public purposes.
The term "public purpose" is not defined. It is an elastic concept
that can be hammered to fit modern standards. Jurisprudence
states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which
are traditionally viewed as essentially government functions, such
as building roads and delivery of basic services, but also includes
those purposes designed to promote social justice. Thus, public
money may now be used for the relocation of illegal settlers, low-
cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are
continually expanding in light of the expansion of government
functions, the inherent requirement that taxes can only be exacted
for a public purpose still stands. Public purpose is the heart of a
tax law. When a tax law is only a mask to exact funds from the
public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the
requirement of "public purpose." The purpose of a law is
evident from its text or inferable from other secondary sources.
Here, the Court agree with the RTC and that CA that the levy
imposed under LOI No. 1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to
benefit PPI, a private company. The purpose is explicit from
Clause 3 of the law.
Second, the LOI provides that the imposition of the ₱10 levy was
conditional and dependent upon PPI becoming financially
"viable." This suggests that the levy was actually imposed to
benefit PPI. The LOI notably does not fix a maximum amount
when PPI is deemed financially "viable." Worse, the liability of
Fertiphil and other domestic sellers of fertilizer to pay the levy
is made indefinite. They are required to continuously pay the
levy until adequate capital is raised for PP
2. NO.
Police power and the power of taxation are inherent powers of
the State. These powers are distinct and have different tests
for validity. Police power is the power of the State to enact
legislation that may interfere with personal liberty or property
in order to promote the general welfare while the power of
taxation is the power to levy taxes to be used for public
purpose. The main purpose of police power is the regulation of
a behavior or conduct, while taxation is revenue generation.
The "lawful subjects" and "lawful means" tests are used to
determine the validity of a law enacted under the police
power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
h the RTC that the imposition of the levy was an exercise by the
State of its taxation power. While it is true that the power of
taxation can be used as an implement of police power, the primary
purpose of the levy is revenue generation. If the purpose is
primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax.
b. Inherently legislative
c. Territorial jurisdiction
d. International comity
e. Exceptions of the government from taxation
14.Situs of taxation
15. TYPES OF TAX SUBJECTS
a. Income tax
b. Property tax
c. Excise tax
i. Cia vs CIR (GR No. L-5896, August 31, 1955)
DOCTRINE:
SYNOPSIS: Soriano y Cia. is held liable for sales tax on their
gross sales of surplus tractors to United Africa Co., Ltd. as they
are considered importers and the sales were consummated in the
Philippines.
FACTS:
petitioner was engaged in the business of selling surplus
goods acquired from the Foreign Liquidation Commission
pursuant to an agreement with the United
States Government whereby petitioner undertook to rehabilitate
the Veterans Administration Building (formerly Heacock
Building) for and in consideration of over a million pesos worth of
surplus goods.
Part of the surplus goods consisted of tractors which were then in
the various U. S. military bases or depots in the Philippines
Gibson, representantive of United Africa LTD, was looking for
surplus tractors for sale. He learned of the petitioner's business and
contracted to buy tractors from the latter, to be delivered FAS
(free alongside ship), Manila.
Tex Taylor, tractor expert, was employed by UAL to s elect,
inspect and test the tractors before delivery. He ook the serial
numbers of the tractors which he wanted, and gave the list thereof
to the petitioner.
Those found to be in good condition were approved by Taylor,
wherefore petitioner presented to him the sales invoices for his
signature, stamping his approval thereon.
The tractors were delivered by petitioner to the pier in Manila by
means of barges as soon as notice was received from the
representative of its foreign buyer that a carrying vessel was
ready.
Philippine Refining Co., Inc. shipped the 57 tractors acquired
from petitioner from the port of Manila to United Africa Co., Ltd.
at Dares Salaem, East Africa. The total value of the tractors was
P757,000.
However, due to certain defects of some of them upon reaching
Africa, the sum of P4,959.19 was reimbursed by petitioner to
its foreign buyer by credit memo.
BIR & BTA: held petitioner liable for the payment of sales tax
on its gross sales of the tractors to the United Africa Co., Lt
under SEC. 186, NIRC for petitioner imported the tractors from
the army bases (deemed importer)
CIR: affirmed the decision.
Hence, the petition.
PETITIONER’S CONTENTION:
 the goods in question did not acquire a taxable situs in the
Philippines because they merely passed Philippine territory
in transit and that they were not intended for local use but for
exportation to a foreign country.
 the repeal of the consignment or "export tax" under Sec. 187
of the Internal Revenue Code shows the intention of the
legislature to exempt all exports from tax;
 to tax one who sells goods intended for export would be to
nullify the legislative intent behind the repeal of the tax on
consignments abroad, which is to encourage export

ISSUE:
Whether or not petitioner is liable for the payment of percentage
or sales tax on its gross sales of the 57 tractors in question to the
United Africa Co., Ltd. under the provisions of Sec. 186 of the
National Internal Revenue Code.
RULING:
YES. Petitioner is liable. The sale of the tractors was
consummated in the Philippines, for title was transferred to
the foreign buyer at the pier in Manila; hence, the situs of the
sale is Philippines and it is taxable in this country.
Section 186. Percentage tax on sales of other articles.—There is levied,
assessed and collected once only on every original sale, barter, exchange,
and similar transaction intended to transfer ownership of, or title to, the
articles not enumerated in sections 184 and 185, a tax equivalent to five
per centum of the gross selling price or gross value in money of the
articles so sold, bartered, exchanged, or transferred, such tax to be paid by
the manufacturer, producer, or importer
The rule is that where the contract is to deliver goods f.a.s, the
property passes on delivery at the wharf or the dock.
Otherwise stated, delivery to the carrier is delivery to the
buyer.
If the title consigned abroad passes to the buyer within the
jurisdiction of the Philippines, the transaction is domestic and
is subject to the sales tax; otherwise, the transaction will be
considered a foreign sale and is exempt from the sales tax
prescribed in section 186 of the Tax Code.
Contrary to petitioner’s argument, consignment tax formerly
imposed on exports by section 187 of the Tax Code (now
repealed by R. A. 41) is different from the sales tax imposed by
SEC. 186, which has not been repealed.
Tax on consignment is a privilege tax pure and simple; it is a
tax on the business of consigning commodities abroad from
the Philippines. If the tax were one on sale, in order to be
taxable in the Philippines must be consummated there.
As for the legislative policy to exempt consignments abroad
from tax in order to encourage exports, the Solicitor General
has pointed out that it is only the exportation of locally
produced or manufactured products, and not every kind of
exportation, that Congress wanted to encourage and promote
ii. Iloilo Bottlers vs City of Iloilo
DOCTRINE:
SYNOPSIS:Iloilo Bottlers Inc. filed a complaint with the CFI of
Iloilo for the recovery of the sum of P3,329.20,which allegedly
constituted payments of municipal license taxes under Iloilo City
Tax Ordinance No. 5 series of 1960 that the company paid under
protest.
FACTS:
Iloilo Bottlers, a company engaged in the business of bottling
softdrinks under the trade name of Pepsi Cola and 7-Up and
selling the same to its customers. It closed its plant in Muelle
Loney in Iloilo City and transferred its bottling operations to its
new plant in Barrio Ungca, Municipality of Pavia, Province of
Iloilo, which is outside the jurisdiction of the City of Iloilo.
However, even after the transfer of its plant, Iloilo Bottlers was
still assessed by the Municipality of Iloilo for payment of
municipal license tax in accordance with Ordinance No. 5 which
provides that manufacturers, bottlers, and distributers of soft
drinks in Iloilo are subject to a municipal license tax of 10
centavos per case of 24 bottles.
Iloilo Bottlers challenged the validity of the assessment
Petitioner alleged that it could not anymore be liable to pay the
municipal license fee because its bottling plant (was) not anymore
inside the City of Iloilo, and that moreover, t by means of a fleet
of delivery trucks, plaintiff distributes its products from its
bottling plant directly to its customers in the different towns of
the Province of Iloilo as well as the City of Iloilo; it could not be
considered as a distributor
Petitioner further contended that the plaintiff is already paying the
National Government a percentage Tax on all the softdrinks it
manufactures.
Plaintiff filed a complaint with the CFI of Iloilo for the recovery
of the sum of P3,329.20, which allegedly constituted payments of
municipal license taxes under Iloilo City Tax Ordinance No. 5
series of 1960 that the company paid under protest.
CFI: rendered on January 26, 1973 a decision in favor of Iloilo
Bottlers, Inc. declaring the Corporation not liable under the
ordinance.
PETITIONER’S CONTENTION:
 contends that since it is not engaged in the
independent business of distributing soft-drinks, but
that its activity of selling is merely an incident to, or is
a necessary consequence of its main or principal
business of bottling, then it is NOT liable under the city
tax ordinance.
ISSUE:
1. WON Iloilo Bottlers Inc. is liable is liable under Iloilo
City tax Ordinance No. 5, series of 1960, as amended,
which imposes a municipal license tax on distributors of
soft-drinks.
2. whether an entity engaged in the principal business of
manufacturing, is likewise engaged in the separate
business of selling,
RULING:
YES. Sales were made by Iloilo Bottlers, Inc. in Iloilo City,
thus, the company liable under the tax ordinance.
The tax imposed under Ordinance No. 5 is an excise tax. It is a
tax on the privilege of distributing, manufacturing or bottling
softdrinks. Being an excise tax, it can be levied by the taxing
authority only when the acts, privileges or businesses are done
or performed within the jurisdiction of said authority.
Specifically, the situs of the act of distributing, bottling or
manufacturing softdrinks must be within city limits, before an
entity engaged in any of the activities may be taxed in Iloilo City.
2. For tax purposes, a manufacturer does not necessarily
become engaged in the separate business of selling simply
because it sells the products it manufactures. In certain cases,
however, a manufacturer may also be considered as engaged
in the separate business of selling its products.
To determine whether an entity engaged in the principal
business of manufacturing, is likewise engaged in the separate
business of selling, its marketing system or sales operations
must be looked into.
Under the first system, the manufacturer enters into sales
transactions and invoices the sales at its main office where
purchase orders are received and approved before delivery
orders are sent to the company's warehouses, where in turn
actual deliveries are made. No warehouse sales are made; nor
are separate stores maintained where products may be sold
independently from the main office. The warehouses only
serve as storage sites and delivery points of the products
earlier sold at the main office.
Under the second system, sales transactions are entered into
and perfected at stores or warehouses maintained by the
company. Any one who desires to purchase the product may
go to the store or warehouse and there purchase the
merchandise. The stores and warehouses serve as selling
centers.
Entities operating under the first system are NOT considered
engaged in the separate business of selling or dealing in their
products, independent of their manufacturing business. Entities
operating under the second system are considered engaged in the
separate business of selling.
It is clear from the ordinance that three types of activities are
covered: (1) distribution, (2) manufacture and (3) bottling of
softdrinks. A person engaged in any or all of these activities is
subject to the tax.
In the case at bar, the company distributed its softdrinks by means
of a fleet of delivery trucks which went directly to customers in
the different places in lloilo province. Sales transactions with
customers were entered into and sales were perfected and
consummated by route salesmen. Truck sales were made
independently of transactions in the main office. The delivery
trucks were not used solely for the purpose of delivering
softdrinks previously sold at Pavia. They served as selling units.
They were what were called, until recently, "rolling stores".
The delivery trucks were therefore much the same as the stores
and warehouses under the second marketing system. Iloilo
Bottlers, Inc. thus falls under the second category above. That is,
the corporation was engaged in the separate business of selling
or distributing soft-drinks, independently of its business of
bottling them.
iii. CIR vs BOAC
DOCTRINE:
SYNOPSIS:
FACTS:
British Overseas Airways Corporation (BOAC) is a British
Government-owned corporation organized and existing under the
laws of the United Kingdom. It is engaged in the international
airline business.
It did not carry passengers or cargo to or from the Philippines,
although during the period covered by the assessments, it
maintained a general sales agent in the Philip. Wamer Barnes and
Company, Ltd., and later Qantas Airways - which was
responsible for selling BOAC tickets covering passengers and
cargoes.
It is admitted that BOAC had no landing rights for traffic
purposes in the Philippines, and was not granted a Certificate
of public convenience, except for a nine-month period, partly in
1961 and partly in 1962, when it was granted a temporary landing
permit.
CIR assessed BOAC for deficiency income taxes covering the
years 1959 to 1963. Subsequent investigation resulted in the
issuance of a new assessment. BOAC paid the assessment under
protest.
BOAC filed a claim for refund of the amount of P858,307.79,
which claim was denied by the CIR. But before said denial,
BOAC had already filed a petition for review with the Tax
Court, ,assailing the assessment and praying for the refund of the
amount paid.
CTA: ruled in favor of BOAC.
 proceeds of sales of BOAC passage tickets in the
Philippines do not constitute BOAC income from
Philippine sources "since no service of carriage of
passengers or freight was performed by BOAC within
the Philippines" and, therefore, said income is not
subject to Philippine income tax.;
 income from transportation is income from services
so that the place where services are rendered
determines the source.
RESPONDENT'S MAIN ARGUMENT: BOAC's service of
transportation is performed outside the Philippines, the income
derived is from sources without the Philippines and, therefore, not
taxable under our income tax laws.
ISSUE:
whether or not the revenue from sales of tickets by BOAC in the
Philippines constitutes income from Philippine sources and,
accordingly, taxable under our income tax laws.
hether or not during the fiscal years in question BOAC s a resident
foreign corporation doing business in the Philippines or has an
office or place of business in the Philippines
RULING:
YES. The absence of flight operations to and from the
Philippines is not determinative of the source of income or the
site of income taxation. Admittedly, BOAC was an off-line
international airline at the time pertinent to this case.
The test of taxability is the "source"; and the source of an
income is that activity which produced the income. The source
of an income is the property, activity or service that produced
the income. For the source of income to be considered as
coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines.
Section 37(a) of the Tax Code, which enumerates items of
gross income from sources within the Philippines, namely: (1)
interest, (21) dividends, (3) service, (4) rentals and royalties,
(5) sale of real property, and (6) sale of personal property,
does not mention income from the sale of tickets for
international transportation. However, that does not render it
less an income from sources within the Philippines.
Section 37, by its language, does not intend the enumeration
to be exclusive. It merely directs that the types of income listed
therein be treated as income from sources within the
Philippines. A cursory reading of the section will show that it
does not state that it is an all-inclusive enumeration, and that
no other kind of income may be so co
Unquestionably, In BOAC's case, the sale of tickets in the
Philippines is the activity that produces the income. The
tickets exchanged hands here and payments for fares were
also made here in Philippine currency. The site of the source
of payments is the Philippines. The flow of wealth proceeded
from, and occurred within, Philippine territory, enjoying the
protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should
share the burden of supporting the government.

2. YES. There is no doubt then that BOAC was "engaged in"

business in the Philippines through a local agent during the
period covered by the assessments. Accordingly, it is a resident
foreign corporation subject to tax upon its total net income
received in the preceding taxable year from all sources within
the Philippines.

In order that a foreign corporation may be regarded as doing

business within a State, there must be continuity of conduct and
intention to establish a continuous business, such as the
appointment of a local agent, and not one of a temporary
character.

BOAC, during the periods covered by the subject -

assessments, maintained a general sales agent in the
Philippines, That general sales agent, from 1959 to 1971, "was
engaged in
(1) selling and issuing tickets;
(2) breaking down the whole trip into series of trips — each
trip in the series corresponding to a different airline company;
(3) receiving the fare from the whole trip; and
(4) consequently allocating to the various airline companies on
the basis of their participation in the services rendered
through the mode of interline settlement as prescribed by
Article VI of the Resolution No. 850 of the IATA Agreement."

Those activities were in exercise of the functions which are

normally incident to, and are in progressive pursuit of, the
purpose and object of its organization as an international air
carrier. In fact, the regular sale of tickets, its main activity, is
the very lifeblood of the airline business, the generation of
sales being the paramount objective.
 16.PRINCIPLES OF SOUND TAX SYSTEM
A. FISCAL ADEQUACY
I. CHAVEZ V ONGPIN
DOCTRINE: Fiscal adequacy, which is one of the characteristics
of a sound tax system, requires that sources of revenues must be
adequate to meet government expenditures and their variations.
Without Executive Order No. 73, the basis for collection of
real property taxes will still be the 1978 revision of property
values. Certainly, to continue collecting real property taxes
based on valuations arrived at several years ago, in disregard
of the increases in the value of real properties that have
occurred since then, is not in consonance with a sound tax
system. *****
SYNOPSIS:
FACTS:
EO No. 73 - PROVIDING FOR THE COLLECTION OF REAL
PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY
VALUES, AS PROVIDED FOR UNDER SECTION 21 OF PD
464 (THE REAL PROPERTY TAX CODE, AS AMENDED)
Due to the obsolete real property taxes which are still based on
the 1978 revision property values, President Corazon Aquino
issued EO No. 73 stating that beginning January 1, 1987, the 1984
real property assessments shall be the basis of real property taxes.
REASON: an urgent need for local governments to
augment their financial resources to meet the rising
cost of rendering effective services to the people
Subsequently, MO No. 77 was issued suspending the
implementation of EO 73 until June 30, 1987.
The petitioner, FRANCISCO I. CHAVEZ, is a taxpayer and an
owner of three parcels of land. He alleges the following:
 that EO No. 73 accelerated the application of the
general revision of assessments to January 1, 1987
thereby mandating an excessive increase in real
property taxes by 100% to 400% on improvements,
and up to 100% on land;
 that any increase in the value of real property brought
about by the revision of real property values and
assessments would necessarily lead to a proportionate
increase in real property taxes;
 sheer oppression is the result of increasing real
property taxes at a period of time when harsh economic
conditions prevail; and
 increase in the market values of real property as
reflected in the schedule of values was brought about
only by inflation and economic recession.
 Unreasonable increase in real property taxes brought
about by EO No. 73 amounts to a confiscation of
property repugnant to the constitutional guarantee
of due process, invoking the cases of Ermita-Malate
Hotel, Et. Al. v. Mayor of Manila and Sison v. Ancheta
The intervenor Realty Owners Association of the Philippines,
Inc. (ROAP), which is the national association of owners-
lessors, joins Chavez,
 PD 464 is unconstitutional;
 imposes an additional 1% tax on all property owners to
raise funds for education, as real property tax is
admittedly a local tax for local governments;
OSG:
general revision of assessments is a continuing process
mandated by Section 21, PD 464: however, That if property
values in a province or city, or in any municipality, have greatly
changed since the last general revision, the provincial or city
assessor may, with the approval of the Secretary of Finance or
upon his direction, undertake a general revision of assessments
in the province or city, or in any municipality before the fifth
year from the effectivity of the last general revision.
ISSUE:
WON EO 73 is unconstitutional
RUING:
NO. EO No. 73 is constitutional, it does not impose new taxes
nor increase taxes. The general revision of assessments is a
continuing process mandated by Section 21 of PD No. 464.
Fiscal adequacy, which is one of the characteristics of a sound
tax system, requires that sources of revenues must be adequate
to meet government expenditures and their variations.
Without Executive Order No. 73, the basis for collection of
real property taxes will still be the 1978 revision of property
values. Certainly, to continue collecting real property taxes
based on valuations arrived at several years ago, in disregard
of the increases in the value of real properties that have
occurred since then, is not in consonance with a sound tax
system. *****
RATIO:
Indeed, the government recognized the financial burden to the
taxpayers that will result from an increase in real property taxes.
Hence, Executive Order No. 1019 was issued on April 18, 1985,
deferring the implementation of the increase in real property taxes
resulting from the revised real property assessments, from January
1, 1985, to January 1, 1988.
The issuance of Executive Order No. 73 which changed the date
of implementation of the increase in real property taxes from
January 1, 1988, to January 1, 1987 and therefore repealed
Executive Order No. 1019, also finds ample justification in its
"whereas" clauses.
It should be noted that Sec. 1, EO 73 merely directs that the real
property values in 1984 determined by the local assessors during
the latest general revision of assessments shall take effect
beginning January 1, 1987 for purposes of real property tax
collection.
The general revision of assessments completed in 1984 is based
on Section 21 of PD 464: Beginning with the calendar year
1978, the provincial or city assessor shall make a general
revision of real property assessments in the province or city to
take effect January 1, 1979, and once every five years thereafter:
II. ABAKADA V ERMITA
DOCTRINE: There is no undue delegation of legislative power
but only of the discretion as to the execution of a law. This is
constitutionally permissible. Congress does not abdicate its
functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way
in which the legislative process can go forward. The case before
the Court is not a delegation of legislative power. It is simply a
delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The
legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon
factual matters outside of the control of the executive.
FACTS:
Petitioners assail sections 5, 4 to 6 of Republic Act No. 9337 as
violative of the principle of nondelegation of legislative power.
(Section 4 imposes a 10% VAT on sale of goods and properties,
Section 5 imposes a 10% VAT on importation of goods, and
Section 6 imposes a 10% VAT on sale of services and use or
lease of properties.)
These sections authorize the President, upon recommendation
of the Secretary of Finance, to RAISE the value-added tax
(VAT) rate to 12% effective January 1, 2006, upon satisfaction
of the following conditions: viz:
(i) VAT collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of
GDP of the previous year exceeds one and one-half
percent (1 ½%).
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et
al., and Escudero, et al. contend in common that Sections 4, 5
and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the NIRC giving the President the stand-by
authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative
power to tax.
Petitioners argue that the law is unconstitutional, as it constitutes
abandonment by Congress of its exclusive authority to fix the
rate of taxes under Article VI, Section 28(2) of the 1987
Philippine Constitution.
In addition, Petitioner, Sen. Aquilino Q. Pimentel, Jr., et
al, contend that the increase in the VAT rate to 12% contingent
on any of the two conditions being satisfied violates the due
process clause embodied in Article III, Section 1 of the
Constitution, as it imposes an UNFAIR and ADDITIONAL TAX
BURDEN on the people, in that:
(1) the 12% increase is ambiguous because it does not
state if the rate would be returned to the original 10% if
the conditions are no longer satisfied;
(2) the rate is unfair and unreasonable, as the people are unsure
of the applicable VAT rate from year to year; and
(3) the increase in the VAT rate, which is supposed to be an
incentive to the President to raise the VAT collection to at least
2 4/5 of the GDP of the previous year, SHOULD ONLY BE
BASED ON FISCAL ADEQUACY.
RESPONDENT’S CONTENTION:
R.A. No. 9337 is the anchor of the government’s fiscal reform
agenda. A reform in the value-added system of taxation is the
core revenue measure that will tilt the balance towards a
sustainable macroeconomic environment necessary for
economic growth.
ISSUE:
1. WON RA 9337 is compliant of “fiscal adequacy
requirement
2. WON RA 9337 (1st condition) is a violation of due process
embodied in Article III, Section 1 of the Constitution “"no person
shall be deprived of life, liberty or property without due process of
law/ whether or not, to begin with, it is a proper exercise of
legislative power.
RULING:
1. YES. fiscal adequacy dictated the need for a raise in
revenue. The dire need for revenue cannot be ignored. Our
country is in a quagmire of financial woe. The image
portrayed is chilling. Congress passed the law hoping for
rescue from an inevitable catastrophe. Whether the law is
indeed sufficient to answer the state’s economic dilemma is not
for the Court to judge.
the first condition amounts to an incentive to the President to
increase the VAT collection does not render it unconstitutional so
long as there is a public purpose for which the law was passed,
which in this case, is mainly to raise revenue.
In fact, fiscal adequacy dictated the need for a raise in revenue.
Notably, Increase in VAT collection is not the only condition.
There is another condition, i.e., (2) the national government
deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 ½%).
Accrdng to Finance Secretary Purisima in the Bicameral
Conference Committee hearing:
1.90% of revenue is used for debt service i.e. interest plus
amortization
2. Our debt to GDP is approximately equal to our GDP. Again,
that shows you that this is not a sustainable situation.
3. the environment that we are presently operating in is not as
benign as what it used to be the past five years; ((1) rapid
increase in the interest rates in the leading economies of the
world, (2) ability to borrow at reasonable prices is going to be
challenged, and our ability to access the financial markets)
“So given this situation, we at the Department of Finance believe
that we really need to front-end our deficit reduction. Because it is
deficit that is causing the increase of the debt and we are in what
we call a debt spiral. The more debt you have, the more deficit you
have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way,
I think, we can get out of this debt spiral is really have a front-end
adjustment in our revenue base.”
2. NO. The law must have a valid governmental objective, i.e.,
the interest of the public as distinguished from those of a
particular class, requires the intervention of the State. This
objective must be pursued in a lawful manner, or in other words,
the means employed must be reasonably related to the
accomplishment of the purpose and not unduly oppressive.
There is no doubt that R.A. No. 9337 was enacted pursuant to
a valid governmental objective, i.e. to raise revenues for the
government. However, with respect to the means employed to
accomplish such objective, I am convinced that R.A. No. 9337,
particularly Sections 4, 5 and 6 thereof, are ARBITRARY
AND UNDULY OPPRESSIVE.
The Senate deliberation reveals that the first condition constitutes
a reward to the President for her effective collection of VAT.
Thus, the President may increase the VAT rate from 10% to 12%
if her VAT collection during the previous year exceeds 2 4/5% of
the Gross Domestic Product
The Supreme Court questioned the authority of the President to
increase the VAT rate on the premise alone that she deserves an
"incentive" or "reward"? Indeed, why should she be rewarded for
performing a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the
principles of sound taxation is fiscal adequacy. The proceeds of
tax revenue should coincide with, and approximate the needs of,
government expenditures. Neither an excess nor a deficiency of
revenue vis-à-vis the needs of government would be in keeping
with the principle.
Equating the grant of authority to the President to increase the
VAT rate with the grant of additional allowance to a studious
son is highly inappropriate.
Our Senators must have forgotten that for every increase of
taxes, the burden always redounds to the people. Unlike the
additional allowance given to a studious son that comes from the
pocket of the granting parent alone, the increase in the VAT rate
would be shouldered by the masses. Indeed, mandating them to
pay the increased rate as an award to the President is
arbitrary and unduly oppressive. Taxation is not a power to be
exercised at one’s whim.
VAT/GDP RATIO > 2.8% - government has weak or no
capability of implementing the VAT or that VAT is not effective
in the function of the tax collection; no value to increase it to 12%
because such action will also be ineffectual.
NGD/GDP > 1.5% -balanced budget position; no need to increase
the VAT rate since the fiscal house is in a relatively healthy
position
The principle of fiscal adequacy as a characteristic of a sound
tax system was originally stated by Adam Smith in his Canons
of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to
keep out of the pockets of the people as little as possible over and
above what it brings into the public treasury of the state.
It simply means that sources of revenues must be adequate to
meet government expenditures and their variations.
B. ADMINISTRATIVE FEASIBILITY
I. DIAZ V SEC OF FINANCE
DOCTRINE: Administrative feasibility is one of the canons of a
sound tax system.
It simply means that the tax system should be capable of being
effectively 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.
SYNOPSIS: This case involves the imposition of VAT by the
BIR on the collections of tollway operators. The SC said that all
cars must be subject to VAT. Diaz argued that it this is very
difficult to implement, specifically the issuance of receipts to
persons.
FACTS: The relevant law in this case is SEC. 108 of the NIRC, as
amended. VAT is levied, assessed, and collected on the gross receipts
derived from the “sale or exchange of services” as well as from the use
or lease of properties.
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol 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; and that, since VAT was never
factored into the formula for computing toll fees, its imposition
would violate the non-impairment clause of the constitution.
Respondent government, through the OSG, avers that:
 the NIRC imposes VAT on all kinds of services of
franchise grantees, including tollway operations,
except where the law provides otherwise;
 petitioners have no right to invoke the non-
impairment of contracts clause since they clearly have
no personal interest in existing toll operating agreements
(TOAs) between the government and tollway operators.
 imposition of VAT on tollway operations has been
the subject as early as 2003 of several BIR rulings
and circulars.
 it cannot be claimed that the rights of tollway operators
to a reasonable rate of return will be impaired by the
VAT since this is imposed on top of the toll rate
 imposition of VAT on toll fees would have very
minimal effect on motorists using the tollways
PETITIONER’S CONTENTION:
 Tollway operators cannot be regarded as franchise
grantees under the NIRC since they do not hold
legislative franchises
 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, the date when the
VAT imposition was supposed to take effect. The
issuance allegedly violates Section 111(A) of the Code
which grants first time VAT payers a transitional input
VAT of 2% on beginning inventory.
 tollway operators cannot be considered "franchise
grantees" under Section 108 since they do not hold
legislative franchises.
 the public nature of the services rendered by tollway
operators excludes such services from the term "sale of
services" under Section 108 of the Code
 VAT ON TOLLWAY OPERATIONS IS NOT
ADMINISTRATIVELY FEASIBLE - the
substantiation requirements for claiming input VAT
make the VAT on tollway operations impractical and
incapable of implementation.
o 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.
o 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.
ISSUE:
1. Whether the imposition of VAT on tollway operators is
not administratively feasible and cannot be implemented
2. Whether the government is unlawfully expanding VAT
coverage by including tollway operators and tollway
operations in the terms "franchise grantees" and "sale of
services" under Section 108 of the Code.

RUING:
1. NO. 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.
Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable
of being effectively 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 matter are not sufficiently established for
the Court to pass judgment on.
XXX
For the same reason, the Court cannot prematurely declare as
illegal, 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, the date when the VAT imposition was supposed
to take effect. The issuance allegedly violates Section 111(A) of
the Code which grants first time VAT payers a transitional input
VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is
actually the product of negotiations with tollway operators who
have been assessed VAT as early as 2005, but failed to charge
VATinclusive toll fees which by now can no longer be collected.
The tollway operators agreed to waive the 2% transitional input
VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input
VAT belongs to the tollway operators who have not questioned
the circular’s validity. They are thus the ones who have a right to
challenge the circular in a direct and proper action brought for the
purpose.
2. NO. Section 108 of the NIRC imposes VAT on "all kinds of
services" rendered in the Philippines for a fee, including those
specified in the list.
The 3RD par. of SEC. 108 defines "sale or exchange of services"
as: the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including those
performed or rendered by construction and service
contractors……. services of franchise grantees of electric
utilities, telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under
Section 119 of this Code
It is plain from the Section 108 of the NIRC imposes VAT on
"all kinds of services" rendered in the Philippines for a fee,
including those specified in the list. The enumeration of affected
services is not exclusive. By qualifying "services" with the words
"all kinds," Congress has given the term "services" an all-
encompassing meaning. Thus, every activity that can be
imagined as a form of "service" rendered for a fee should be
deemed included unless some provision of law especially excludes
it.
Under P.D. 1112 (Toll Operation Decree) tollway operators
construct, maintain, and operate expressways, also called tollways,
at the operators' expense. In consideration for constructing
tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways
until such operators could fully recover their expenses and earn
reasonable returns from their investments.
Not only do they fall under the broad term under (1) but also
come under those described as “all other franchise grantees”
which is not confined only to legislative franchise grantees
since the law does not distinguish.
Tollway operators are, owing to the nature and object of their
business, "franchise grantees." The construction, operation, and
maintenance of toll facilities on public improvements are activities
of public consequence that necessarily require a special grant of
authority from the state. The term "franchise" has been broadly
construed as referring, not only to authorizations that
Congress directly issues in the form of a special law, but also
to those granted by administrative agencies to which the
power to grant franchises has been delegated by Congress.
3. Toll fee is not a user’s tax and thus it is permissible to
impose a VAT on the said fee.
TOLLWAY FEES v. TAXES
Tollway fees are not taxes. They are not assessed and collected by
the BIR and do not go to the general coffers of the government.
What the government seeks to tax here are fees collected from
tollways that are constructed, maintained, and operated by
private tollway operators at their own expense under the build,
operate, and transfer scheme that the government has adopted for
expressways. 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.
VAT on tollway operations cannot be deemed a tax on tax due to
the nature of VAT as an indirect tax. In indirect taxation, a
distinction is made between the liability for the tax and
burden of the tax. The seller who is liable for the VAT may shift
or pass on the amount of
VAT it paid on goods, properties or services to the buyer. In such
a case, what is transferred is not the seller's liability but merely the
burden of the VAT.
Thus, the seller remains directly and legally liable for payment
of the VAT, but the buyer bears its burden since the amount
of VAT paid by the former is added to the selling price.

II. MUN. OF CAINTA VS CITY OF PASIG, 828 SCRA 527 (2017)
DOCTRINE: The basis for determining which LGU has the
apparent right to collect local taxes is the location as appearing
on the certificate of title, unless an amendment thereto is duly
made.
Taxpayer is entitled to rely on the location clearly reflected in the
certificate of title covering the properties. To hold otherwise
would subject taxpayers to the vagaries of boundary disputes, to
their prejudice and inconvenience and to the detriment of proper
tax administration. Such scenario is contrary to the canons of a
sound tax system.
Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable of
being effectively administered and enforced with the least
inconvenience to the taxpayer
SYNOPSIS:
FACTS:
Petitioner Uniwide conducted and operated business in buildings
and establishments constructed on parcels of land. In the TCT, the
location of the parcels of land is indicated as being in Pasig.
Uniwide applied for and was issued a building permit by Pasig for
its building. Uniwide also secured the requisite Mayor's Permit for
its business from Pasig and consequently paid thereto its business
and realty taxes, fees, and other charges from 1989 to 1996.
However, beginning 1997, Uniwide did not file any application
for renewal of its Mayor's Permit in Pasig nor paid the local taxes
thereto. Instead, it paid local taxes to Cainta after the latter gave it
notice, supported by documentary proof of its claims, that the
subject properties were within Cainta's territorial jurisdiction.
Consequently, Pasig filed a case for Collection Of Local
Business Taxes, Fees, And Other Legal Charges due for fiscal
year 1997 against Uniwide w/ RTC.
Uniwide, in turn, filed a third-party complaint against Cainta for
reimbursement of the taxes, fees, and other charges it had paid to
the latter in the event that Uniwide was adjudged liable for
payment of taxes to Pasig.
Uniwide sold the subject properties to Robinsons Land
Corporation.
RTC: Ruled in favor of Pasig, thus, TCTs indicate that the parcels
of land described therein are located within the territorial limits of
Pasig.(Local taxes and real estate taxes)
 upheld the indefeasibility of Torrens title, TCTs indicate
that the parcels of land are located within the territorial
limits of Pasig.
CA: Affirmed decision of RTC
ISSUE:
WON local business taxes and realty taxes are to be collected by
Pasig
how is location determined for purposes of identifying the LGU
entitled to collect taxes.
RUING:
1.YES. Pasig has the apparent right to levy and collect realty
taxes on the subject properties and business taxes on the
businesses conducted therein.
The basis for determining which LGU has the apparent right to
collect local taxes is the location as appearing on the certificate
of title, unless an amendment thereto is duly made.
Taxpayer is entitled to rely on the location clearly reflected in
the certificate of title covering the properties. To hold otherwise
would subject taxpayers to the vagaries of boundary disputes, to
their prejudice and inconvenience and to the detriment of proper
tax administration. Such scenario is contrary to the canons of a
sound tax system.
Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable of
being effectively administered and enforced with the least
inconvenience to the taxpayer.
For purposes of complying with local tax liabilities, the taxpayer
is entitled to rely on the location stated in the certificate of title.
Under the LGC, local business taxes are payable for every
separate or distinct establishment or place where business subject
to the tax is conducted, which must be paid by the person
conducting the same.
Section 150 provides the situs of taxation: the tax
thereon shall accrue and shall be paid to the
municipality where such branch or sales outlet is
located.
For real property taxes, PD 464 or the Real Property Tax
Code, SEC. 5 & 57 provides that collection is vested in the
locality where the property is situated. This was even affirmed
by SEC. 201 & 247, LGC.
It is undisputed that the subject properties are covered by TCTs
which show on their faces that they are situated in Pasig; 19 that
Uniwide's business establishment is situated within the subject
properties; that the stated location has remained unchanged since
their issuance; that prior payments of the subject taxes, fees, and
charges have been made by Uniwide to Pasig; and that there is no
court order directing the amendment of the subject TCTs with
regard to the location stated therein.
there is forum shopping when the following elements are present, namely:
a) identity of parties, or at least such parties as represent the same
interests in both actions;
b) identity of rights asserted and reliefs prayed for, the relief being
founded on the same facts; and
c) the identity of the two preceding particulars, such that any
judgment rendered in the other action will, regardless of which
party is successful, amount to res judicata in the action under
consideration.
As correctly found by the RTC-Pasig and affirmed by the CA, the first and
second requisites are wanting. Uniwide is not a party to the boundary
dispute case between Cainta and Pasig, and the first action is for settlement
of boundary dispute while the second action is for collection of tax.
Moreover, the third requisite is also wanting, because regardless of which
party is successful, a judgment in the boundary dispute case will not
amount to res judicata in the tax collection case.
c. Theoretical Justice
17. Theory and Basis of Taxation
a. Necessity theory
b. Benefits-protection theory
18.Doctrines of Taxation
A. PROSPECTIVITY

I. CIR V ACOSTA
DOCTRINE: Tax laws are prospective in operation, unless the
language of the statute clearly provides otherwise.
Revenue statutes are substantive laws and in no sense must their
application be equated with that of remedial laws. revenue laws
are not intended to be liberally construed.
Considering that taxes are the lifeblood of the government and in
Holmes’s memorable metaphor, the price we pay for civilization,
tax laws must be faithfully and strictly implemented.
SYNOPSIS:
FACTS:
Respondent, Rosemarie Acosta (Acosta) is an employee of Intel
Manufacturing Phils., Inc. (Intel). For the period January 1 TO
December 31, 1996, she was assigned in a foreign country.
During that period, Intel withheld the taxes due on respondent's
compensation income and remitted to the Bureau of Internal
Revenue (BIR) the amount of P308,084.56.
Acosta and her husband filed with the BIR their Joint Individual
Income Tax Return for the year 1996. Later, on June 17, 1997,
Acosta, through her representative, filed an amended return and
a Non-Resident Citizen Income Tax Return, and paid the BIR
P17,693.37 plus interests in the amount of P14,455.76. Acosta
filed another amended return indicating an overpayment of
358,274.63.
Claiming that the income taxes withheld and paid by Intel and
respondent resulted in an overpayment, Acosta filed a petition
for review in the CTA.
CIR: dismissed the petition for Acosta's failure to file the
Mandatory Written Claim For Refund before the CIR.
CTA: dismissed the petition;
 Acosta failed to file a written claim for refund under
SEC 230 of the old tax code with the CIR, a condition
precedent to the filing of a petition for review before
the CTA;
 respondent's omission, inadvertently or otherwise, to
allege in her petition the date of filing the final
adjustment return, deprived the court of its jurisdiction
over the subject matter of the case.
CA: reversed decision; filing of an amended return indicating an
overpayment was sufficient compliance with the requirement of a
written claim for refund
 Applied Section 204(c) of the 1997 NIRC, Petitioner
sought reconsideration, but it was denied. Hence, the
instant petition.
CIR's Arguments:
 An amended return showing an overpayment does not
constitute the written claim for refund required under
Section 230 of the 1993 NIRC (old Tax Code).
 an actual written claim for refund is necessary before
a suit for its recovery may proceed in any court.
 The 1997 NIRC cannot be applied retroactively as
the instant case involved refund of taxes withheld on
a 1996 income
PETITIONER’S CONTENTION:
 filing of an amended return indicating an overpayment
of P358,274.63 constitutes a written claim for refund
pursuant to the clear proviso stated in the last sentence
of Section 204(c) of the 1997 NIRC (new Tax Code):
Provided, however, That a return filed showing an
overpayment shall be considered as a written claim
for credit or refund.
 New Tax Code should prevail - when the petition was
filed with the CTA on April 15, 1999, the 1997 NIRC
was already in effect, hence, Section 204(c) should
apply, despite the fact that the refund being sought
pertains to a 1996 income tax.
 Invokes the liberal application of technicalities in tax
refund cases,
ISSUE:
1. W/N the 1997 tax reform can be applied retrospectively
1. Note that the issue on the retroactivity of Section
204(c) of the 1997 NIRC arose because the last
paragraph of Section 204(c) was not found in
Section 230 of the old Code.
2. W/N the amended return is sufficient compliance of
written claim
RUING:
1. NO. Tax laws are prospective in operation, unless the
language of the statute clearly provides otherwise.
Revenue statutes are substantive laws and in no sense must
their application be equated with that of remedial laws.
revenue laws are not intended to be liberally construed.
(Simply put, substantial compliance is not allowed)
Considering that taxes are the lifeblood of the government
and in Holmes’s memorable metaphor, the price we pay for
civilization, tax laws must be faithfully and strictly
implemented.
Moreover, a party seeking an administrative remedy must not
merely initiate the prescribed administrative procedure to obtain
relief, but also pursue it to its appropriate conclusion before
seeking judicial intervention in order to give the administrative
agency an opportunity to decide the matter itself correctly and
prevent unnecessary and premature resort to court action.
Furthermore, as the CTA stressed, even the date of filing of the
Final Adjustment Return was omitted, inadvertently or otherwise,
by respondent in her petition for review. This omission was fatal
to respondent’s claim, for it deprived the CTA of its jurisdiction
over the subject matter of the case.
2. NO. The applicable law on refund of taxes pertaining to the
1996 compensation income is Section 230 of the old Tax Code,
which was the law then in effect, and not Section 204(c) of the
new Tax Code, which was effective starting only on January 1,
1998.
The requirements under Section 230 for refund claims are as
follows:
1. A written claim for refund or tax credit must be filed by the
taxpayer with the Commissioner;
2. The claim for refund must be a categorical demand for
reimbursement;
3. The claim for refund or tax credit must be filed, or the suit or
proceeding therefor must be commenced in court within two (2)
years from date of payment of the tax or penalty regardless of
any supervening cause.
The law is clear. A claimant must first file a written claim for
refund, categorically demanding recovery of overpaid taxes
with the CIR, before resorting to an action in court. This
obviously is intended,
1. first, to afford the CIR an opportunity to correct the
action of subordinate officers; and
2. second, to notify the government that such taxes have
been questioned, and the notice should then be borne in
mind in estimating the revenue available for
expenditure
Entrenched in our jurisprudence is the principle that tax refunds
are in the nature of tax exemptions which are
construed strictissimi juris against the taxpayer and liberally in
favor of the government.
As tax refunds involve a return of revenue from the
government, the claimant must show indubitably the specific
provision of law from which her right arises; it cannot be
allowed to exist upon a mere vague implication or inference nor
can it be extended beyond the ordinary and reasonable intendment
of the language actually used by the legislature in granting the
refund.
To repeat, strict compliance with the conditions imposed for
the return of revenue collected is a doctrine consistently
applied in this jurisdiction.
Sec. 230. 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 Commissioner;
but such suit or proceeding may be maintained, whether or
not such tax, penalty, or sum has been paid under protest or
duress
b. Imprescriptibility of Taxation
c. Double Taxation
I. DIRECT DOUBLE TAXATION
1. CITY OF MANILA VS COCA COLA
DOCTRINE:
SYNOPSIS:
FACTS:
petitioners Toledo and Santiago, are City Treasurer and Chief of
the Licensing Division, respectively of petitioner public
corporation City of Manila.
Respondent, 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.
Respondent had been paying the City of Manila local business tax
only under Section 14 of Tax Ordinance No. 7794: There is
hereby imposed a graduated tax on manufacturers, assemblers,
repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or
manufacturers of any article of commerce of whatever kind or
nature, in accordance with any of the following schedule:
Respondent paid the local business tax only as a manufacturers as
it was expressly exempted from the business tax under a different
section and which applied to businesses subject to excise, VAT or
percentage tax under the Tax Code. SEC. 21 TO No. 7794 - Tax
on Businesses Subject to the Excise, Value-Added or Percentage
Taxes under the NIRC: (50%) of ONE PERCENT (1%) per
annum on the gross sales or receipts of the preceding calendar
year is imposed.. (8) Coal and coke… all registered businesses in
the City of Manila that are already paying the aforementioned
tax shall be exempted from payment thereof.
The City of Manila subsequently amended the ordinance by
deleting the provision exempting businesses under the latter
section if they have already paid taxes under a different section in
the ordinance.
Tax Ordinance No. 7988 amending certain sections of Tax
Ordinance No. 7794, particularly: (1) Section 14, by increasing
the tax rates applicable to certain establishments operating within
the territorial jurisdiction of the City of Manila; and (2) Section
21, by deleting the proviso found therein, which stated "that all
registered businesses in the City of Manila that are already
paying the aforementioned tax shall be exempted from payment
thereof”; Tax Ordinance No. 8011, amended Tax Ordinance No.
7988.
This amending ordinances was later declared by the Supreme
Court null and void.
Before such declaration, petitioner City of Manila alreaady
assessed respondent on the basis of Section 21 of Tax
Ordinance No. 7794, for deficiency local business taxes,
penalties, and interest.
Respondent then filed a protest on the ground of double
taxation; taxed twice, i.e., under Sections 14 and 21 of Tax
Ordinance No. 7794,
Respondent action for the Cancellation Of The Assessment
Against against the petitioner.
RTC: DISMISSED the petition; business taxes imposed were not
the same kind or character, thus, no double taxation but later on
reversed it decision, barred petitioners from further
imposing/assessing local business taxes against respondent in
conformity ruling of the court nullifying Tax Ordinance No. 7988
and Tax Ordinance No. 801.
CTA: dismissed petition.
PETITIONER’S ARGUMENT:
 imposing upon respondent local business taxes under
both Sections 14 and 21 of Tax Ordinance No. 7794
does not constitute direct double taxation. Section 143
of the LGC gives municipal, as well as city
governments, the power to impose business taxes:
Manufacturers, wholesalers, distributors or dealers
exporters
 There can be no double taxation when respondent is
being taxed under both Sections 14 and 21 of Tax
Ordinance No. 7794, for under the first, it is being
taxed as a manufacturer; while under the second, it
is being taxed as a person selling goods in the course
of trade or business subject to excise, VAT, or
percentage tax.
 Even with the declaration of nullity of Tax Ordinance
No. 7988 and Tax Ordinance No. 8011, respondent
could still be made liable for local business taxes
under both Sections 14 and 21 of Tax Ordinance No.
7944 as they were originally read, without the
amendment by the null and void tax ordinances.
ISSUE:
WON the enforcement of the Sec. 21of TO No. 7794 constitute
double taxation?
WON petitioner should be liable for the local tax imposed under
SEC 21 of TO No. 7794
RUING:
YES. Petitioners obstinately ignore the exempting proviso in
Section 21 of Tax Ordinance No. 7794, to their own detriment.
Said exempting proviso was precisely included in said section
so as to avoid double taxation.
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].
2, NO. With the pronouncement by the Court in the Coca-
Cola case that Tax Ordinance No. 7988 and Tax Ordinance
No. 8011 were null and void and without legal effect, then
Section 21 of Tax Ordinance No. 7794, as it has been
previously worded, with its exempting proviso, is back in
effect. Accordingly, respondent should not have been
subjected to the local business tax under Section 21 of Tax
Ordinance No. 7794 for the third and fourth quarters of 2000,
given its exemption therefrom since it was already paying the
local business tax under Section 14 of the same ordinance.
2. ERICSSON VS PASIG
DOCTRINE: The imposition of local business tax based on
petitioner's gross revenue will inevitably result in the
constitutionally proscribed double taxation - taxing of the same
person twice by the same jurisdiction for the same thing -
inasmuch as petitioner's revenue or income for a taxable year will
definitely include its gross receipts already reported during the
previous year and for which local business tax has already been
paid. Thus, respondent committed a palpable error when it
assessed petitioner's local business tax based on its gross revenue
as reported in its audited financial statements, as Section 143 of
the Local Government Code and Section 22(e) of the Pasig
Revenue Code clearly provide that the tax should be computed
based on gross receipts
SYNOPSIS:
FACTS:
ricsson Telecommunications, Inc. (petitioner), a corporation with
principal office in Pasig City, is engaged in the design,
engineering, and marketing of telecommunication
facilities/system. In an Assessment Notice dated October 25, 2000
issued by the City Treasurer of Pasig City, petitioner was assessed
a business tax deficiency for the years 1998 and 1999 amounting
to P9,466,885.00 and P4,993,682.00, respectively, based on its
gross revenues as reported in its audited financial statements for
the years 1997 and 1998.
Petitioner filed a Protest dated December 21, 2000, claiming that
the computation of the local business tax should be based on gross
receipts and not on gross revenue.
The City of Pasig (respondent) issued another Notice of
Assessment to petitioner on November 19, 2001, this time based
on business tax deficiencies for the years 2000 and 2001,
amounting to P4,665,775.51 and P4,710,242.93, respectively,
based on its gross revenues for the years 1999 and 2000. Again,
petitioner filed a Protest on January 21, 2002, reiterating its
position that the local business tax should be based on gross
receipts and not gross revenue.
Respondent denied petitioner's protest and gave the latter 30 days
within which to appeal the denial.
This prompted petitioner to file a Petition for Review with the
Regional Trial Court (RTC) of Pasig, Branch 168, praying for the
annulment and cancellation of petitioner's deficiency local
business taxes totaling P17,262,205.66.
Respondent and its City Treasurer filed a motion to dismiss on the
grounds that the court had no jurisdiction over the subject matter
and that petitioner had no legal capacity to sue. The RTC denied
the motion in an Order dated December 3, 2002 due to
respondents' failure to include a notice of hearing. Thereafter, the
RTC declared respondents in default and allowed petitioner to
present evidence ex - parte. The RTC canceled and set aside the
assessments made by respondent and its City Treasurer.
On appeal, the Court of Appeals (CA) sustained respondent's
claim that the petition filed with the RTC should have been
dismissed due to petitioner's failure to show that Atty. Maria
Theresa B. Ramos (Atty. Ramos), petitioner's Manager for Tax
and Legal Affairs and the person who signed the Verification and
Certification of Non-Forum Shopping, was duly authorized by the
Board of Directors. Its motion for reconsideration having been
denied, petitioner now comes before the Court via a Petition for
Review on Certiorari under Rule 45 of the Rules of Court
ISSUE:
RUING:
3. CIR VS BPI
DOCTRINE:
SYNOPSIS: Petitioner, (CIR) assessed the respondent, BPI’s
Deficiency Percentage and Documentary Stamp Taxes for
the year 1986 in the total amount of 129,488,656.63 php
through two notices dated October 28,1988
FACTS:
petitioner Commissioner of Internal Revenue (CIR) assessed
respondent Bank of the Philippine Islands’ (BPI’s) deficiency
percentage and documentary stamp taxes for the year 1986 in the
total amount of ₱129,488,656.63:
In reply, respondent expressed protest and inquiry as to the
vagueness of the letter on what particular percentage tax is
involved and how your examiner arrived at the deficiency.
BPI then a letter from petitioner constituting a final decision
informing the former that letter failed to qualify as a protest under
Revenue Regulations No. 12-85 and that no valid issue was raised
against the validity of our assessment.
CIR: DENIED MR.
CTA: dismissed the case for lack of jurisdiction since the subject
assessments had become final and unappealable.
CA: eversed the tax court’s decision, remanded the case to
CTA; notices were not valid assessments because they did not
inform the taxpayer of the legal and factual bases therefor.
Hence, this petition.
PETITIONER’S CONTENTON:
 BIR Form No. 17.08 was (as revised in November 1964)
which was designed for the precise purpose of notifying
taxpayers of the assessed amounts due and demanding
payment thereof
 no law or jurisprudence then that required notices to
state the reasons for assessing deficiency tax liabilities.2
BPI ARGUMENTS:
 due process demanded that the facts, data and law upon
which the assessments were based be provided to the
taxpayer.
 It insists that the NIRC, as worded now (referring to
Section 228), specifically provides that: "[t]he taxpayer
shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the
assessment shall be void."
SEC. 270, NIRC: When the [CIR] or his duly authorized
representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings; [CIR] shall issue
an assessment based on his findings
ISSUE:
whether or not the assessments issued to BPI for deficiency
percentage and documentary stamp taxes for 1986 were valid
whether or not BPI was liable for the said taxes.
RUING:
1.
Sec. 228. Protesting of Assessment. — When the [CIR]
or his duly authorized representative
finds that proper taxes should be assessed, he shall first
notify the taxpayer of his
findings: Provided, however, That a preassessment
notice shall not be required in the
following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and
the facts on which the
assessment is made; otherwise, the assessment shall be
void.
Admittedly, the CIR did not inform BPI in writing of the law
and facts on which the assessments of the deficiency taxes were
made. He merely notified BPI of his findings, consisting only of
the computation of the tax liabilities and a demand for payment
thereof within 30 days after receipt.
In merely notifying BPI of his findings, the CIR relied on the
provisions of the former Section 270 prior to its amendment by
RA 8424 (also known as the Tax Reform Act of 1997).
Accordingly, when the assessments were made pursuant to the
former Section 270, the only requirement was for the CIR to
"notify" or inform the taxpayer of his "findings." Nothing in
the old law required a written statement to the taxpayer of the
law and facts on which the assessments were based.
The Court cannot read into the law what obviously was not
intended by Congress. That would be judicial legislation, nothing
less.
Jurisprudence, on the other hand, simply required that the
assessments contain a computation of tax liabilities, the
amount the taxpayer was to pay and a demand for payment
within a prescribed period.
Everything considered, there was no doubt the October 28, 1988
notices sufficiently met the requirements of a valid assessment
under the old law and jurisprudence.
The sentence the taxpayers shall be informed in writing of the law
and the facts on which the assessment is made; otherwise, the
assessment shall be void was not in the old Section 270 but was
only later on inserted in the renumbered Section 228 in 1997.
Evidently, the legislature saw the need to modify the former
Section 270 by inserting the aforequoted sentence. The fact that
the amendment was necessary showed that, prior to the
introduction of the amendment, the statute had an entirely
different meaning. Contrary to the submission of BPI, the inserted
sentence in the renumbered Section 228 was not an affirmation of
what the law required under the former Section 270.
The amendment introduced by RA 8424 was an innovation and
could not be reasonably inferred from the old law. Clearly, the
legislature intended to insert a new provision regarding the form
and substance of assessments issued by the CIR. Considering that
the October 28, 1988 notices were valid assessments, BPI should
have protested the same within 30 days from receipt thereof. The
December 10, 1988 reply it sent to the CIR did not qualify as a
protest since the letter itself stated that "[a]s soon as this is
explained and clarified in a proper letter of assessment; we shall
inform you of the taxpayer’s decision on whether to pay or protest
the assessment."36 Hence, by its own declaration, BPI did not
regard this letter as a protest against the assessments.
As a matter of fact, BPI never deemed this a protest since it did
not even consider the October 28, 1988 notices as valid or proper
assessments.
The inevitable conclusion is that BPI’s failure to protest the
assessments within the 30-day period provided in the former
Section 270 meant that they became final and unappealable.
Thus, the CTA correctly dismissed BPI’s appeal for lack of
jurisdiction.
BPI was, from then on, barred from disputing the correctness of
the assessments or invoking any defense that would reopen the
question of its liability on the merits.
Not only that. There arose a presumption of correctness when BPI
failed to protest the assessments. Taxes are the lifeblood of the
government, for without taxes, the government can neither exist
nor endure. A principal attribute of sovereignty, the exercise of
taxing power derives its source from the very existence of the state
whose social contract with its citizens obliges it to promote public
interest and common good. The theory behind the exercise of the
power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and
well-being of the people.
2 YES. BPI cannot be liability under the subject tax assessments
since it involves a considerable amount of money.
Otherwise, the state will be deprived of the taxes validly due it and
the public will suffer if taxpayers will not be held liable for the
proper taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the
government can neither exist nor endure. A principal attribute of
sovereignty, the exercise of taxing power derives its source from
the very existence of the state whose social contract with its
citizens obliges it to promote public interest and common good.
The theory behind the exercise of the power to tax emanates from
necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people.
ii. Indirect double taxation
iii. Ways to eliminate double taxation
1. Tax treaties
2. Tax credits
3. Tax deduction
4. Tax reduction
19.CONSTITUTIONAL LIMITATIONS
A. DUE PROCESS
CONSTI: ART. 3, Section 1. No person shall be deprived of life,
liberty, or property without due process of law, nor shall any person
be denied the equal protection of the laws.
Tax laws and their enforcement must comply with substantive and
procedural due process.
SUBSTANTIVE
o the law must be reasonable and must be for
public purpose
PROCEDURAL:
o there must be no arbitrariness in the assessment
and collection; the prescribed rules must be
followed before assessment and collection
I. CASTRO VS. COLLECTOR (4 SCRA 119)
DOCTRINE: The forfeiture need not be for the whole tax
liability which could merely be for the amount equivalent to the
fair market value of the property.
SYNOPSIS:
Maria B. Castro appeals a decision holding her liable under the
War Profits Tax Law, despite her acquittal in the criminal case, as
the court rules in favor of the Collector of Internal Revenue on
various issues including the validity of determining cash on hand,
taxability of cash on hand, and the discharge of tax liabilities
through forfeiture of properties.
FACTS:
petitioner filed a complaint for the recovery of the properties
advertised for sale on auction which for lack of bidders were
forfeited in favor of the Government pursuant to SEC. 328, NIRC.
This case rooted from the assessed war tax profit by the Pedrosa
Committed amounting to P3,593.950.78 which the petitioner
failed to pay.
A Criminal Case was filed against her for violation of the War
Profits Tax Law, for allegedly defrauding the Republic of the
Philippines by her failure to render a true and accurate return
of the war profits tax due from her, with intent to evade
payment of the tax.
The criminal action was filed against the respondent and
simultaneous with the filing of said action, the petitioner received
for the first time the notice of assessment dated November 19,
1947 by registered mail from the CIR.
The letter of demand to pay the sum of P1,048,687.76 as war
profits tax and surcharge, (This is based from the REPORT of
Supervising Examiner Felipe Aquino of BIR)
Said criminal case was dismissed by the court from the motion to
dismiss filed by Aquino that was granted.
However, after dismissal of the criminal action, multiple report
was submitted by Aquino increasing the amount of the war tax
profit demanded from petitioner.
A case was again referred to the City Fiscal's Office for another
prosecution based on the earlier demand but the same was again
dropped.
By the request of the petitioner, a committee was created to
reinvestigate and ascertain her war profit tax.
CTA: ruled that the foreclosure of her property were proper and
her tax liability amounts to P 3,077,394.66. (Surcharge 50% &
interest of 1%
Petitioner now Petitioner-appellant Maria B. Castro asks for
partial reconsideration of the decision.
She alleged that:
 her acquittal in the criminal case instituted against her for
violation of the War Profits Tax Law is a bar to the
collection of the taxes assessed, and specially of the 50%
surcharge
 the one percent (1%) monthly interest on the war profits tax
due from her should be limited to a total of thirty-six per
centum (36%). This contention is made to rest on the
provisions of the Internal Revenue Code on Income Tax,
Section 51 (e), as amended by RA No. 2343 (approved on
June 29, 1959), to the effect that:
"SEC. 51 (e).Additions to the tax in case of
nonpayment.— (1) Tax shown on the return. —
Where the amount determined by the taxpayer as the tax
imposed by this Title or any installment thereof, or any
part of such amount or installment, is not paid on or
before the date prescribed for its payment, there
shall be collected as a part of the tax, interest upon
such unpaid amount at the rate of 1% a month from
the date prescribed for its payment until it is paid:
Provided, That the maximum amount that may be
collected as interest on deficiency shall in no case
exceed the amount corresponding to a period of three
years, the present provisions regarding prescription to
the contrary notwithstanding." ."
Petitioner alleged that the War Profits Tax Law (R.A. No. 55) is
unconstitutional and void on account of its retrospective operation.
Petitioner Castro complains (Errors I and VI) that the Tax Court
had declared subject to the war profits tax her cash transactions
from June, 1945to December 31, 1946, when Republic Act No.
55 levies that tax only on the value of the taxpayer's assets
(including real and personal property and/orcash in banks) as of
February 26, 1945, minus his liabilities..
Castro argued that her acquittal in the criminal case should
discharge her from the duty to pay tax.
ISSUE:
Whether or not Castro is correct
WON the acquittal of Castro from criminal action exonerate her
duty to pay the tax
RULING:
NO. Assuming, without deciding, that this particular section is
applicable to war profits taxes, we agree with the Solicitor
General that there is no legal ground for applying
retroactively to the delinquencies of the petitioner under the
War Profits Tax Law (and which accrued since September 23,
1950, when the corresponding tax assessment was issued) the
terms of a law (R.A. 2343) enacted almost nine (9) years later.
It is elementary that laws are presumed to operate only
prospectively, and have no retroactive effect in the absence of
clear provision to the purpose.
As it stood in 1950, Section 51 (e) of the Revenue Code provided
for monthly interest without limitation of the number of
months:
"SEC. 51 (E) SURCHARGE AND INTEREST IN
CASE OF DELINQUENCY. — To any sum or sums
due and unpaid after the dates prescribed in subsections
(b), (c) and (d) for the payment of the same, there shall
be added the sum of five per centum on the amount of
tax unpaid and interest at the rate of one per centum a
month upon said tax from the time the same became
due, except from the estates of insane, deceased, or
insolvent persons."
Petitioner contends that the imposition of interest amounts to a
penalty, and that laws imposing lighter penalties are given
retrospective effect. We disagree with the basic assumption, and
hold that the imposition of 1% monthly interest is but a just
compensation to the state for the delay in paying the tax, and for
the concomitant use by the taxpayer of funds that rightfully should
be in the government’s hands (U.S. v. Goldstein, 189 F [2d] 752;
Ross v. U.S., 148 Fed. Supp. 330; U.S. v. Joffray, 97 Fed.[2d]
488).
The fact that the interest charged is made proportionate to the
period of delay constitutes the best evidence that such interest is
not penal but compensator.
 NO. the defense of jeopardy and estoppel by reason of the
petitioner's acquittal is untenable and without merit.

The acquittal of a taxpayer in the criminal case cannot operate
to discharge him from the duty to pay tax, because that duty is
imposed by statute prior to and independent of any attempt on
the part of the taxpayer to evade payment.
The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil
liability derived from crime that would be wiped out by the
judicial declaration that the criminal acts charged did not
exist.
Considering that the Government cannot seek satisfaction of the
taxpayer's civil liability in a criminal proceeding under the tax law
or, otherwise stated, since the said civil liability is not deemed
included in the criminal action, acquittal of the taxpayer in the
criminal proceeding does not necessarily entail exoneration
from his liability to pay the taxes.
As to the 50% surcharge, additions of this kind to the main tax
are not penalties but civil administrative sanctions, provided
primarily as a safeguard for the protection of the state revenue
and to reimburse the government for the heavy expense of
investigation and the loss resulting from the taxpayer's fraud.
This is made plain by the fact that such surcharges are
enforceable, like the primary tax itself, by distraint or civil
suit, and that they are provided in a section of R.A. No. 55
(section 5) that is separate and distinct from that providing for
criminal prosecution (section 7).
B. EQUAL PROTECTION CLAUSE
I. LUTZ VS. ARANETA (98 PHIL 148)
DOCTRINE:
The State is free to select the subjects of taxation, and the Court
has repeatedly held that inequalities which result from a singling
out of one particular class for taxation or exemption infringe no
constitutional limitation.
SYNOPSIS: This case was initiated in the Court of First Instance
of Negros Occidental to test the legality of the taxes imposed by
Commonwealth Act No. 567, otherwise known as the Sugar
Adjustment Act.
FACTS:
CA NO. 567, otherwise known as the SUGAR ADJUSTMENT
ACT was promulgated in 1940.
SEC. 1 thereof states that with a declaration of
emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as
 provided in the TYDINGS-MCDUFFE ACT, and the
"eventual loss of its preferential position in the
United States market"; wherefore, the national policy
was expressed "to obtain a readjustment of the
benefits derived from the sugar industry by the
component elements thereof" and "to stabilize the
sugar industry so as to prepare it for the eventuality
of the loss of its preferential position in the United
States market and the imposition of the export taxes.
SEC. 2, provides for an increase of the existing tax on
the manufacture of sugar, on a graduated basis, on
each picul of sugar manufactured;
while SECTION 3 levies on owners or persons in
control of lands devoted to the cultivation of sugar
cane and ceded to others for a consideration, on lease
or otherwise — a tax equivalent to the difference
between the money value of the rental or consideration
collected and the am ount representing 12 per centum
of the assessed value of such land.
Furthermore, SEC. 6 states all the collections made
under said Act shall be for aid and support of the
sugar industry exclusively.
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, for the crop years 1948-1949 and 1949-1950; alleging that
such tax is unconstitutional and void, being levied for the aid
and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be
constitutionally levied
RTC; Dismissed petition;
 Scrutiny of CA No. 567 shows that the law was
primarily an exercise of police power, specifically, sec.
6 will show that the tax was levied to provide means
for the rehabilitation and stabilization of the
threatened sugar industry.
ISSUE:
W/N the tax levied under the Sugar Adjustment Act
(Commonwealth Act 567) is unconstitutional.
RULING:
NO. The tax levied under the Sugar Adjustment Act is
constitutional.
The State has the power to select subject of taxation: it appears
rational that the tax be obtained precisely from those who are to
be benefited from the expenditure of the funds derived from it.
At any rate, 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"
As the protection and promotion of the sugar industry is a
matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its
protection and expedient for its promotion. Here, the legislative
discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided
in SEC.6 the law (above quoted) bear no relation to the objective
pursued or are oppressive in character.
If objective and methods are alike constitutionally valid, no reason
is seen why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the
implement of the state’s police power.
The funds raised under the Sugar Stabilization 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; that the
legislature is not required by the Constitution to adhere to a
policy of "all or none."
The tax under said Act is levied with a regulatory purpose, to
provide means for the rehabilitation and stabilization of the
threatened sugar industry. Since sugar production is one of the
great industries of our nation, its promotion, protection, and
advancement, therefore redounds greatly to the general welfare.
Hence, said objectives of the Act is a public concern and is
therefore constitutional.
II. SHELL VS. VANO (94 PHIL 389)
DOCTRINE:
SYNOPSIS:
FACTS:
This case ensued when the Municipal council of Cordova issued 3
ordinances imposing annual taxes of: No.10 S.46 – P150 for
occupation or exercise of privilege of installation manager; No. 9
S. 47 – P40 for local deposits in drums of combustible and
inflammable materials & 200 for tin can factories; No. 11 S.48 –
P150 for tin can factories with max. output capacity of 30,000.
Said ordinances were adopted pursuant to SEC. 2244 of the
Revised Administrative Code: municipal council in the exercise
of the regulative authority may require any person engaged in
any business or occupation, such as "storing combustible or
explosive materials" or "the conducting of any other business of
an unwholesome, obnoxious, offensive, or dangerous” to obtain
a permit for a reasonable fee. In no case to exceed P10 per
annum, may be charged, the annual tax of P40 and P200 are
unauthorized and illegal.
Whereas the ordinance which imposes the taxes in question was
adopted under and pursuant to the provisions of CA No. 472,
which authorizes municipal councils and municipal district
councils "to impose license taxes upon persons engaged in any
occupation or business, or exercising privileges in the
municipality or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council or municipal
district council," which shall be just and uniform but not
"percentage taxes and taxes on specified articles."
Likewise, Ordinance No. 10, series of 1946, which imposes an
annual tax of P150 on "installation manager" comes under the
provisions of Commonwealth Act No. 472.
Petitioner, SHELL CO., a foreign corporation, n, filed suit for
the refund of the taxes paid by it, on the ground that the
ordinances imposing such taxes are ultra vires which the
respondent denies.
RTC: Upheld the validity of the ordinances
PETITIONER’S CONTENTION:
 No. 9 S. 47 is illegal because in no case that the
annual tax to exceed P10 per annum
 "installation manager" is a designation made by the
plaintiff and such designation cannot be deemed to be a
"calling" as defined in section 178 of the National
Internal Revenue Code
 installation manager employed by the plaintiff is a
salaried employee which may not be taxed by the
municipal council under the provisions of
Commonwealth Act No. 472.
 ordinance is discriminatory and hostile because there is
no other person in the locality who exercises such
"designation" or occupation
ISSUE:
 whether or not the ordinance is discriminatory
 WON the which imposes a municipal tax of P150 on tin
can factories having a maximum annual output capacity
of 30,000 tin can
RULING:
1. NO. the ordinance which imposes the taxes to installation
managers was adopted under and pursuant to the provisions
of Commonwealth Act No. 472.
CA No. 472 authorizes municipal councils and municipal district
councils "to impose license taxes upon persons engaged in any
occupation or business, or exercising privileges in the
municipality or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council or municipal
district council," which shall be just and uniform but not
"percentage taxes and taxes on specified articles."
Even if the installation manager is a salaried employee of the
plaintiff, still it is an occupation "and one occupation or line of
business does not become exempt by being conducted with some
other occupation or business for which such tax has been paid'1
and the occupation tax must be paid "by each individual engaged
in a calling subject thereto."
Furthermore, SEC. 179 of NIRC provides that : The payment
of . . .occupation tax shall not exempt any person from any tax
provided by law or ordinance in places where such occupation in
regulated by municipal law, nor shall the payment of any such tax
be held to prohibit any municipality from placing a tax upon the
same . . . occupation, for local purposes, where the imposition of
such tax is authorized by law.
The fact that there is no other person in the locality who exercises
such a "designation" or calling does not make the ordinance
discriminatory and hostile, inasmuch as it is and will be
applicable to any person or firm who exercises such calling or
occupation named or designated as "installation manager."
2. NO. It is valid and lawful, because it is neither a percentage
tax nor one on specified articles which are the only
exceptions provided in SEC. 1, CA 472. Neither does it fall
under any of its prohibitions.
Specific taxes enumerated in the National Internal Revenue
Code are those that are imposed upon "things manufactured
or produced in the Philippines for domestic sale or
consumption" and upon "things imported from the United
States and foreign countries,"
And it is not a percentage tax because it is tax on business
and the maximum annual output capacity is not a percentage,
because it is not a share or a tax based on the amount of the
proceeds realized out of the sale of the tin cans manufactured
therein but on the business of manufacturing tin cans having
a maximum annual output capacity of 30,000 tin cans.
3. The permit and the fee referred to in Non. 9 S. 47 may be
required and charged by the Municipal Council of Cordova in
the exercise of its regulative authority.
III. MANILA RACE HORSE OWNERS ASSOCIATION VS.
DELA FUENTE (88 PHIL 60)
DOCTRINE: There is equality and uniformity in taxation if all
articles or kinds of property of the same class are taxed at the
same rate.
Equity in taxation is generally conceived in terms of ABILITY TO
PAY in relation to the benefits received by the taxpayer and by the
PUBLIC from the business or property taxed.
SYNOPSIS:
FACTS:
Manila Race Horses Trainers Association, Inc. is a non-stock
corporation duly organized and existing under and by virtue of
the laws of the Philippines, who allege that they are owners of
boarding stables for race horses and that their rights as such are
affected by Ordinance No. 3065.
Petitioner instituted an action for declaratory relief. It assails the
validity of Manila Ordinance No. 3065, which imposed license
fees to stable owners based on the number of race horses kept,
for being unconstitutional.
Petitioners argued that the ordinance was a tax on race horses as
distinct from the stables, since the tax was based on the
number of horses in the stable. They also alleged that the same
ordinance was discriminatory and was essentially a form of
class legislation.
In addition, petitioner argued that the Municipal Board of
Manila (is) without power to enact ordinance taxing private
stables for race horses,"
ISSUE:
WON Ordinance No. 3065 was discriminatory and
unconstitutional
RULING:
NO. In taxing only boarding stables for race horse, the Court
ruled that the ordinance do not make arbitrary classification.
There is equality and uniformity in taxation if all articles or
kinds of property of the same class are taxed at the same rate.
Applying this criterion to the present case, there would be
discrimination if some boarding stables of the same class used
for the same number of horses were not taxed or were made to
pay less or more than others.
From the context of Ordinance No. 3065, the intent to tax or
license stables and not horses is clearly manifest. The tax is
assessed not on the owners of the horses but on the owners of
the stables,
It is also plain from the text of the whole ordinance that the
number of horses is used in the assessment purely as a method
of fixing an equitable and practical distribution of the burden
imposed by the measure. Far from being obnoxious, the
method is fair and just. It is but fair and just that for a boarding
stable where only one horse is maintained proportionately less
amount should be exacted than for a stable where more horses
are kept and from which greater income is derived.
From the viewpoint of economics and public policy the taxing of
boarding stables for race horses to the exclusion of boarding
stables for horses dedicated to other purposes is not
indefensible.
The owners of boarding stables for race horses and, for that
matter, the race horse owners themselves, who in the scheme of
shifting may carry the taxation burden, are a class by
themselves and appropriately taxed where owners of other kinds
of horses are taxed less or not at all, considering that equity in
taxation is generally conceived in terms of ABILITY TO PAY
in relation to the benefits received by the taxpayer and by the
PUBLIC from the business or property taxed.
Race horses are devoted to gambling if legalized, their owners
derive fat income and the public hardly any profit from horse
racing, and this business demands relatively heavy police
supervision.
Taking everything into account, the differentiation against which
the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the
meaning of the Constitution.
iv. ASSOCIATION OF CUSTOMS BROKERS VS.
MUNICIPAL BOARD OF MANILA (95 PHIL 107
DOCTRINE:
SYNOPSIS:
FACTS:
Ordinance No. 3379 ("An Ordinance Levying a Property Tax on
All Motor Vehicles Operating Within the City of Manila"): SEC.
1: tax should be 1% ad valorem per annum; proceeds of the tax
"shall accrue to the Streets and Bridges Funds of the City and
shall be expended exclusively for the repair, maintenance and
improvement of its streets and bridges."
Petitioner, Association of Customs Brokers, Inc., which is
composed of all brokers and public service operators of motor
vehicles in the City of Manila challenge the validity Ordinance
No. 3379 on the ground that:
(1) while it levies a so-called property tax it is in
reality a license tax which is beyond the
power of the Municipal Board of the City of
Manila;
(2) said ordinance offends against the rule of
uniformity of taxation; and
(3) it constitutes double taxation.
Respondents contend on their part that the challenged ordinance
imposes a property tax which is within the power of the City of
Manila to impose under its Revised Charter [SEC. 18 (P) OF
RA NO. 409], and that the tax in question does not violate the
rule of uniformity of taxation, nor does it constitute double
taxation.
RTC: Sustained validity of the ordinance
ISSUE:
W/N the ordinance violated the equal protection clause
W/N the ordinance is null and void
RULING:
1. YES . There is no pretense that the ordinance equally
applies to motor vehicles who come to Manila for a temporary
stay or for short errands, and it cannot be denied that they
contribute in no small degree to the deterioration of the streets
and public highway. The fact that they are benefited by their
use they should also be made to share the corresponding
burden. And yet such is not the case.
This is an inequality which we find in the ordinance, and
which renders it offensive to the Constitution.
2. YES.
 If it is clearly a property tax, it will be so regarded, even
though nominally and in form it is a license or occupation
tax; and, on the other hand, if the tax is levied upon persons
on account of their business, it will be construed as a
license or occupation tax, even though it is graduated
according to the property used in such business, or on the
gross receipts of the business.
 SEC. 70 (B), MOTOR VEHICLES LAW AS AMENDED
OR ACT NO. 3992 provides that no fees may be exacted or
demanded for the operation of any motor vehicle other
than those therein provided, the only exception being that
which refers to the property tax which may be imposed by
a municipal corporation.
In this case, while it refers to property tax and it is fixed ad
valorem yet it is merely levied on motor vehicles operating
within the City of Manila with the main purpose of raising
funds to be expended exclusively for the repair, maintenance
and improvement of the streets and bridges in said city.
This is precisely what the MOTOR VEHICLE LAW (Act No.
3992) intends to prevent, for the reason that, under said Act,
municipal corporation already participate in the distribution
of the proceeds that are raised for the same purpose of
repairing, maintaining and improving bridges and public highway
(SEC. 73 of the Motor Vehicle Law).
This prohibition is intended to prevent duplication in the
imposition of fees for the same purpose. It is for this reason that
we believe that the ordinance in question merely imposes a
license fee although under the cloak of an ad valorem tax to
circumvent the prohibition above adverted to
The ordinance infringes the rule of the uniformity of taxation
ordained by our Constitution.
Note that the ordinance exacts the tax upon all motor vehicles
operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for
private use. Neither does it distinguish between a motor
vehicle registered in the City of Manila and one registered in
another place but occasionally comes to Manila and uses its
streets and public highways.
The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in the City
of Manila as may be inferred from the word "operating" used
therein.

The word "operating" denotes a connotation which is akin to a
registration, for under the Motor Vehicle Law no motor vehicle
can be operated without previous payment of the registration fees.
V. ORMOC SUGAR VS. TREASURER OF ORMOC
(FEBRUARY 17, 1968)
DOCTRINE:
The equal protection clause applies only to persons or things
identically situated and does not bar a reasonable classification of
the subject of legislation. A classification is reasonable where
(1) it is based on substantial distinctions which make real
differences;
(2) these are germane to the purpose of the law;
(3) the classification applies not only to present conditions but also
to future conditions which are substantially identical to those of
the present;
(4) the classification applies only to those who belong to the same
class.
SYNOPSIS:
FACTS:
Municipal Board of Ormoc City passed Ordinance No. 4, Series
of 1964, imposing "on any and all productions of centrifugal
sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City
a municipal tax equivalent to one per centum (1%) per export
sale to the United States of America and other foreign
countries."
Payments for said tax were made, under protest, by petitioner,
Ormoc Sugar Company.
Subsequently, petitioner filed COMPLAINT AGAINST tagainst
the City of Ormoc as well as its Treasurer, Municipal Board and
Mayor, assailing the constitutionality of the subject ordinance al
for being:
1. violative of the equal protection clause (Sec. 1[1], Art.
III, Constitution) and rule of uniformity in taxation
((Sec. 22[1]), Art. VI, Constitution).
2. tax is neither a production nor a license tax which
Ormoc City is authorized to impose;
3. Tax imposed is an export tax forbidden under SEC.
2287 of the Revised Administrative Code: "It shall not be
in the power of the municipal council to impose a tax in any form
whatever, upon goods and merchandise carried into the municipality, or
out of the same, and any attempt to impose an import or export tax upon
such goods in the guise of an unreasonable charge for wharfage use of
bridges or otherwise, shall be void."
4. tax amounts to a customs duty, fee or charge in violation
of par. 1 SEC. 2, RA 2264 because the tax is on both the
sale and export of sugar
RTC: upheld the constitutionality of the ordinance; taxing power
of Municipality was broadened by Local Autonomy
ISSUE:
W/N the ordinance violates the equal protection clause
RULING:
Yes, the ordinance is unconstitutional for being violative of
equal protection clause.
The equal protection clause applies only to persons or things
identically situated and does not bar a reasonable classification
of the subject of legislation.
A classification is reasonable where
(1) it is based on substantial distinctions which make
real differences;
(2) these are germane to the purpose of the law;
(3) the classification applies not only to present
conditions but also to future conditions which are
substantially identical to those of the present;
(4) the classification applies only to those who belong
to the same class.
The questioned ordinance does not meet the requisites for a
reasonable classification.
The ordinace taxes only centrifugal sugar produced and
exported by the Ormoc Sugar Company, Inc. and none other.
At the time of the taxing ordinance’s enactment, Ormoc Sugar
Company, Inc., it is true, was the only sugar central in the city of
Ormoc.
To be reasonable, it should be applicable to future conditions
as well. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar
central, of the same class as plaintiff, for the coverage of the
tax.
As it is now, even if later a similar company is set up, it cannot
be subject to the tax because the ordinance expressly points
only to Ormoc City Sugar Company, Inc. as the entity to be
levied upon.
WHY IS APPELANT NOT ENTITLED TO INTEREST ON
THE REFUND?
Appellant is not entitled to interest on the refund because the
taxes were not arbitrarily collected. There is sufficient basis to
preclude arbitrariness. The constitutionality of the statute is
presumed until declared otherwise.
VI. SISON VS. ANCHETA (130 SCRA 654)
DOCTRINE:
SYNOPSIS:
FACTS:
Petitioner Antero Sison questioned the constitutionality of B.P.
135. The assailed provision amends SEC. 21 of the NIRC which
provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, x x x.
Under this law, SALARIED INDIVIDUALS are subject to a
graduated tax rates from 1% to 35% whereas a much higher
graduated tax rates of 5% to 60% are applied to
SELF-EMPLOYED & PROFESSIONALS.
Petitioner as taxpayer alleges that by virtue thereof, "he
would be unduly discriminated against by the
imposition of higher rates of tax upon his income
arising from the exercise of his profession vis-à-vis those which
are imposed upon Fixed income or salaried individual taxpayer."
For him, there is a transgression of both the equal protection and
due process clauses of the constitution as well as of the rule
requiring uniformity in taxation.
ISSUE:
W/N the imposition of a higher tax rate on taxable net
income derived from business or profession than on
compensation is constitutionally infirm.
RULING:
NO. In summary, both the due process and equal
protection clauses were not violated. It is well-settled then
that there is indeed a substantial distinction between these two
sets of individual taxpayers, in compliance with the requirement
that taxation shall be uniform and equitable.
Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at
the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes
of taxation.
"The rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable.
On the concept of uniformity, it was held that indeed, there is
a substantial distinction between the two groups that set them
apart as a class.
In the case of the gross income taxation embodied in Batas
Pambansa Blg. 135, the discernible basis of classification is
the susceptibility of the income to the application of
generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax rates to
be applied to all of them.
Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense,
these taxpayers are not entitled to make deductions for income
tax purposes because they are in the same situation more or less.
Taxpayers who are recipients of compensation income are set
apart as a class.
On the other hand, in the case of professionals in the practice of
their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income.
It would not be just then to disregard the disparities by giving
all of them zero deduction and indiscriminately impose on all
alike the same tax rates on the basis of gross income.
There is ample justification then for the Batasang Pambansa
to adopt the gross system of income taxation to compensation
income, while continuing the system of net income taxation as
regards professional and business income.
The difficulty confronting petitioner is thus apparent. He
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would
condemn such a provision as void on its face, he has not made
out a case. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection
prote clauses are invoked, considering that they are not fixed
rules but rather broad standards, there is a need for proof of
such persuasive character as would lead to such a conclusion.
Absent such a showing, the presumption of validity must
prevail.
C. UNIFORMITY AND EQUITY OF TAXATION
I. TOLENTINO VS. SECRETARY OF FINANCE (235 SCRA
630, 249 SCRA 628)
DOCTRINE:
Equality and uniformity of taxation mean that all taxable articles
or kinds of property of the same class be taxed at the same rate. It
is enough that the statute or ordinance applies equally to all
persons, firms, and corporations placed in similar situation.
SYNOPSIS:
FACTS:
Republic Act No. 7716: AN ACT RESTRUCTURING THE
VALUE- ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND
FOR THESE PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR
OTHER PURPOSES.
By its title, it can be gleaned that the primary purpose of the
statute is to expand the VAT system, and one way of doing this is
to widen its base by withdrawing some of the exemptions
granted before.
PPI contends that by removing the exemption of the press from
the VAT while maintaining those granted to others, the law
discriminates against the press.
The PPI says that the discriminatory treatment of the press is
highlighted by the fact that transactions, which are profit oriented,
continue to enjoy exemption under R.A. No. 7716.
Petitioner CHAMBER OF REAL ESTATE AND BUILDER'S
ASSOCIATION, INC (CREBA) asserts that R.A. No. 7716
imposing a 10% VAT on the gross selling price or gross value in
money of every sale, barter or exchange of goods or properties
(Section 2) and a 10% value-added tax on gross receipts derived
from the sale or exchange of services, including the use or lease
of properties (Section 36):
(1) impairs the obligations of contracts,
(2) classifies transactions as covered or exempt
without reasonable basis and
(3) violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a progressive
system of taxation. (ART. 6 SEC. 28(1))
Petitioner, COOPERATIVE UNION OF THE PHILIPPINES
(CUP) contend that Congress' withdrawal of exemption of
producers cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to electric
cooperatives, not only goes against the constitutional policy to
promote cooperatives as instruments of social justice (Art. XII, §
15) but also denies such cooperatives the equal protection of the
law is actually a policy argument.
CREBA argues that it was to adopt a definite policy of granting
tax exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject cooperatives to
the VAT would therefore be to infringe a constitutional policy.
CUP's further ground for seeking the invalidation of R.A. No.
7716 is that it denies cooperatives the equal protection of the
law because electric cooperatives are exempted from the VAT.
The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the Philippines,
Inc. (CUP), while petitioner Juan T. David argues that the law
contravenes the mandate of Congress to provide for a
progressive system of taxation because the law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers
without regard to their ability to pay.
ISSUE:
1. WON by removing the exemption of the press from the VAT
while maintaining those granted to others, the law
discriminates against the press
2. WON R.A. No. 7716 also violates Art. VI, §28(1) which
provides that "The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system of
taxation."
3. WON RA 7716 denies cooperatives the equal protection of
the law because electric cooperatives are exempted from the
VAT
RULING:
1. NO. The VAT is not a license tax. It is imposed purely for
revenue purposes.
Equality and uniformity of taxation mean that all taxable
articles or kinds of property of the same class be taxed at the
same rate. It is enough that the statute or ordinance applies
equally to all persons, firms, and corporations placed in
similar situation.
It would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime
without offense to the Constitution.
The reason is simple: by granting exemptions, the State does
not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects
the press to the same tax burden to which other businesses
have long ago been subject. Nor is it true that only two
exemptions previously granted by E.O. No. 273 are withdrawn
"absolutely and unqualifiedly" by R.A. No. 7716.
Other exemptions from the VAT, such as those previously granted
to PAL, petroleum concessionaires, enterprises registered with the
Export Processing Zone Authority, and many more are likewise
totally withdrawn, in addition to exemptions which are partially
withdrawn, in an effort to broaden the base of the tax.
As the Solicitor General says, such exemptions are granted, in
some cases, to encourage agricultural production and, in other
cases, for the personal benefit of the end-user rather than for
profit.
The PPI asserts that it does not really matter that the law does not
discriminate against the press because "even nondiscriminatory
taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the
following statement in Murdock v. Pennsylvania
2. NO. the VAT was already provided in E.O. No. 273 long before
R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the
base of the tax. The validity of the original VAT Law was
questioned in Kapatiran n Naglilingkod sa Pamahalaan ng
Pilipinas, Inc. v. Tan, on similar grounds as in this case.
EO 273 satisfies all the requirements of a valid tax. It is
uniform.
The sales tax adopted in EO 273 is applied similarly on all
goods and services sold to the public, which are not exempt, at
the constant rate of 0% or 10%.
The disputed sales tax is also equitable.
It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales
exceeding P200,000.00.
Small corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and
marine products, so that the costs of basic food and other
necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general
public.
Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation.
To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and
corporations placed in similar situation.
The Constitution does not really prohibit the imposition of indirect
taxes which, like the VAT, are regressive. What it simply provides
is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply
that "direct taxes are to be preferred [and] as much as possible,
indirect taxes should be minimized."
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to pay.
In the case of the VAT, the law minimizes the regressive effects of
this imposition by providing for zero rating of certain transactions
(R.A. No. 7716, §3, amending §102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, §4,
amending §103 of the NIRC).
On the other hand, the transactions which are subject to the
VAT are those which involve goods and services which are
used or availed of mainly by higher income groups. These
include real properties held primarily for sale to customers or for
lease in the ordinary course of trade or business, the right or
privilege to use patent, copyright, and other similar property or
right, the right or privilege to use industrial, commercial or
scientific equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time, hotels,
restaurants and similar places, securities, lending investments,
taxicabs, utility cars for rent, tourist buses, and other common
carriers, services of franchise grantees of telephone and
telegraph.
The problem with CREBA's petition is that it presents broad
claims of constitutional violations by tendering issues not at retail
but at wholesale and in the abstract.
3. NO. The classification between electric and other
cooperatives (farmers cooperatives, producers cooperatives,
marketing cooperatives, etc.) apparently rests on a
congressional determination that there is greater need to
provide cheaper electric power to as many people as possible,
especially those living in the rural areas, than there is to
provide them with other necessities in life. We cannot say that
such classification is unreasonable
D. PROGRESSIVE SYSTEM OF TAXATION
I. TOLENTINO VS. SECRETARY OF FINANCE (235 SCRA
630, 249 SCRA 628)
DOCTRINE:
SYNOPSIS:
FACTS:
Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In
the case of the VAT, the law minimizes the regressive effects of
this imposition by providing for zero rating of certain transactions
(R.A. No. 7716, §3, amending §102 (b) of the NIRC), while
granting exemptions to other transactions
ISSUE:
RULING:
II. ABAKADA VS ERMITA
DOCTRINE:
VAT is admittedly regressive, because it is impose persons
regardless of income. However, it is still Valid the Constitution’s
mandate is simply to evolve a Progressive system of taxation. In
any case, the VAT system miniminize the regressive effects by
providing zero-rated trans
SYNOPSIS:
FACTS:
ISSUE:
RULING:
e. Prohibition against impairment of obligation of contracts
I. CASSANOVA VS. HORD (8 PHIL 125)
DOCTRINE:
SYNOPSIS:
FACTS:
In January 1897, the Spanish Government granted the plaintiff
mining rights in the granted the plaintiff mining rights in the
Ambos Camarines Province, based on a 1867 royal decree.
The plaintiff currently owns these mines.
There were also valid and finalized mining concessions granted
before April 11, 1899, and these were acknowledged by the CIR
and subjected to taxes outlined in section 134 of Act No. 1189,
known as the Internal Revenue Act. This section imposed taxes as
follows:
 A yearly tax of one hundred pesos on claims with an
area of sixty thousand square meters, with proportional
rates for larger or smaller claims.
 An ad valorem tax of three percent on the actual
market value of the gross output of each claim.
The defendant imposed these taxes on the plaintiff’s properties,
and the plaintiff paid them under protest.
The plaintiff, however, argues that these taxes are invalid under
SEC. 5 of the July 1,1902, Act of Congress which provides that
no law impairing the obligation of contracts shall be enacted.”
ISSUE:
WON section 134 of Act No. 1189 is valid?
RULING:
NO. the deed granted by the Government of Spain to the plaintiff,
constitute contracts between the parties; that SEC. 134 of the
Internal Revenue Law impairs the obligation of these
contracts, and is therefore void as to them.
a State may be contract based on a consideration exempt the
property of an individual or corporation from taxation, either for a
specified period or permanently. And it is equally well settled that
the exemption is presumed to be on sufficient consideration, and
binds the State if the charter containing it is accepted
The royal decree and regulation (SEC. 5, ACT OF
CONGRESS) for its enforcement provided that the deeds
granted by the Government should be in a particular form,
which form was inserted in the regulations. It must be
presumed that the deeds granted to the plaintiff were made as
provided by law, and, in fact, one of such concessions was
exhibited during the argument in this court, and was found to
be in exact conformity with the form prescribed by law
According to the court, the deeds granted by the Spanish
government to the plaintiff constituted a contract between the two.
Furthermore, in the case at bar, there is found not only the
provisions for the payment of certain taxes annually, but there is
also found the provision contained in article 81, above quoted,
which expressly declares that no other taxes shall be imposed
upon these mines.
The concession in question an be canceled only by reason of
illegality in the procedure by which they were obtained, or for
failure to comply with the conditions prescribed as requisite
for their retention in the laws under which they were granted .
There is nothing in the section which indicates that they can be
canceled for failure to comply with the conditions prescribed by
subsequent legislation.
In fact, the real intention of the act seems to be that such
concession should be subject to the former legislation and not to
any subsequent legislation. There is no claim in this case that there
was any illegality in the procedure by which these concessions
were obtained, nor is there any claim that the plaintiff has not
complied with the conditions prescribed in the said royal decree of
1867.
II. TOLENTINO VS. SECRETARY OF FINANCE
DOCTRINE:
SYNOPSIS:
FACTS:
ISSUE:
RULING:
f. Prohibition against imprisonment for non-payment of poll tax