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 asof 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
unconsitutional 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 differentation" 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.
G.R. No. L-59431 July 25, 1984
ANTERO M. SISON, JR., petitioner,
vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue; ROMULO VILLA,
Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO Deputy
Commissioner, Bureau of Internal Revenue; MANUEL ALBA, Minister of Budget,
FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A. VIRATA,
Minister of Finance, respondents.
Antero Sison for petitioner and for his own behalf.
The Solicitor General for respondents.
FERNANDO, C.J.:
The success of the challenge posed in this suit for declaratory relief or prohibition
proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a showing
of its constitutional infirmity. The assailed provision further amends Section 21 of the National
Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings,
(d) interest from bank deposits and yield or any other monetary benefit from deposit substitutes
and from trust fund and similar arrangements, (e) dividends and share of individual partner in the
net profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges
that by virtue thereof, "he would be unduly discriminated against by the imposition of higher
rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers. 4 He characterizes the above sction
as arbitrary amounting to class legislation, oppressive and capricious in character 5For petitioner,

therefore, there is a transgression of both the equal protection and due process clauses 6 of the
Constitution as well as of the rule requiring uniformity in taxation. 7
The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10
days from notice. Such an answer, after two extensions were granted the Office of the Solicitor
General, was filed on May 28, 1982.8 The facts as alleged were admitted but not the allegations
which to their mind are "mere arguments, opinions or conclusions on the part of the petitioner,
the truth [for them] being those stated [in their] Special and Affirmative Defenses." 9 The answer
then affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax. The
authorities and cases cited while correctly quoted or paraghraph do not support petitioner's
stand." 10 The prayer is for the dismissal of the petition for lack of merit.
This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The reason was
so clearly set forth by retired Chief Justice Makalintal thus: "The areas which used to be left to
private enterprise and initiative and which the government was called upon to enter optionally,
and only 'because it was better equipped to administer for the public welfare than is any private
individual or group of individuals,' continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to
meet the increasing social challenges of the times." 11 Hence the need for more revenues. The
power to tax, an inherent prerogative, has to be availed of to assure the performance of vital
state functions. It is the source of the bulk of public funds. To praphrase a recent decision, taxes
being the lifeblood of the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It
is the strongest of all the powers of of government." 13 It is, of course, to be admitted that for all
its plenitude 'the power to tax is not unconfined. There are restrictions. The Constitution sets
forth such limits . Adversely affecting as it does properly rights, both the due process and equal
protection clauses inay properly be invoked, all petitioner does, to invalidate in appropriate
cases a revenue measure. if it were otherwise, there would -be truth to the 1803 dictum of Chief
Justice Marshall that "the power to tax involves the power to destroy." 14 In a separate opinion
in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate remark
characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times
following] a free use of absolutes." 16 This is merely to emphasize that it is riot and there cannot
be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of
unreality spun from Marshall's famous dictum was brushed away by one stroke of Mr. Justice
Holmess pen: 'The power to tax is not the power to destroy while this Court sits." 17 So it is in
the Philippines.
3. This Court then is left with no choice. The Constitution as the fundamental law overrides any
legislative or executive, act that runs counter to it. In any case therefore where it can be
demonstrated that the challenged statutory provision as petitioner here alleges fails to
abide by its command, then this Court must so declare and adjudge it null. The injury thus is
centered on the question of whether the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is constitutionally infirm.
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here. does not suffice. There must be a factual foundation of such unconstitutional
taint. Considering that petitioner here would condemn such a provision as void or its face, he
has not made out a case. This is merely to adhere to the authoritative doctrine that were the due
process and equal protection clauses are invoked, considering that they arc not fixed rules but
rather broad standards, there is a need for of such persuasive character as would lead to such a
conclusion. Absent such a showing, the presumption of validity must prevail. 18
5. It is undoubted that the due process clause 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. That would be a clear abuse of power. It then
becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an

authority not conferred. That properly calls for the application of the Holmes dictum. It has also
been held that where the assailed tax measure is beyond the jurisdiction of the state, or is not
for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is
subject to attack on due process grounds. 19
6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of
this constitutional mandate whether the assailed act is in the exercise of the lice power or the
power of eminent domain is to demonstrated that the governmental act assailed, far from being
inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the
very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the
principle is that equal protection and security shall be given to every person under circumtances
which if not Identical are analogous. If law be looked upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever restrictions cast on some
in the group equally binding on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of
approximating the Ideal of the laws benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the Idea of law.
There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The
equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are different in fact or opinion to be
treated in law as though they were the same." 21Hence the constant reiteration of the view that
classification if rational in character is allowable. As a matter of fact, in a leading case of Lutz V.
Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution:
"The rule of taxation shag be uniform and equitable." 24 This requirement is met according to
Justice Laurel in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax "operates
with the same force and effect in every place where the subject may be found. " 26 He likewise
added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because this
is hardly attainable." 27 The problem of classification did not present itself in that case. It did not
arise until nine years later, when the Supreme Court held: "Equality and uniformity in taxation
means that all taxable articles or kinds of property of the same class shall be taxed at the same
rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation, ... . 28 As clarified by Justice Tuason, 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." 29 There is quite a similarity then to the
standard of equal protection for all that is required is that the tax "applies equally to all persons,
firms and corporations placed in similar situation." 30
8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration
the distinction between a tax rate and a tax base. There is no legal objection to a broader tax
base or taxable income by eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories. To repeat, it. is enough
that the classification must rest upon substantial distinctions that make real differences. In the
case of the gross income taxation embodied in Batas Pambansa Blg. 135, the, discernible basis

of classification is the susceptibility of the income to the application of generalized rules

removing all deductible items for all taxpayers within the class and fixing a set of reduced tax
rates to be applied to all of them. Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense, these taxpayers are e not entitled
to make deductions for income tax purposes because they are in the same situation more or
less. On the other hand, in the case of professionals in the practice of their calling and
businessmen, there is no uniformity in the costs or expenses necessary to produce their income.
It would not be just then to disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross income. There is
ample justification then for the Batasang Pambansa to adopt the gross system of income
taxation to compensation income, while continuing the system of net income taxation as regards
professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1)
lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force
of controlling doctrines on due process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net income of
professionals and businessman certainly not a suspect classification,
WHEREFORE, the petition is dismissed. Costs against petitioner.
G.R. No. 167330
September 18, 2009
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social services
available to all the people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to provide
free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration
dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care
Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct
and operate a prepaid group practice health care delivery system or a health maintenance
organization to take care of the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the organization." Individuals
enrolled in its health care programs pay an annual membership fee and are entitled to various
preventive, diagnostic and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group practice health
delivery system at a hospital or clinic owned, operated or accredited by it.
xxx
xxx
xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a
formal demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the
total amount of P224,702,641.18. xxxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioners health
care agreement with the members of its health care program pursuant to Section 185 of the
1997 Tax Code xxxx
xxx
xxx
xxx
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not
act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking
the cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting
to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until
fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20%
interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT
Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency
DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is
ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the
DST assessment. He claimed that petitioners health care agreement was a contract of
insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioners health care agreement
was in the nature of a non-life insurance contract subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals,
insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax
assessment and ordered petitioner to desist from collecting the same is REVERSED and SET
ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency
Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment
and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the
Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx
xxx
xxx
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs decision.
We held that petitioners health care agreement during the pertinent period was in the nature of
non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4We also ruled that petitioners contention
that it is a health maintenance organization (HMO) and not an insurance company is irrelevant
because contracts between companies like petitioner and the beneficiaries under their plans are
treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an
excise on the privilege, opportunity or facility offered at exchanges for the transaction of the
business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and
supplemental motion for reconsideration, asserting the following arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed
only on a company engaged in the business of fidelity bonds and other insurance
policies. Petitioner, as an HMO, is a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in
effect the CAs disposition that health care services are not in the nature of an
insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is
clear, especially in the light of the amendments made in the DST law in 2002.

(e) Assuming arguendo that petitioners agreements are contracts of indemnity, they
are not those contemplated under Section 185.
(f) Assuming arguendo that petitioners agreements are akin to health insurance,
health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance"
mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year
2005 and all prior years. Therefore, the questioned assessments on the DST are now
rendered moot and academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their
memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax
amnesty under RA 94807(also known as the "Tax Amnesty Act of 2007") by fully paying the
amount of P5,127,149.08 representing 5% of its net worth as of the year ending December 31,
2005.8
We find merit in petitioners motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange
Commission on June 30, 1987.9 It is engaged in the dispensation of the following medical
services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise and other healthy habits, and
immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis,
complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic
processes in the event of an injury or sickness on the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership fee. Membership is on
a year-to-year basis. The medical services are dispensed to enrolled members in a hospital or
clinic owned, operated or accredited by petitioner, through physicians, medical and dental
practitioners under contract with it. It negotiates with such health care practitioners regarding
payment schemes, financing and other procedures for the delivery of health services. Except in
cases of emergency, the professional services are to be provided only by petitioner's
physicians, i.e. those directly employed by it11 or whose services are contracted by it.12 Petitioner
also provides hospital services such as room and board accommodation, laboratory services,
operating rooms, x-ray facilities and general nursing care.13 If and when a member avails of the
benefits under the agreement, petitioner pays the participating physicians and other health care
providers for the services rendered, at pre-agreed rates.14
To avail of petitioners health care programs, the individual members are required to sign and
execute a standard health care agreement embodying the terms and conditions for the provision
of the health care services. The same agreement contains the various health care services that
can be engaged by the enrolled member, i.e., preventive, diagnostic and curative medical
services. Except for the curative aspect of the medical service offered, the enrolled member may
actually make use of the health care services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an
insurer because its agreements are treated as insurance contracts and the DST is not a tax on
the business but an excise on the privilege, opportunity or facility used in the transaction of the
business.15
Petitioner, however, submits that it is of critical importance to characterize the business it is
engaged in, that is, to determine whether it is an HMO or an insurance company, as this
distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health
care agreements.16

A second hard look at the relevant law and jurisprudence convinces the Court that the
arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability
made or renewed by any person, association or company or corporation transacting the
business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of
the duties of any office or position, for the doing or not doing of anything therein specified, and
on all obligations guaranteeing the validity or legality of any bond or other obligations issued by
any province, city, municipality, or other public body or organization, and on all obligations
guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be
made or renewed by any such person, company or corporation, there shall be collected a
documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part
thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a
statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To
this end, a construction which renders every word operative is preferred over that which makes
some words idle and nugatory.17 This principle is expressed in the maxim Ut magis valeat quam
pereat, that is, we choose the interpretation which gives effect to the whole of the statute its
every word.18
From the language of Section 185, it is evident that two requisites must concur before the DST
can apply, namely: (1) the document must be a policy of insurance or an obligation in the
nature of indemnity and (2)the maker should be transacting the business of accident,
fidelity, employers liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or
other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of
1995"), an HMO is "an entity that provides, offers or arranges for coverage of designated health
services needed by plan members for a fixed prepaid premium."19 The payments do not vary
with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the
pertinent taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what
constitutes "doing an insurance business" or "transacting an insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation
and not as merely incidental to any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning of
this Code;
d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the making
of insurance contracts, agreements or transactions or that no separate or direct consideration is
received therefore, shall not be deemed conclusive to show that the making thereof does not
constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our
decisions,21 have determined that HMOs are not in the insurance business. One test that they
have applied is whether the assumption of risk and indemnification of loss (which are elements
of an insurance business) are the principal object and purpose of the organization or whether
they are merely incidental to its business. If these are the principal objectives, the business is

that of insurance. But if they are merely incidental and service is the principal purpose, then the
business is not insurance.
Applying the "principal object and purpose test,"22 there is significant American case law
supporting the argument that a corporation (such as an HMO, whether or not organized for
profit), whose main object is to provide the members of a group with health services, is not
engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals of
the District of Columbia Circuit held that Group Health Association should not be considered as
engaged in insurance activities since it was created primarily for the distribution of health care
services rather than the assumption of insurance risk.
xxx Although Group Healths activities may be considered in one aspect as creating security
against loss from illness or accident more truly they constitute the quantity purchase of wellrounded, continuous medical service by its members. xxx The functions of such an
organization are not identical with those of insurance or indemnity companies. The latter
are concerned primarily, if not exclusively, with risk and the consequences of its descent, not
with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the
daily routine of living. Hazard is predominant. On the other hand, the cooperative is
concerned principally with getting service rendered to its members and doing so at lower
prices made possible by quantity purchasing and economies in operation. Its primary
purpose is to reduce the cost rather than the risk of medical care; to broaden the service
to the individual in kind and quantity; to enlarge the number receiving it; to regularize it
as an everyday incident of living, like purchasing food and clothing or oil and gas, rather
than merely protecting against the financial loss caused by extraordinary and unusual
occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take
care of colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as
well as the more serious and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of physician and
patient together, the preventive features, the regularization of service as well as payment,
the substantial reduction in cost by quantity purchasing in short, getting the medical job
done and paid for; not, except incidentally to these features, the indemnification for cost
after the services is rendered. Except the last, these are not distinctive or generally
characteristic of the insurance arrangement. There is, therefore, a substantial difference
between contracting in this way for the rendering of service, even on the contingency that it be
needed, and contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not outweigh
all other factors. If attention is focused only on that feature, the line between insurance or
indemnity and other types of legal arrangement and economic function becomes faint, if not
extinct. This is especially true when the contract is for the sale of goods or services on
contingency. But obviously it was not the purpose of the insurance statutes to regulate all
arrangements for assumption or distribution of risk. That view would cause them to engulf
practically all contracts, particularly conditional sales and contingent service agreements. The
fallacy is in looking only at the risk element, to the exclusion of all others present or their
subordination to it. The question turns, not on whether risk is involved or assumed, but
on whether that or something else to which it is related in the particular plan is its
principal object purpose.24 (Emphasis supplied)
In California Physicians Service v. Garrison,25 the California court felt that, after scrutinizing the
plan of operation as a whole of the corporation, it was service rather than indemnity which stood
as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged in the
insurance business. Absence or presence of assumption of risk or peril is not the sole test
to be applied in determining its status. The question, more broadly, is whether, looking at
the plan of operation as a whole, service rather than indemnity is its principal object

and purpose. Certainly the objects and purposes of the corporation organized and maintained
by the California physicians have a wide scope in the field of social service. Probably there is
no more impelling need than that of adequate medical care on a voluntary, low-cost basis
for persons of small income. The medical profession unitedly is endeavoring to meet that
need. Unquestionably this is service of a high order and not indemnity. 26 (Emphasis
supplied)
American courts have pointed out that the main difference between an HMO and an insurance
company is that HMOs undertake to provide or arrange for the provision of medical services
through participating physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed limit. Somerset Orthopedic
Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident
insurers is that the former undertake to provide prepaid medical services through participating
physicians, thus relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of
rates contained in the policy.
xxx
xxx
xxx
The primary purpose of a medical service corporation, however, is an undertaking to provide
physicians who will render services to subscribers on a prepaid basis. Hence, if there are no
physicians participating in the medical service corporations plan, not only will the
subscribers be deprived of the protection which they might reasonably have expected
would be provided, but the corporation will, in effect, be doing business solely as a health
and accident indemnity insurer without having qualified as such and rendering itself subject to
the more stringent financial requirements of the General Insurance Laws.
A participating provider of health care services is one who agrees in writing to render health care
services to or for persons covered by a contract issued by health service corporation in
return for which the health service corporation agrees to make payment directly to the
participating provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose of
the business to provide medical services as needed, with payment made directly to the provider
of these services.29 In short, even if petitioner assumes the risk of paying the cost of these
services even if significantly more than what the member has prepaid, it nevertheless cannot be
considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case
of emergency by non-participating health providers would still be incidental to petitioners
purpose of providing and arranging for health care services and does not transform it into an
insurer. To fulfill its obligations to its members under the agreements, petitioner is required to set
up a system and the facilities for the delivery of such medical services. This indubitably shows
that indemnification is not its sole object.
In fact, a substantial portion of petitioners services covers preventive and diagnostic medical
services intended to keep members from developing medical conditions or diseases.30 As an
HMO, it is its obligation to maintain the good health of its members. Accordingly, its health
care programs are designed to prevent or to minimize the possibility of any assumption
of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members
against any loss or damage arising from a medical condition but, on the contrary, to provide the
health and medical services needed to prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them
medical care. The "insurance-like" aspect of petitioners business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care services rather
than insurance services, it cannot be considered as being in the insurance business.

It is important to emphasize that, in adopting the "principal purpose test" used in the abovequoted U.S. cases, we are not saying that petitioners operations are identical in every respect to
those of the HMOs or health providers which were parties to those cases. What we are stating is
that, for the purpose of determining what "doing an insurance business" means, we have to
scrutinize the operations of the business as a whole and not its mere components. This is of
course only prudent and appropriate, taking into account the burdensome and strict laws, rules
and regulations applicable to insurers and other entities engaged in the insurance business.
Moreover, we are also not unmindful that there are other American authorities who have found
particular HMOs to be actually engaged in insurance activities. 32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is
evident from the fact that it is not supervised by the Insurance Commission but by the
Department of Health.33 In fact, in a letter dated September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not engaged in the insurance business. This
determination of the commissioner must be accorded great weight. It is well-settled that the
interpretation of an administrative agency which is tasked to implement a statute is accorded
great respect and ordinarily controls the interpretation of laws by the courts. The reason behind
this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a
modern or modernizing society and the establishment of diverse administrative agencies for
addressing and satisfying those needs; it also relates to the accumulation of experience and
growth of specialized capabilities by the administrative agency charged with implementing a
particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35 the Court
stressed that executive officials are presumed to have familiarized themselves with all the
considerations pertinent to the meaning and purpose of the law, and to have formed an
independent, conscientious and competent expert opinion thereon. The courts give much weight
to the government agency officials charged with the implementation of the law, their
competence, expertness, experience and informed judgment, and the fact that they frequently
are the drafters of the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185
Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance or obligations of the
nature of indemnity for loss, damage, or liability." In our decision dated June 12, 2008, we
ruled that petitioners health care agreements are contracts of indemnity and are therefore
insurance contracts:
It is incorrect to say that the health care agreement is not based on loss or damage because,
under the said agreement, petitioner assumes the liability and indemnifies its member for
hospital, medical and related expenses (such as professional fees of physicians). The term "loss
or damage" is broad enough to cover the monetary expense or liability a member will incur in
case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to
the member in case of sickness, injury or emergency or his availment of so-called "out-patient
services" (including physical examination, x-ray and laboratory tests, medical consultations,
vaccine administration and family planning counseling) is the contingent event which gives rise
to liability on the part of the member. In case of exposure of the member to liability, he would be
entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses
arising from the stipulated contingencies belies its claim that its services are prepaid. The
expenses to be incurred by each member cannot be predicted beforehand, if they can be
predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they
are significantly and substantially more than what the member has "prepaid." Petitioner does not
bear the costs alone but distributes or spreads them out among a large group of persons

bearing a similar risk, that is, among all the other members of the health care program. This is
insurance.37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. On all policies of
insurance or bondsor obligations of the nature of indemnity for loss, damage, or
liability made or renewed by any person, association or company or corporation transacting the
business of accident, fidelity, employers liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance),
xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly
construed against the taxing authority.38 This is because taxation is a destructive power which
interferes with the personal and property rights of the people and takes from them a portion of
their property for the support of the government.39 Hence, tax laws may not be extended by
implication beyond the clear import of their language, nor their operation enlarged so as to
embrace matters not specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care
agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.
However, those cases did not involve the interpretation of a tax provision. Instead, they dealt
with the liability of a health service provider to a member under the terms of their health care
agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the
member and strictly against the HMO. For this reason, we reconsider our ruling that Blue
Cross andPhilamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby
one undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event. An insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk and
5. In consideration of the insurers promise, the insured pays a premium.41
Do the agreements between petitioner and its members possess all these elements? They do
not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a
contract contains all the elements of an insurance contract, if its primary purpose is the
rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements
mentioned above would be an insurance contract. The primary purpose of the parties in
making the contract may negate the existence of an insurance contract. For example, a
law firm which enters into contracts with clients whereby in consideration of periodical payments,
it promises to represent such clients in all suits for or against them, is not engaged in the
insurance business. Its contracts are simply for the purpose of rendering personal services. On
the other hand, a contract by which a corporation, in consideration of a stipulated amount,
agrees at its own expense to defend a physician against all suits for damages for malpractice is
one of insurance, and the corporation will be deemed as engaged in the business of insurance.
Unlike the lawyers retainer contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage resulting from the defense of
actions for malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioners
agreements. To begin with, there is no loss, damage or liability on the part of the member that
should be indemnified by petitioner as an HMO. Under the agreement, the member pays
petitioner a predetermined consideration in exchange for the hospital, medical and professional

services rendered by the petitioners physician or affiliated physician to him. In case of availment
by a member of the benefits under the agreement, petitioner does not reimburse or indemnify
the member as the latter does not pay any third party. Instead, it is the petitioner who pays the
participating physicians and other health care providers for the services rendered at pre-agreed
rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability
on the part of the member to any third party-provider of medical services which might in turn
necessitate indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose
that a liability or claim has already been incurred. There is no indemnity precisely because the
member merely avails of medical services to be paid or already paid in advance at a pre-agreed
price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g.laboratory services, x-ray, routine annual physical examination and consultations,
vaccine administration as well as family planning counseling, even in the absence of any peril,
loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care
from a non-participating physician or hospital. However, this is only a very minor part of the list of
services available. The assumption of the expense by petitioner is not confined to the happening
of a contingency but includes incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the
health care contracts called for the defendant to partially reimburse a subscriber for treatment
received from a non-designated doctor, this did not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of the defendant (was) the provision of podiatric
services to subscribers in consideration of prepayment for such services." 44 Since indemnity of
the insured was not the focal point of the agreement but the extension of medical services to the
member at an affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that
risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation
always bears a certain degree of financial risk. Consequently, there is a need to distinguish
prepaid service contracts (like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health
services: the risk that it might fail to earn a reasonable return on its investment. But it is not the
risk of the type peculiar only to insurance companies. Insurance risk, also known as actuarial
risk, is the risk that the cost of insurance claims might be higher than the premiums paid. The
amount of premium is calculated on the basis of assumptions made relative to the insured. 45
However, assuming that petitioners commitment to provide medical services to its members can
be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still
will not qualify as an insurance contract because petitioners objective is to provide medical
services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioners agreements with its members leads us to conclude that it
is not an insurance contract within the context of our Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioners health
care agreements under Section 185 of the NIRC of 1997 is the provisions legislative history.
The text of Section 185 came into U.S. law as early as 1904 when HMOs and health care
agreements were not even in existence in this jurisdiction. It was imposed under Section 116,
Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of 1904")46enacted on
July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax, Section 185 of
the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied, collected, and paid for and in respect to the several bonds,
debentures, or certificates of stock and indebtedness, and other documents, instruments,
matters, and things mentioned and described in this section, or for or in respect to the vellum,
parchment, or paper upon which such instrument, matters, or things or any of them shall be
written or printed by any person or persons who shall make, sign, or issue the same, on and
after January first, nineteen hundred and five, the several taxes following:
xxx
xxx
xxx
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity
for loss, damage, or liability made or renewed by any person, association, company, or
corporation transacting the business of accident, fidelity, employers liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except
life, marine, inland, and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising
and consolidating the laws relating to internal revenue. The aforecited pertinent portion of
Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of
Act No. 2339. The very detailed and exclusive enumeration of items subject to DST was thus
retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as
Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on
March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise
known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of
1939), which codified all the internal revenue laws of the Philippines. In an amendment
introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision
remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD
1158 (NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and
October 10, 1984 respectively, the DST rate was again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977
was renumbered as Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was
again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect
to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC
of 1997), the subject legal provision was retained as the present Section 185. In 2004,
amendments to the DST provisions were introduced by RA 924348 but Section 185 was
untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation
of Bancom Health Care Corporation in 1974. The same pioneer HMO was later reorganized and
renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who
claim that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the
Philippines as early as 1965 and having been formally incorporated in 1991. Afterwards, HMOs
proliferated quickly and currently, there are 36 registered HMOs with a total enrollment of more
than 2 million.49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the
other) that when the law imposing the DST was first passed, HMOs were yet unknown in the
Philippines. However, when the various amendments to the DST law were enacted, they were
already in existence in the Philippines and the term had in fact already been defined by RA
7875. If it had been the intent of the legislature to impose DST on health care agreements, it
could have done so in clear and categorical terms. It had many opportunities to do so. But it did
not. The fact that the NIRC contained no specific provision on the DST liability of health care
agreements of HMOs at a time they were already known as such, belies any legislative intent to

impose it on them. As a matter of fact, petitioner was assessed its DST liability only on
January 27, 2000, after more than a decade in the business as an HMO.50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be
safe to say that health care agreements were never, at any time, recognized as insurance
contracts or deemed engaged in the business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in
the responsibility of the legislature which imposes the tax on the constituency who is to pay
it.51 So potent indeed is the power that it was once opined that "the power to tax involves the
power to destroy."52
Petitioner claims that the assessed DST to date which amounts to P376 million53 is way beyond
its net worth ofP259 million.54 Respondent never disputed these assertions. Given the realities
on the ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose
of the government to throttle private business. On the contrary, the government ought to
encourage private enterprise.55 Petitioner, just like any concern organized for a lawful economic
activity, has a right to maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA, et
al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden
egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence.
Incurring losses because of a tax imposition may be an acceptable consequence but killing the
business of an entity is another matter and should not be allowed. It is counter-productive and
ultimately subversive of the nations thrust towards a better economy which will ultimately benefit
the majority of our people.59
Petitioners Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996
and 1997 became moot and academic60 when it availed of the tax amnesty under RA 9480 on
December 10, 2007. It paidP5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a)
of RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising
from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity
from payment of the tax involved, including the civil, criminal, or administrative penalties
provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioners availment of the benefits of [RA 9840], and without conceding the merits of
this case as discussed above, respondent concedes that such tax amnesty extinguishes
the tax liabilities of petitioner. This admission, however, is not meant to preclude a revocation
of the amnesty granted in case it is found to have been granted under circumstances amounting
to tax fraud under Section 10 of said amnesty law.62(Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty
program under RA 9480.63 There is no other conclusion to draw than that petitioners liability for
DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax
amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is
bound by the ruling of the CA64 in CIR v. Philippine National Bank65 that a health care agreement
of Philamcare Health Systems is not an insurance contract for purposes of the DST.

In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court
dismissing the appeal in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the
dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the
Court should apply the CA ruling there that a health care agreement is not an insurance
contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a
disposition of the merits of the case. When we dismissed the petition, we effectively affirmed the
CA ruling being questioned. As a result, our ruling in that case has already become final.67 When
a minute resolution denies or dismisses a petition for failure to comply with formal and
substantive requirements, the challenged decision, together with its findings of fact and legal
conclusions, are deemed sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata.69 However, if other parties or another subject matter (even with the
same parties and issues) is involved, the minute resolution is not binding precedent. Thus,
in CIR v. Baier-Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving the
same parties and the same issues, was previously disposed of by the Court thru a minute
resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled
that the previous case "ha(d) no bearing" on the latter case because the two cases involved
different subject matters as they were concerned with the taxable income of different taxable
years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a
decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of
the Constitution that the facts and the law on which the judgment is based must be expressed
clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is
signed only by the clerk of court by authority of the justices, unlike a decision. It does not require
the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not
published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a
decision.73 Indeed, as a rule, this Court lays down doctrines or principles of law which constitute
binding precedent in a decision duly signed by the members of the Court and certified by the
Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners liability for
DST on its health care agreement was not the subject matter of G.R. No. 148680, petitioner
cannot successfully invoke the minute resolution in that case (which is not even binding
precedent) in its favor. Nonetheless, in view of the reasons already discussed, this does not
detract in any way from the fact that petitioners health care agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185
of the NIRC and there was never any legislative intent to impose the same on HMOs like
petitioner, the same should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical
services at a cost which the average wage earner can afford. HMOs arrange, organize and
manage health care treatment in the furtherance of the goal of providing a more efficient and
inexpensive health care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system (wherein individuals
are charged a fee each time they receive medical services), including the ability to control costs.
They protect their members from exposure to the high cost of hospitalization and other medical
expenses brought about by a fluctuating economy. Accordingly, they play an important role in
society as partners of the State in achieving its constitutional mandate of providing its citizens
with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its
imposition will elevate the cost of health care services. This will in turn necessitate an increase in
the membership fees, resulting in either placing health services beyond the reach of the ordinary

wage earner or driving the industry to the ground. At the end of the day, neither side wins,
considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of
the Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and
1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
Commissioner vs. AlgueGRL-28890, 17 February 1988
Facts:
The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc. as its agent,
authorizing it to sell its land, factories, and oil manufacturing process. The Vegetable Oil
Investment Corporation (VOICP) purchased PSEDC properties. For the sale, Algue received a
commission of P125,000 and it was from this commission that it paid Guevara, et. al. organizers
of the VOICP, P75,000 in promotional fees. In 1965, Algue received an assessment from the
Commissioner of Internal Revenue in the amount of P83,183.85 as delinquency income tax for
years 1958amd 1959. Algue filed a protest or request for reconsideration which was not acted
upon by the Bureau of Internal Revenue (BIR). The counsel for Algue had to accept the warrant
of distrant and levy. Algue, however, filed a petition for review with the Court of Tax Appeals.
Issue:
Whether the assessment was reasonable
Held:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. Every person who is able to pay must contribute his share in the running of the
government. The Government, for his 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. This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that is an arbitrary method of exaction by those in the seat of power. Tax
collection, however, should be made in accordance with law as any arbitrariness will negate the
very reason for government itself. For all the awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate that the law has not been observed.
Herein, the claimed deduction (pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1]
of Revenue Regulation 2: as to compensation for personal services) had been legitimately by
Algue Inc. It has further proven that the payment of fees was reasonable and necessary in light
of the efforts exerted by the payees in inducing investors (in VOICP) to involve themselves in an
experimental enterprise or a business requiring millions of pesos. The assessment was not
reasonable.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
CRUZ, J.:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate
business expenses in its income tax returns. The corollary issue is whether or not the appeal of
the private respondent from the decision of the Collector of Internal Revenue was made on time
and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic corporation
engaged in engineering, construction and other allied activities, received a letter from the

petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the
years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request for
reconsideration, which letter was stamp received on the same day in the office of the
petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private
respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the
ground of the pending protest. 3 A search of the protest in the dockets of the case proved
fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes,
who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally 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. 5 Sixteen days later, on April 23, 1965,
Algue filed a petition for review of the decision of the Commissioner of Internal Revenue with the
Court of Tax Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep. Act No.
1125, the appeal may be made within thirty days after receipt of the decision or ruling
challenged. 7 It is true that as a rule the warrant of distraint and levy is "proof of the finality of the
assessment" 8 and renders hopeless a request for reconsideration," 9 being "tantamount to an
outright denial thereof and makes the said request deemed rejected."10 But there is a special
circumstance in the case at bar that prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of
the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at
all, considered by the tax authorities. During the intervening period, the warrant was premature
and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent was
not pro forma and was based on strong legal considerations. It thus had the effect of suspending
on January 18, 1965, when it was filed, the reglementary period which started on the date the
assessment was received, viz., January 14, 1965. The period started running again only on April
7, 1965, when the private respondent was definitely informed of the implied rejection of the said
protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23,
1965, only 20 days of the reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense. The Court of Tax
Appeals had seen it differently. Agreeing with Algue, it held that the said amount had been
legitimately paid by the private respondent for actual services rendered. The payment was 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.
Parenthetically, it may be observed that the petitioner had Originally claimed these promotional
fees to be personal holding company income 12 but later conformed to the decision of the
respondent court rejecting this assertion. 13 In fact, as the said court found, the amount was
earned through the joint efforts of the persons among whom it was distributed It has been
established that the Philippine Sugar Estate Development Company had earlier appointed Algue
as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to
such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and
Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing
other persons to invest in it. 14 Ultimately, after its incorporation largely through the promotion of
the said persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue
received as agent a commission of P126,000.00, and it was from this commission that the
P75,000.00 promotional fees were paid to the aforenamed individuals. 16

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. 17 The Court of Tax Appeals also
found, after examining the evidence, that no distribution of dividends was involved. 18
The petitioner claims that these payments are fictitious because most of the payees are
members of the same family in control of Algue. It is argued that no indication was made as to
how such payments were made, whether by check or in cash, and there is not enough
substantiation of such payments. In short, the petitioner suggests a tax dodge, an attempt to
evade a legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its
President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments
were not made in one lump sum but periodically and in different amounts as each payee's need
arose. 19 It should be remembered that this was a family corporation where strict business
procedures were not applied and immediate issuance of receipts was not required. Even so, 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. 20 Admittedly, everything
seemed to be informal. This arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not excessive.
The total commission paid by the Philippine Sugar Estate Development Co. to the private
respondent was P125,000.00. 21After 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. This finding of the respondent court is in
accord with the following provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there
shall be allowed as deductions
(a) Expenses:
(1) In general.--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; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and
necessary expenses paid or incurred in carrying on any trade or business
may be included a reasonable allowance for salaries or other compensation
for personal services actually rendered. The test of deductibility in the case
of compensation payments is whether they are reasonable and are, in fact,
payments purely for service. This test and deductibility in the case of
compensation payments is whether they are reasonable and are, in fact,
payments purely for service. This test and its practical application may be
further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible. (a) An ostensible salary paid
by a corporation may be a distribution of a dividend on stock. This is likely to
occur in the case of a corporation having few stockholders, Practically all of
whom draw salaries. If in such a case the salaries are in excess of those
ordinarily paid for similar services, and the excessive payment correspond
or bear a close relationship to the stockholdings of the officers of
employees, it would seem likely that the salaries are not paid wholly for
services rendered, but the excessive payments are a distribution of earnings
upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to prove the
validity of the claimed deduction. In the present case, however, we find that the onus has been
discharged satisfactorily. The private respondent 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. This was no mean feat and should be, as it was,
sufficiently recompensed.
It is said that 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. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it 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. For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code
and should therefore not have been disallowed by the petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in
toto, without costs.
SO ORDERED.
G.R. No. 149110
April 9, 2003
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
PUNO, J.:
This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated
March 12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation
(NPC) liable to pay franchise tax to respondent City of Cabanatuan.
Petitioner is a government-owned and controlled corporation created under Commonwealth Act
No. 120, as amended.4 It is tasked to undertake the "development of hydroelectric generations
of power and the production of electricity from nuclear, geothermal and other sources, as well
as, the transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty,
petitioner has, among others, the power to construct, operate and maintain power plants,
auxiliary plants, power stations and substations for the purpose of developing hydraulic power
and supplying such power to the inhabitants.6
For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting
a gross income of P107,814,187.96 in 1992.7 Pursuant to section 37 of Ordinance No. 16592,8 the respondent assessed the petitioner a franchise tax amounting to P808,606.41,
representing 75% of 1% of the latter's gross receipts for the preceding year.9
Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no authority
to impose tax on government entities. Petitioner also contended that as a non-profit

organization, it is exempted from the payment of all forms of taxes, charges, duties or fees11 in
accordance with sec. 13 of Rep. Act No. 6395, as amended, viz:
"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties,
Fees, Imposts and Other Charges by Government and Governmental
Instrumentalities.- The Corporation shall be non-profit and shall devote all its return
from its capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and obligations and in
furtherance and effective implementation of the policy enunciated in Section one of
this Act, the Corporation is hereby exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service
fees in any court or administrative proceedings in which it may be a party, restrictions
and duties to the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and wharfage
fees on import of foreign goods required for its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power." 12
The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding
that petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of
tax, and 2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes
has been repealed by section 193 of Rep. Act No. 7160,14 which reads as follows:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government owned or controlled corporations,
except local water districts, cooperatives duly registered under R.A. No. 6938, nonstock and non-profit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code."
On January 25, 1996, the trial court issued an Order15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for
the following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by
Rep. Act No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature
of an implied repeal which is not favored; and (3) local governments have no power to tax
instrumentalities of the national government. Pertinent portion of the Order reads:
"The question of whether a particular law has been repealed or not by a subsequent
law is a matter of legislative intent. The lawmakers may expressly repeal a law by
incorporating therein repealing provisions which expressly and specifically cite(s) the
particular law or laws, and portions thereof, that are intended to be repealed. A
declaration in a statute, usually in its repealing clause, that a particular and specific
law, identified by its number or title is repealed is an express repeal; all others are
implied repeal. Sec. 193 of R.A. No. 7160 is an implied repealing clause because it
fails to identify the act or acts that are intended to be repealed. It is a well-settled rule
of statutory construction that repeals of statutes by implication are not favored. The
presumption is against inconsistency and repugnancy for the legislative is presumed
to know the existing laws on the subject and not to have enacted inconsistent or
conflicting statutes. It is also a well-settled rule that, generally, general law does not
repeal a special law unless it clearly appears that the legislative has intended by the
latter general act to modify or repeal the earlier special law. Thus, despite the passage

of R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.
Another point going against plaintiff in this case is the ruling of the Supreme Court in
the case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52,
where it was held that:
'Local governments have no power to tax instrumentalities of the National
Government. PAGCOR is a government owned or controlled corporation
with an original charter, PD 1869. All of its shares of stocks are owned by
the National Government. xxx Being an instrumentality of the government,
PAGCOR should be and actually is exempt from local taxes. Otherwise, its
operation might be burdened, impeded or subjected to control by mere local
government.'
Like PAGCOR, NPC, being a government owned and controlled corporation with an
original charter and its shares of stocks owned by the National Government, is beyond
the taxing power of the Local Government. Corollary to this, it should be noted here
that in the NPC Charter's declaration of Policy, Congress declared that: 'xxx (2) the
total electrification of the Philippines through the development of power from all
services to meet the needs of industrial development and dispersal and needs of rural
electrification are primary objectives of the nations which shall be
pursued coordinately and supported by all instrumentalities and agencies of the
government, including its financial institutions.' (underscoring supplied). To allow
plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.
Unlike the State, a city or municipality has no inherent power of taxation. Its taxing
power is limited to that which is provided for in its charter or other statute. Any grant of
taxing power is to be construed strictly, with doubts resolved against its existence.
From the existing law and the rulings of the Supreme Court itself, it is very clear that
the plaintiff could not impose the subject tax on the defendant."16
On appeal, the Court of Appeals reversed the trial court's Order17 on the ground that section 193,
in relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to
the petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a)
the sum of P808,606.41 representing the franchise tax due based on gross receipts for the year
1992, (b) the tax due every year thereafter based in the gross receipts earned by NPC, (c) in all
cases, to pay a surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as
litigation expense.19
On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's
Decision. This was denied by the appellate court, viz:
"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local
Government Code refers merely to private persons or corporations in which category it
(NPC) does not belong, and that the LGC (RA 7160) which is a general law may not
impliedly repeal the NPC Charter which is a special lawfinds the answer in Section
193 of the LGC to the effect that 'tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations except local water districts xxx are hereby withdrawn.' The
repeal is direct and unequivocal, not implied.
IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.
SO ORDERED."20
In this petition for review, petitioner raises the following issues:
"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A
PUBLIC NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS
IT FAILED TO CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT

CODE IN RELATION TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR

CORPORATIONS ENJOYING A FRANCHISE.
B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S
EXEMPTION FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE
PROVISION OF THE LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A
LATER LEGISLATION, WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO
HAVE REPEALED A SPECIAL LAW.
C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN
EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL
OVER THE LOCAL GOVERNMENT CODE."21
It is beyond dispute that the respondent city government has the authority to issue Ordinance
No. 165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section
151 in relation to section 137 of the LGC, viz:
"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a
franchise, at a rate not exceeding fifty percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction.
In the case of a newly started business, the tax shall not exceed one-twentieth (1/20)
of one percent (1%) of the capital investment. In the succeeding calendar year,
regardless of when the business started to operate, the tax shall be based on the
gross receipts for the preceding calendar year, or any fraction thereof, as provided
herein." (emphasis supplied)
x
x
x
Sec. 151. 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."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent
city government. It contends that sections 137 and 151 of the LGC in relation to section 131,
limit the taxing power of the respondent city government to private entities that are engaged in
trade or occupation for profit.22
Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public
interest which is conferred upon private persons or corporations, under such terms and
conditions as the government and its political subdivisions may impose in the interest of the
public welfare, security and safety." From the phraseology of this provision, the petitioner claims
that the word "private" modifies the terms "persons" and "corporations." Hence, when the LGC
uses the term "franchise," petitioner submits that it should refer specifically to franchises granted
to private natural persons and to private corporations.23 Ergo, its charter should not be
considered a "franchise" for the purpose of imposing the franchise tax in question.
On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial
activity regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that
it is not engaged in an activity for profit, in as much as its charter specifically provides that it is a
"non-profit organization." In any case, petitioner argues that the accumulation of profit is merely
incidental to its operation; all these profits are required by law to be channeled for expansion
and improvement of its facilities and services.24
Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such,
may not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine

Amusement and Gaming Corporation26 where this Court held that local governments have no
power to tax instrumentalities of the National Government, viz:
"Local governments have no power to tax instrumentalities of the National
Government.
PAGCOR has a dual role, to operate and regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the
Government. Being an instrumentality of the Government, PAGCOR should be and
actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by a mere local government.
'The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws enacted
by Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)'
This doctrine emanates from the 'supremacy' of the National Government over local
governments.
'Justice Holmes, speaking for the Supreme Court, made reference to the
entire absence of power on the part of the States to touch, in that way
(taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political
subdivision can regulate a federal instrumentality in such a way as to
prevent it from consummating its federal responsibilities, or even seriously
burden it from accomplishment of them.' (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, italics supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using
the power to tax as ' a tool regulation' (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the 'power to destroy' (Mc
Culloch v. Maryland,supra) cannot be allowed to defeat an instrumentality or creation
of the very entity which has the inherent power to wield it."27
Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special
law, its charter cannot be amended or modified impliedly by the local government code which is
a general law. Consequently, petitioner claims that its exemption from all taxes, fees or charges
under its charter subsists despite the passage of the LGC, viz:
"It is a well-settled rule of statutory construction that repeals of statutes by implication
are not favored and as much as possible, effect must be given to all enactments of the
legislature. Moreover, it has to be conceded that the charter of the NPC constitutes a
special law. Republic Act No. 7160, is a general law. It is a basic rule in statutory
construction that the enactment of a later legislation which is a general law cannot be
construed to have repealed a special law. Where there is a conflict between a general
law and a special statute, the special statute should prevail since it evinces the
legislative intent more clearly than the general statute."28
Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power,
should prevail over the LGC. It alleges that the power of the local government to impose
franchise tax is subordinate to petitioner's exemption from taxation; "police power being the most
pervasive, the least limitable and most demanding of all powers, including the power of
taxation."29
The petition is without merit.
Taxes are the lifeblood of the government,30 for without taxes, the government can neither exist
nor endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source
from the very existence of the state whose social contract with its citizens obliges it to promote
public interest and common good. The theory behind the exercise of the power to tax emanates

from necessity;32 without taxes, government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.
In recent years, the increasing social challenges of the times expanded the scope of state
activity, and taxation has become a tool to realize social justice and the equitable distribution of
wealth, economic progress and the protection of local industries as well as public welfare and
similar objectives.33 Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges34 pursuant
to Article X, section 5 of the 1987 Constitution, viz:
"Section 5.- Each Local Government unit shall have the power to create its own
sources of revenue, to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the Local
Governments."
This paradigm shift results from the realization that genuine development can be achieved only
by strengthening local autonomy and promoting decentralization of governance. For a long time,
the country's highly centralized government structure has bred a culture of dependence among
local government leaders upon the national leadership. It has also "dampened the spirit of
initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders."35 The only way to shatter this culture of dependence is to give the
LGUs a wider role in the delivery of basic services, and confer them sufficient powers to
generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the
1987 Constitution mandates Congress to enact a local government code that will, consistent
with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing
powers, viz:
"Section 3. The Congress shall enact a local government code which shall provide for
a more responsive and accountable local government structure instituted through a
system of decentralization with effective mechanisms of recall, initiative, and
referendum, allocate among the different local government units their powers,
responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions and duties of local
officials, and all other matters relating to the organization and operation of the local
units."
To recall, prior to the enactment of the Rep. Act No. 7160,36 also known as the Local
Government Code of 1991 (LGC), various measures have been enacted to promote local
autonomy. These include the Barrio Charter of 1959,37 the Local Autonomy Act of 1959,38 the
Decentralization Act of 196739 and the Local Government Code of 1983.40 Despite these
initiatives, however, the shackles of dependence on the national government remained. Local
government units were faced with the same problems that hamper their capabilities to
participate effectively in the national development efforts, among which are: (a) inadequate tax
base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize
and approve development projects, (d) heavy dependence on external sources of income, and
(e) limited supervisory control over personnel of national line agencies.41
Considered as the most revolutionary piece of legislation on local autonomy,42 the LGC
effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to
include taxes which were prohibited by previous laws such as the imposition of taxes on forest
products, forest concessionaires, mineral products, mining operations, and the like. The LGC
likewise provides enough flexibility to impose tax rates in accordance with their needs and
capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and
maximum tax rates and leaves the determination of the actual rates to the
respective sanggunian.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, this rule now admits an exception, i.e.,
when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:
"Section 133. Common Limitations on the Taxing Powers of the 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:
x
x
x
(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)
In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation44 relied upon by the petitioner to support its claim no
longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC,
when no law empowering the local government units to tax instrumentalities of the National
Government was in effect. However, as this Court ruled in the case of Mactan Cebu
International Airport Authority (MCIAA) vs. Marcos,45 nothing prevents Congress from decreeing
that even instrumentalities or agencies of the government performing governmental functions
may be subject to tax.46 In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national
government, was subject to real property tax, viz:
"Thus, reading together sections 133, 232, and 234 of the LGC, we conclude that as a
general rule, as laid down in section 133, the taxing power of local governments
cannot extend to the levy of inter alia, 'taxes, fees and charges of any kind on the
national government, its agencies and instrumentalities, and local government units';
however, pursuant to section 232, provinces, cities and municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, 'real
property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted for consideration or
otherwise, to a taxable person as provided in the item (a) of the first paragraph of
section 12.'"47
In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.
In its general signification, a franchise is a privilege conferred by government authority, which
does not belong to citizens of the country generally as a matter of common right. 48 In its specific
sense, a franchise may refer to a general or primary franchise, or to a special or secondary
franchise. The former relates to the right to exist as a corporation, by virtue of duly approved
articles of incorporation, or a charter pursuant to a special law creating the corporation.49 The
right under a primary or general franchise is vested in the individuals who compose the
corporation and not in the corporation itself.50 On the other hand, the latter refers to the right or
privileges conferred upon an existing corporation such as the right to use the streets of a
municipality to lay pipes of tracks, erect poles or string wires.51 The rights under a secondary or
special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged
under a general power granted to a corporation to dispose of its property, except such special or
secondary franchises as are charged with a public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is used
in the context of taxation. As commonly used, a franchise tax is "a tax on the privilege of
transacting business in the state and exercising corporate franchises granted by the state."53 It is

not levied on the corporation simply for existing as a corporation, upon its property54 or its
income,55 but on its exercise of the rights or privileges granted to it by the government. Hence, a
corporation need not pay franchise tax from the time it ceased to do business and exercise its
franchise.56 It is within this context that the phrase "tax on businesses enjoying a franchise" in
section 137 of the LGC should be interpreted and understood. Verily, to determine whether the
petitioner is covered by the franchise tax in question, the following requisites should concur: (1)
that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise within the territory of the respondent city
government.
Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No.
7395, constitutes petitioner's primary and secondary franchises. It serves as the petitioner's
charter, defining its composition, capitalization, the appointment and the specific duties of its
corporate officers, and its corporate life span.57 As its secondary franchise, Commonwealth Act
No. 120, as amended, vests the petitioner the following powers which are not available to
ordinary corporations, viz:
"x x x
(e) To conduct investigations and surveys for the development of water power in any
part of the Philippines;
(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of
waters from lands of riparian owners and from persons owning or interested in waters
which are or may be necessary for said purposes, upon payment of just compensation
therefor; to alter, straighten, obstruct or increase the flow of water in streams or water
channels intersecting or connecting therewith or contiguous to its works or any part
thereof: Provided, That just compensation shall be paid to any person or persons
whose property is, directly or indirectly, adversely affected or damaged thereby;
(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs,
pipes, mains, transmission lines, power stations and substations, and other works for
the purpose of developing hydraulic power from any river, creek, lake, spring and
waterfall in the Philippines and supplying such power to the inhabitants thereof; to
acquire, construct, install, maintain, operate, and improve gas, oil, or steam engines,
and/or other prime movers, generators and machinery in plants and/or auxiliary plants
for the production of electric power; to establish, develop, operate, maintain and
administer power and lighting systems for the transmission and utilization of its power
generation; to sell electric power in bulk to (1) industrial enterprises, (2) city, municipal
or provincial systems and other government institutions, (3) electric cooperatives, (4)
franchise holders, and (5) real estate subdivisions x x x;
(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and
otherwise dispose of property incident to, or necessary, convenient or proper to carry
out the purposes for which the Corporation was created: Provided, That in case a right
of way is necessary for its transmission lines, easement of right of way shall only be
sought: Provided, however, That in case the property itself shall be acquired by
purchase, the cost thereof shall be the fair market value at the time of the taking of
such property;
(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch,
flume, street, avenue, highway or railway of private and public ownership, as the
location of said works may require xxx;
(j) To exercise the right of eminent domain for the purpose of this Act in the manner
provided by law for instituting condemnation proceedings by the national, provincial
and municipal governments;
x
x
x

(m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;
(n) To exercise complete jurisdiction and control over watersheds surrounding the
reservoirs of plants and/or projects constructed or proposed to be constructed by the
Corporation. Upon determination by the Corporation of the areas required for
watersheds for a specific project, the Bureau of Forestry, the Reforestation
Administration and the Bureau of Lands shall, upon written advice by the Corporation,
forthwith surrender jurisdiction to the Corporation of all areas embraced within the
watersheds, subject to existing private rights, the needs of waterworks systems, and
the requirements of domestic water supply;
(o) In the prosecution and maintenance of its projects, the Corporation shall adopt
measures to prevent environmental pollution and promote the conservation,
development and maximum utilization of natural resources xxx "58
With these powers, petitioner eventually had the monopoly in the generation and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No.
40,59 nationalizing the electric power industry. Although Exec. Order No. 21560 thereafter allowed
private sector participation in the generation of electricity, the transmission of electricity remains
the monopoly of the petitioner.
Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as
amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the
franchise tax in question.
Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply
because its stocks are wholly owned by the National Government, and its charter characterized
it as a "non-profit" organization.
These contentions must necessarily fail.
To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises
the franchise, and not the individual stockholders. By virtue of its charter, petitioner was created
as a separate and distinct entity from the National Government. It can sue and be sued under its
own name,61 and can exercise all the powers of a corporation under the Corporation Code.62
To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
202963 classifies government-owned or controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary functions, viz:
"A government-owned or controlled corporation is a stock or a non-stock
corporation, whether performing governmental or proprietary functions, which
is directly chartered by special law or if organized under the general corporation law is
owned or controlled by the government directly, or indirectly through a parent
corporation or subsidiary corporation, to the extent of at least a majority of its
outstanding voting capital stock x x x." (emphases supplied)
Governmental functions are those pertaining to the administration of government, and as such,
are treated as absolute obligation on the part of the state to perform while proprietary functions
are those that are undertaken only by way of advancing the general interest of society, and are
merely optional on the government.64 Included in the class of GOCCs performing proprietary
functions are "business-like" entities such as the National Steel Corporation (NSC), the National
Development Corporation (NDC), the Social Security System (SSS), the Government Service
Insurance System (GSIS), and the National Water Sewerage Authority (NAWASA), 65 among
others.
Petitioner was created to "undertake the development of hydroelectric generation of power and
the production of electricity from nuclear, geothermal and other sources, as well as the

transmission of electric power on a nationwide basis."66 Pursuant to this mandate, petitioner

generates power and sells electricity in bulk. Certainly, these activities do not partake of the
sovereign functions of the government. They are purely private and commercial undertakings,
albeit imbued with public interest. The public interest involved in its activities, however, does not
distract from the true nature of the petitioner as a commercial enterprise, in the same league
with similar public utilities like telephone and telegraph companies, railroad companies, water
supply and irrigation companies, gas, coal or light companies, power plants, ice plant among
others; all of which are declared by this Court as ministrant or proprietary functions of
government aimed at advancing the general interest of society.67
A closer reading of its charter reveals that even the legislature treats the character of the
petitioner's enterprise as a "business," although it limits petitioner's profits to twelve percent
(12%), viz:68
"(n) When essential to the proper administration of its corporate affairs or necessary
for the proper transaction of its business or to carry out the purposes for which it was
organized, to contract indebtedness and issue bonds subject to approval of the
President upon recommendation of the Secretary of Finance;
(o) To exercise such powers and do such things as may be reasonably necessary to
carry out the business and purposes for which it was organized, or which, from time to
time, may be declared by the Board to be necessary, useful, incidental or auxiliary to
accomplish the said purpose xxx."(emphases supplied)
It is worthy to note that all other private franchise holders receiving at least sixty percent (60%)
of its electricity requirement from the petitioner are likewise imposed the cap of twelve percent
(12%) on profits.69 The main difference is that the petitioner is mandated to devote "all its returns
from its capital investment, as well as excess revenues from its operation, for expansion"70 while
other franchise holders have the option to distribute their profits to its stockholders by declaring
dividends. We do not see why this fact can be a source of difference in tax treatment. In both
instances, the taxable entity is the corporation, which exercises the franchise, and not the
individual stockholders.
We also do not find merit in the petitioner's contention that its tax exemptions under its charter
subsist despite the passage of the LGC.
As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and supported by clear legal provisions. 71 In the case at
bar, the petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among
others, "all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities." However, section 193 of the LGC withdrew, subject to limited exceptions, the
sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the
contention of petitioner, section 193 of the LGC is an express, albeit general, repeal of all
statutes granting tax exemptions from local taxes.72 It reads:
"Sec. 193. Withdrawal of Tax Exemption Privileges.- Unless otherwise provided in this
Code, tax exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and non-profit hospitals and educational institutions, are hereby
withdrawn upon the effectivity of this Code." (emphases supplied)
It is a basic precept of statutory construction that the express mention of one person, thing, act,
or consequence excludes all others as expressed in the familiar maxim expressio unius est
exclusio alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938,
or a non-stock and non-profit hospital or educational institution, petitioner clearly does not
belong to the exception. It is therefore incumbent upon the petitioner to point to some provisions
of the LGC that expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can
impose franchise tax "notwithstanding any exemption granted by any law or other special law."
This particular provision of the LGC does not admit any exception. In City Government of San
Pablo, Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was
brought as an issue before this Court. The same issue was involved in the subsequent case
of Manila Electric Company v. Province of Laguna.75 Ruling in favor of the local government in
both instances, we ruled that the franchise tax in question is imposable despite any exemption
enjoyed by MERALCO under special laws, viz:
"It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of
the LGC to support their position that MERALCO's tax exemption has been withdrawn.
The explicit language of section 137 which authorizes the province to impose
franchise tax 'notwithstanding any exemption granted by any law or other special law'
is all-encompassing and clear. The franchise tax is imposable despite any exemption
enjoyed under special laws.
Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating
that unless otherwise provided in this Code, tax exemptions or incentives granted to or
presently enjoyed by all persons, whether natural or juridical, including governmentowned or controlled corporations except (1) local water districts, (2) cooperatives duly
registered under R.A. 6938, (3) non-stock and non-profit hospitals and educational
institutions, are withdrawn upon the effectivity of this code, the obvious import is to
limit the exemptions to the three enumerated entities. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius. In the absence of any provision of the Code to the contrary, and we find no
other provision in point, any existing tax exemption or incentive enjoyed by MERALCO
under existing law was clearly intended to be withdrawn.
Reading together sections 137 and 193 of the LGC, we conclude that under the LGC
the local government unit may now impose a local tax at a rate not exceeding 50% of
1% of the gross annual receipts for the preceding calendar based on the incoming
receipts realized within its territorial jurisdiction. The legislative purpose to withdraw
tax privileges enjoyed under existing law or charter is clearly manifested by the
language used on (sic) Sections 137 and 193 categorically withdrawing such
exemption subject only to the exceptions enumerated. Since it would be not only
tedious and impractical to attempt to enumerate all the existing statutes providing for
special tax exemptions or privileges, the LGC provided for an express, albeit general,
withdrawal of such exemptions or privileges. No more unequivocal language could
have been used."76 (emphases supplied).
It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs.77 But in enacting section 37 of Ordinance
No. 165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by
law or other special law," the respondent city government clearly did not intend to exempt the
petitioner from the coverage thereof.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance
and support myriad activities of the local government units for the delivery of basic services
essential to the promotion of the general welfare and the enhancement of peace, progress, and
prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the
withdrawal of tax exemption privileges granted to government-owned or controlled corporations
and all other units of government were that such privilege resulted in serious tax base erosion
and distortions in the tax treatment of similarly situated enterprises."78 With the added burden of
devolution, it is even more imperative for government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other charges due from them.

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of
the Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby
AFFIRMED.
G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.
Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.
GUTIERREZ, JR., J.:
What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect, asking
for a re-examination of the latest decision on this issue.
This appeal was certified to us as one involving a pure question of law by the Court of Appeals in
a case where the then Court of First Instance of Rizal dismissed the portion-about complaint for
refund of registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt
from the payment of taxes. The pertinent provision of the franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted, the
grantee shall pay to the National Government during the life of this franchise
a tax of two per cent of the gross revenue or gross earning derived by the
grantee from its operations under this franchise. Such tax shall be due and
payable quarterly and shall be in lieu of all taxes of any kind, nature or
description, levied, established or collected by any municipal, provincial or
national automobiles, Provided, that if, after the audit of the accounts of the
grantee by the Commissioner of Internal Revenue, a deficiency tax is shown
to be due, the deficiency tax shall be payable within the ten days from the
receipt of the assessment. The grantee shall pay the tax on its real property
in conformity with existing law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation
requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles
unless the amounts imposed under Republic Act 4136 were paid. The appellant thus paid, under
protest, the amount of P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not
come within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint
against Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo
Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil
Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his
capacity as National Treasurer, filed a motion to dismiss alleging that the complaint states no
cause of action. In support of the motion to dismiss, defendants repatriation the ruling
in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles
are not taxes, but regulatory fees imposed as an incident of the exercise of the police power of
the state. They contended that while Act 4271 exempts PAL from the payment of any tax except
two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying
regulatory fees, such as motor vehicle registration fees. The resolution of the motion to dismiss
was deferred by the Court until after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint
"moved by the later ruling laid down by the Supreme Court in the case or Republic v. Philippine
Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL appealed to the Court of Appeals
which certified the case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by
PAL and Commissioner Romeo F. Edu respectively, discuss the main points of contention in the
case at bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed by
Section 8 of the Revised Motor Vehicle Law (Republic Act No. 587 [1950]).
Its heading speaks of "registration fees." The term is repeated four times in
the body thereof. Equally so, mention is made of the "fee for registration."
(Ibid., Subsection G) A subsection starts with a categorical statement "No
fees shall be charged." (lbid., Subsection H) The conclusion is difficult to
resist therefore that the Motor Vehicle Act requires the payment not of a tax
but of a registration fee under the police power. Hence the incipient, of the
section relied upon by defendant-appellee under the Back Pay Law, It is not
held liable for a tax but for a registration fee. It therefore cannot make use of
a backpay certificate to meet such an obligation.
Any vestige of any doubt as to the correctness of the above conclusion
should be dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof as
to the imposition of additional tax on privately-owned passenger
automobiles, motorcycles and scooters was amended by Republic Act No.
5470 which is (sic) approved on May 30, 1969.) A special science fund was
thereby created and its title expressly sets forth that a tax on privatelyowned passenger automobiles, motorcycles and scooters was imposed.
The rates thereof were provided for in its Section 3 which clearly specifies
the" Philippine tax."(Cooley to be paid as distinguished from the registration
fee under the Motor Vehicle Act. There cannot be any clearer expression
therefore of the legislative will, even on the assumption that the earlier
legislation could by subdivision the point be susceptible of the interpretation
that a tax rather than a fee was levied. What is thus most apparent is that
where the legislative body relies on its authority to tax it expressly so states,
and where it is enacting a regulatory measure, it is equally exploded (at p.
22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other
hand, held:
The charges prescribed by the Revised Motor Vehicle Law for the
registration of motor vehicles are in section 8 of that law called "fees". But
the appellation is no impediment to their being considered taxes if taxes
they really are. For not the name but the object of the charge determines
whether it is a tax or a fee. Geveia speaking, taxes are for revenue,
whereas fees are exceptional. for purposes of regulation and inspection and

are for that reason limited in amount to what is necessary to cover the cost
of the services rendered in that connection. Hence, a charge fixed by statute
for the service to be person,-When by an officer, where the charge has no
relation to the value of the services performed and where the amount
collected eventually finds its way into the treasury of the branch of the
government whose officer or officers collected the chauffeur, is not a fee but
a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the court below, it appears that the expenditures
of the Motor Vehicle Office are but a small portionabout 5 per centumof
the total collections from motor vehicle registration fees. And as proof that
the money collected is not intended for the expenditures of that office, the
law itself provides that all such money shall accrue to the funds for the
construction and maintenance of public roads, streets and bridges. It is thus
obvious that the fees are not collected for regulatory purposes, that is to
say, as an incident to the enforcement of regulations governing the
operation of motor vehicles on public highways, for their express object is to
provide revenue with which the Government is to discharge one of its
principal functionsthe construction and maintenance of public highways
for everybody's use. They are veritable taxes, not merely fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards those
fees as taxes, for it provides that "no other taxes or fees than those
prescribed in this Act shall be imposed," thus implying that the charges
therein imposedthough called feesare of the category of taxes. The
provision is contained in section 70, of subsection (b), of the law, as
amended by section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed
in this Act shall be imposed for the registration or
operation or on the ownership of any motor vehicle, or
for the exercise of the profession of chauffeur, by any
municipal corporation, the provisions of any city charter
to the contrary notwithstanding: Provided, however,
That any provincial board, city or municipal council or
board, or other competent authority may exact and
collect such reasonable and equitable toll fees for the
use of such bridges and ferries, within their respective
jurisdiction, as may be authorized and approved by the
Secretary of Public Works and Communications, and
also for the use of such public roads, as may be
authorized by the President of the Philippines upon the
recommendation of the Secretary of Public Works and
Communications, but in none of these cases, shall any
toll fee." be charged or collected until and unless the
approved schedule of tolls shall have been posted
levied, in a conspicuous place at such toll station. (at
pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle
Law (Act 3992 [19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and
1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896,
110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained
unsegregated, by Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.Twenty per centum of the
money collected under the provisions of this Act shall accrue to the road and
bridge funds of the different provinces and chartered cities in proportion to
the centum shall during the next previous year and the remaining eighty per
centum shall be deposited in the Philippine Treasury to create a special fund
for the construction and maintenance of national and provincial roads and
bridges. as well as the streets and bridges in the chartered cities to be
alloted by the Secretary of Public Works and Communications for projects
recommended by the Director of Public Works in the different provinces and
chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. CollectedMonies collected under the
provisions of this Act shall be deposited in a special trust account in the
National Treasury to constitute the Highway Special Fund, which shall be
apportioned and expended in accordance with the provisions of the"
Philippine Highway Act of 1935. "Provided, however, That the amount
necessary to maintain and equip the Land Transportation Commission but
not to exceed twenty per cent of the total collection during one year, shall be
set aside for the purpose. (As amended by RA 64-67, approved August 6,
1971).
It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. On the other hand, thePhilippine Rabbit case mentions a
presumption arising from the use of the term "fees," which appears to have been favored by the
legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep.
Act 4136 which reads:
Sec. 13. Payment of taxes upon registration.No original registration of
motor vehicles subject to payment of taxes, customs s duties or other
charges shall be accepted unless proof of payment of the taxes due thereon
has been presented to the Commission.
referring to taxes other than those imposed on the registration, operation or ownership of a
motor vehicle (Sec. 59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on
various aspects of taxpayers
It is possible for an exaction to be both tax arose. regulation. License fees
are changes. looked to as a source of revenue as well as a means of
regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of
automobile license fees. Isabela such case, the fees may properly be
regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at least one of
the real and substantial purposes, then the exaction is properly called a tax.
(1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation (2nd Ed.)
592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil.
198.) These exactions are sometimes called regulatory taxes. (See Secs.
4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal Revenue
Code of 1954, which classify taxes on tobacco and alcohol as regulatory
taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on
Taxation, 2nd Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98
Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle
registration fees. The conclusions become inescapable in view of Section 70(b) of Rep. Act 587
quoted in the Calalang case. The same provision appears as Section 591-593). in the Land
Transportation code. It is patent therefrom that the legislators had in mind a regulatory tax as the
law refers to the imposition on the registration, operation or ownership of a motor vehicle as a
"tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition
is a tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..." making the
intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the respondents, speak
of an "additional" tax," where the law could have referred to an original tax and not one in
addition to the tax already imposed on the registration, operation, or ownership of a motor
vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a
regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136
also speaks of other "fees," such as the special permit fees for certain types of motor vehicles
(Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be
understood as taxes because such fees are very minimal to be revenue-raising. Thus, they are
not mentioned by Sec. 591-593). of the Code as taxes like the motor vehicle registration fee and
chauffers' license fee. Such fees are to go into the expenditures of the Land Transportation
Commission as provided for in the last proviso of see. 61, aforequoted.
It is quite apparent that vehicle registration fees were originally simple exceptional. intended only
for rigidly purposes in the exercise of the State's police powers. Over the years, however, as
vehicular traffic exploded in number and motor vehicles became absolute necessities without
which modem life as we know it would stand still, Congress found the registration of vehicles a
very convenient way of raising much needed revenues. Without changing the earlier deputy. of
registration payments as "fees," their nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present exacted
pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional
revenues. of government even if one fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the program.
May the respondent administrative agency be required to refund the amounts stated in the
complaint of PAL?
The answer is NO.
The claim for refund is made for payments given in 1971. It is not clear from the records as to
what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No.
5448 dated June 27, 1968, repealed all earlier tax exemptions Of corporate taxpayers found in
legislative franchises similar to that invoked by PAL in this case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)."
July 11, 1985), this Court ruled:
Under its original franchise, Republic Act No. 21); enacted in 1957,
petitioner Radio Communications of the Philippines, Inc., was subject to
both the franchise tax and income tax. In 1964, however, petitioner's
franchise was amended by Republic Act No. 41-42). to the effect that its
franchise tax of one and one-half percentum (1-1/2%) of all gross receipts
was provided as "in lieu of any and all taxes of any kind, nature, or
description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby
expressly exempted." The issue raised to this Court now is the validity of the
respondent court's decision which ruled that the exemption under Republic

Act No. 41-42). was repealed by Section 24 of Republic Act No. 5448 dated
June 27, 1968 which reads:
"(d) The provisions of existing special or general laws to
the contrary notwithstanding, all corporate taxpayers
not specifically exempt under Sections 24 (c) (1) of this
Code shall pay the rates provided in this section. All
corporations, agencies, or instrumentalities owned or
controlled by the government, including the
Government Service Insurance System and the Social
Security System but excluding educational institutions,
shall pay such rate of tax upon their taxable net income
as are imposed by this section upon associations or
corporations engaged in a similar business or industry. "
An examination of Section 24 of the Tax Code as amended shows clearly
that the law intended all corporate taxpayers to pay income tax as provided
by the statute. There can be no doubt as to the power of Congress to repeal
the earlier exemption it granted. Article XIV, Section 8 of the 1935
Constitution and Article XIV, Section 5 of the Constitution as amended in
1973 expressly provide that no franchise shall be granted to any individual,
firm, or corporation except under the condition that it shall be subject to
amendment, alteration, or repeal by the legislature when the public interest
so requires. There is no question as to the public interest involved. The
country needs increased revenues. The repealing clause is clear and
unambiguous. There is a listing of entities entitled to tax exemption. The
petitioner is not covered by the provision. Considering the foregoing, the
Court Resolved to DENY the petition for lack of merit. The decision of the
respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides:
In consideration of the franchise and rights hereby granted, the grantee
shall pay to the Philippine Government during the lifetime of this franchise
whichever of subsections (a) and (b) hereunder will result in a lower taxes.)
(a) The basic corporate income tax based on the
grantee's annual net taxable income computed in
accordance with the provisions of the Internal Revenue
Code; or
(b) A franchise tax of two per cent (2%) of the gross
revenues. derived by the grantees from all specific.
without distinction as to transport or nontransport
corporations; provided that with respect to international
airtransport service, only the gross passengers, mail,
and freight revenues. from its outgoing flights shall be
subject to this law.
The tax paid by the grantee under either of the above alternatives shall be in
lieu of all other taxes, duties, royalties, registration, license and other fees
and charges of any kind, nature or description imposed, levied, established,
assessed, or collected by any municipal, city, provincial, or national authority
or government, agency, now or in the future, including but not limited to the
following:
xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition,
and transfer of airtransport equipment, motor vehicles, and all other
personal or real property of the gravitates (Pres. Decree 1590, 75 OG No.
15, 3259, April 9, 1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier
law. PAL is now exempt from the payment of any tax, fee, or other charge on the registration and
licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax
provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration
fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory Board
(LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on the registration and
licensing of the petitioner's motor vehicles from April 9, 1979 as provided in Presidential Decree
No. 1590.
G.R. No. L-75697 June 18, 1987
VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA
COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on
behalf of other videogram operators adversely affected. It assails the constitutionality of
Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with
broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as
the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10,
1986, fifteen (15) days after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree,
Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia:
SEC. 134. Video Tapes. There shall be collected on each processed
video-tape cassette, ready for playback, regardless of length, an annual tax
of five pesos; Provided, That locally manufactured or imported blank video
tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers,
Importers and Distributors Association of the Philippines, and Philippine Motion Pictures
Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by
the Court to intervene in the case, over petitioner's opposition, upon the allegations that
intervention was necessary for the complete protection of their rights and that their "survival and
very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were
thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses as
follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms
including, among others, videotapes, discs, cassettes or any technical
improvement or variation thereof, have greatly prejudiced the operations of
moviehouses and theaters, and have caused a sharp decline in theatrical
attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes,
thereby resulting in substantial losses estimated at P450 Million annually in
government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600
Million per annum from rentals, sales and disposition of videograms, and

such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have
also affected the viability of the movie industry, particularly the more than
1,200 movie houses and theaters throughout the country, and occasioned
industry-wide displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is
imperative for the Government to create an environment conducive to
growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments
will not only alleviate the dire financial condition of the movie industry upon
which more than 75,000 families and 500,000 workers depend for their
livelihood, but also provide an additional source of revenue for the
Government, and at the same time rationalize the heretofore uncontrolled
distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram
features constitutes a clear and present danger to the moral and spiritual
well-being of the youth, and impairs the mandate of the Constitution for the
State to support the rearing of the youth for civic efficiency and the
development of moral character and promote their physical, intellectual, and
social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial
measures to curb these blatant malpractices which have flaunted our
censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral
values of the people and betraying the national economic recovery program,
bold emergency measures must be adopted with dispatch; ... (Numbering of
paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts
payable to the local government is a RIDER and the same is not germane
to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the
vast powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance,
which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which shall be
expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough
to include the general purpose which a statute seeks to achieve. It is not necessary that the title
express each and every end that the statute wishes to accomplish. The requirement is satisfied
if all the parts of the statute are related, and are germane to the subject matter expressed in the
title, or as long as they are not inconsistent with or foreign to the general subject and title. 2 An
act having a single general subject, indicated in the title, may contain any number of provisions,
no matter how diverse they may be, so long as they are not inconsistent with or foreign to the
general subject, and may be considered in furtherance of such subject by providing for the
method and means of carrying out the general object." 3 The rule also is that the constitutional

requirement as to the title of a bill should not be so narrowly construed as to cripple or impede
the power of legislation. 4 It should be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a
rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms.
Notwithstanding any provision of law to the contrary, the province shall
collect a tax of thirty percent (30%) of the purchase price or rental rate, as
the case may be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or audiovisual program. Fifty
percent (50%) of the proceeds of the tax collected shall accrue to the
province, and the other fifty percent (50%) shall acrrue to the municipality
where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax
shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the video
industry through the Videogram Regulatory Board as expressed in its title. The tax provision is
not inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is
simply one of the regulatory and control mechanisms scattered throughout the DECREE. The
express purpose of the DECREE to include taxation of the video industry in order to regulate
and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles
2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the
measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed in its Preamble and reasonably
covers all its provisions. It is unnecessary to express all those objectives in the title or that the
latter be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive,
confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even definitely deters the
activities taxed. 8 The power to impose taxes is one so unlimited in force and so searching in
extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the
legislature acts upon its constituents. This is, in general, a sufficient security against erroneous
and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted
by the realization that earnings of videogram establishments of around P600 million per annum
have not been subjected to tax, thereby depriving the Government of an additional source of
revenue. It is an end-user tax, imposed on retailers for every videogram they make available for
public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry
which the theater-owners pay to the government, but which is passed on to the entire cost of the
admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that
is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
regulating the video industry, particularly because of the rampant film piracy, the flagrant
violation of intellectual property rights, and the proliferation of pornographic video tapes. And
while it was also an objective of the DECREE to protect the movie industry, the tax remains a
valid imposition.
The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over
another. 11

It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the
state's police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the promulgation of the
DECREE by the former President under Amendment No. 6 of the 1973 Constitution providing
that "whenever in the judgment of the President ... , there exists a grave emergency or a threat
or imminence thereof, or whenever the interim Batasang Pambansa or the regular National
Assembly fails or is unable to act adequately on any matter for any reason that in his judgment
requires immediate action, he may, in order to meet the exigency, issue the necessary decrees,
orders, or letters of instructions, which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas"
clause sufficiently summarizes the justification in that grave emergencies corroding the moral
values of the people and betraying the national economic recovery program necessitated bold
emergency measures to be adopted with dispatch. Whatever the reasons "in the judgment" of
the then President, considering that the issue of the validity of the exercise of legislative power
under the said Amendment still pends resolution in several other cases, we reserve resolution of
the question raised at the proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit
the direct assistance of other agencies and units of the government and deputize, for a fixed and
limited period, the heads or personnel of such agencies and units to perform enforcement
functions for the Board" is not a delegation of the power to legislate but merely a conferment of
authority or discretion as to its execution, enforcement, and implementation. "The true distinction
is between the delegation of power to make the law, which necessarily involves a discretion as
to what it shall be, and conferring authority or discretion as to its execution to be exercised under
and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit
such assistance is for a "fixed and limited period" with the deputized agencies concerned being
"subject to the direction and control of the BOARD." That the grant of such authority might be the
source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the
eventuality occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among
other categories, one which "alters the legal rules of evidence, and authorizes conviction upon
less or different testimony than the law required at the time of the commission of the offense." It
is petitioner's position that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of
forty-five (45) days after the effectivity of this Decree within which to register
with and secure a permit from the BOARD to engage in the videogram
business and to register with the BOARD all their inventories of videograms,
including videotapes, discs, cassettes or other technical improvements or
variations thereof, before they could be sold, leased, or otherwise disposed
of. Thereafter any videogram found in the possession of any person
engaged in the videogram business without the required proof of
registration by the BOARD, shall be prima facie evidence of violation of the
Decree, whether the possession of such videogram be for private showing
and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the required proof
of registration of any videogram cannot be presented and thus partakes of the nature of an ex
post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of
Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the
passage of a law providing that the presumption of innocence may be
overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to overcome
such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at
858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL
LIMITATIONS, 639-641). And the "legislature may enact that when certain
facts have been proved that they shall be prima facie evidence of the
existence of the guilt of the accused and shift the burden of proof provided
there be a rational connection between the facts proved and the ultimate
facts presumed so that the inference of the one from proof of the others is
not unreasonable and arbitrary because of lack of connection between the
two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational connection
between the fact proved, which is non-registration, and the ultimate fact presumed which is
violation of the DECREE, besides the fact that the prima facie presumption of violation of the
DECREE attaches only after a forty-five-day period counted from its effectivity and is, therefore,
neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and being
eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its
regulation was apparent. While the underlying objective of the DECREE is to protect the
moribund movie industry, there is no question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber
of the viewing public brought about by the availability of unclassified and unreviewed video tapes
containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the
activities of video establishments are virtually untaxed since mere payment of Mayor's permit
and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the
video industry. On the contrary, video establishments are seen to have proliferated in many
places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency
of the DECREE. These considerations, however, are primarily and exclusively a matter of
legislative concern.
Only congressional power or competence, not the wisdom of the action
taken, may be the basis for declaring a statute invalid. This is as it ought to
be. The principle of separation of powers has in the main wisely allocated
the respective authority of each department and confined its jurisdiction to
such a sphere. There would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a coordinate branch, the
judiciary would substitute its own. If there be adherence to the rule of law, as
there ought to be, the last offender should be courts of justice, to which
rightly litigants submit their controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The attack on the validity of the
challenged provision likewise insofar as there may be objections, even if
valid and cogent on its wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches to a challenged
statute. We find no clear violation of the Constitution which would justify us in pronouncing
Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.

LUTZ VS. ARANETAGR L-7859December 22, 1955Reyes, J.:FACTS:Walter Lutz, Judicial

Administrator of the intestate estate of Ledesma, sought torecover the sum of Php14, 666.40
paid by the estate as taxes, alleging that such tax isunconstitutional as it levied for the aid and
support of the sugar industry exclusively whichis in his opinion not a public
purpose.ISSUE:Whether or not tax is valid in supporting the sugar industry?RULING: The court
ruled that the tax is valid as it served public purpose. The tax provided forin CA 567 is primarily
an exercise of police power since sugar is a great source of incomefor the country and employs
thousands of laborers. Hence, it was competent for thelegislature to find that the general welfare
demanded that the sugar industry should bestabilized in turn; and in the wide field of its police
power, the lawmaking body couldprovide that the distribution of benefits therefrom be readjusted
among its components toenable it to resist the added strain of the increase in taxes that it had to
sustain.COMMISSIONER OF IR VS CENTRAL LUZON DRUG CORPGR 148512June 26,
2006Azcuna, J.:FACTS: This is a petition for review under Rule 45 of Rules of Court seeking the
nullificationof CA decision granting respondents claim for tax equal to the amount of the 20%
that itextended to senior citizens on the latters purchases pursuant to Senior Citizens
Act.Respondent deducted the total amount of Php219,778 from its gross income for thetaxable
year 1995 whereby respondent did not pay tax for that year reporting a net loss of Php20,963 in
its corporate income tax. In 1996, claiming that the Php219,778 should beapplied as a tax credit,
respondent claimed for refund in the amount of Php150, 193.ISSUE:Whether or not the 20%
discount granted by the respondent to qualified seniorcitizens may be claimed as tax credit or as
deduction from gross sales?RULING:Tax credit is explicitly provided for in Sec4 of RA 7432.
The discount given toSenior citizens is a tax credit, not a deduction from the gross sales of the
establishmentconcerned. The tax credit that is contemplated under this Act is a form of
justcompensation, not a remedy for taxes that were erroneously or illegally assessed
andcollected. In the same vein, prior payment of any tax liability is a pre-condition before a
taxable entity can benefit from tax credit. The credit may be availed of upon payment, if
any. Where there is no tax liability or where a private establishment reports a net loss forthe
period, the tax credit can be availed of and carried over to the next taxable year.
G.R. No. L-7859
December 22, 1955
WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased Antonio
Jayme Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General Guillermo E.
Torres and Solicitor Felicisimo R. Rosete for appellee.
REYES, J.B L., J.:
This case was initiated in the Court of First Instance of Negros Occidental to test the legality of
the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment
Act.
Promulgated in 1940, the law in question opens (section 1) with a declaration of emergency, due
to the threat to our industry by the imminent imposition of export taxes upon sugar as provided in
the Tydings-McDuffe Act, and the "eventual loss of its preferential position in the United States
market"; wherefore, the national policy was expressed "to obtain a readjustment of the benefits
derived from the sugar industry by the component elements thereof" and "to stabilize the sugar
industry so as to prepare it for the eventuality of the loss of its preferential position in the United
States market and the imposition of the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the existing tax on the
manufacture of sugar, on a graduated basis, on each picul of sugar manufactured; while section
3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and
ceded to others for a consideration, on lease or otherwise

a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the assessed
value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the
Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,'
and shall be paid out only for any or all of the following purposes or to attain any or all
of the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the gradual
loss of the preferntial position of the Philippine sugar in the United States market, and
ultimately to insure its continued existence notwithstanding the loss of that market and
the consequent necessity of meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the
component elements thereof the mill, the landowner, the planter of the sugar cane,
and the laborers in the factory and in the field so that all might continue profitably to
engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the
production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their
living and working conditions: Provided, That the President of the Philippines may,
until the adjourment of the next regular session of the National Assembly, make the
necessary disbursements from the fund herein created (1) for the establishment and
operation of sugar experiment station or stations and the undertaking of researchers
(a) to increase the recoveries of the centrifugal sugar factories with the view of
reducing manufacturing costs, (b) to produce and propagate higher yielding varieties
of sugar cane more adaptable to different district conditions in the Philippines, (c) to
lower the costs of raising sugar cane, (d) to improve the buying quality of denatured
alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine what crop or crops are suitable for
rotation and for the utilization of excess cane lands, and (g) on other problems the
solution of which would help rehabilitate and stabilize the industry, and (2) for the
improvement of living and working conditions in sugar mills and sugar plantations,
authorizing him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement from the fund herein created
of the necessary amount or amounts needed for salaries, wages, travelling expenses,
equipment, and other sundry expenses of said agency or agencies.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of
P14,666.40 paid by the estate as taxes, under section 3 of the Act, for the crop years 1948-1949
and 1949-1950; alleging that such tax is unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for
which a tax may be constitutioally levied. The action having been dismissed by the Court of First
Instance, the plaintifs appealed the case directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act, and
particularly of section 6 (heretofore quoted in full), will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened
sugar industry. In other words, the act is primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of the great industries
of our nation, sugar occupying a leading position among its export products; that it gives
employment to thousands of laborers in fields and factories; that it is a great source of the state's

wealth, is one of the important sources of foreign exchange needed by our government, and is
thus pivotal in the plans of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the general welfare. Hence it was
competent for the legislature to find that the general welfare demanded that the sugar industry
should be stabilized in turn; and in the wide field of its police power, the lawmaking body could
provide that the distribution of benefits therefrom be readjusted among its components to enable
it to resist the added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237
U. S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy Inc.
vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
The protection of a large industry constituting one of the great sources of the state's
wealth and therefore directly or indirectly affecting the welfare of so great a portion of
the population of the State is affected to such an extent by public interests as to be
within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry is a
matter of public concern, it follows that the Legislature may determine within reasonable bounds
what is necessary for its protection and expedient for its promotion. Here, the legislative
discretion must be allowed fully play, subject only to the test of reasonableness; and it is not
contended that the means provided in section 6 of the law (above quoted) bear no relation to the
objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their
prosecution and attainment. Taxation may be made the implement of the state's police power
(Great Atl. & Pac. Tea Co. vs. Grosjean, 301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U.
S. 1, 80 L. Ed. 477; M'Culloch vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).

That the tax to be levied should burden the sugar producers themselves can hardly be a ground
of complaint; indeed, it appears rational that the tax be obtained precisely from those who are to
be benefited from the expenditure of the funds derived from it. At any rate, it is inherent in the
power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that "inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation" (Carmichael vs. Southern Coal & Coke Co., 301
U. S. 495, 81 L. Ed. 1245, citing numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised under the
Sugar Stabilization Act, now in question, should be exclusively spent in aid of the sugar industry,
since it is that very enterprise that is being protected. It may be that other industries are also in
need of similar protection; that the legislature is not required by the Constitution to adhere to a
policy of "all or none." As ruled in Minnesota ex rel. Pearson vs. Probate Court, 309 U. S. 270,
84 L. Ed. 744, "if the law presumably hits the evil where it is most felt, it is not to be overthrown
because there are other instances to which it might have been applied;" and that "the legislative
authority, exerted within its proper field, need not embrace all the evils within its reach" (N. L. R.
B. vs. Jones & Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, 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 and solution of allied problems, as well as to the improvements of living
and working conditions in sugar mills or plantations, without any part of such money being
channeled directly to private persons, constitutes expenditure of tax money for private purposes,
(compare Everson vs. Board of Education, 91 L. Ed. 472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant