I: TAXATION 1. Definition of Taxation a. Taxation is the act of laying a tax. The process or means by which the sovereign through its law making body raises income to defray the necessary expenses of government. It is merely a way of apportioning the cost of government among those who is some measure are privileged to enjoy its benefits and therefor must bear its burden. b. Inherent power of the state to demand enforced contributions for public purpose or purposes.
2. Nature of Internal Revenue Laws EMILIO Y. HILADO, PETITIONER, VS. THE COLLECTOR OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, RESPONDENTS; G.R. No. L-9408, October 31, 1956; Bautista Angelo J Facts: On March 31, 1952, petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12, 837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. On the basis of said return, an assessment notice demanding the payment of P9, 419 was sent to petitioner, who paid the tax in monthly installments, the last payment having been made on January 2, 1953. Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared voids his general Circular No. V-123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. The deduction was disallowed and the CIR demanded from him P3, 546 as deficiency income tax for said year. The petition for reconsideration filed by petitioner was denied so he filed a petition for review with the CTA. The SC affirmed the assessment made by the CIR. Hence, this appeal. Issue: 1. whether Hilado can claim compensation during the war; and 2. Whether the internal revenue laws can been enforced during the war Ruling: 1. No. Assuming that said amount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a "business asset" which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. As of the end of 1945, there was absolutely no law under which petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see lit, but the non-payment of which cannot give rise to any enforceable right. 2. Yes. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation 2
government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy ISSUE Whether the Secretary of Finance acted with valid authority in revoking General Circular No. V-123 and approving in lieu thereof, General Circular No. V-139. HELD Yes. The Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessors in office because the construction of a statute by those administering it is not binding on their successors if the latter becomes satisfied that a different construction should be given. General Circular No. V-123, having been issued on a wrong construction by the law, cannot give rise to a vested right that can be invoked by a taxpayer. A vested right cannot spring from a wrong interpretation. An administrative officer cannot change a law enacted by Congress. Once a regulation which merely interprets a statute is determined erroneous, it becomes a nullity. The CIRs erroneous construction of the law does not preclude or stop the Government from collecting a tax legally due. Under Art. 2254 of the Civil Code, no vested/acquired right can arise from acts/omissions which are against the law or which infringe upon the rights of others. 3. SCOPE OF TAXATION a. Sec 28 Art 6 1987 Constitution i. The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. ii. The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. iii. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non- profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. a. No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of the Congress. - The power of taxation is regarded as unlimited plenary and supreme. - The power may be exercised even to the point od destroying eh commercial or use value of the thing taxed. - The power to tax is an imperious necessity of all governments and it not to be restricted by mere legal fictions. - It is to inhere the obligation of a sovereign state to protect its citizens. - Personal property belonging to a foreign sovereign and temporarily located in a particular country is not subject to state taxation in hat country. CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC. VS. EXECUTIVE SECRETARY- MINIMUM CORPORATE INCOME TAX 3
Constitutionality; justifiable controversy. A dispute ripens into a judicial controversy by the mere enactment of a questioned law or the approval of a challenged act, even without any other overt act. Thus, there is no need to wait until the concerned taxpayers have shut down their operations as a result of the questioned minimum corporate income tax (MCIT) or creditable withholding tax (CWT). Chamber of Real Estate and Builders Associations, Inc. vs. The Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9, 2010. FACTS: Petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA), an association of real estate developers and builders in the Philippines, questioned the validity of Section 27(E) of the Tax Code which imposes the minimum corporate income tax (MCIT) on corporations. Under the Tax Code, a corporation can become subject to theMCIT at the rate of 2% of gross income, beginning on the 4thtaxable year immediately following the year in which it commenced its business operations, when such MCIT is greater than the normal corporate income tax. If the regular income tax is higher than the MCIT, the corporation does not pay the MCIT.CREBA argued, among others, that the use of gross income asMCIT base amounts to a confiscation of capital because gross income, unlike net income, is not realized gain.CREBA also sought to invalidate the provisions of RR No. 2-98, as amended, otherwise known as the Consolidated Withholding Tax Regulations, which prescribe the rules and procedures for the collection of CWT on sales of real properties classified as ordinary assets, on the grounds that these regulations: Use gross selling price (GSP) or fair market value(FMV) as basis for determining the income tax on the sale of real estate classified as ordinary assets, instead of the entitys net taxable income as provided for under the Tax Code; Mandate the collection of income tax on a per transaction basis, contrary to the Tax Code provision which imposes income tax on net income at the end of the taxable period; Go against the due process clause because the government collects income tax even when the net income has not yet been determined; gain is never assured by mere receipt of the selling price; and Contravene the equal protection clause because the CWT is being charged upon real estate enterprises, but not on other business enterprises, more particularly, those in the manufacturing sector, which do business similar to that of a real estate enterprise CREBA assails the imposition of the minimum corporate income tax (MCIT) as being violative of the due process clause as it levies income tax even if there is no realized gain. They also question the creditable withholding tax (CWT) on sales of real properties classified as ordinary assets stating that (1) they ignore the different treatment of ordinary assets and capital assets; (2) the use of gross selling price or fair market value as basis for the CWT and the collection of tax on a per transaction basis (and not on the net income at the end of the year) are inconsistent with the tax on ordinary real properties; (3) the government collects income tax even when the net income has not yet been determined; and (4) the CWT is being levied upon real estate enterprises but not on other enterprises, more particularly those in the manufacturing sector. ISSUE: Are the impositions of the MCIT on domestic corporations and CWT on income from sales of real properties classified as ordinary assets unconstitutional? HELD: NO. MCIT does not tax capital but only taxes income as shown by the fact that the MCIT is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e., the cost of goods and other direct 4
expenses from gross sales. Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only imposed on the 4th year of operations; (2) the law allows the carry forward of any excess MCIT paid over the normal income tax; and (3) the Secretary of Finance can suspend the imposition of MCIT in justifiable instances. The regulations on CWT did not shift the tax base of a real estate business income tax from net income to GSP or FMV of the property sold since the taxes withheld are in the nature of advance tax payments and they are thus just installments on the annual tax which may be due at the end of the taxable year. As such the tax base for the sale of real property classified as ordinary assets remains to be the net taxable income and the use of the GSP or FMV is because these are the only factors reasonably known to the buyer in connection with the performance of the duties as a withholding agent. Neither is there violation of equal protection even if the CWT is levied only on the real industry as the real estate industry is, by itself, a class on its own and can be validly treated different from other businesses. Sison vs Ancheta GR No. L-59431, 25 July 1984 Facts: Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison, as taxpayer, alleges that "he would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers. He characterizes said provision as arbitrary amounting to class legislation, oppressive and capricious in character. It therefore violates both the equal protection and due process clauses of the Constitution as well as of the rule requiring uniformity in taxation. Issue: Whether or not the assailed provision violates the equal protection and due process clauses of the Constitution while also violating the rule that taxes must be uniform and equitable. Held: The petition is without merit. On due process - it is undoubted that it may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property from abuse of power. Petitioner alleges arbitrariness but his mere allegation does not suffice and there must be a factual foundation of such unconstitutional taint. On equal protection - it suffices that the laws operate equally and uniformly on all persons under similar circumstances, both in the privileges conferred and the liabilities imposed. On the matter that the rule of taxation shall be uniform and equitable - this requirement is met when the tax operates with the same force and effect in every place where the subject may be found." Also, the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly unattainable." When the problem of classification became of issue, the Court said: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation..." As provided by this Court, where "the differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this clause and is therefore uniform. SARASOLA v. TRINIDAD
Facts:
5
1. A complaint for injunction was filed by the petitioner before CFI Manila to restrain the Collector of Internal Revenue from the alleged illegal collection of taxes in the amount of 11,739 pesos 2. CIR interposed a demurrer to the complaint on the following grounds:
a. Court had no jurisdiction of the subject matter because of the provisions of the Sec. 1578 of the Administrative Code b. Facts stated in the complain did not entitle the plaintiff to the relief demanded
3. Judge of CFI sustained the demurrer (basing his decision from Churchill case) 4. The appellants assignments of error can be summarized as to the following: Is the legal provision prohibiting the courts from granting an injunction to retrain the collection of internal revenue taxes constitutional? 5. The laws in question in this case are Secs. 1578-1579 of the Administrative Code of 1917.
Sec. 1578: Injunction not available to restrain collection of tax No court shall have authority to grant an injunction to restrain the collection of any internal revenue tax.
Sec. 1579: Recovery of tax paid under protest When the validity of any tax is questioned, or its amount disputed, or other question raised as to liability therefore, the person against whom or against whose property the same is sought to be enforced shall pay the tax under instant protest, or upon protest within 10 days, and shall request the decision of the Collector of Internal Revenue. If the decision of the Collector of Internal Revenue is adverse, or if no decision is made by him within 6 months from the date when his decision was requested, the taxpayer may proceed, at any time within 2 years after the payment of the tax, to bring an action against the Collector of Internal Revenue for the recovery without interest of the sum alleged to have been illegally collected, the process to be served upon him, upon the provincial treasurer, or upon the officer collecting the tax.
Note: The antecedents of the aforecited laws found its particular inspiration in a similar provision in the Act of Congress (of the United States).
Issue: W/N the words without interest is constitutional.
Held: YES
Principles from US cases:
1. Broad principle: every taxpayer has a right to a remedy for any actual wrong he may have suffered in the collection of taxes. Usually, a party will find a plain and sufficient remedy for the injuries complained of, or threatened, in the courts of law; in such instances, equity will not take jurisdiction. 2. Where, as in the Philippines, the taxpayer is permitted to pay the amount demanded of him under protest and then maintain an action at law to recover back the whole amount paid or so much of it was illegal exacted, this is regarded as an adequate remedy. 3. The phrase without interest were not included when the Legislature of the State of Tennessee enacted a statute similar to that of the Philippine statute: This remedy is simple and effective it is a wise and reasonable precaution for the security of the government. No government could exist that permitted its collection to be delayed by every litigious man or every embarrassed man, to whom delay was more important than the payment of costs. 4. There can be no case of equitable cognizance where there is a plain and adequate remedy at law. And except where the special circumstances, the party of whom an illegal tax is collected has ordinarily ample remedy, either by action against the officer making the collection or the body to whom the tax was paid.
Decision of the Court:
5. It is well settled both on principle and authority that interest is not to be awarded against a sovereign government unless its consent has been manifested by an Act of its Legislature or by a lawful contract of its executive officers. If there be doubt upon the subject, that doubt must be resolved in favor of the State. 6
6. The state never pays interest unless she expressly engages to do so. 7. Taxes only draw interest as do sums of money when expressly authorized. Interest cannot be recovered on an abatement unless the statute provides for it. 8. The only contrary dictum is that where an illegal tax has been collected, the citizen who has paid and is obliged to bring suit against the collector is entitled to interest from the time of the illegal exaction. The distinction undoubtedly arises through the fiction that the suit is against the collector and not against the State, although the judgment is not to be paid by the collector but directly from the treasury. 9. The state is not amenable to judgments for damages or costs without its consent. 10. Our own statute not only does not authorize interest but negatives the payment of interest. 11. The law is valid, or that the plaintiff has not proven such a case of irreparable injury as would warrant the issuance of the extraordinary writ of execution.
On the Scope of Taxation
12. Taxation is an attribute of sovereignty. It is the strongest of all the powers of government. It involves the power to destroy. 13. Dows case: It is upon taxation that the several states chiefly rely to obtain the means to carry on their respective governments, and it is of the utmost important to all of them that the modes adopted to enforce the taxes levied should be interfered with as little as possible 14. The Government may fix the conditions upon which it will consent to litigate the validity of its original taxes. 15. The power of taxation being legislative, all the incidents are within the control of the Legislature.
4. UNDERLYING THEORY AND BASIS
The state demands and receives taxes so that it may be enabled to carry its mandate into effect and perform the functions of government and the citizens pays from his property the portion demanded in order tjat he may by means thereof be secured in the enjoyment of the benefits of organized society. - General taxation is the factor that for the contributions received the government renders no return or special benefit to any particular property, but only secures to the citizen the general benefit which results from protection to his person and property. Commissioner of Internal Revenue vs. Algue Inc. GR No. L-28896 | Feb. 17, 1988 Facts: Algue Inc. is a domestic corp engaged in engineering, construction and other allied activities On Jan. 14, 1965, the corp. received a letter from the CIR regarding its delinquency income taxes from 1958-1959, amtg to P83, 183.85 A letter of protest or reconsideration was filed by Algue Inc on Jan 18 On March 12, a warrant of distraint and levy was presented to Algue Inc. thru its counsel, Atty. Guevara, who refused to receive it on the ground of the pending protest Since the protest was not found on the records, a file copy from the corp. was produced and given to BIR Agent Reyes, who deferred service of the warrant On April 7, Atty. Guevara was informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served On April 23, Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals CIR contentions: 7
- The claimed deduction of P75, 000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense - Payments are fictitious because most of the payees are members of the same family in control of Algue and that there is not enough substantiation of such payments CTA: 75K had been legitimately paid by Algue Inc. for actual services rendered in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company. Issue: W/N the Collector of Internal Revenue correctly disallowed the P75, 000.00 deductions claimed by Algue as legitimate business expenses in its income tax returns Ruling: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance, made in accordance with law. RA 1125: the appeal may be made within thirty days after receipt of the decision or ruling challenged During the intervening period, the warrant was premature and could therefore not be served. Originally, CIR claimed that the 75K promotional fees to be personal holding company income, but later on conformed to the decision of CTA There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. CTA also found, after examining the evidence, that no distribution of dividends was involved CIR suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction Algue Inc. was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. At the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75, 000.00. This arrangement was understandable in view of the close relationship among the persons in the family corporation The amount of the promotional fees was not excessive. The total commission paid by the Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the said fees, Algue still had a balance of P50, 000.00 as clear profit from the transaction. The amount of P75, 000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. Sec. 30 of the Tax Code: allowed deductions in the net income Expenses - All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered xxx The burden is on the taxpayer to prove the validity of the claimed deduction In this case, Algue Inc. has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve themselves in a new business requiring millions of pesos. 8
Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values Taxation must be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor Algue Inc.s appeal from the decision of the CIR was filed on time with the CTA in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by Algue Inc. was permitted under the Internal Revenue Code and should therefore not have been disallowed by the CIR. 5. PRINCIPLES OF A SOUND TAX SYSTEM ABAKADA Guro Party List vs. Ermita G.R. No. 168056 September 1, 2005 FACTS: Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform p ro v is o authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have been satisfied. Petitioners argue that the law is unconstitutional. ISSUES: 1. Whether or not there is a violation of Article VI, Section 24 of the Constitution. 2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution. 3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of the Constitution. RULING: 1. Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes. 2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process can go forward. 3. The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of unreasonableness, discrimination, or arbitrariness. 9
6. COMPARISON WITH POLICE POWER AND EMINENT DOMAIN A) POLICE POWER - taxing power is exercised for the purpose of raising revenue and is subject to certain designated constitutional limitation, while police power is exercised for the promotion of the public welfare by means of the regulation of dangerous or potentially dangerous businesses, occupations or activities and is not subject to constitutional restrictions. - An exaction which is invalid as an exercise of the taxing power may not be upheld as an exercise of the police power where it is clear that the legislative body imposing it did not intend it as such,. B) EMINENT DOMAIN - The power of taxation nor the power of eminent domain can be exercised except for public purpose, some constitutional provisions, particularly those requiring compensation for private property taken for public use are applicable to the power of eminent domain but not to the power of taxation. Gerochi, et al. v. DOE Facts: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), which sought to impose a universal charge on all end- users of electricity for the purpose of funding NAPOCORs projects, was enacted and took effect in 2001.
Petitioners contest the constitutionality of the EPIRA, stating that the imposition of the universal charge on all end-users is oppressive and confiscatory and amounts to taxation without representation for not giving the consumers a chance to be heard and be represented. Issue: Whether or not the universal charge is a tax. Held: NO. The assailed universal charge is not a tax, but an exaction in the exercise of the States police power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates the policies of the State regarding electrification. Moreover, the Special Trust Fund feature of the universal charge reasonably serves and assures the attainment and perpetuity of the purposes for which the universal charge is imposed (e.g. to ensure the viability of the countrys electric power industry), further boosting the position that the same is an exaction primarily in pursuit of the States police objectives If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a tax. The taxing power may be used as an implement of police power. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people.
MATALIN COCONUT CO., INC. vs. MUNICIPAL COUNCIL OF MALABANG, LANAO DEL SUR Facts: 1. The Municipal Council of Malabang, Lanao del Sur enacted the Municipal Ordinance No. 45-46 imposing a police inspection fee of P0.30 per sack of Cassava Starch produced and shipped out of the said Municipality where penalties are imposed for violations thereof.
It made unlawful for any company, person, or group of persons to ship out goods specifically Cassava Starch or Flour without paying to the Municipal Treasurer (or his duly authorized representatives) a fee fixed by the Ordinance and a police 10
inspection fee of P0.30 (shouldered by the shipper if moving the goods outside the Municipality).
In case of violations, the Ordinance prescribed the payment of a fine of P100 < P1,000; an additional payment of P1.00 per sack that was illegally shipped; or imprisonment of 20 days, or both, depends in the discretion of the Court.
2. Validity of the Ordinance was challenged by Matalin Coconut Inc., alleging being violative of R.A. 2264, unreasonable, oppressive and confiscatory.
Purakan Plantation Companty is also affected, crippling its operations to transport its goods to the port through the said Municipality.
3. Trial Court decided the Municipal Ordinance is null and void; ordered the Municipal Treasurer refund the payments it made from the period of: Sept. 27, 66 to May 2, 67 with a total amount of: P25,000.00 and subsequent payments; and, prohibiting the collection of P0.30 police inspection fees.
Issue: Whether the said Ordinance is valid.
Held: Invalid.
The Court ruled that tax should be based on sales, not in the quantity of goods that have yet to be sold. Moreover, for taxes to be valid, it should be levied for public purposes, just, and uniform.
The imposition of a police inspection fee of P0.30 per bag was found to be unjust and unreasonable.
LUTZ v. ARANETA GR No. L-7859, December 22, 1955 98 PHIL 148 FACTS: Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate estate of Antionio Ledesma, sought to recover from the CIR the sum of P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the Sugar Adjustment Act thereby assailing its constitutionality, for it provided for an increase of the existing tax on the manufacture of sugar, alleging that such enactment is not being levied for a public purpose but solely and exclusively for the aid and support of the sugar industry thus making it void and unconstitutional. The sugar industry situation at the time of the enactment was in an imminent threat of loss and needed to be stabilized by imposition of emergency measures. ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the equal protection clause, the purpose of which is not for the benefit of the general public but for the rehabilitation only of the sugar industry? HELD: Yes. The protection and promotion of the sugar industry is a matter of public concern, it follows that the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative discretion must be allowed to fully play, subject only to the test of reasonableness; and it is not contended that the means provided in the law bear no relation to the objective pursued or are oppressive in character. If objective and methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement of the state's police power. Held: Yes. The act is primarily an exercise of the police power. It is shown in the Act that the tax is levied with a regulatory purpose, to 11
provide means for the rehabilitation and stabilization of the threatened sugar industry. It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation. The funds raised under the Act should be exclusively spent in aid of the sugar industry, since it is that very enterprise that is being protected. It may be that other industries are also in need of similar protection; but the legislature is not required by the Constitution to adhere to a policy of all or none. ISSUE: Whether the tax is valid in supporting an industry. HELD: The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and stabilization of the threatened sugar industry. The act is primarily an exercise of police power, and is not a pure exercise of taxing power. As sugar production is one of the great industries of the Philippines; and that its promotion, protection and advancement redounds greatly to the general welfare, the legislature found that the general welfare demanded that the industry should be stabilized, and provided that the distribution of benefits there from be readjusted among its component to enable it to resist the added strain of the increase in tax that it had to sustain. Further, it cannot be said that the devotion of tax money to experimental stations to seek increase of efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of living and working conditions in sugar mills and plantations, without any part of such money being channeled directly to private persons, constitute expenditure of tax money for private purposes. The tax is valid. NATIONAL TELECOMMUNICATIONS COMMISSION, petitioner, vs. HONORABLE COURT OF APPEALS and PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, respondents. FACTS: Sometime in 1988, the National Telecommunications Commission (NTC) served on the Philippine Long Distance Telephone Company (PLDT) assessment notices and demands for payment in connection to Section 40 (e) (f) and (g) of the Revised NTC Schedule of Fees and Charges. The PLDT challenged the assessments of the NTC. Then NTC rendered a Decision denying the protest of PLDT. On May 12, 1994, PLDT appealed to the Court of Appeals. The CA ordered the NTC to recompute its assessments and demands for payment. On November 20, 1996, NTC moved for partial reconsideration for the Decision of the CA with respect to the basis of the assessment under Section 40 (e) but the CA denied its motion. Thus, petitioner found its way to this court. ISSUE: Whether the Court of Appeals erred in holding that the computation of supervision and regulation fees under Section 40 (F) of the Public Service Act should be based on the par value of the subscribed capital stock. HELD: Yes. Concise and clear is the ruling of this Court in the case of Philippine Long Distance Telephone Company vs. Public Service Commission, 66 SCRA 341, that the basis for computation of the fee to be charged by NTC on PLDT, is " the capital stock subscribed or paid and not, alternatively, the property and equipment."The law in point is clear and categorical. There is no room for construction. It simply calls for application. It bears stressing that it is not the NTC that imposed such a fee. It is the legislature itself. Since Congress has the power to exercise the State inherent powers of Police Power, Eminent Domain and 12
Taxation, the distinction between police power and the power to tax, which could be significant if the exercising authority were mere political subdivisions (since delegation by it to such political subdivisions of one power does not necessarily include the other), would not be of any moment when, as in the case under consideration, Congress itself exercises the power. All that is to be done would be to apply and enforce the law when sufficiently definitive and not constitutional infirm. WHEREFORE, the decision of the Court of Appeals is SET ASIDE. SO ORDERED. II: TAXES 1. DEFINITION A tax is a burden, charge, exaction, imposition or contribution assessed in accordance with some reasonable rule of apportionment within its jurisdiction to provide public revenue for the support of the government, the administration of the law or the payment of public expenses. - Any payment exacted by the state or its municipal subdivisions as a contribution toward the cost of maintaining governmental functions. - It operates in invitum and is no way dependent upon the will or contractual assent, express or implied of the person taxed. Republic of the Philippines v. Philippine Rabbit Bus Lines
Facts:
1. A complaint was filed by the Republic seeking the invalidation of the payment by PRBL for the registration fees of its motor vehicles in the sum of 78k pesos in the form of such negotiable backpay certificates of indebtedness 2. This complaint also sought the payment of such amount with surcharges plus the legal rate of interest from the filing thereof and a declaration of the nullity of the use of such negotiable certificate of indebtedness to satisfy its obligation 3. Answer of defendant: both the Treasurer of the Philippines and the General Auditing Office having signified their conformity to such a mode of payment 4. Lower courts decision: it appears that the Treasurer had approved the acceptance of negotiable certificates of indebtedness in payment of registration fees of motor vehicles with the view that such certificates should be accorded with the same confidence by other governmental instrumentalities 5. Republic wants the bus firm to be an assignee of the negotiable certificates of indebtedness in question, it could not use the same in payment of taxes. (However, the Court believes that it runs counter to the recitals appearing on the certificates)
Issue: What is the nature of the fee made by the Philippine Rabbit through the use of negotiable backpay certificates?
Held:
1. SC held that a tax is neither a penalty that must be satisfied or a liability arising from a contract. Much less can it be confused or identified with a license or a fee as a manifestation of an exercise of the police power. 2. This broad and all-encompassing governmental competence to restrict rights of liberty and property carries with it the undeniable power to collect a regulatory fee. Unlike a tax, it has not for its object the raising of revenue but looks rather to the enactment of specific measures that govern the relations not only as between individuals but also between private parties and political society. 3. It can be concluded that the Motor Vehicle Act requires the payment not of a tax but of a registration fee under the police power. Hence the inapplicability of the section relied upon by defendant under the Back Pay Law. It is not held liable for a tax but for a registration fee.
2. ESSENTIAL CHARACTERISTICS OF TAXES 3. TAXES DISTINGUISHED FROM : a. DEBT: The obligation of a tax is a statutory liability imposed upon all inhabitants of the state who are defined as taxable, to the end that they may contribute their just share to the expenses of the government.
G.R. No. 92585 May 8, 1992 13
CALTEX PHILIPPINES, INC., petitioner, vs.THE HONORABLE COMMISSION ON AUDIT, HONORABLECOMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLECOMMISSIONER ALBERTO P. CRUZ, respondents. Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non- revenue / special / regulatoryPonente: Davide, Jr. J. DOCTRINE: A taxpayer may not offset taxes due from the claims that he may have against the government. QUICK FACTS : Caltex Philippines questions the decisions of COA for disallowing the offsetting of its claims for reimbursement with its due OPSFremittance FACTS: The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as amended by EO 137 for the purpose of minimizing frequent price changes brought about by exchange rate adjustments. It will be used to reimburse the oil companies for cost increase and possible cost under recovery incurred due to reduction of domestic prices.COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex requested COA for an early release of its reimbursement certificates which the latter denied.COA disallowed recover of financing charges, inventory losses and sales tomarcopper and atlas but allowed the recovery of product sale or those arising from export sales. Petitioners Contention: Department of Finance issued Circular No. 4-88 allowing reimbursement. Denial of claim for reimbursement would be inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the Revised Administrative Code (Retention of Money for Satisfaction of Indebtedness to Government) allows offsetting. Amounts due do not arise as a result of taxation since PD 1956 did not create source of taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions distinguishes it from tax. Respondents Contention: Based on Francia v. IAC, theres no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law. ISSUE: WON Caltex is entitled to offsetting DECISION: NO. COA AFFIRMED HELD: It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Technically, the oil companies merely act as agents for the Government in the latters collection since the taxes are, in reality, passed unto the end-users the consuming public. Their primary obligation is to account for and remit the taxes collection to the administrator of the OPSF. there is not merit in Caltexs contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may believed with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State. The oil industry is greatly imbued with public interest as it vitally affects the general welfare. PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is taxation 14
Caltex Philippines vs. Commission on Audit (COA) GR 92585, 8 May 1992 En Banc, Davide (J): 12 concur, 2 took no part Facts: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of the additional tax on petroleum products authorized under Section 8 of PD 1956; and that pending such remittance, all its claims for reimbursement from the OPSF shall be held in abeyance. Caltex requested COA, notwithstanding an early release of its reimbursement certificates from the OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further off seting remittances and reimbursements for the current and ensuing years. Caltex moved for reconsideration. Issue: Whether the amounts due from Caltex to the OPSF may be off setted against Caltex outstanding claims from said funds. Held: Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Francia vs. IAC 162 SCRA 753 FACTS: Francia was the registered owner of a house and lot in Pasay City. A portion of said property was expropriated by the republic. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. He contended that his tax delinquency had been extinguished by legal compensation since the government owed him 4,116 when a portion of his land was expropriated. ISSUE: can there be off-setting of debts and taxes? RULING: No. there can be no off-setting of taxes original the claims against the claims that the taxpayer may have against the government. Taxes cannot be the subject of compensation. The government and the taxpayer are not mutually creditor and debtors of each other and a claim for each other and a claim for taxes is not such a debt demand, contract or judgment as is allowed to be set-off. Furthermore, the tax was due to the city government. While the expropriation effected by the national government. In fact, the expropriation payment was already deposited with the PNB long before the sale at public auction of his property was conducted. ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT, ET AL.G.R. No. L-67649, June 28, 1988 Facts: On October 15, 1977, a 125 square meter portion of Franciss property was expropriated by the Republic of the Philippines for the sum of P4, 116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No.464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2, 400.00. 15
Issue: May compensation take place? Ruling: There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax was being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and acclaim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
PHILEX V. CIR (tax v. ordinary debt) FACTS: BIR asked Philex to pay tax for 1991-1992 in the total Amount of P123, 821,982.52. Philex refused stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore asking for an off-set. Philex filed a case with the CTA. Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992and 1994
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities, since both had already become due and demandable, as well as fully liquidated; hence, legal compensation can properly take place. ISSUE: WON there should be an offset? HELD: NO. Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt.DE BTS are due to the Government in its corporate capacity, while TAXES are due to the Government in its sovereign capacity. Philexs claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. A distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. Hence, a tax does not depend upon the consent of the taxpayer. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is Contingent on the result of the lawsuit it filed against the government. Moreover, Philexs theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities. 2. LICENSE FEES Implies an imposition or exaction on the right to use or dispose of property, to pursue a business occupation or calling or to exercise a privilege. 16
-Such charges may imposed either under the police power for purposes of regulation or under the taxing power for purposes of revenue. Progressive Development Corporation vs. Quezon City Facts: The City Council of QC passed an ordinance known as the Market Code of QC, which imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC. In case of failure of the owners of the market spaces to pay the tax for three consecutive months, the City shall revoke the permit of the privately-owned market to operate. Progressive Development Corp, owner and operator of Farmers Market, filed a petition for prohibition against QC on the ground that the tax imposed by the Market Code was in reality a tax on income, which the municipal corporation was prohibited by law to impose.
Issue: Whether or not the supervision fee is an income tax or a license fee. Held: It is a license fee. A LICENSE FEE is imposed in the exercise of the police power primarily for purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of raising revenues. If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally, revenue is also obtained does not make the imposition a tax. To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety, and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs of direct regulation but also its incidental consequences. In this case, the Farmers Market is a privately-owned market established for the rendition of service to the general public. It warrants close supervision and control by the City for the protection of the health of the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the buying public, etc. Since the purpose of the ordinance is primarily regulation and not revenue generation, the tax is a license fee. The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax does not, by itself, convert the license tax into a prohibited tax on income. Such basis actually has a reasonable relationship to the probable costs of regulation and supervision of Progressives kind of business, since ordinarily, the higher the amount of rentals, the higher the volume of items sold. The higher the volume of goods sold, the greater the extent and frequency of supervision and inspection may be required in the interest of the buying public. 4. SPECIAL ASSESSMENTS An enforced proportional contribution from owners of lands especially or peculiarly benefited by public improvements.
Characteristics: 1. A special assessment is levied only on land 2. It is not a personal liability of the person assessed 3. It is based wholly on benefits 4. It is exceptional both as to the time and place. 17
Apostolic Prefect of Mt. Province vs. Treasurer of Baguio 71 Phil. 547 Exemptions from Taxation Assessment FACTS: In 1937, an ordinance (Ord. 137) was passed in the City of Baguio. The said ordinance sought to assess properties of property owners within the defined city limits. Apostolic Prefect of Mt. Province (APMP), on the other hand, is a religious corporation duly established under Philippine laws. Pursuant to the ordinance, it contributed a total amount of P1, 019.37. It filed the said contribution in protest. APMP later averred that it should be exempt from the said special contribution since as a religious institution, it has a constitutionally guaranteed right not to be taxed including its properties. ISSUE: Whether or not APMP is exempt from taxes. HELD: The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. Based on Justice Cooleys words: While the word tax in its broad meaning, includes both general taxes and special assessments, and in a general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special assessment cannot (at least in most states) be made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is exceptional both as to time and locality. The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway. A charge imposed only on property owners benefited is a special assessment rather than a tax notwithstanding the statute calls it a tax. In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but rather a system for the benefits of the inhabitants of the city. ISSUE: Whether or not APMP is exempt from taxes HELD: The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. Based on Justice Cooleys words: "While the word 'tax' in its broad meaning, includes both general taxes and special assessments, and in a general sense a tax is an assessment, and an assessment is a tax, yet there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed. The differences between a special assessment and a tax are that (1) a special assessment can be levied only on land; (2) a special assessment cannot (at least in most states) be made a personal liability of the person assessed; (3) a special assessment is based wholly on benefits; and (4) a special assessment is exceptional both as to time and locality. The imposition of a charge on all property, real and personal, in a prescribed area, is a tax and not an assessment, although the purpose is to make a local improvement on a street or highway. A charge imposed only on property owners benefited is a special assessment rather than a tax notwithstanding the statute calls it a tax." In the case at bar, the Prefect cannot claim exemption because the assessment is not taxation per se but rather a system for the benefits of the inhabitants of the city. 18
5. TOLLS: Toll has been defined as a sum of money for the use of something, generally applied to the consideration which is paid for the use of a road, bridge, or the like of a public nature. 1. A toll is a demand of proprietorship while a tax is demand of sovereignty. 2. A toll is paid for the use of anothers property 3. The amount of toll depends upon the cost of construction or maintenance of the public improvement used, while there is generally no limit on the amount of tax that may be imposed 4. A toll may be imposed by the government or private individuals or entities, while tax may be imposed only by the government. Diaz vs. Secretary of Finance (2011) Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of toll way operators. Court treated the case as one of prohibition. Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of services" that are subject to VAT; that a toll fee is a "user's tax," not as ale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate then on- impairment clause of the constitution. The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including toll way operations; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on toll way operations has been the subjects early as 2003 of several BIR rulings and circulars. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and toll way operators. At any rate, the non-impairment clause cannot limit the State's sovereign taxing power which is generally read into contracts. Issue: May toll fees collected by toll way operators be subjected to VAT (Are toll way operations a franchise and/or a service that is subject to VAT)? Ruling: When a toll way operator takes a toll fee from a motorist, the fee is in effect for the latter's use of thetollway facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In this sense, the toll way operator is no different from the service providers under Section108 who allow others to use their properties or facilities for fee.Tollway operators are franchise grantees and they do not belong to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers government grants of a special right to do an act or series of acts of public concern. Toll way operators are, owing to the nature and object of their business, "franchise grantees." The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by private toll way operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the toll ways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by 19
either the government or private individuals or entities, as an attribute of ownership. PENALTIES Penalty is any sanction imposed as a punishment for the violation of law or acts deemed injurious. 1. a penalty is designed to regulate conduct while a tax is generally intended to raise revenue 2. Penalty may be imposed by the government or private individuals or entities, while a tax may be imposed only by the government. National Development Co. vs. Commissioner L-53961, 30 June 1987 En Banc, Cruz (J): 14 concur Facts: The National Development Co. (NDC) entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Initial payments were made in cash and through irrevocable letters of credit. When the vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the shipbuilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase price. No tax was withheld. The Commissioner then held NDC liable on such tax in the total amount of P5, 115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of distrait and levy after negotiations failed Issue: Whether the NDC is liable for deficiency tax. Held: The Japanese shipbuilders were liable on the interest remitted to them under Section 37 of the Tax Code. The NDC is not the one taxed. The imposition of the deficiency taxes on the NDS is a penalty for its failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the Tax Code. NDC was remiss in the discharge of its obligation of its obligation as the withholding agent of the government and so should be liable for its omission. F) CUSTOM DUTIES The taxes imposed on the goods exported form or imported into a country.