02 22 Case Digests Notes Etc.

LOCAL TAXATION
Local Autonomy: The concept of local autonomy in the Local Government Code of 1991
emphasizes the empowerment and self-reliance of local government units (LGUs) in the
Philippines. It is designed to allow LGUs to govern themselves more effectively, make
their own decisions, and manage their own resources without undue interference from
the national government. This autonomy is grounded in the principle of decentralization,
aimed at fostering local development and participation in the pursuit of national goals. It
grants LGUs the power to create their own sources of revenue and to levy taxes, fees, and
charges, ensuring that they have the financial capabilities to fulfill their responsibilities
and provide for their constituents. This autonomy is not absolute but is exercised within
the limits set by the law, ensuring a balance between local independence and the
overarching goals of the national government.
Nature and source of local taxing power – The source of local taxing power is directly
tied to this autonomy, as outlined in the same legal framework. It allows LGUs to
generate their own revenue through the imposition of taxes, fees, and charges. This
power is crucial for LGUs to achieve self-sufficiency and to fund local projects and
services essential for community development. The Code specifies the types of taxes that
LGUs may impose, such as property tax, business tax, and fees for services, among
others. It also sets limitations and guidelines to ensure that taxation is fair, equitable,
and consistent with national economic policies. Through this provision, LGUs are given
significant control over their financial resources, enabling them to address local needs
and priorities more effectively.
Mactan Cebu Int’l Airport vs. Marcos, G.R. No. 120082, September 11, 1996
Fundamental Principles – The Local Government Code of 1991 (Republic Act No.
7160) outlines fundamental principles for local taxation that aim to ensure fairness,
equity, and efficiency in the generation and allocation of tax revenues by local
government units (LGUs). Here's a brief explanation of the specified concepts:
 Uniformity in taxation – This principle mandates that local taxes, fees, charges,
and other impositions should be uniform within each LGU, ensuring that all
taxpayers within the same category or class are treated equally and taxed at the
same rate. This avoids discrimination and ensures a level playing field for all
businesses and individuals within an LGU.
 Local exactions shall:
(i) equitable and based on taxpayer’s ability to pay – Taxes and other
exactions must be equitable, taking into account the taxpayer's ability to pay.
This principle ensures that the tax system does not disproportionately
burden those with less capacity to pay, aiming for a fair distribution of the tax
burden based on economic capacity.
(ii) be for public purposes – Local exactions must be levied and collected
exclusively for public purposes. This ensures that revenues generated
through taxation are used to fund public services and infrastructure that
benefit the community at large, rather than being allocated for private
interests.
(iii) not be unjust, excessive, oppressive, or confiscatory – The imposition
of taxes, fees, charges, and other impositions must not be unjust, excessive,
oppressive, or confiscatory. This principle protects taxpayers from
unreasonable burdens that could hamper economic activity and livelihoods,
ensuring that local taxation supports rather than stifles local economies.
(iv) not to be contrary to law, public policy, national economic policy, or
in the restraint of trade – Local taxation must align with existing laws,
public policy, national economic strategies, and must not unduly restrain
trade. This ensures that local tax policies support broader economic
objectives and do not create unnecessary barriers to commerce and
investment.
 Collection shall not be let to private persons – The collection of local taxes,
fees, charges, and other impositions must be carried out by the LGU itself and not
delegated to private individuals or entities. This ensures accountability,
transparency, and efficiency in revenue collection, avoiding conflicts of interest
and ensuring that revenues are fully accounted for.
 Revenue collections shall accrue exclusively to LGUs – Revenues collected

from local taxes, fees, charges, and other impositions are to be exclusively used
by the LGU that collected them, unless otherwise specified. This ensures that
local governments have the resources needed to address the specific needs and
priorities of their communities.
 System of taxation must be progressive – LGUs are encouraged to evolve a
progressive system of taxation, where tax rates increase with the taxpayer's
ability to pay. This principle aims to ensure that those with higher incomes or
profits contribute a greater share to public revenues, promoting equity and
reducing income inequality within communities.
Pepsi Cola Bottling Co. of the Phils., Inc. vs. Municipality of Tanuan, G.R. No. L-31156,
February 27, 1976
Mactan Coconut vs. Mun. Council of Malabang, 143 SCRA 404
Common limitations on Taxing Power:

***Section 133 of the Local Government Code of 1991 (“LGC”) – Section 133 of the Local
Government Code of 1991 outlines common limitations on the taxing powers of local
government units, ensuring a uniform framework for local taxation while respecting the
national tax system's integrity. It specifically prohibits local governments from imposing
taxes on certain items, including income tax (except for banks and financial institutions),
documentary stamp tax, taxes on estates, gifts, legacies, and other acquisitions mortis
causa, customs duties, taxes on the business of insurance, and several others. This
framework ensures that local tax systems do not overlap with national taxes or impede
economic activities by imposing double taxation on goods, services, and other
transactions that are already regulated by national law. This balance aims to empower
local government units to generate revenue through taxation within a structured and
uniform set of limitations, promoting local autonomy while maintaining a coherent
national fiscal policy.
SECTION 133. Common Limitations on the Taxing Powers of Local Government Units. -
Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and Barangays shall not extend to the levy of the following:
(32) Income tax, except when levied on banks and other financial institutions;
(33) Documentary stamp tax;
(34) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis
causa, except as otherwise provided herein;
(35) Customs duties, registration fees vessels and wharfage on wharves, tonnage
dues, and all other kinds of customs fees, charges and dues except wharfage on
wharves constructed and maintained by the local government unit concerned;
(36) Taxes, fee and charges and other impositions upon goods carried into or out of,
or passing through, the territorial jurisdictions of local government units in the
guise of charges for wharfage, tolls for bridges or otherwise, or other taxes, fees or
charges in any form whatsoever upon such goods or merchandise;
(37) Taxes, fees, or charges on agricultural and aquatic products when sold by
marginal farmers or fishermen;
(38) Taxes on business enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of six (6) and (4) four years, respectively from
the date of registration;
(39) Excise taxes on articles enumerated under the National Internal Revenue Code,
as amended, and taxes, fees or charges on petroleum products;
(40) Percentage or value added tax (VAT) on sales, barters or exchanges or similar
transactions on goods or services except as otherwise provided herein;
(41) Taxes on the gross receipts of transaction contractors and persons engaged in
the transportation of passengers or freight by hire and common carriers by air, land
or water, except as provided in this Code;
(42) Taxes on premium paid by way or reinsurance or retrocession;
(43) Taxes, fees or charges for the registration of motor vehicle and for the issuance
of all kinds of licenses or permits for the driving thereof, except tricycles;
(44) Taxes, fees or charges on Philippine products actually exported, except as
otherwise provided herein;
(45) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and
cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-
nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperatives
Code of the Philippines" respectively; and
(46) Taxes, fees or charges, of any kind on the National Government, its agencies
and instrumentalities, and local government units.
Province of Bulacan vs. CA, G.R. No. 126232, November 27, 1998
Phil. Petroleum Corp. vs. Municipality of Pililia, G.R. No. 90776, June 3, 1991
Petron Corporation vs. Tiangco, G.R. No. 158881, April 16, 2008
San Miguel Corp. vs. Mun. Council of Mandaue, G.R. No. L-30761, July 11, 1973
Scope of Taxing Powers of Local Government Units:

 Provinces – Provinces are empowered to levy taxes, fees, and charges on a range
of activities and services as specified in the Code. This includes, but is not limited
to, taxes on the transfer of real property ownership, a tax on the business of
printing and publication, and franchise taxes. These powers are exercised with
the intention of generating revenue for the local government units, supporting
local development, and providing services to the community, subject to the
limitations and conditions set forth in the Code.
 Tax on transfer of real property ownership (Section 135 of LGC) – Provinces may
impose a tax on transactions involving the sale, donation, barter, or any other
mode of transferring ownership or title of real property. The rate cannot exceed
fifty percent (50%) of one percent (1%) of the total consideration involved in the
acquisition of the property or its fair market value, whichever is higher, ensuring
that local government units can generate revenue from significant property
transactions within their jurisdiction.
 Printer’s or publisher’s tax (Section 136 of LGC) – This provision allows
provinces to levy taxes on businesses engaged in printing and/or publication of
various materials, at a rate not exceeding fifty percent (50%) of one percent (1%)
of their gross annual receipts for the preceding calendar year. The tax aims to tap
into the economic activities generated by the printing and publishing industry,
contributing to local revenue without stifling business growth.
 Franchise tax (Section 137 of LGC) – Provinces have the authority to impose a
franchise tax on businesses operating under a franchise, at a rate not exceeding
fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year. This tax applies regardless of any exemption granted by
law or other special laws, ensuring that businesses benefiting from franchises
contribute to the local economies where they operate.
 Tax on sand, gravel, and other quarry resources (Section 138 of LGC) – Local
government units (LGUs), specifically provinces, are authorized to impose and
collect a tax not exceeding ten percent of the fair market value per cubic meter of
ordinary stones, sand, gravel, earth, and other quarry resources extracted from
public lands or waters within their territorial jurisdiction. The permit for
extracting these resources is issued by the provincial governor based on an
ordinance by the Sangguniang Panlalawigan. The proceeds from this tax are
distributed among the province (30%), the city or municipality where the
resources are extracted (30%), and the barangay where the extraction occurs
(40%) .
 Professional tax (Section 139 of LGC) – Provinces can levy an annual professional
tax on individuals practicing their profession, provided these professions require
government examination. The amount of this tax is determined by the
Sangguniang Panlalawigan but cannot exceed 300 pesos. Professionals must pay
this tax in the province where they practice or maintain their principal office.
Payment grants them the right to practice anywhere in the Philippines without
further national or local taxes, licenses, or fees for their profession. The tax is
payable annually before the 31st of January. Government-employed professionals
are exempt from this tax .
 Amusement tax (Section 140 of LGC) – Provinces have the authority to impose an
amusement tax on proprietors, lessees, or operators of theaters, cinemas, concert
halls, circuses, boxing stadia, and other places of amusement. This tax cannot
exceed thirty percent of the gross receipts from admission fees. The tax must be
deducted and withheld by the proprietors or operators before dividing the gross
receipts between them and the film distributors. Certain cultural, artistic, and
educational activities are exempt from this tax. The proceeds are equally shared
between the province and the municipality where the amusement places are
located .
 Fixed tax on delivery trucks and vans (Section 141 of LGC) – Provinces can
impose an annual fixed tax on every delivery truck, van, or any vehicle used by
manufacturers, producers, wholesalers, dealers, or retailers for the delivery or
distribution of specified products like distilled spirits, fermented liquors, soft
drinks, cigars, and cigarettes within the province. This tax amount is determined
by the Sangguniang Panlalawigan but cannot exceed 500 pesos .
 Service fees and charges (Section 153 of LGC) – Local government units (LGUs)
are empowered to impose and collect reasonable fees and charges for services
rendered to the public. This provision allows LGUs to generate revenue by
providing various services, ensuring that those who benefit from specific services
contribute to their cost. It exemplifies the principle of autonomy, allowing LGUs
to determine and impose fees based on the services they offer, reflecting the local
governance's ability to respond to the specific needs and circumstances of their
communities.
 Public utility charges (Section 154 of LGC) – LGUs have the authority to set terms,
conditions, and rates for public utilities within their jurisdiction. This includes
toll fees or charges for the use of locally funded and constructed public roads,
piers, wharfs, waterways, bridges, ferries, or telecommunication systems.
Exemptions are provided for certain groups, such as military and police
personnel, post office personnel, physically handicapped, and seniors over 65.
This section ensures LGUs can manage and generate revenue from local utilities,
contributing to their development and maintenance, while also having the
discretion to make facilities free for public use when necessary for public welfare.
 Toll fees or charges (Section 155 of LGC) – This section allows LGUs to impose
toll fees or charges for the use of any public road, pier, wharf, waterway, bridge,
ferry, or telecommunication system funded and constructed by the local
government unit. It also provides the LGU the authority to discontinue toll
collection for public safety and welfare, thereby making the facility free and open
for public use. This mechanism serves as a way for LGUs to recover investment
costs and maintain infrastructure, ensuring sustainability and quality of public
utilities and services.
Article 2 - Municipalities
Scope:
 Section 142 of LGC – Scope of Taxing Powers. – Except as otherwise provided
in this Code, municipalities may levy taxes, fees, and charges not otherwise
levied by provinces.
 Section 143 (a to g) of LGC – Tax and Business - The municipality may impose
taxes on the following business: (9) (9) 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 of nature, in accordance with the following schedule:
(10) On wholesalers, distributors, or dealers in any article of commerce of

whatever kind or nature in accordance with the following schedule:
(c) On exporters, and on manufacturers, millers, producers, wholesalers,
distributors, dealers or retailers of essential commodities enumerated
hereunder at a rate not exceeding one-half (1/2) of the rates prescribed
under subsections (a), (b) and (d) of this Section:
(4) Rice and corn;
(5) Wheat or cassava flour, meat, dairy products, locally manufactured,
processed or preserved food, sugar, salt and other agricultural, marine, and
fresh water products, whether in their original state or not;
(6) Cooking oil and cooking gas;
(7) Laundry soap, detergents, and medicine;
(8) Agricultural implements, equipment and post harvest facilities,
fertilizers, pesticides, insecticides, herbicides and other farm inputs;
(9) Poultry feeds and other animal feeds;
(10) School supplies; and
(11) Cement
(d) On retailers,
Provided, however, That Barangays shall have the exclusive power to levy
taxes, as provided under Section 152 hereof, on gross sales or receipts of
the preceding calendar year of Fifty thousand pesos (P50,000.00) or less in
the case of municipalities.
(e) On contractors and other independent contractors, in accordance with the

following schedule:
(f) On banks and other financial institutions, at a rate not exceeding fifty
percent (50% of one percent (1) on the gross receipts of the preceding
calendar year derived from interest, commissions and discounts from lending
activities, income from financial leasing, dividends, rentals on property and
profit from ex change or sale of property, insurance premium.
(g) On peddlers engaged in the sale of any merchandise or article or

commerce, at a rate not exceeding Fifty pesos (P50.00) per peddler annually.
(11) On any business, not otherwise specified in the preceding paragraphs,
which the Sanggunian concerned may deem proper to tax: Provided, That on
any business subject to the excise, value-added or percentage tax under the
National Internal Revenue Code, as amended, the rate of tax shall not exceed
two percent (2%) of gross sales or receipts of the preceding calendar year.
The Sanggunian concerned may prescribe a schedule of graduated tax rates
but in no case to exceed the rates prescribed herein.
 Section 144 of LGC – Rates of Tax within the Metropolitan Manila Area. -
The municipalities within the Metropolitan Manila Area may levy taxes at rates
which shall not exceed by fifty percent (50%) the maximum rates prescribed in
the preceding Section.
Fees and charges:

 Section 147 of LGC – Fees and Charges. - The municipality may impose and
collect such reasonable fees and charges on business and occupation and,
except as reserved to the province in Section 139 of this Code, on the practice of
any profession or calling, commensurate with the cost of regulation, inspection
and licensing before any person may engage in such business or occupation, or
practice such profession or calling.
 Section 153 of LGC – Service Fees and Charges. - Local government units may
impose and collect such reasonable fees and charges for services rendered.
 Section 154 of LGC – Public Utility Charges. – The Sanggunian concerned may
prescribe the terms and conditions and fix the rates for the imposition of toll
fees or charges for the use of any public road, pier or wharf, waterway, bridge,
ferry or telecommunication system funded and constructed by the local
government unit concerned: Provided, That no such toll fees or charges shall be
collected from officers and enlisted men of the Armed Forces of the Philippines
and members of the Philippine National Police on mission, post office personnel
delivering mail, physically-handicapped, and disabled citizens who are sixty-five
(65) years or older.
 Section 155 of LGC – When public safety and welfare so requires, the
Sanggunian concerned may discontinue the collection of the tolls, and thereafter
the said facility shall be free and open for public use.
Cities:
 Section 151 of LGC – Scope of Taxing Powers. – Except as otherwise provided
in this Code, the city, may levy the taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the taxes, fees and charges
levied and collected by highly urbanized and independent component cities
shall accrue to them and distributed in accordance with the provisions of this
code.
The rates of taxes that the city may levy may exceed the maximum rates allowed
for the province or municipality by not more than fifty percent (50%) except the
rates of professional and amusement taxes.
Barangays:
 Community Tax Certificate (“CTC”) – The Community Tax Certificate, commonly
referred to as Cedula, is a form of identification issued by cities or municipalities.
It is levied in accordance with the Local Government Code's provisions, which
allow local government units to impose a community tax. Individuals eligible for
this tax include those 18 years of age and over who meet specific criteria related to
employment, business engagement, property ownership, or legal obligations to file
an income tax return. Corporations, both domestic and foreign engaged in
business within the Philippines, are also liable to pay the community tax. The rate
for individuals starts at Five pesos (P5.00), with an additional tax based on income
or property value, while corporations pay a base rate of Five hundred pesos
(P500.00) plus additional taxes based on real property value and gross receipts or
earnings .
 Who are authorized to levy or collect CTCs? Section 156 of LGC – Cities and
municipalities are authorized to levy the community tax. The tax is payable at the
place of residence for individuals or the principal office location for juridical
entities. Local government units, through their city or municipal treasurers, are
responsible for the collection of this tax, ensuring that every person or corporation
liable pays their due community tax annually . (Section 156 of LGC –
Community Tax. - Cities or municipalities may levy a community tax in
accordance with the provisions of this Article.)
 Who are liable? Section 157 of LGC and Section 158 of LGC – Individuals liable for
the community tax include those 18 years or older who are employed, engage in
business or occupation, own real property with a certain value, or are required by
law to file an income tax return. Juridical persons, including corporations engaged
in business within the Philippines, are also liable, with their tax liability calculated
based on the value of owned real property and gross receipts or earnings from
their business operations in the country. (Section 157 of LGC and Section 158 of
LGC: SECTION 157. Individuals Liable to Community Tax. - Every inhabitant of the
Philippines eighteen (18) years of age or over who has been regularly employed
on a wage or salary basis for at least thirty (30) consecutive working days during
any calendar year, or who is engaged in business or occupation, or who owns real
property with an aggregate assessed value of One thousand pesos (P1,000.00) or
more, or who is required by law to file an income tax return shall pay an annual
community tax of Five pesos (P5.00) and an annual additional tax of One peso
(P1.00_ for every One thousand pesos (P1,000.00) of income regardless of
whether from business, exercise of profession or from property which in no case
shall exceed Five thousand pesos (P5,000.00). In the case of husband and wife, the
additional tax herein imposed shall be based upon the total property owned by
them and the total gross receipts or earnings derived by them. SECTION 158.
Juridical Persons Liable to Community Tax. - Every corporation no matter how
created or organized, whether domestic or resident foreign, engaged in or doing
business in the Philippines shall pay an annual community tax of Five hundred
pesos (P500.00) and an annual additional tax, which, on no case, shall exceed Ten
thousand pesos (P10,000.00) in accordance with the following schedule: (1) For
every Five thousand pesos (P5,000.00) worth of real property in the Philippines
owned by it during the preceding year based on the valuation used for the
payment of the real property tax under existing laws, found in the assessment rolls
of the city or municipality where the real property is situated - Two pesos (P2.00);
and (2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings
derived by it from its business in the Philippines during the preceding year - Two
pesos (P2.00). The dividends received by a corporation from another corporation
however shall, for the purpose of the additional tax, be considered as part of the
gross receipts or earnings of said corporation.
 Who are exempt? Section 159 of LGC – Diplomatic and consular representatives,
along with transient visitors who stay in the Philippines for not more than three
months, are exempt from paying the community tax . (Section 159 of LGC:
SECTION 159. Exemption. - The following are exempt from the community tax: (1)
Diplomatic and consular representatives; and (2) Transient visitors when their
stay in the Philippines does not exceed three (3) months. Place and time of
payment)
F. Local Business Tax:

 Tax period - Section 165 of LGC – The tax period for all local taxes, fees, and
charges is established as the calendar year. This defines the time frame over which
taxes are calculated and assessed, providing a consistent basis for both the
taxpayers and the local government units to plan, budget, and manage tax-related
activities.
 Manner of payment - Section 165 of LGC – The manner of payment for these
taxes, fees, and charges is facilitated through quarterly installments. This payment
structure allows taxpayers to distribute their tax liabilities over the year, making it
easier to manage cash flow and financial planning, while ensuring that local
governments receive a steady stream of income to fund public services and
infrastructure .
 Accrual of tax - Section 166 of LGC – All local taxes, fees, and charges are set to
accrue on the first day of January each year. However, for new taxes, fees, or
changes in rates, the accrual begins on the first day of the quarter following the
ordinance's effectivity that imposes these new levies or rates. This provision
ensures that taxpayers are given reasonable notice of new taxes or changes and
aligns the accrual of taxes with the financial planning of businesses and
individuals .
 Time of payment - Section 167 of LGC, Section 145 of LGC – Local taxes, fees,
and charges must be paid within the first twenty days of January or each
subsequent quarter. However, the Sanggunian may extend the payment period for
justifiable reasons without imposing surcharges or penalties for up to six months.
For businesses that decide to retire, they must submit a sworn statement of their
gross sales or receipts for the current year, and any tax difference must be settled
before the business is officially considered retired. These provisions aim to offer
flexibility and ensure compliance, while also addressing the administrative aspects
of closing a business .
 Place of Payment (Situs Rules) – This refers to the location where taxes should
be paid. For individuals, it is where they reside, or in the case of juridical entities,
where the principal office is located. In instances involving branch sales offices or
warehouses where sales are made and recorded, the corresponding community
tax must be paid to the local government unit (LGU) where such branch or
warehouse is situated .
 Branch or Sales Office Rule – Taxes on sales made by branches or sales offices
are recorded and paid in the city or municipality where the branch or sales outlet
is located. A branch or sales office is defined as a fixed place in a locality
conducting operations of the business as an extension of the principal office.
Warehouses that accept orders and/or issue sales invoices independent of a
branch with a sales office are also considered as sales offices.
 Allocation Rule – For manufacturers, assemblers, contractors, producers, and
exporters with factories, project offices, plants, and plantations, the allocation rule
divides the taxable sales into two parts: 30% is taxable by the city or municipality
where the principal office is located, and 70% by the location of the factory, project
office, plant, or plantation. This allocation reflects the contribution of both the
administrative and production sides of a business to local economies and ensures
that LGUs with production facilities receive a significant portion of tax revenues.
 Sales Made by Route Trucks, Vans or Vehicles – The Local Government Code
permits provinces to levy an annual fixed tax on every truck, van, or vehicle used
by manufacturers, producers, wholesalers, dealers, or retailers in the delivery or
distribution of certain products within the province. This tax applies to vehicles
involved in distributing products like distilled spirits, fermented liquors, soft
drinks, cigars, cigarettes, and others as determined by the Sangguniang
Panlalawigan, up to an amount not exceeding five hundred pesos (P500.00) .
G. Enactment of Tax Ordinances and Other Revenue Measures – The Local

Government Code of 1991 mandates a structured procedure for the approval and
effectiveness of local tax ordinances and revenue measures. This process requires
adherence to the Code's provisions, including the conduct of mandatory public hearings
before the enactment of such measures. This provision ensures that stakeholders have
the opportunity to present their views and concerns, promoting transparency and
community involvement in local governance. Furthermore, it stipulates a mechanism for
questioning the constitutionality or legality of tax ordinances or revenue measures
through an appeal to the Secretary of Justice within thirty days from their effectivity. The
decision on such appeals must be rendered within sixty days, without suspending the
ordinance's effectivity or the accrual and payment of the levied tax, fee, or charge .
Public hearing and publication of Tax Ordinances – The requirement for public
hearing and publication of tax ordinances is designed to foster transparency and public
participation in the fiscal decision-making process of local government units (LGUs).
Before the enactment of any tax ordinance or revenue measure, LGUs are compelled to
conduct public hearings, offering a platform for stakeholders to express their opinions
and concerns. Following the approval of these measures, LGUs must ensure their
publication in a newspaper of local circulation for three consecutive days or, in the
absence of such a newspaper, post them in at least two conspicuous and publicly
accessible places. This process ensures that the ordinances are accessible to the public,
promoting awareness and compliance. The requirement for publication or posting
serves as a crucial step in legitimizing the tax ordinances and revenue measures,
ensuring that they are made known to the affected parties and the general public,
thereby enhancing the transparency and accountability of local governance .
Sections 186 and 187 of LGC – CHAPTER 5 - MISCELLANEOUS PROVISIONS

 SECTION 186. Power To Levy Other Taxes, Fees or Charges. - Local government
units may exercise the power to levy taxes, fees or charges on any base or subject
not otherwise specifically enumerated herein or taxed under the provisions of the
National Internal Revenue Code, as amended, or other applicable laws: Provided,
That the taxes, fees, or charges shall not be unjust, excessive, oppressive,
confiscatory or contrary to declared national policy: Provided, further, That the
ordinance levying such taxes, fees or charges shall not be enacted without any prior
public hearing conducted for the purpose.
 SECTION 187. Procedure for Approval and Effectivity of Tax ordinances and
Revenue Measures; Mandatory Public Hearings. - The procedure for approval of
local tax ordinances and revenue measures shall be in accordance with the
provisions of this Code: Provided, That public hearings shall be conducted for the
purpose prior to the enactment thereof: Provided, further, That any question on the
constitutionality or legality of tax ordinances or revenue measures may be raised
on appeal within thirty (30) days from the effectivity thereof to the Secretary of
Justice who shall render a decision within sixty (60) days from the date of receipt of
the appeal: Provided, however, That such appeal shall not have the effect of
suspending the effectivity of the ordinance and the accrual and payment of the tax,
fee, or charge levied therein: Provided, finally, That within thirty (30) days after
receipt of the decision or the lapse of the sixty-day period without the Secretary of
Justice acting upon the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.
Figuerres vs. CA, G.R. No. 119172, March 25, 1999
Appeal of Tax Ordinances – The appeal of tax ordinances within the Local Government
Code (LGC) of 1991, particularly under Section 187, is designed to provide a legal avenue
for questioning the constitutionality or legality of tax ordinances or revenue measures
enacted by local government units (LGUs). Taxpayers or any affected party may appeal to
the Secretary of Justice within 30 days from the effectivity of the ordinance. The
Secretary of Justice is then required to render a decision within 60 days from receipt of
the appeal. This process ensures that LGUs exercise their taxing powers within the
bounds of the law, providing a check against potential abuse of power. The appeal does
not suspend the effectivity of the ordinance and the accrual and payment of the tax, fee,
or charge levied therein, safeguarding the LGU's financial operations while allowing for
judicial review. If the decision is not favorable or if no action is taken by the Secretary of
Justice within the 60-day period, the aggrieved party has the right to file appropriate
proceedings with a court of competent jurisdiction, further ensuring that tax ordinances
are just and equitable .
Remedies of Local Government and Taxpayer:

 Section 171 of LGC – Examination of Books of Accounts and Pertinent
Records of Businessmen by Local Treasurer. - The provincial, city, municipal or
Barangay treasurer may, by himself or through any of his municipal or Barangay
treasurer may, by himself or through any of his deputies duly authorized in
writing, examine the books, accounts, and other pertinent records of nay person,
partnership, corporation, or association subject to local taxes, fees and charges in
order to ascertain, assess, and collect the correct amount of the tax, fee, or charge.
Such examination shall be made during regular business hours, only once for
every tax period, and shall be certified to by the examining official. Such certificate
shall be made of record in the books of accounts of the taxpayer examined.
In case the examination herein authorized is made by a duly authorized deputy of

the local treasurer, the written authority of the deputy concerned shall specifically
state the name, address, and business of the taxpayers whose books, accounts, and
pertinent records are to be examined, the date and place of such examination, and
the procedure to be followed in conducting the same.
For this purpose, the records of the revenue district office of the Bureau of Internal
Revenue shall be made available to the local treasurer, his deputy or duly
authorized representative.
Sections 194 and 195 of LGC – CHAPTER 6 - TAXPAYER'S REMEDIES

SECTION 194. Periods of Assessment and Collection. –
(a) Local taxes, fees, or charges shall be assessed within five (5) years from the date
they became due. No action for the collection of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted after the expiration of such period:
Provided, That, taxes, fees or charges which have accrued before the effectivity of this
Code may be assessed within a period of three (3) years from the date they became
due.
(b) In case of fraud or intent to evade the payment of taxes, fees, or charges, the same
may be assessed within ten (10) years from discovery of the fraud or intent to evade
payment.
(c) Local taxes, fees, or charges may be collected within five (5) years from the date of
by or judicial action. No such action shall be instituted after the expiration of said
period: Provided, however, That, taxes, fees or charges assessed before the effectivity
of this Code may be collected within a period of three (3) years from the date of
assessment.
(d) The running of the periods of prescription provided in the preceding paragraphs
shall be for the time during which:
(1) The treasurer is legally prevented from making the assessment of collection;
(2) The taxpayer requests for a reinvestigation and executes a waiver in writing
before expiration of the period within which to assess or collect; and
(3) The taxpayer is out of the country or otherwise cannot be located.
SECTION 195. Protest of Assessment. - When the local treasurer or his duly authorized
representative finds that correct taxes, fees, or charges have not been paid, he shall issue
a notice of assessment stating the nature of the tax, fee or charge, the amount of
deficiency, the surcharges, interests and penalties. Within sixty (60) days from the
receipt of the notice of assessment, the taxpayer may file a written protest with the local
treasurer contesting the assessment; otherwise, the assessment shall become final and
executory. The local treasurer shall decide the protest within sixty (60) days from the
time of its filing. If the local treasurer finds the protest to be wholly or partly
meritorious, he shall issue a notice canceling wholly or partially the assessment.
However, if the local treasurer finds the assessment to be wholly or partly correct, he
shall deny the protest wholly or partly with notice to the taxpayer. The taxpayer shall
have thirty (30) days from the receipt of the denial of the protest or from the lapse of the
sixty (60) day period prescribed herein within which to appeal with the court of
competent jurisdiction otherwise the assessment becomes conclusive and unappealable.
Sections 168 and 169 of LGC – SECTION 168. Surcharges and Penalties on unpaid
Taxes, fees, or Charges. - The Sanggunian may impose a surcharge not exceeding
twenty-five percent (25%) of the amount of taxes, fees or charges not paid on time and
an interest at the rate not exceeding two percent (2%) per month of the unpaid taxes,
fees or charges including surcharges, until such amount is fully paid but in no case shall
the total interest on the unpaid amount or portion thereof exceed thirty-six (36) months.
SECTION 169. Interests on Other Unpaid Revenues. Where the amount of any other
revenue due a local government unit, except voluntary contributions or donations, is not
paid on the date fixed in the ordinance, or in the contract, expressed or implied, or upon
the occurrence of the event which has given rise to its collection, there shall be collected
as part of that amount an interest thereon at the rate not exceeding two percent (2%)
per month from the date it is due until it is paid, but in no case shall the total interest on
the unpaid amount or a portion thereof exceed thirty-six (36) months.
Sections 175, 176, 178-182, and 184 of LGC –

Section 183 of LGC
Real Property Taxation:

General Principles
Province of Nueva Ecija vs. Imperial Mining Co. Inc, 118 SCRA 632 (1982)
Ty vs. Trampe, 250 SCRA 500 (1995)
Lopez vs. City of Manila, 303 SCRA 448 (1999)
Appraisal and Assessment of Real Property

Real Property Tax and Additional or Special Levies
Sections 233, 235, 236-237, 240-243 of LGC
Exemptions from Real Property Tax

Sections 206, and 234 of LGC
LRTA v. CBAA, 342 SCRA 692 (2000)

BLGF Opinion dated November 20, 1992
BLGF Opinion dated March 15, 1993
BLGF Opinion April 22, 1999
When does RPT accrue? Section 246 of LGC

When does special levy accrue? Section 245 of LGC
What rule will apply if the same are paid in installments? Section 250 of LGC
Are there tax discounts for advanced prompt payments of RPT and SEF? Section 251 of
LGC
Remedies of LGU
Sections 254, 255, 256-257, 266, 270, 257 of LGC
Remedies of Taxpayer:
Callanta vs. Office of the Ombudsman, G.R. Nos. 115253-74, January 30, 1998
Erroneous vs. illegal assessment

Section 252 of LGC
City of Lapu-Lapu vs. PEZA, G.R. No. 184203, November 26, 2014
Case #1. Topic: Power to Tax is the Power to Destroy

Case Title : Panhandle Oil Co. vs. Mississippi ex Rel. Knox
Case Number : 277 U.S. 218, 220
Date of Promulgation : May 14, 1928
Ponente : JUSTICE BUTLER
DOCTRINE
This case highlights the principle that while states have the power to impose taxes, this
power does not extend to taxing the federal government or its instrumentalities. Taxation
that interferes with federal operations is unconstitutional, reflecting the doctrine that "The
Power to Tax is the Power to Destroy" by potentially impeding the federal government's
ability to function effectively.
WHEREFORE CLAUSE
Petitioner is not liable for the taxes claimed. Judgment reversed.
FACTS
 The State of Mississippi imposed an excise tax on the sale of gasoline, which was
initially set at one cent per gallon in 1922 and subsequently increased to three cents in
1924 and four cents in 1926. Panhandle Oil Company, engaged in the business of
distributing gasoline, made sales to the United States for the use of its Coast Guard
fleet and Veterans' Hospital. The state sought to collect taxes from Panhandle Oil
Company for these sales, arguing that the tax was a valid privilege tax measured by the
number of gallons sold, and not a direct tax on the federal government's
instrumentalities. Panhandle Oil Company contested this, claiming that the tax, if
applied to sales made to the federal government, was unconstitutional as it infringed
upon the federal government's supremacy and its constitutional powers.
ISSUE(S)
1. Whether the imposition of a state excise tax on gasoline sales to the federal government
is constitutional, particularly considering the doctrine that "The Power to Tax is the
Power to Destroy."
RULING
The Supreme Court reversed the state's decision, holding that Mississippi's tax on gasoline
sales to the federal government was unconstitutional. It was determined that such a tax
directly impedes and burdens the federal government's constitutional powers and
functions, violating the principle that the states may not tax the means used by the federal
government to perform its functions.
PETITIONER’S/PLAINTIFF’S ARGUMENTS
Panhandle Oil Co. argued that the tax on sales to the federal government was
unconstitutional as it placed a direct burden on federal operations, effectively taxing the
federal government itself, which is protected against state taxation under the supremacy
clause of the Constitution.
RESPONDENT’S/DEFENDANT’S ARGUMENTS
The State of Mississippi argued that the tax was a legitimate exercise of its power to levy
taxes for the privilege of engaging in business within the state, and it was applied uniformly
to all gasoline sales, regardless of the purchaser.
SUPREME COURT’S RESPONSE TO THE ARGUMENTS
The Supreme Court emphasized that while states have broad powers to tax, these powers
do not extend to taxing the federal government. The court reasoned that the tax, by being
imposed on sales to the federal government, effectively made the federal government bear a
tax burden, thereby impeding its constitutional functions. This was deemed
unconstitutional as it threatened the federal government's independence and sovereignty.
Additional Notes:
This case serves as an essential example of the principle that "The Power to Tax is the Power
to Destroy." It illustrates the significant impact taxation can have, especially when it
potentially interferes with the federal government's operations. The decision underscores
the necessity of applying the power to tax judiciously, ensuring that it does not destroy or
unduly burden the very entities it is meant to regulate. By protecting federal functions from
state taxation, the Supreme Court reinforced the delicate balance between raising revenue
and preserving the federal government's ability to serve the public effectively, embodying
the caution that taxation, while a tool for revenue, should not be used destructively against
constitutional principles and operations.
The case of Panhandle Oil Co. v. State of Mississippi ex rel. Knox, decided by the United
States Supreme Court in 1928, involves a dispute over the state-imposed excise taxes on
gasoline sales. Here's a simplified breakdown of the case and its implications:
Background
 Mississippi Laws: Mississippi passed laws imposing an excise tax on the sale of
gasoline. Initially, it was one cent per gallon, but it was increased to three cents in
1924 and then to four cents in 1926.
 Petitioner's Business: Panhandle Oil Company had been selling gasoline in
Mississippi, including sales to the United States for the use of its Coast Guard fleet and
a Veterans' Hospital.
 Tax Dispute: The state sought to collect taxes from Panhandle Oil for these sales.
Panhandle Oil argued that taxing these sales was unconstitutional because they were
to the federal government for its operations.
Court's Decision
 Supreme Court's Ruling: The Supreme Court sided with Panhandle Oil, ruling that
the state of Mississippi could not impose a tax on sales of gasoline to the federal
government.
 Reasoning: The Court reasoned that the federal Constitution grants the United States
the authority to operate the Coast Guard and veterans' facilities. Under the
Constitution, federal operations are supreme and should not be interfered with or
taxed by the states.
 Implications: The practical effect of enforcing such a tax on sales to the federal
government would burden and impede the United States' constitutional functions.
Taxing these transactions would, in essence, be taxing the federal government itself,
which is not permissible.
Dissenting Opinions
 Justice Holmes' Dissent: Justice Holmes argued that the tax was on the privilege of
doing business within the state, not directly on the federal government. He suggested
that the government, when acting as a buyer in the state, should not be exempt from
the indirect costs that come with such transactions, including state taxes.
 Concept of Taxation Power: Holmes further noted that the power to tax does not
equate to the power to destroy if there's judicial oversight to prevent unreasonable
taxation.
Summary
In simple terms, the Supreme Court's decision in Panhandle Oil Co. v. State of
Mississippi ex rel. Knox established that states could not impose taxes on transactions
specifically conducted with the federal government for its direct operations, as doing so
would interfere with the federal government's constitutional authorities. The ruling
underscored the principle of federal supremacy and the protection of federal operations
from state-level taxation or interference. Dissenting opinions raised concerns about the
balance between state taxation powers and federal operations, suggesting a more nuanced
approach to the issue.
The Supreme Court case Panhandle Oil Co. v. State of Mississippi ex rel. Knox, 277 U.S. 218
(1928), presents a significant examination of the interplay between state taxation powers
and federal governmental activities under the United States Constitution. This case involved
the State of Mississippi imposing an excise tax on gasoline, which escalated from one cent
per gallon in 1922 to four cents per gallon by 1926, as legislated through various state laws
during this period. Panhandle Oil Company, engaged in the business of distributing gasoline,
was sued by the State for taxes on sales made to the United States for its Coast Guard fleet
and a Veterans' Hospital.
The core legal question was whether Mississippi could impose a tax on gasoline sold to the
federal government without infringing upon constitutional principles that safeguard federal
operations from state interference. Panhandle Oil Co. argued that the tax, when applied to
sales made to the United States, was unconstitutional as it impeded federal functions.
Justice Butler, writing for the majority, delivered the opinion that the tax, by its practical
effect, indeed burdened and interfered with federal operations. The Court emphasized that
the Constitution and federal laws pursuant to it are supreme and, in case of conflict, control
over state enactments. Citing a lineage of precedents such as McCulloch v. Maryland and
others, the Court reaffirmed that states could not tax instrumentalities of the federal
government or make federal operations a source of revenue.
The Court distinguished between the state's authority to tax businesses within its
jurisdiction and the impermissible taxation of transactions by which the federal government
secures goods or services for its purposes. The decision underscored that while Mississippi
could tax Panhandle Oil Co. for the privilege of operating within the state, it could not
impose taxes on sales to the federal government, as these transactions were directly linked
to the fulfillment of federal governmental functions.
Justice Holmes, dissenting, argued for a more pragmatic approach, suggesting that when the
federal government engages in transactions within a state, it does not inherently deserve
exemption from the costs associated with those transactions, including taxes. He suggested
that the majority's stance could excessively limit states' abilities to tax, potentially to the
detriment of state revenue and autonomy. Holmes advocated for a balance, allowing states
to tax businesses even when their operations intersect with federal activities, provided such
taxation does not directly impede federal functions.
This case articulates a critical boundary between state and federal powers, illustrating the
principle that while states possess broad authority to regulate and tax within their
borders, this power does not extend to actions that interfere with federal operations.
Panhandle Oil Co. v. State of Mississippi thus contributes significantly to the body of
constitutional law governing the intergovernmental balance of power, affirming the doctrine
of federal supremacy in areas of constitutional authority while cautioning against state
actions that might encroach upon federal prerogatives.
The case is related to the principle that "the power to tax involves the power to destroy," a
maxim famously articulated by Chief Justice John Marshall in McCulloch v. Maryland, 17 U.S.
316 (1819). This principle underscores the immense power inherent in the authority to
impose taxes, which, if unchecked, could potentially be used to weaken or eliminate entities
or activities that the taxing authority may find undesirable or wish to control.
In Panhandle Oil Co., the Supreme Court faced the question of whether a state could impose
a tax on gasoline sales to the federal government for its instrumentalities, such as the Coast
Guard and a Veterans' Hospital. The Court's decision to reverse the tax imposition rested on
the constitutional protection afforded to federal operations from state interference,
especially in the form of taxation. The Court emphasized that while states have broad
powers to tax within their jurisdictions, this power does not extend to taxing the federal
government or its instrumentalities, as doing so could hinder the federal government's
operations and thereby "destroy" its ability to function effectively.
The case illustrates a specific application of the broader principle that the power to tax must
be exercised within constitutional limits to prevent it from becoming a tool for destruction.
In this context, the "destruction" referred to is not the obliteration of businesses or
industries through excessive taxation (though that too is a concern in other contexts), but
the impairment of the federal government's capacity to perform its essential functions.
Justice Holmes' dissent in Panhandle Oil Co. highlights the tension between the power of
taxation and its potential to destroy. Holmes argued for a pragmatic approach, suggesting
that the government, when participating in the market as a purchaser, should not be
immune from the costs associated with state taxation, as long as such taxation does not
unreasonably burden federal operations. His view underscores the necessity of balancing
the taxing authority's power with the need to protect the entities being taxed from undue
harm.
Thus, the Panhandle Oil Co. case is related to the concept that "the power to tax is the power
to destroy" by demonstrating the Supreme Court's role in delineating the boundaries of
state power to tax, particularly when such taxation threatens the operational integrity of the
federal government. It serves as a reminder that while taxation is a powerful tool for raising
revenue and regulating conduct, it must be applied in a manner that respects constitutional
protections and avoids undermining the essential functions of government or the viability of
legitimate enterprises.
Case #2. Topic: The Power to Tax is the Power to Destroy

Commissioner of Internal Revenue v. San Roque
Case Title :
Power Corp.
Case Number : G.R. No. 187485, 196113, & 197156
Date of Promulgation : February 12, 2013
Ponente : JUSTICE CARPIO,
DOCTRINE
The power to tax includes the power to destroy if not exercised judiciously. The taxation
system, particularly the VAT system, is designed not to stifle economic activity but to
generate revenue for the government in a fair, equal, and uniform manner. Taxpayers must
adhere strictly to procedural requirements for tax refunds or credits to ensure the proper
functioning of the tax system without causing undue harm to economic entities.
WHEREFORE CLAUSE
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of
InternalRevenue in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim
of SanRoque Power Corporation; (2) GRANTS the petition of Taganito Mining Corporation in
G.R.No. 196113 for a tax refund or credit of P8,365,664.38; and (3) DENIES the petition of
PhilexMining Corporation in G.R. No. 197156 for a tax refund or credit of P23,956,732.44.
SO ORDERED.
FACTS
Commissioner of Internal Revenue vs. San Roque Power Corporation (G.R. No.
187485)
Facts:
 San Roque Power Corporation filed a petition for review with the Court of Tax
Appeals (CTA) seeking a refund or issuance of a tax credit certificate for unutilized
input Value-Added Tax (VAT) for the taxable year 2001, amounting to
P483,797,599.65. This claim was initially denied by the CTA Second Division, citing
various deficiencies in San Roque's compliance with the requirements for such a
claim. However, upon motion for reconsideration, the CTA Second Division partially
granted the claim, ordering the Commissioner of Internal Revenue to refund or issue
a tax credit certificate in favor of San Roque for the reduced amount of
P483,797,599.65.
 San Roque's petition was based on its significant investments in capital goods and
services necessary for its operations, which led to an accumulation of input VAT that
was not utilized against any output VAT due to the nature of its business operations.
The company argued that it was entitled to a refund or tax credit for these
unutilized input VAT amounts as provided by tax laws and regulations. The
Commissioner of Internal Revenue contested the CTA Second Division's decision,
leading to the consolidation of the case with similar cases for review by the Supreme
Court.
Taganito Mining Corporation vs. Commissioner of Internal Revenue (G.R. No.
196113)
Facts:
 Taganito Mining Corporation filed a petition for review challenging the decision of
the CTA En Banc, which had reversed the CTA Second Division's decision granting
Taganito a tax refund or credit of P8,365,664.38 for unutilized input VAT on its
domestic purchases of goods and services, as well as importations of capital goods
for the year 2005. Taganito argued that its operations, which involved the
exportation of nickel and chromite ores, qualified it for zero-rated VAT transactions,
thereby entitling it to a refund or credit of the unutilized input VAT as per the tax
laws.
 The CTA initially recognized Taganito's entitlement to the tax refund or credit but
was later reversed by the CTA En Banc, citing procedural deficiencies in the filing of
the judicial claim. Specifically, Taganito did not wait for the 120-day period required
for the Commissioner of Internal Revenue to act on its administrative claim before
seeking judicial recourse. This procedural misstep, according to the CTA En Banc,
rendered the petition for review prematurely filed and therefore outside the
jurisdiction of the CTA.
Philex Mining Corporation vs. Commissioner of Internal Revenue (G.R. No. 197156)
Facts:
 Philex Mining Corporation sought a refund or tax credit for its unutilized input VAT
amounting to P23,956,732.44 for the taxable year 2005. Philex argued that as its
operations primarily involved the exportation of metallic minerals, a significant
portion of its input VAT was attributable to zero-rated sales, thereby entitling it to a
refund or credit as provided under the tax laws. After its administrative claim filed
with the Commissioner of Internal Revenue went without action, Philex proceeded
to file a petition for review with the CTA.
 However, the CTA En Banc affirmed the decision of the CTA Second Division, which
denied Philex's claim due to the late filing of the judicial claim. The court found that
Philex filed its petition for review beyond the 30-day period allowed after the
expiration of the 120-day period given to the Commissioner of Internal Revenue to
decide on the claim. This delay in filing the judicial claim was deemed fatal to
Philex's request for a refund or tax credit, as it failed to comply with the mandatory
and jurisdictional periods prescribed by law for such claims.
ISSUE(S)
187485)
Issue(s):
1. Whether San Roque's premature filing of the judicial claim without waiting for the
120-day period deprives the Court of Tax Appeals (CTA) of its jurisdiction over the
case.
2. Whether the power to tax, as exercised in the denial of San Roque's claim for a tax
refund or credit, infringes on the principle that the power to tax should not destroy
legitimate businesses.
Taganito Mining Corporation vs. Commissioner of Internal Revenue (G.R. No. 196113)
Issue(s):
1. Whether Taganito's non-compliance with the 120-day waiting period before filing its
judicial claim for a tax refund or credit constitutes a valid ground for the denial of its
claim.
2. Whether the strict application of procedural rules in tax refund or credit claims
constitutes an exercise of the power to tax that could destroy legitimate business
operations.
Issue(s):
1. Whether Philex's late filing of its judicial claim for a tax refund or credit, beyond the
prescribed 30-day period after the 120-day waiting period, bars its entitlement to the
refund or credit.
2. Whether the enforcement of strict procedural requirements in tax refund or credit
claims unduly harms or destroys the business operations of taxpayers, thereby
abusing the power to tax.
RULINGS
187485)
1. The Supreme Court ruled that the failure to comply with the 120-day waiting period is
a violation of the doctrine of exhaustion of administrative remedies, rendering San
Roque's petition premature and without a cause of action. Consequently, the CTA lacks
jurisdiction over the appeal, affirming that procedural rules in tax refund or credit
claims are mandatory and jurisdictional.
2. On the issue related to the power to tax the power to destroy, the Court did not
explicitly address this in the context of destroying legitimate businesses. However, the
insistence on strict adherence to procedural requirements indirectly touches on
ensuring that taxation and its procedural mechanisms do not arbitrarily or unjustly
impede on the operations of legitimate businesses.
1. The Supreme Court granted Taganito's petition, recognizing that it was misled by BIR
Ruling No. DA-489-03 into filing its judicial claim prematurely. This constituted a valid
exception to the mandatory and jurisdictional nature of the 120-day period, thereby
not depriving the CTA of jurisdiction over Taganito's claim.
2. The Court’s decision to allow an exception based on equitable estoppel reflects a
balancing act between the government's power to tax and the protection of taxpayer
rights, ensuring that procedural misinterpretations do not unjustly harm legitimate
businesses. This approach demonstrates an acknowledgment of the principle that the
power to tax should not be used to destroy legitimate enterprises.
1. The Supreme Court denied Philex's petition, ruling that the late filing of the judicial
claim, 426 days after the lapse of the 30-day period following the 120-day period,
indeed bars Philex from claiming a tax refund or credit. The Court emphasized the
mandatory and jurisdictional nature of the 120+30 day periods, underscoring the
importance of compliance with statutory requirements.
2. In denying Philex's claim due to procedural non-compliance, the Court did not directly
address the issue within the framework of the power to tax equating to the power to
destroy. However, the decision underscores the principle that while the state wields
the power to impose taxes, this power comes with the responsibility to enact and
enforce tax laws and procedures that do not arbitrarily impinge on the viability of
legitimate business operations, aligning with the broader principle that the power to
tax should not be used destructively against lawful businesses.
187485)
– The Commissioner of Internal Revenue argued that San Roque's judicial claim was
prematurely filed without waiting for the completion of the 120-day mandatory period
allotted for the Commissioner to act on the administrative claim, thereby violating the
doctrine of exhaustion of administrative remedies.
– Taganito argued that its reliance on BIR Ruling No. DA-489-03, which allowed the filing
of a judicial claim without waiting for the 120-day period to lapse, was in good faith
and should not be penalized for administrative interpretations that misled it.
– Philex argued that the denial of its claim for a tax refund or credit due to late filing was
overly harsh and did not consider the substance of its legitimate claim, which does not
in any way erode the tax base.
187485)
– San Roque contended that it was entitled to a refund or tax credit for the unutilized
input VAT as it complied with the substantive requirements for such a claim. It implied
that the strict procedural adherence should not bar legitimate claims that do not
undermine the fiscal health of the government.
– The Commissioner maintained that the mandatory and jurisdictional nature of the
120-day waiting period was a fundamental procedural requirement that could not be
bypassed, implying that failure to adhere undermines the tax system's integrity.
– The Commissioner contended that the procedural timelines set by law for filing tax
refund or credit claims were clear and mandatory, ensuring an orderly process that
taxpayers must adhere to, regardless of the claim's merits.
187485)
– The Supreme Court emphasized the importance of adhering to procedural
requirements, stating that these were designed to ensure an orderly administration of
tax claims, which indirectly supports the broader concept that the power to tax should
not be exercised to the detriment of lawful business enterprises. The Court did not
directly link its ruling to the concept that the power to tax is the power to destroy but
underscored the need for a balanced approach in tax administration that protects both
the government’s and taxpayers' interests.
– The Court recognized the validity of Taganito's reliance on BIR Ruling No. DA-489-03
as a basis for an exception, illustrating a nuanced approach in applying procedural
rules to avoid unjustly penalizing taxpayers for administrative misinterpretations. This
reflects an understanding that the power to tax, while broad and encompassing, should
be exercised within the bounds of fairness and should not inadvertently lead to the
destruction of valid business interests through rigid procedural enforcement.
– The Supreme Court's decision to deny Philex's claim based on procedural grounds
underscores the principle that tax laws and regulations must be strictly complied with,
reflecting the doctrine that while the state's power to tax is broad, it must be exercised
within the framework of established legal procedures to ensure fairness and
orderliness in tax administration. This approach indirectly affirms that the power to
tax, though extensive, should not be exercised in a manner that unduly harms or
destroys legitimate business activities by enforcing procedural rules in an overly rigid
manner.
Additional Notes:
187485)
– The Supreme Court's ruling in the case of San Roque Power Corporation underscores
the principle that while the government holds the significant power to tax, this power
must be exercised within the bounds of procedural fairness and legality. By
emphasizing the need for strict adherence to the 120-day waiting period before
seeking judicial recourse, the Court implicitly acknowledges that the power to tax, if
not judiciously and procedurally applied, can lead to unjust consequences that may
potentially "destroy" legitimate businesses. This decision reflects a careful balance
between ensuring revenue for the public good and protecting businesses from
potentially destructive or arbitrary fiscal actions, thereby resonating with the axiom
that the power to tax should not be the power to destroy.
– In the Taganito Mining Corporation case, the Supreme Court's decision to grant the tax
refund or credit despite the procedural misstep of premature filing, due to reliance on
a BIR ruling, illustrates a nuanced understanding of the power to tax vis-à-vis the
potential to destroy. This ruling highlights that while taxation is a powerful tool for
revenue generation, its application must be tempered with considerations for fairness
and equity, particularly when taxpayers act based on guidance from tax authorities.
The decision ensures that the exercise of the power to tax, through strict procedural
mechanisms, does not inadvertently lead to the destruction of a taxpayer's legitimate
business operations by penalizing them for administrative interpretations they were
led to believe were accurate.
– The Philex Mining Corporation case serves as a reminder of the stringent nature of
procedural requirements in tax refund or credit claims and how these requirements,
when not complied with, can lead to the denial of potentially valid claims. This
scenario encapsulates the inherent tension in the power to tax—the necessity of
collecting revenue for public purposes while ensuring that such power does not unduly
harm or "destroy" the financial health of legitimate businesses. By denying Philex's
claim due to late filing, the Supreme Court underscores the critical balance that must
be maintained in the exercise of taxation: it is a tool for revenue generation, not a
weapon to unduly burden or dismantle the operations of law-abiding businesses.
Case #3. Topic: Escape from Taxation – Tax evasion vs. Avoidance – Requisites for tax
evasion
Commissioner of Internal Revenue vs. Vicente A.
Case Title :
Rufi no
Case Number : G.R. No. L-33665-68
Ponente : JUSTICE CRUZ,
DOCTRINE
The case illustrates the distinction between tax avoidance, which is legally planning one's
affairs to minimize tax liabilities, and tax evasion, which involves illegal means to reduce tax
obligations. The Supreme Court underscored that a merger or consolidation undertaken for
a bona fide business purpose and not solely for the purpose of escaping taxation falls within
the ambit of lawful tax avoidance.
WHEREFORE CLAUSE
WHEREFORE, the decision of the Court of Tax Appeals is affirmed in full, without any
pronouncement as to costs. SO ORDERED.
FACTS
 The case revolves around the merger between the defunct Eastern Theatrical Co., Inc.
(Old Corporation) and another corporation with the same name but newly organized
(New Corporation). The Old Corporation, nearing the end of its corporate life, decided
to merge with the New Corporation by transferring its business, assets, and liabilities
in exchange for the New Corporation's stock, distributed to the Old Corporation's
shareholders. This transaction was scrutinized by the Bureau of Internal Revenue
(BIR), which argued that the merger was a scheme to avoid capital gains tax on the
exchange of old for new shares of stock. The Court of Tax Appeals (CTA) sided with the
respondents (Rufino and others), holding that the merger was valid and exempt from
capital gains tax since it was done pursuant to a plan of reorganization.
ISSUE(S)
1. Whether the merger between the Old Corporation and the New Corporation was a bona
fide business transaction exempt from capital gains tax or a scheme to evade taxation.
RULING
The Supreme Court affirmed the CTA's decision, holding that the merger was a bona fide
business transaction intended to continue the business of the Old Corporation, which was
nearing the end of its corporate life. The transaction was found to be exempt from capital
gains tax as it was done in accordance with a plan of reorganization.
The Commissioner of Internal Revenue argued that the merger was not undertaken for a
legitimate business purpose but was merely a scheme to avoid liability for capital gains tax.
The respondents maintained that the merger was a genuine business strategy aimed at
ensuring the continuation of the Old Corporation’s business through the New Corporation,
fulfilling all legal requirements for a tax-exempt reorganization.
The Supreme Court responded by analyzing the intention behind the merger, the steps
taken to execute it, and the subsequent actions of the involved parties. It found that the
merger was indeed aimed at continuing the business operations of the Old Corporation and
not at evading taxes. The Court emphasized that the law intends to encourage genuine
business consolidations and expansions by exempting them from certain taxes, provided
they are not solely aimed at reducing tax liabilities.
Additional Notes:
This case exemplifies the fine line between tax evasion and tax avoidance. While tax evasion
involves illegal practices to reduce tax liabilities and is punishable by law, tax avoidance is
the use of legal methods to minimize taxes payable. The Supreme Court's ruling highlighted
that the merger, conducted with a bona fide business purpose and in compliance with the
tax code's provisions for reorganizations, constituted legitimate tax avoidance rather than
evasion. This distinction is crucial in understanding the legal landscape of taxation,
emphasizing that while taxpayers have the right to minimize their tax burden, it must be
done within the bounds of the law.
evasion
Delpher Trades Corporation, et al. vs. Intermediate
Case Title :
Appellate Court, et al.
Case Number : G.R. No. L- 69259
Date of Promulgation : January 26, 1988
Ponente : JUSTICE GUTIERREZ, JR.,
DOCTRINE
The Court distinguished between tax avoidance, which involves legally permissible actions
to reduce or avoid tax liabilities, and tax evasion, which entails illegal or fraudulent means
to escape taxes. The case illustrates that transforming property ownership through
corporate structuring for the purpose of estate planning and tax avoidance is permissible
under the law, provided it does not involve deceit or fraud.
WHEREFORE CLAUSE
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision
andresolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE.
Theamended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of
Bulacanis DISMISSED. No costs. SO ORDERED.
FACTS
 Delphin Pacheco and Pelagia Pacheco, co-owners of a parcel of land, executed a deed of
exchange with Delpher Trades Corporation, transferring the said land in exchange for
2,500 shares of stock in the corporation. This transaction was challenged by Hydro
Pipes Philippines, Inc., which claimed a right of first refusal under a previous lease
agreement with the Pachecos. The lower courts ruled in favor of Hydro Pipes,
recognizing the deed of exchange as a sale that violated Hydro Pipes' right of first
refusal. The Pachecos and Delpher Trades Corporation contested this decision, arguing
that the exchange was part of an estate planning strategy, aiming to maintain control
over the property within the family while avoiding taxes.
ISSUE(S)
1. Whether the deed of exchange between the Pachecos and Delpher Trades Corporation
constitutes a sale that violates Hydro Pipes Philippines, Inc.'s right of first refusal, or if it
can be considered a legitimate method of tax avoidance.
RULING
The Supreme Court ruled in favor of the petitioners, Delpher Trades Corporation and the
Pachecos, reversing the lower courts' decisions. The Court found that the deed of exchange
was not a sale but a strategic move to transform the ownership from unincorporated to
incorporated form, with the primary intent of maintaining control over the property and
avoiding tax liabilities. This action was deemed a legitimate form of tax avoidance rather
than evasion.
The petitioners argued that the deed of exchange was part of an estate planning scheme
aimed at preserving family control over the property and avoiding taxes, without
transferring actual ownership interests to a third party. They claimed that this did not
constitute a sale but rather a legitimate practice of tax avoidance.
Hydro Pipes Philippines, Inc. argued that the deed of exchange effectively transferred
ownership to Delpher Trades Corporation, a separate legal entity, thus violating their right
of first refusal as stipulated in the previous lease agreement.
The Supreme Court sided with the petitioners, noting that the corporate structure was used
as a legitimate means of estate planning and tax avoidance. The Court emphasized the
difference between tax avoidance (legal) and tax evasion (illegal), supporting the former as
a permissible action under the law. The Court highlighted that there was no fraudulent
intent or action taken by the petitioners to escape tax liabilities, but rather a lawful
maneuver within the bounds of tax legislation.
Additional Notes:
This case underscores the distinction between tax avoidance, a legal strategy employed to
minimize tax liabilities, and tax evasion, an illegal act to escape paying taxes. The Supreme
Court's ruling demonstrates that employing corporate structures for estate planning and to
maintain control over properties, while also legally minimizing tax obligations, is a form of
tax avoidance. This practice is recognized and permitted under the law as it does not entail
deceit, fraud, or the denial of tax dues. The Pachecos' method of transferring their property
to a corporation they control, in exchange for shares, was strategically designed to keep the
property within the family, avoiding the higher taxes that might come with direct
inheritance or sale, without violating tax laws. This case illustrates a lawful path for
taxpayers to navigate the complexities of tax obligations while ensuring compliance with
legal requirements and obligations.
evasion
Commissioner of Internal Revenue vs. The Estate of
Case Title :
Benigno P. Toda, Jr.
Case Number : G.R. No. 147188
Date of Promulgation : September 14, 2004
Ponente : CHIEF JUSTICE DAVIDE, JR.,
DOCTRINE
This case exemplifies the distinction between tax avoidance, a legal means of reducing tax
liabilities, and tax evasion, an illegal act to escape tax obligations. Tax evasion involves
deliberate actions by taxpayers to pay less than what is legally due, characterized by an
intent to evade, a fraudulent scheme, and the unlawful course of action.
WHEREFORE CLAUSE
WHEREFORE, in view of all the foregoing, the petition is hereby GRANTED. The decision
ofthe Court of Appeals of 31 January 2001 in CA-G.R. SP No. 57799 is REVERSED and SET
ASIDE, and another one is hereby rendered ordering respondent Estate of Benigno P. Toda
Jr. to pay P79,099,999.22 as deficiency income tax of Cibeles Insurance Corporation for the
year 1989, plus legal interest from 1 May 1994 until the amount is fully paid. Costs against
respondent.
SO ORDERED.
FACTS
 The case revolves around a tax planning scheme involving the sale of a 16-storey
commercial building, the Cibeles Building, located in Makati City. The Cibeles
Insurance Corporation (CIC), owned predominantly by Benigno P. Toda, Jr., decided to
sell this property. Initially, the property was sold to Rafael A. Altonaga for PHP 100
million, who on the same day sold it to Royal Match Inc. (RMI) for PHP 200 million.
These transactions were structured in such a way that Altonaga paid capital gains tax
for the sale to RMI, supposedly reducing the tax liability from a corporate income tax
rate of 35% to a capital gains tax rate of 5%. However, the Bureau of Internal Revenue
(BIR) viewed this transaction as a scheme to evade the proper tax liability, leading to a
deficiency income tax assessment against the Estate of Benigno P. Toda, Jr., following
his death, for the amount of PHP 79,099,999.22 for the year 1989.
ISSUE(S)
1. Whether the tax planning scheme adopted constitutes tax evasion or tax avoidance.
2. Whether the respondent Estate can be held liable for the deficiency income tax of CIC
for the year 1989.
RULING
The Supreme Court ruled in favor of the Commissioner of Internal Revenue, reversing the
decision of the Court of Appeals. The Court identified the scheme as tax evasion, not tax
avoidance, as it involved deliberate actions to pay less than what was legally due through a
simulated sale of property, which lacked business purpose and substance, aiming solely to
reduce tax liability. Furthermore, the Court upheld that the Estate of Benigno P. Toda, Jr. is
liable for the deficiency tax since Toda had personally undertaken to hold the buyer of his
shares and CIC free from any tax liabilities for the fiscal years 1987-1989, thereby binding
his estate to this obligation.
The Commissioner argued that the transactions were structured deliberately to evade
higher corporate income taxes by making it appear as two separate sales, thereby reducing
the tax liability to a lower capital gains tax rate.
The Estate contended that the transactions were part of a legal tax planning strategy aimed
at reducing tax liabilities and that the assessment against the Estate had prescribed.
The Supreme Court highlighted the fraudulent nature of the transactions, designed to
mislead the BIR and reduce tax liabilities unlawfully. The Court also dismissed the argument
regarding the prescription, emphasizing Toda's personal undertaking that made his estate
liable for the tax deficiencies.
Additional Notes:
This case distinctly illustrates the thin line between tax avoidance and tax evasion,
emphasizing the legal repercussions of crossing from legal tax minimization strategies into
fraudulent schemes intended to escape tax obligations. It underscores that while taxpayers
are entitled to arrange their affairs to minimize taxes, they must not engage in deceitful
practices to evade their rightful tax liabilities. The Court's ruling reinforces the principle
that tax evasion, characterized by fraudulent intent and unlawful actions to reduce tax
payments, is punishable, distinguishing it sharply from the legally permissible practice of
tax avoidance.
evasion
Case Title : People vs. Kintanar
Date of Promulgation : August 26, 2009
Ponente : JUSTICE
DOCTRINE
The doctrine of "willful blindness" establishes that a taxpayer's intentional refusal to verify
the contents of their ITR and other documents shows a deliberate effort to avoid knowing
their tax obligations. This doctrine implies that ignorance of the law or reliance on another
person for tax matters is not a defense against liability for tax evasion.
WHEREFORE CLAUSE
The Supreme Court recently introduced the "Doctrine of Willful Blindness" in a landmark
tax evasion case decided inyear 2012. Under this doctrine, the taxpayer’s deliberate refusal
or avoidance to verify the contents of his or her ITR andother documents constitutes "willful
blindness" on his or her part. It is by reason of this doctrine that taxpayers cannotsimply
invoke reliance on mere representations of their accountants or authorized representatives
in order to avoidliability for failure to pay the correct taxes
FACTS
 Gloria Kintanar was charged with failing to file her income tax returns (ITR) for the
year 2000, violating Section 255 of the 1997 National Internal Revenue Code (NIRC),
as amended. Kintanar, an experienced businesswoman, claimed she did not actively
participate in filing her joint ITR with her husband because she entrusted this duty to
him, who then hired an accountant for their tax responsibilities. Despite receiving
several notices and a subpoena from the Bureau of Internal Revenue (BIR), Kintanar
and her husband only filed an unsupported protest letter. The Court of Tax Appeals
(CTA) found her neglect tantamount to “deliberate ignorance” or “conscious
avoidance,” showing a clear lack of concern on her part to fulfill her tax obligations.
This stance was sustained by the Supreme Court (SC) in 2012.
ISSUE(S)
1. Whether or not the doctrine of "willful blindness" applies to a taxpayer's deliberate
avoidance of verifying the contents of their ITR, constituting tax evasion.
RULING
The Supreme Court affirmed the CTA's decision, applying the "willful blindness" doctrine. It
ruled that taxpayers cannot escape liability by claiming reliance on representations made by
their accountants or authorized representatives. Kintanar’s failure to ensure the accurate
filing of her ITRs, despite her business experience and the receipt of several BIR notices,
constituted deliberate ignorance. The court highlighted that a taxpayer’s deliberate
avoidance of verifying the contents of their ITR constitutes "willful blindness," making them
liable for failing to pay the correct taxes.
Kintanar argued that her reliance on her husband and their accountant for the filing and
payment of their taxes absolved her of responsibility for the errors in their ITRs.
The BIR argued that Kintanar, as an experienced businesswoman, had a natural
presumption of knowing her tax obligations and that her failure to verify the accuracy and
filing of her ITRs constituted willful blindness to her tax responsibilities.
The Supreme Court rejected Kintanar's defense, stating that taxpayers are responsible for
ensuring their tax obligations are met and cannot claim ignorance or reliance on others as
an excuse. The court emphasized that the willful failure to verify ITR contents, despite being
aware of the obligation, constitutes tax evasion under the doctrine of "willful blindness."
Additional Notes:
The case of People v. Gloria Kintanar illustrates the thin line between tax avoidance, which is
legal, and tax evasion, which is not. Tax avoidance involves planning finances within the law
to minimize tax liabilities, while tax evasion involves illegal practices like deliberately failing
to file tax returns. The "willful blindness" doctrine serves as a crucial principle in
distinguishing between the two, highlighting that ignoring one's tax obligations, under the
guise of reliance on others, does not absolve a taxpayer from liability but rather constitutes
an act of tax evasion. This case underscores that while taxpayers can employ legal means to
reduce their taxes, crossing into deliberate ignorance or fraudulent means to escape tax
obligations is punishable by law.
evasion
Judy Anne L. Santos vs. People of the Philippines &
Case Title :
Bureau of Internal Revenue
Ponente : JUSTICE CHICO-NAZARIO
DOCTRINE
The doctrine relevant to this case revolves around the principles distinguishing tax evasion
from tax avoidance. Tax evasion involves illegal or fraudulent means to reduce or eliminate
tax liability and is punishable by law. It requires a deliberate act by the taxpayer to
misreport income, overstate deductions, or fail to file tax returns. Tax avoidance, on the
other hand, involves legally permissible actions to minimize tax liabilities without deceit.
This case underlines the critical difference between the two, emphasizing the legality and
intent behind tax-related actions.
WHEREFORE CLAUSE
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED. Costs
against petitioner. SO ORDERED.
FACTS
 Judy Anne L. Santos was charged by the Bureau of Internal Revenue (BIR) for
substantially underdeclaring her income for the taxable year 2002, which was
considered a prima facie evidence of a false or fraudulent return under the National
Internal Revenue Code (NIRC), punishable under its provisions. The BIR's initial
findings suggested that Santos declared an income of PHP 8,033,332.70 solely from
ABS-CBN, whereas documents indicated she earned at least PHP 14,796,234.70 from
various sources, including movies and product endorsements. This discrepancy led to
an estimated tax liability of PHP 1,718,925.52, including penalties, indicating a
substantial underdeclaration of over 84% of her declared income. Santos sought to
quash the information filed against her, arguing the facts alleged did not constitute an
offense, among other grounds. The Court of Tax Appeals (CTA) First Division denied
her motion, leading Santos to file a motion for extension of time to file a petition for
review with the CTA en banc, which was also denied on the basis that a resolution
denying a motion to quash is interlocutory and not appealable.
ISSUE(S)
1. Whether a resolution of a CTA Division denying a motion to quash is a proper subject of
an appeal to the CTA en banc under Section 11 of Republic Act No. 9282, amending
Section 18 of Republic Act No. 1125.
2. Whether the petitioner's actions constituted tax evasion.
RULING
The Supreme Court denied the petition for review, holding that the CTA en banc correctly
denied Santos's motion for extension of time to file a petition for review. The Court clarified
that the denial of a motion to quash is an interlocutory order and not immediately
appealable. The Court emphasized that resolutions denying motions to quash can only be
reviewed through an appeal from the judgment after trial, not through an intermediate
appeal to the CTA en banc. The Court found no merit in Santos's assertion that she was left
without remedy, as the proper course of action after denial of a motion to quash is to go to
trial and, if necessary, appeal after an adverse decision.
Santos argued that the BIR's charge for underdeclaring her income was unwarranted, and
she sought to quash the information on several grounds, including that the facts did not
constitute an offense and that the CTA lacked jurisdiction.
The BIR, represented by the People of the Philippines, maintained that Santos substantially
underdeclared her income, resulting in a significant tax liability, which justified the charges
filed against her under the NIRC.
The Supreme Court supported the CTA's decision, emphasizing that an interlocutory order
such as the denial of a motion to quash is not appealable. The Court clarified that the proper
procedure is to proceed to trial and, if necessary, appeal after a final judgment. This
approach aligns with the principles of tax law enforcement, ensuring that taxpayers cannot
evade their obligations through premature appeals.
Additional Notes:
This case exemplifies the fine line between tax evasion and tax avoidance. Santos's
substantial underdeclaration of income, as argued by the BIR, falls into the realm of tax
evasion—where the taxpayer employs unlawful means to reduce tax liability. The Supreme
Court's decision underscores the seriousness with which the legal system treats attempts to
evade taxes, distinguishing them from legal tax avoidance strategies. It highlights the
necessity for taxpayers to adhere to lawful practices in managing tax liabilities and the legal
repercussions of attempting to circumvent tax obligations through deceitful means.
Case #8. Topic: Doctrine of Equitable Recoupment

Collector of Internal Revenue vs. University of Santo
Case Title :
Tomas and the Court of Tax Appeals
Date of Promulgation : November 28, 1958
Ponente : JUSTICE MONTEMAYOR,
DOCTRINE
The doctrine of equitable recoupment, which allows for the offset of a taxpayer’s barred
refund claim against a current tax assessment, and vice versa, was rejected in this case. The
Court underscored that this doctrine is not recognized in the Philippines due to the
potential negative impact on the government's financial administration and the principle
that taxes are due to the government in its sovereign capacity, not as an ordinary creditor.
WHEREFORE CLAUSE
Respondent is thus ordered to desist from further collecting said deficiency assessment
FACTS
 Between January 1, 1948, and June 30, 1950, the University of Santo Tomas (UST) paid
a total of Php13,590.03 in taxes from its printing and binding jobs, believing these to
be due as a 2% tax on its gross receipts for the services rendered to the public and
various departments within the University. However, UST later sought a refund of
Php8,293.31 from the Collector of Internal Revenue (CIR), arguing that the payments
made by other departments for printing and binding should not legally count as
taxable gross receipts and that certain publications (THOMASIAN and VERITAS
annuals) were exempt from taxes under specific provisions of the Tax Code.
 The CIR denied UST’s refund claim and additionally assessed a deficiency tax and
surcharge amounting to Php2,451.04 for undeclared receipts. The Court of Tax
Appeals (CTA) partially modified this decision, recognizing UST’s right to a refund but
only to the extent that the amount could be set off against the deficiency tax assessed,
invoking the doctrine of equitable recoupment. The Supreme Court was then tasked
with reviewing the applicability of this doctrine.
ISSUE(S)
1. Whether the CTA erred in applying the doctrine of equitable recoupment to allow for
the offsetting of UST’s barred refund claim against its current tax liability.
RULING
The Supreme Court held that the doctrine of equitable recoupment does not apply in the
Philippine jurisdiction. It emphasized that taxes cannot be subject to compensation or set-
off against each other as this could adversely affect the government's revenue system and
that the government and taxpayer are not mutual creditors. The Court further noted that the
application of the doctrine could encourage laxity in the timely collection of taxes by the
government and in the prompt filing of refund claims by taxpayers.
The CIR argued against the applicability of the doctrine of equitable recoupment,
contending that allowing such a practice would undermine the timely and efficient
collection of taxes, and is not supported by the tax code.
UST argued for the application of the doctrine to mitigate what it viewed as an unfair loss of
their right to a refund due to prescription, against a tax liability that the government had
delayed in collecting.
The Supreme Court sided with the CIR, stating that equitable recoupment is not a doctrine
recognized within Philippine tax law. It emphasized the importance of statutory deadlines
for tax collection and refunds, noting that allowing for set-offs could encourage negligence
on both the part of the taxpayer and the tax collector. Moreover, the Court highlighted the
fundamental distinction between a tax and a debt, underscoring that the former is owed to
the government in its sovereign capacity.
Additional Notes:
This case directly addresses the doctrine of equitable recoupment by explicitly rejecting its
applicability in the Philippine legal system. The Court's decision reflects a commitment to
maintaining the integrity and efficiency of the tax collection system, emphasizing timely
compliance with tax obligations and the filing of refund claims. It also clarifies the legal
stance that taxes are distinct from ordinary debts and cannot be compensated or set off
against each other, preserving the government's sovereign capacity to levy and collect taxes
without hindrance.
Case #9. Topic: Set-off Taxes
Case Title : Melecio R. Domingo vs. Lorenzo C.Garlitos, et al.
Case Number : G.R. No. L-18994
Date of Promulgation : June 29, 1963
Ponente : JUSTICE LABRADOR,
DOCTRINE
The case affirms the exception to the general rule against the compensation of taxes, which
is that taxes cannot typically be set off against debts because they are not mutual debts
between creditor and debtor in the usual sense. However, if the government's claim and the
taxpayer's claim are both recognized, due, demandable, and fully liquidated, compensation
can occur by operation of law, extinguishing both debts to the concurrent amount.
WHEREFORE CLAUSE
The petition is, therefore, dismissed, without costs.
FACTS
 In this case, the Commissioner of Internal Revenue, Melecio R. Domingo, sought to
collect estate and inheritance taxes from the estate of Walter Scott Price, amounting to
P40,058.55. A previous Supreme Court decision (G.R. No. L-14674) had already
ordered the estate to pay these taxes. However, when the Commissioner attempted to
execute this judgment, the Court of First Instance of Leyte, presided by Judge Lorenzo
C. Garlitos, denied the petition for execution. The court found that the government
owed the estate P262,200, stemming from a contract for services rendered by the
deceased. The court then ordered that the tax amount be deducted from what the
government owed the estate, effectively setting off the estate's tax liability against the
government's debt to the estate.
ISSUE(S)
2. Whether taxes owed by an estate be set off against debts owed to the estate by the
government.
RULING
The Supreme Court dismissed the petition for certiorari and mandamus filed by the
Commissioner of Internal Revenue, affirming the lower court's decision to offset the
government's debt to the estate against the estate's tax liability. This decision was based on
the recognition that when both the government's claim for taxes and the estate's claim for
services rendered are recognized, due, demandable, and fully liquidated, compensation
occurs by operation of law, thus extinguishing both debts to the extent they coincide.
The Commissioner of Internal Revenue argued for the execution of the judgment against the
estate for the payment of estate and inheritance taxes, contending that taxes due should be
paid without delay.
The estate, represented by its administratrix, argued against the immediate execution of the
tax judgment, highlighting the government's larger debt to the estate, and suggested that
the tax amount be deducted from this debt.
The Supreme Court dismissed the petition for certiorari and mandamus, upholding the
lower court's decision to offset the government's debt to the estate against the estate's tax
liability.
Additional Notes:
This case illustrates an exception to the general principle that taxes cannot be subject to
compensation or set-off. Specifically, it demonstrates that when both the government and
the taxpayer have recognized, due, and liquidated claims against each other, set-off can
legally occur. This exception is particularly relevant in situations where the government
itself has an acknowledged and appropriated debt to the taxpayer, allowing for the mutual
extinguishment of obligations to the extent of their concurrence. This serves as a unique
instance where the rigid principles of tax collection meet the flexible realities of mutual
obligations, providing a legal foundation for the resolution of such disputes through
compensation, as outlined in the Civil Code.
LOCAL GOVERNMENT CODE – CASES

Case #1. Topic: Local Autonomy Nature and Source of Local Taxing Power
Mactan Cebu Intl. Airport Authority vs. Ferdinand J.
Case Title :
Marcos, et al.
Date of Promulgation : September 11, 1996
Ponente : JUSTICE DAVIDE, JR.,
DOCTRINE
This case underscores the principle of local autonomy as embodied in the Local Government
Code of 1991, which aims to empower local government units (LGUs) to be self-reliant by
granting them the power to generate their own revenues, including the authority to impose
real property taxes. The withdrawal of tax exemptions from government-owned or
controlled corporations like MCIAA highlights the shift towards ensuring that LGUs have the
necessary financial capabilities to fulfill their responsibilities and support local
development.
WHEREFORE CLAUSE
WHEREFORE, the instant petition is DENIED. The challenged decision and order of
theRegional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED. No
pronouncement as to costs. SO ORDERED.
FACTS
 The Mactan Cebu International Airport Authority (MCIAA) was established under
Republic Act No. 6958, tasked with the control, management, and supervision of the
Mactan International Airport in Cebu and other airports in the province. MCIAA
enjoyed an exemption from paying real property taxes based on Section 14 of its
charter. However, in October 1994, the City of Cebu demanded payment from MCIAA
for real property taxes on several parcels of land, leading MCIAA to challenge this
demand. The city argued that MCIAA's tax exemption was withdrawn by the Local
Government Code (LGC) of 1991, specifically Sections 193 and 234, which withdrew
tax exemptions previously granted to government-owned or controlled corporations,
except for certain entities. MCIAA filed a petition for declaratory relief, asserting its
exemption from local taxes as an instrumentality of the national government, a stance
the city contested by highlighting MCIAA's proprietary functions.
ISSUE(S)
1. Whether the Mactan Cebu International Airport Authority (MCIAA), as a government-
owned corporation, is subject to pay real property taxes to the City of Cebu despite its
claim of being an instrumentality of the national government and therefore exempt from
such taxes under its charter and the Local Government Code of 1991.
RULING
The Supreme Court denied MCIAA's petition, affirming the Regional Trial Court's decision
that MCIAA is liable to pay real property taxes to the City of Cebu. The Court clarified that
the Local Government Code (LGC) of 1991, specifically Sections 193 and 234, effectively
withdrew the real property tax exemption previously enjoyed by government-owned or
controlled corporations, including MCIAA, except for those expressly enumerated in the
Code. The Court distinguished between the terms "national government" and "local
government units," emphasizing that the LGC was intended to enhance local autonomy by
empowering local governments to create their own sources of revenue, including the levy of
real property taxes.
MCIAA argued that it was exempt from real property taxes based on its charter and its
status as an instrumentality of the national government, performing governmental
functions that should not be taxed by local governments.
The City of Cebu contended that MCIAA's tax exemption was withdrawn by the LGC of 1991,
which aimed to provide LGUs with the autonomy to raise their own revenues, including
taxing government-owned corporations, to support local development and services.
The Supreme Court addressed both arguments by interpreting the LGC's provisions,
emphasizing the law's intention to promote local autonomy by empowering LGUs with
financial independence. The Court clarified that the LGC explicitly withdrew tax exemptions
for government-owned corporations like MCIAA, aligning with the policy to strengthen
LGUs' role in national development through local governance and resource generation.
Additional Notes:
This case illustrates the essence of local autonomy and the source of local taxing power as
outlined in the Local Government Code of 1991. By upholding the City of Cebu's authority to
levy real property taxes on MCIAA, the Supreme Court reinforced the autonomy of local
government units to generate their own revenues. This autonomy allows LGUs to address
local needs effectively, demonstrating the shift towards decentralization and empowerment
of local entities within the national framework. The decision emphasizes the balance
between national interests and local autonomy, recognizing the importance of financial
independence for local governments in pursuing their development goals and
responsibilities.
Case #2. Topic: Fundamental Principles: Uniformity in taxation; Local exactions shall (i)
equitable and based on taxpayer’s ability to pay; (ii) be for public purposes; (iii) not be
unjust, excessive, oppressive, or confiscatory; (iv) not to be contrary to law, public policy,
national economic policy, or in the restraint of trade; Collection shall not be let to private
persons; Revenue collections shall accrue exclusively to LGUs; System of taxation must be
progressive
Pepsi-Cola Bottling Company of the Philippines vs.
Case Title :
Mun. of Tanauan, Leyte
Ponente : JUSTICE MARTIN,
DOCTRINE
The case reiterates the principle that LGUs have the authority to create their own sources of
revenue and levy taxes within the bounds set by law. This includes ensuring taxes are for
public purposes, equitable, not unjust or oppressive, and do not contravene existing laws or
public policies.
WHEREFORE CLAUSE
ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise
knownas the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance
No. 27 ofthe Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance
No. 23,same series, is hereby declared of valid and legal eff ect. Costs against petitioner-
appellant. SO ORDERED.
FACTS
 Pepsi-Cola Bottling Company of the Philippines, Inc. (Pepsi) contested the power of
taxation granted to municipalities under the Local Autonomy Act (Republic Act No.
2264) by challenging the validity of Ordinances Nos. 23 and 27 passed by the
Municipality of Tanauan, Leyte. Ordinance No. 23 imposed a tax of one-sixteenth of a
centavo for every bottle of soft drink produced, while Ordinance No. 27 levied a tax of
one centavo on each gallon of soft drink produced within the municipality's
jurisdiction. Pepsi argued that these ordinances constituted double taxation and were
confiscatory, oppressive, and an undue delegation of taxing power. The case was
elevated to the Supreme Court as it involved pure questions of law, particularly the
constitutionality of the Local Autonomy Act's delegation of taxing authority to
municipalities and the legality of the contested ordinances.
ISSUE(S)
1. Whether Section 2 of the Republic Act No. 2264 represents an undue delegation of
taxing power.
2. If Ordinances Nos. 23 and 27 constitute double taxation, and if they impose taxes that
are unjust, excessive, oppressive, or confiscatory.
RULING
The Supreme Court upheld the constitutionality of Section 2 of Republic Act No. 2264,
affirming the power of local government units (LGUs) to levy taxes as long as they adhere to
the principles of uniformity and legality. It declared Municipal Ordinance No. 27 valid,
replacing Ordinance No. 23, and did not find it to constitute double taxation, nor did it find
the taxes imposed to be unjust, excessive, oppressive, or confiscatory.
Pepsi argued that the delegated taxing power to municipalities was an undue delegation
that resulted in confiscatory, oppressive taxes, and the ordinances in question constituted
double taxation.
The Municipality of Tanauan contended that the Local Autonomy Act provided sufficient
standards for the delegation of taxing powers and that the ordinances were within their
right to levy for the purpose of generating local revenue for public purposes.
The Supreme Court clarified that the power of taxation is inherent to sovereignty and can be
delegated to LGUs, emphasizing that such delegation must adhere to the principles of
uniform taxation and must be used for public purposes. The Court dismissed Pepsi's
arguments, stating that the ordinances did not result in double taxation and were not
confiscatory or oppressive.
Additional Notes:
This case embodies the fundamental principles of local taxation under the Local
Government Code of 1991, particularly emphasizing the need for taxes to be equitable,
based on the taxpayer's ability to pay, and for public purposes. It demonstrates the Court's
stance on ensuring that local exactions are not unjust, excessive, oppressive, or confiscatory.
The ruling also highlights that local taxations, such as those imposed by the Municipality of
Tanauan, should not contradict the law, public policy, national economic policy, or restrain
trade. This case reaffirms that local governments have the autonomy to levy taxes, but
within a framework that ensures fairness, equity, and adherence to the broader principles of
taxation law.
Case #3. Topic: Fundamental Principles: Uniformity in taxation; Local exactions shall (i)
equitable and based on taxpayer’s ability to pay; (ii) be for public purposes; (iii) not be
unjust, excessive, oppressive, or confiscatory; (iv) not to be contrary to law, public policy,
national economic policy, or in the restraint of trade; Collection shall not be let to private
persons; Revenue collections shall accrue exclusively to LGUs; System of taxation must be
progressive
Matalin Coconut Co., Inc. vs. Municipal Council of
Case Title :
Malabang
Ponente : JUSTICE YAP,
DOCTRINE
The case reiterates the fundamental principles of local taxation, particularly emphasizing
the need for taxes to be for public purposes, equitable, not oppressive or confiscatory, and
uniform. The ordinance failed to meet these criteria, as it imposed an excessive burden on
businesses, potentially stifling economic activity, without offering commensurate public
benefits.
WHEREFORE CLAUSE
WHEREFORE, petition is dismissed. The decision of the court a quo is hereby affirmed. No
costs. SO ORDERED.
FACTS
 The Municipal Council of Malabang, Lanao del Sur, enacted Municipal Ordinance No.
45-46, imposing a "police inspection fee" of P.30 per sack of cassava starch shipped out
of Malabang, under the authority of the Local Autonomy Act (Republic Act No. 2264).
Matalin Coconut Co., Inc., challenged the ordinance's validity, deeming it ultra vires
(beyond the powers), unreasonable, oppressive, and confiscatory. The company sought
a declaratory relief to nullify the ordinance and a refund of the fees paid under protest.
The trial court ruled in favor of Matalin Coconut, declaring the ordinance null and void
for being unjust, excessive, and confiscatory, and ordered the Municipal Treasurer to
refund the collected fees.
ISSUE(S)
1. Whether Municipal Ordinance No. 45-46 of Malabang, imposing a police inspection fee
on cassava starch shipped out, is valid under the principles of local taxation as outlined
in the Local Government Code of 1991.
RULING
The Supreme Court affirmed the trial court's decision, declaring the ordinance null and void.
The Court found that while the Local Autonomy Act grants municipalities the power to levy
taxes for public purposes, the imposed fee was excessive, unjust, and did not serve a public
purpose, thereby violating the fundamental principles of local taxation.
Matalin Coconut argued that the ordinance was beyond the municipal council's authority,
oppressive, and confiscatory. They stressed that the fee greatly exceeded any possible
inspection costs and significantly harmed their business operations.
The Municipal Council defended the ordinance by asserting their authority under the Local
Autonomy Act and argued that the fee was intended to cover inspection costs and ensure
public safety regarding the quality of cassava starch shipped.
The Supreme Court rejected the respondent's arguments, highlighting that the fee was not
used for inspections relevant to public safety but was a revenue-generating tool that
disproportionately affected the petitioner. The Court emphasized that local taxes must be
just, reasonable, and serve a genuine public purpose.
Additional Notes:
This case directly reflects the principles of local taxation, particularly the requirements that
taxes be just, not excessive, oppressive, or confiscatory, and serve a public purpose. The
ordinance's failure to adhere to these principles led to its nullification. The decision
underscores the importance of ensuring that local taxation supports rather than hinders
economic growth and fairness, aligning with the Local Government Code's aim for equitable,
progressive, and purposeful local taxation frameworks.
Case #4. Topic: Section 133 of the Local Government Code of 1991 (“LGC”)
Case Title : The Province of Bulacan vs. CA
Date of Promulgation : November 27, 1998
Ponente : JUSTICE ROMERO,
DOCTRINE
The doctrine of the case related to Section 133 of the Local Government Code of 1991,
which outlines the common limitations on the taxing powers of local government units
(LGUs), establishes that LGUs do not have the authority to impose excise taxes on articles
already taxed under the National Internal Revenue Code, including quarry resources
extracted from both public and private lands. This doctrine emphasizes the principle that
the scope of taxing powers granted to LGUs is circumscribed by specific provisions in the
Local Government Code, ensuring that their ability to generate revenue through taxation
does not extend to areas explicitly restricted by law, thereby preventing overlap and double
taxation that could arise from taxing goods or activities already subject to national taxes.
WHEREFORE CLAUSE
WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit and
the decision of the Court of Appeals is hereby AFFIRMED in toto. Costs against petitioner. SO
ORDERED.
FACTS
 The Province of Bulacan, led by Governor Roberto M. Pagdanganan, enacted Provincial
Ordinance No. 3, which introduced a tax on the extraction of quarry resources from
both public and private lands within its jurisdiction. This ordinance aimed to levy a
10% tax on the fair market value per cubic meter of ordinary stones, sand, gravel,
earth, and other quarry resources. Republic Cement Corporation, which extracted
limestone, shale, and silica from several parcels of private land in Bulacan, was
assessed a tax amounting to P2,524,692.13 by the Provincial Treasurer for extractions
made from the third quarter of 1992 to the second quarter of 1993. Republic Cement
contested this assessment, arguing that the province had no authority to impose taxes
on quarry resources extracted from private lands. This case eventually reached the
Supreme Court after the Court of Appeals declared that the Province of Bulacan had no
legal authority to impose such taxes, a decision which the province sought to reverse.
ISSUE(S)
1. Whether the Province of Bulacan has the authority to levy taxes on quarry resources
extracted from private lands under Provincial Ordinance No. 3, in light of the limitations
set forth in Section 133 of the Local Government Code of 1991.
RULING
The Supreme Court affirmed the decision of the Court of Appeals, holding that the Province
of Bulacan cannot impose taxes on stones, sand, gravel, earth, and other quarry resources
extracted from private lands. The Court emphasized that the Local Government Code
specifies the scope of taxing powers of local government units (LGUs), and Section 158 of
the Code allows provinces to levy taxes on quarry resources extracted from public lands
only. Moreover, the imposition of taxes on quarry resources extracted from private lands is
restricted by Section 133 of the Local Government Code, which prevents LGUs from levying
excise taxes on articles already taxed under the National Internal Revenue Code.
The Province of Bulacan argued that the Court of Appeals erred in its decision and that the
Local Government Code provides LGUs the power to create their sources of revenue,
thereby allowing them to levy taxes on quarry resources extracted from private lands as
well.
Republic Cement contended that the Province of Bulacan had no authority to levy taxes on
quarry resources extracted from private lands, citing the specific provisions of the Local
Government Code that limit the taxing powers of local government units.
The Supreme Court clarified that while LGUs have the power to generate their sources of
revenue, such power is bounded by the limitations explicitly provided in the Local
Government Code. Specifically, Section 133 restricts LGUs from imposing excise taxes on
items already taxed under the National Internal Revenue Code, including quarry resources.
Therefore, the tax imposed by the Province of Bulacan on quarry resources extracted from
private lands was deemed unauthorized and invalid.
Additional Notes:
The Supreme Court's decision in this case directly relates to Section 133 of the Local
Government Code of 1991, which sets forth common limitations on the taxing powers of
LGUs. Specifically, it underscores that LGUs cannot levy taxes on quarry resources extracted
from private lands because such action would contravene the prohibition against imposing
excise taxes on articles already taxed under the National Internal Revenue Code. This case
highlights the importance of adhering to the limitations set by Section 133 to ensure that
the taxing powers of LGUs are exercised within the bounds of the law, ensuring a uniform
and fair taxation system across the country.
Philippine Petroleum Corporation vs. Municipality
Case Title :
of Pililla, Rizal
Date of Promulgation : June 3, 1991
Ponente : JUSTICE PARAS,
DOCTRINE
This case illustrates the principle that local government units have the power to impose
taxes, fees, and charges within their jurisdiction, subject to the limitations provided by law.
The case underscores the distinction between specific taxes imposed on certain goods by
the national government and the general taxing power of local governments over businesses
within their territories.
WHEREFORE CLAUSE
PREMISES CONSIDERED, with the MODIFICATION that business taxes accruing PRIOR
to1976 are not to be paid by PPC (because the same have prescribed) and that storage fees
arenot also to be paid by PPC (for the storage tanks are owned by PPC and not by
themunicipality, and therefore cannot be a charge for service by the municipality), the
assailed DECISION is hereby AFFIRMED. SO ORDERED.
FACTS
 The Philippine Petroleum Corporation (PPC) was engaged in manufacturing
lubricated oil basestock, a petroleum product, with its refinery plant in Malaya,
Pililla, Rizal. The controversy arose when the Municipality of Pililla, represented by
its mayor, imposed taxes, fees, and charges under Municipal Tax Ordinance No. 1,
despite PPC's products being subject to specific tax under the National Internal
Revenue Code (NIRC) of 1939. PPC argued against the legality of these impositions,
citing Presidential Decrees and Provincial Circulars that exempted petroleum
products subject to specific tax under the NIRC from local taxes. The Regional Trial
Court ruled in favor of Pililla, ordering PPC to pay the taxes, fees, and charges. PPC
appealed, questioning the trial court's decision based on the validity and
applicability of the Provincial Circulars and the authority of local governments to
impose such taxes.
ISSUE(S)
1. Whether PPC, whose products are subject to specific tax under the NIRC, is liable to pay
local taxes, fees, and charges imposed by the Municipality of Pililla under its Tax
Ordinance.
RULING
The Supreme Court affirmed the trial court's decision, with modifications. It held that PPC is
liable for the payment of business taxes and mayor's permit and sanitary inspection fees but
not for the storage fees. The Court reasoned that Provincial Circulars that previously
exempted petroleum products from local taxation were deemed repealed by subsequent
presidential decrees which did not provide for such exemptions. The power to tax by local
governments is recognized, and administrative regulations cannot restrict it without
express legislative authority.
PPC contended that it was exempt from local taxes because its products were already
subject to specific taxes under the NIRC. They relied on Provincial Circulars No. 26-73 and
26 A-73, which directed local treasurers not to collect local taxes on petroleum products.
The Municipality of Pililla argued that the Tax Ordinance was valid and that PPC was liable
to pay the imposed taxes, fees, and charges. They posited that the Provincial Circulars did
not have the effect of law and could not exempt PPC from its tax obligations under the
Municipal Tax Ordinance.
The Supreme Court highlighted that local tax ordinances must conform to the laws and
cannot be invalidated by mere administrative issuances like Provincial Circulars. The Court
clarified that while specific taxes on petroleum products are levied by the national
government, local governments still retain the power to tax businesses within their
jurisdiction, except as expressly prohibited by law.
Additional Notes:
This case is directly related to Section 133 of the LGC, which outlines the common
limitations on the taxing powers of local government units, specifically mentioning that
local governments cannot levy taxes, fees, or charges on petroleum products already subject
to excise taxes under the NIRC (Section 133[39]). The Supreme Court's decision in this case
demonstrates the nuanced interpretation of the taxing powers of local governments vis-à-
vis national tax impositions, emphasizing that specific national tax impositions do not
outrightly preclude local governments from exercising their taxing authority, provided such
exercise is within the bounds set by law, including the LGC.
The case exemplifies how local taxation and national taxation can coexist, with specific
prohibitions like those stated in Section 133 of the LGC serving as boundaries to local taxing
powers. It underscores the principle that while local governments have the autonomy to
levy taxes, this power is not absolute and is subject to statutory limitations designed to
harmonize the tax system and prevent undue burden on entities already subject to national
taxes.
Case Title : Petron Corporation vs. Mayor Tobias M. Tiangco, et
al.
Date of Promulgation : April 16, 2008
Ponente : JUSTICE TINGA,
DOCTRINE
The case affirms the doctrine that local government units cannot impose taxes, fees, or
charges on petroleum products as explicitly prohibited under Section 133(h) of the Local
Government Code of 1991.
WHEREFORE CLAUSE
WHEREFORE, the Petition is GRANTED. The Decision of the Regional Trial Court of
MalabonCity in Civil Case No. 3380-MN is REVERSED and SET ASIDE and the subject
assessment for deficiency taxes on petitioner is ordered CANCELLED. The Temporary
Restraining Orderdated 4 August 2003 is hereby made PERMANENT. No pronouncement as
to costs. SO ORDERED.
FACTS
 Petron Corporation operated a depot in Navotas, engaging in the sale of diesel fuels to
commercial fishing vessels. The local government of Navotas assessed business taxes
on Petron based on sales from 1997 to 2001, citing Ordinance 92-03 or the New
Navotas Revenue Code. Petron protested, claiming exemption from local business taxes
under Article 232(h) of the Implementing Rules and Regulations (IRR) of the Local
Government Code (LGC), and a Department of Finance ruling stating that petroleum
products were not subject to local taxation. The protest was denied, leading to legal
action. The Regional Trial Court of Malabon sided with the local government,
prompting Petron to appeal directly to the Supreme Court on the grounds of pure
questions of law.
ISSUE(S)
1. Whether a local government unit is authorized under the Local Government Code to
impose business taxes on entities engaged in the sale of petroleum products.
RULING
The Supreme Court granted Petron's petition, reversing the decision of the Regional Trial
Court. It ruled that Section 133(h) of the LGC explicitly prohibits local government units
from levying any form of taxes, fees, or charges on petroleum products. Thus, the business
tax assessed by Navotas on Petron was deemed ultra vires (beyond the powers) and void.
Petron argued that it was exempt from local business taxes based on Article 232(h) of the
IRR of the LGC and a Department of Finance ruling, contending that the sale of petroleum
products should not be subject to local taxation.
The local government of Navotas argued that the business tax was validly imposed under
the New Navotas Revenue Code, suggesting that the prohibition in the LGC did not extend to
business taxes on the sale of petroleum products.
The Supreme Court clarified that the prohibition under Section 133(h) of the LGC on taxes,
fees, or charges on petroleum products is comprehensive, barring any form of local taxation
on petroleum products. It distinguished between excise taxes, which are levied on certain
goods under the National Internal Revenue Code, and local business taxes, stating that both
forms of taxes on petroleum products are prohibited under the LGC.
Additional Notes:
This case directly applies Section 133(h) of the Local Government Code, which limits the
taxing powers of local government units by specifically prohibiting the imposition of taxes,
fees, or charges on petroleum products. The Supreme Court's ruling underscores the
principle that local government units must operate within the boundaries set by the LGC,
affirming that the law clearly restricts local authorities from taxing entities engaged in the
sale of petroleum products. This interpretation aligns with the broader intent of the LGC to
standardize the powers of local government units to impose taxes while ensuring that
certain goods, especially essential commodities like petroleum, are shielded from additional
local tax burdens to avoid undue price increases and economic implications.
Case Title : San Miguel Corp. vs. Municipal Council, et al.
Date of Promulgation : July 11, 1973
Ponente : JUSTICE ANTONIO,
DOCTRINE
This case elucidates the principle that local government units (LGUs) must operate within
the confines of their statutory authority when enacting taxation ordinances. The imposition
of taxes based on sales by municipalities is specifically prohibited, aligning with the broader
principle that LGUs cannot levy taxes that are in conflict with national law or beyond their
granted powers.
WHEREFORE CLAUSE
IN VIEW WHEREOF, the appealed judgment is hereby reversed and Ordinance No. 23,
seriesof 1966, as amended by Ordinance No. 23, series of 1966, which became eff ective
January 1,1968, of the Municipality of Mandaue, Cebu, is hereby declared null and void.
Respondentsare also ordered to refund the taxes paid by Petitioners under the said
ordinance, with legalinterest thereon. No costs.
FACTS
 San Miguel Corporation (SMC), a prominent manufacturer of beer and other products,
challenged the legality of Ordinance No. 23 (1966) as amended by Ordinance No. 25
(1967) enacted by the Municipality of Mandaue, Cebu. The ordinance imposed a
graduated quarterly fixed tax on businesses based on the gross value or actual market
value of manufactured articles at the time of their removal from the factory. SMC
argued that this ordinance effectively levied a tax on sales, which was beyond the
municipality's power and authority. Despite paying the taxes under protest, SMC
contended that the ordinance was invalid as it imposed a tax on the privilege of
manufacturing beer, measured by the gross receipts from its sales, thereby
contravening statutory limitations on municipal taxing powers.
ISSUE(S)
1. Whether the Municipality of Mandaue exceeded its authority in enacting an ordinance
that imposed a graduated quarterly fixed tax on businesses based on the gross value or
actual market value of manufactured articles, which SMC contended was essentially a
tax on sales.
RULING
The Supreme Court ruled in favor of San Miguel Corporation, declaring Ordinance No. 23, as
amended by Ordinance No. 25, null and void. The Court held that the ordinance did indeed
impose a tax based on sales, which was beyond the municipality's authority. The
municipality's use of "gross value in money or actual market value" as the tax's basis was
interpreted to align with a sales tax, violating statutory limitations against municipalities
imposing percentage taxes on sales or other forms of taxes based thereon.
SMC argued that the ordinance effectively imposed a sales tax, as the tax was calculated
based on the gross receipts from the sale of beer, which was beyond the municipality's legal
authority to enact.
The Municipality of Mandaue contended that the tax was levied on the privilege of
manufacturing beer and not on the sale of beer itself. They argued that the use of "actual
market value" was merely for tax classification and graduation purposes.
The Supreme Court rejected the municipality's arguments, finding that the ordinance
indeed imposed a tax based on sales, as evidenced by the direct correlation between the tax
amount and the volume of sales. The Court underscored that such a tax was expressly
beyond the municipality's authority, leading to the ordinance's nullification.
Additional Notes:
The San Miguel Corp. vs. Municipal Council case directly connects to Section 133 of the LGC,
which outlines the common limitations on the taxing powers of local government units.
Specifically, Section 133 prohibits LGUs from imposing taxes on the gross receipts of
transactions, akin to the situation in the case where the municipality attempted to tax the
gross sales of beer. This case serves as a pivotal example of the judiciary ensuring that LGUs
adhere to the limitations set forth in the LGC, emphasizing the principle that local taxes
must not overstep the bounds established by national legislation to maintain a coherent and
fair taxation system across the country.
Case Title : San Miguel Corp. vs. Municipal Council, et al.
Date of Promulgation : July 11, 1973
Ponente : JUSTICE ANTONIO,
DOCTRINE
This case elucidates the principle that local government units (LGUs) must operate within
the confines of their statutory authority when enacting taxation ordinances. The imposition
of taxes based on sales by municipalities is specifically prohibited, aligning with the broader
principle that LGUs cannot levy taxes that are in conflict with national law or beyond their
granted powers.
WHEREFORE CLAUSE
IN VIEW WHEREOF, the appealed judgment is hereby reversed and Ordinance No. 23,
seriesof 1966, as amended by Ordinance No. 23, series of 1966, which became eff ective
January 1,1968, of the Municipality of Mandaue, Cebu, is hereby declared null and void.
Respondentsare also ordered to refund the taxes paid by Petitioners under the said
ordinance, with legalinterest thereon. No costs.
FACTS
 San Miguel Corporation (SMC), a prominent manufacturer of beer and other products,
challenged the legality of Ordinance No. 23 (1966) as amended by Ordinance No. 25
(1967) enacted by the Municipality of Mandaue, Cebu. The ordinance imposed a
graduated quarterly fixed tax on businesses based on the gross value or actual market
value of manufactured articles at the time of their removal from the factory. SMC
argued that this ordinance effectively levied a tax on sales, which was beyond the
municipality's power and authority. Despite paying the taxes under protest, SMC
contended that the ordinance was invalid as it imposed a tax on the privilege of
manufacturing beer, measured by the gross receipts from its sales, thereby
contravening statutory limitations on municipal taxing powers.
ISSUE(S)
2. Whether the Municipality of Mandaue exceeded its authority in enacting an ordinance
that imposed a graduated quarterly fixed tax on businesses based on the gross value or
actual market value of manufactured articles, which SMC contended was essentially a
tax on sales.
RULING
The Supreme Court ruled in favor of San Miguel Corporation, declaring Ordinance No. 23, as
amended by Ordinance No. 25, null and void. The Court held that the ordinance did indeed
impose a tax based on sales, which was beyond the municipality's authority. The
municipality's use of "gross value in money or actual market value" as the tax's basis was
interpreted to align with a sales tax, violating statutory limitations against municipalities
imposing percentage taxes on sales or other forms of taxes based thereon.
SMC argued that the ordinance effectively imposed a sales tax, as the tax was calculated
based on the gross receipts from the sale of beer, which was beyond the municipality's legal
authority to enact.
The Municipality of Mandaue contended that the tax was levied on the privilege of
manufacturing beer and not on the sale of beer itself. They argued that the use of "actual
market value" was merely for tax classification and graduation purposes.
The Supreme Court rejected the municipality's arguments, finding that the ordinance
indeed imposed a tax based on sales, as evidenced by the direct correlation between the tax
amount and the volume of sales. The Court underscored that such a tax was expressly
beyond the municipality's authority, leading to the ordinance's nullification.
Additional Notes:
The San Miguel Corp. vs. Municipal Council case directly connects to Section 133 of the LGC,
which outlines the common limitations on the taxing powers of local government units.
Specifically, Section 133 prohibits LGUs from imposing taxes on the gross receipts of
transactions, akin to the situation in the case where the municipality attempted to tax the
gross sales of beer. This case serves as a pivotal example of the judiciary ensuring that LGUs
adhere to the limitations set forth in the LGC, emphasizing the principle that local taxes
must not overstep the bounds established by national legislation to maintain a coherent and
fair taxation system across the country.

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LOCAL TAXATION

 Revenue collections shall accrue exclusively to LGUs – Revenues collected

Common limitations on Taxing Power:

Scope of Taxing Powers of Local Government Units:

(10) On wholesalers, distributors, or dealers in any article of commerce of

(e) On contractors and other independent contractors, in accordance with the

(g) On peddlers engaged in the sale of any merchandise or article or

Fees and charges:

F. Local Business Tax:

G. Enactment of Tax Ordinances and Other Revenue Measures – The Local

Sections 186 and 187 of LGC – CHAPTER 5 - MISCELLANEOUS PROVISIONS

Figuerres vs. CA, G.R. No. 119172, March 25, 1999

Remedies of Local Government and Taxpayer:

In case the examination herein authorized is made by a duly authorized deputy of

Sections 194 and 195 of LGC – CHAPTER 6 - TAXPAYER'S REMEDIES

Sections 175, 176, 178-182, and 184 of LGC –

Real Property Taxation:

Appraisal and Assessment of Real Property

Exemptions from Real Property Tax

LRTA v. CBAA, 342 SCRA 692 (2000)

When does RPT accrue? Section 246 of LGC

Erroneous vs. illegal assessment

Case #1. Topic: Power to Tax is the Power to Destroy

Case #2. Topic: The Power to Tax is the Power to Destroy

Case #8. Topic: Doctrine of Equitable Recoupment

LOCAL GOVERNMENT CODE – CASES

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