Definition and concept of Taxation

1. Power of Taxation
Roxas v Court of Tax of Appeals 1968
"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 the taxpayer. It must
be exercised fairly, equally and uniformly, lest the tax collector
kills the 'hen that lays the golden eggs.' And in order to maintain
the general public's trust and confidence in the government, this
power must be used justly and not treacherously." (Roxas v.
Court of Tax Appeals, 23 SCRA276, App120, 1968; Philex Mining
Corp. vs. Comm. of Internal Revenue, 97 SCAD 777,294 SCRA
687, Aug. 28, 1998.)
SISON v ANCHETA 1984
Facts: Batas Pambansa 135 was enacted. Sison, as taxpayer,
alleged that its provision (Section 1) unduly discriminated
against him by the imposition of higher rates upon his income as
a professional, that it amounts to class legislation, and that it
transgresses against the equal protection and due process
clauses of the Constitution as well as the rule requiring
uniformity in taxation.
Issue: Whether BP 135 violates the due process and equal
protection clauses, and the rule on uniformity in taxation.
Held: There is a need for proof of such persuasive character as
would lead to a conclusion that there was a violation of the due
process and equal protection clauses. Absent such showing, the
presumption of validity must prevail. 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. Where the differentitation conforms to
the practical dictates of justice and equity, similar to the
standards of equal protection, it is not discriminatory within the
meaning of the clause and is therefore uniform. Taxpayers may
be classified into different categories, such as recipients of

compensation income as against professionals. Recipients of

compensation income are not entitled to make deductions for
income tax purposes as there is no practically no overhead
expense, while professionals and businessmen have no uniform
costs or expenses necessary to produce their income. There is
ample justification 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.
PHCP v CIR 2008
Facts:
The petitioner, a prepaid health-care organization offering
benefits to its members. The CIR found that the organization had
a deficiency in the payment of the DST under Section 185 of the
1997 Tax Code which stipulated its implementation:
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, employer's liability,
plate, glass, steam boiler, burglar, elevator, automatic sprinkler,
or other branch of insurance (except life, marine, inland, and fire
insurance)
The CIR sent a demand for the payment of deficiency taxes,
including surcharges and interest, for 1996-1997 in the total
amount of P224,702,641.18.
The petitioner protested to the CIR, but it didnt act on the
appeal. Hence, the company had to go to the CTA. The latter
declared judgment against them and reduced the taxes. It
ordered them to pay 22 million pesos for deficiency VAT for 1997
and 31 million deficiency VAT for 1996.
CA denied the companys appeal an d increased taxes to 55 and
68 million for 1996 to 1997.
Issues: WON a health care agreement in the nature of an
insurance contract and therefore subject to the documentary
stamp tax (DST) imposed under Section 185 of Republic Act
8424 (Tax Code of 1997)
Held: Yes. Petition dismissed.

Ratio:
The DST is levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific
instruments.
The DST is an excise upon the privilege, opportunity, or facility
offered at exchanges for the transaction of the business. In
particular, the DST under Section 185 of the 1997 Tax Code is
imposed on the privilege of making or renewing any policy of
insurance (except life, marine, inland and fire insurance), bond
or obligation in the nature of indemnity for loss, damage, or
liability.
Petitioner's health care agreement is primarily a contract of
indemnity. And in the recent case of Blue Cross Healthcare, Inc.
v. Olivares, this Court ruled that a health care agreement is in
the nature of a non-life insurance policy.
Its health care agreement is not a contract for the provision of
medical services. Petitioner does not actually provide medical or
hospital services but merely arranges for the same
It is also 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.
Philamcare Health Systems, Inc. v. CA.- The health care
agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity.
Similarly, the insurable interest of every member of petitioner's
health care program in obtaining the health care agreement is
his own health. Under the agreement, petitioner is bound to
indemnify any member who incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated
contingency to the extent agreed upon under the contract.
CREBA v ROMULO 2010

FACTS:
CREBA assails the imposition of the minimum corporate income
tax (MCIT) as being violative of the due process clause as it levies
income tax even if there is no realized gain. They also question
the creditable withholding tax (CWT) on sales of real properties
classified as ordinary assets stating that (1) they ignore the
different treatment of ordinary assets and capital assets; (2) the
use of gross selling price or fair market value as basis for the
CWT and the collection of tax on a per transaction basis (and
not on the net income at the end of the year) are inconsistent
with the tax on ordinary real properties; (3) the government
collects income tax even when the net income has not yet been
determined; and (4) the CWT is being levied upon real estate
enterprises but not on other enterprises, more particularly those
in the manufacturing sector.
ISSUE:
Are the impositions of the MCIT on domestic corporations and
CWT on income from sales of real properties classified as
ordinary assets unconstitutional?
HELD:
NO. MCIT does not tax capital but only taxes income as shown
by the fact that the MCIT is arrived at by deducting the capital
spent by a corporation in the sale of its goods, i.e., the cost of
goods and other direct expenses from gross sales. Besides, there
are sufficient safeguards that exist for the MCIT: (1) it is only
imposed on the 4th year of operations; (2) the law allows the
carry forward of any excess MCIT paid over the normal income
tax; and (3) the Secretary of Finance can suspend the imposition
of MCIT in justifiable instances.
The regulations on CWT did not shift the tax base of a real estate
business income tax from net income to GSP or FMV of the
property sold since the taxes withheld are in the nature of
advance tax payments and they are thus just installments on
the annual tax which may be due at the end of the taxable year.
As such the tax base for the sale of real property classified as
ordinary assets remains to be the net taxable income and the

use of the GSP or FMV is because these are the only factors
reasonably known to the buyer in connection with the
performance of the duties as a withholding agent.
Neither is there violation of equal protection even if the CWT is
levied only on the real industry as the real estate industry is, by
itself, a class on its own and can be validly treated different from
other businesses.
2. Power of Taxation compared to other powers
POLICE POWER
Serafica v Treasurer of Ormoc GR No L-24813, April 28,
1969
FACTS:
Serafica seeks to nullify Ordinance 13 imposing a tax on every
1,000 board feet of lumber. He contends that the charter of
Ormoc authorizes it to regulate and not tax. He alleges that the
tax on the lumber constitutes double taxation.
ISSUE:
Is the city authorized to tax?
RULING:
Yes. Under the Local Autonomy Act, the power is broad and
sufficiently plenary to cover everything, except those mentioned.
Regulation and taxation are two different things, the first being 3.
an exercise of police power and the latter is not. Double taxation
is not prohibited in the Philippines.
POWER OF EMINENT DOMAIN
Lutz v Araneta
GR No L-7859 December 22, 1955
FACTS:
Walter Lutz, as Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, sought to recover the sum of
P14,666.40 paid by the estate as taxes from the Commissioner
under Section e of Commonwealth Act 567 or the Sugar
Adjustment Act, alleging that such tax is unconstitutional as it
levied for the aid and support of the sugar industry exclusively,
which is in his opinion not a public purpose.

ISSUE:
Is the tax valid?
HELD:
Yes. The tax is levied with a regulatory purpose, i.e. to provide
means for the rehabilitation and stabilization of the threatened
sugar industry. The act is primarily an exercise of police power
and is not a pure exercise of taxing power.
As sugar production is one of the great industries of the
Philippines and its promotion, protection and advancement
redounds greatly to the general welfare, the legislature found
that the general welfare demanded that the industry should be
stabilized, and provided that the distribution of benefits had to
sustain.
Further, it cannot be said that the devotion of tax money to
experimental stations to seek increase of efficiency in sugar
production, utilization of by-products, etc., as well as to the
improvement of living and working conditions in sugar mills and
plantations without any part of such money being channeled
directly to private persons, constitute expenditure of tax money
for private purposes.
Hence, the tax is valid.
Theories and Bases of Taxation
LIFE BLOOD THEORY
CIR v Algue
GR No. L-28896, February 17, 1988
FACTS:
The BIR assessed Algue a total amount of delinquency taxes of
Php 83,183.85 for the years 1958 and 1959. It contends that the
company's claimed deduction of Php 75,000 in the form of
promotional fees is disallowed because it was not ordinary
reasonable or necessary business expenses. Algue filed a protest.
BIR did not take any action. So, Algue filed a petition for review
with the Court of Tax Appeals which rule in favor of Algue. Thus,
the current petition.
ISSUE:

Whether the BIR correctly disallowed the deduction

RULING:
No.
The burden is on the taxpayer to prove the validity of the claimed
deduction. Here, the onus has been discharged satisfactorily.
Here, the onus has been discharged satisfactorily. The
promotional fees were necessary and reasonable in the light of
the efforts exerted by the payees in the inducement of investors
to venture in an experimental enterprise. Thus, the payees
should be sufficiently recompensed.
COMMISSIONER OF INTERNAL REVENUE VS. FILINVEST
DEVELOPMENT CORPORATION- Theoretical Interest
Filinvest Development Corporation extended advances in favor of
its affiliates and supported the same with instructional letters
and cash and journal vouchers. The BIR assessed Filinvest for
deficiency income tax by imputing an arms length interest rate
on its advances to affiliates. Filinvest disputed this by saying
that the CIR lacks the authority to impute theoretical interest
and that the rule is that interests cannot be demanded in the
absence of a stipulation to the effect.
ISSUE:
Can the CIR impute theoretical interest on the advances made by
Filinvest to its affiliates?
HELD:
NO. Despite the seemingly broad power of the CIR to distribute,
apportion and allocate gross income under (now) Section 50 of
the Tax Code, the same does not include the power to impute
theoretical interests even with regard to controlled taxpayers
transactions. This is true even if the CIR is able to prove that
interest expense (on its own loans) was in fact claimed by the
lending entity. The term in the definition of gross income that
even those income from whatever source derived is covered still
requires that there must be actual or at least probable receipt or
realization of the item of gross income sought to be apportioned,
distributed, or allocated. Finally, the rule under the Civil Code

that no interest shall be due unless expressly stipulated in

writing was also applied in this case.
The Court also ruled that the instructional letters, cash and
journal vouchers qualify as loan agreements that are subject to
DST.
BENEFITS
PROTECTION
THEORY
(SYMBIOTIC
RELATIONSHIP)
CIR v Algue
Lorenzo v Posadas (Tax)
FACTS:
Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, brought an action against the Collector of Internal
Revenue Posadas for the refund of P2,052.74 inheritance taxes.
The properties under the will were to pass to Matthew Hanley
after 10 years.
ISSUES:
1. When does the inheritance tax accrue and when must it be
satisfied?
2. Should the inheritance tax be computed on the basis of the
value at the time of the testator's death or on its value ten years
later?
3. In determining the net value of the estate subject to tax, is it
proper to deduct the compensation due to trustees?
4. What law governs the case?
5. Has there been delinquency in the payment of the inheritance
tax?
RULING:
1. Thomas Hanley having died on May 27, 1922, the inheritance
tax accrued as of that date. But it must be paid before the
delivery of the properties in question to PJM Moore as trustee on
March 10, 1924.
2. It should be computed at the time of the decedent's death,
regardless of any subsequent contingency value of any increase
or decrease and notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary and the

tax measured by the value of the property transmitted at that

time regardless of its appreciation or depreciation.
3. No. The compensation of a trustee, earned not in the
administration of the estate, but in the management thereof for
the benefit of the legatees or devises, does not come properly
within the class or reason for exempting administration
expenses.
4. Act 3031 and not Act 3606 applies. Even if Act 3606 is more
favorable to the taxpayer, revenue laws, generally, which impose
taxes collected by means ordinarily resorted to for the collection
of taxes are not classes as penal laws.
5. Yes. That taxes must be collected promptly is a policy deeply
entrenched in our tax system. Thus, no court is allowed to grant
injunction to restrain the collection of any internal revenue tax.
The mere fact that the estate of the deceased was placed in trust
did not remove it from the operation of our inheritance tax laws
or exempt it from the payment of the inheritance tax
NPC v. City of Cabanatuan
G.R. No. 149110, April 9, 2003
TAXATION: The most effective means to raise revenues; LGU's
Power of Taxation, exception to Non-delegation of taxing power;
Tax Exemptions, construed strongly against the claimant
Facts:
NPC, a GOCC, created under CA 120 as amended, selling electric
power, was assessed by the City of Cabanatuan for franchise tax
pursuant to sec. 37 of Ordinance No. 165-92. NPC refused to pay
the tax assessment on the grounds that the City of Cabanatuan
has no authority to impose tax on government entities and also
that it is exempted as a non-profit organization. For its part, the
City government alleged that NPCs exemption from local taxes
has been repealed by sec. 193 of RA 7160.
ISSUES:
(1) Is the NAPOCOR excluded from the coverage of the franchise
tax simply because its stocks are wholly owned by the National
Government and its charter characterized is as a non-profit
organization?

(2) Is the NAPOCORs exemption from all forms of taxes repealed

by the provisions of the Local Government Code (LGC)?
HELD:
(1) NO. 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, and can exercise all the powers of a
corporation under the Corporation Code.
To be sure, the ownership by the National Government of its
entire capital stock does not necessarily imply that petitioner is
no engage din business.
(2) YES. 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. The legislative purpose to withdraw tax privileges
enjoyed under existing laws or charter is clearly manifested by
the language used on Sec. 137 and 193 categorically
withdrawing such exemption subject only to the exceptions
enumerated. Since it would be 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.

NECESSITY THEORY
JURISDICTION OVER SUBJECTS AND OBJECTS

OTHER CASES
CIR v Pineda
GR No L-22734, September 15, 1967
FACTS:
BIR investigated the income tax liability of Anastacio Pinedas
estate for the years 1945, 1946, 1947, and 1948 and it found
that the corresponding income tax return were not filed. This
resulted to a P760.28 deficiency income tax for 1945 and 1946
and real estate dealers fixed tax for the 4th quarter of 1946 and
for the whole year 1947. Manuel Pineda, eldest son of Anastacio,
received the assessment. He contested the same alleging that
only a proportionate part should be his liability. CTA ruled that
Pineda is liable only for taxes corresponding to his share in the
estate. Hence, the present petition.
ISSUE:
Whether the Government can require Manuel Pineda to pay the
full amount of the tax assessed
RULING:
Yes. As a holder of property belonging to the estate, Pineda is
liable for the tax up to the amount of the property in his
possession. The BIR is given the discretion to avail of the most
expeditious way to collect the tax. This is, of course, without
prejudice to Pinedas right of contribution for his co-heirs. Put
simply, the Supreme Court held that the rule on solidarity
applies to taxes because it is not an ordinary contract. Two
persons liable for payment of estate tax:
Executor or administrator;
Heirs up to the extent of their inheritance.
CIR V FILINVEST
B. NATURE OF TAXATION
ATTRIBUTE OF SOVEREIGNTY
Pepsi-Cola Bottling Company of the Phils, Inc v Tanauan GR
No. L-31156, February 27, 1976
FACTS:

Pepsi Cola Bottling Company commenced a complaint with

preliminary injunction before the Court of First Instance of
Leyte for the court to declare Section 2 of RA 2264 (Local
Autonomy Act) unconstitutional as an undue delegation of taxing
authority as well as to declare Ordinances Nos 23 and 27 of
municipality of Tanauan, Leyte. Municipal Ordinance No. 23
(9/25/1962) levies and collects from softdrinks producers and
manufacturers a tax of 1/16 of a centavo for every bottle of
softdrink corked. Municipal ordinance no. 27 (10/28/1962)
levies and collects on softdrinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of 1
centavo on each gallon of volume capacity. The taxes imposed are
denominated as municipal production tax. CFI-Leyte dismissed
the complaint. Hence, this petition.
ISSUES:
Is Section 2 of RA 2264 an undue delegation of power,
confiscatory and oppressive?
Do ordinances nos. 23 and 27 constitute double taxation and
impose percentage or specific taxes?
Are ordinance nos. 23 and 27 unjust and unfair?
RULING:
No. Under the New Constitution, local governments are granted
the autonomous authority to create their own sources of
revenue and to levy taxes. Section 5, Article XI provides: Each
local government unit shall have the power to create its sources
of revenue and to levy taxes, subject to such limitations as may
be provided by law. Thus, legislative powers may be delegated to
local governments in respect of matters of local concern.
No. The intention of the Municipal Council of Tanauan in
enacting Ordinance No. 27 is thus clear: it was intended as a
plain substitute for the prior ordinance no. 23 and operates as a
repeal of the latter, even without words to that effect. The tax is
not a percentage tax as the volume capacity of the taxpayers
production of softdrinks is considered solely for purposes of
determining the tax rate on the products but there is no set ratio
between volume of sales and amount of the tax. Nor can the tax

levied be treated as a specific tax. Softdrink is not one of those

specified articles.
No. Municipal corporations are allowed much discretion in
determining the rates of imposable taxes. This is in line with the
constitutional policy of according the widest possible autonomy
to local governments in matters of local taxation, an aspect that
is given expression in the Local Tax Code.

manufacturers importers or producers of any article of

commerce of whatever kind or nature
Thus, the order of the lower court was affirmed by SC with
certain modification. In the case at bar, the provisions of the
local tax code of 1974 supersedes P.C. 26-73, likewise upholding
the constitutional right granted to local autonomy to imposed
taxes.

LEGISLATIVE IN CHARACTER AND GENERALLY NOT

DELEGATED
Phil Petroleum Corporation vs. Mun of Pililia, Rizal
GR 90776 June 3, 1991 / 198 SCRA 82
Facts:
Petitioner, Philippine Petroleum Corporation (PPC) owns and
maintains an oil refinery conducting business within the
municipality of Pililia, Rizal. P.D. 231 or the local tax code of
1973 provide for the Municipality of impose taxes on business
any article of commerce. Thereafter, Provincial Circular 26-73
was issued directing all provincial, City and municipal treasurers
to refrain from collecting any local imposed in petroleum
products. In 1974, P.D. 426 amended certain provisions of P.D.
231. The municipality of Pililia, through Municipal Tax
ordinance 1, S-1974, imposed tax on business. In the RTC,
respondent received a favorable decision, directing herein
petitioner to pay the tax and fees impose unto it. Petitioner
contended that Provincial Arcular 26-73 suspended the
effectively of local tax ordinances of the local tax code.
ISSUE:
Whether or not Provincial Circular No. 26-73 supersedes the
provisions of P.D. 231 as amended by P.D. 426?
RULING:
The court ruled in the negative, stating that in case of
discrepancy between the basic law and on implementing rule or
regulation, the former prevails. P.D. 426, amending the local tax
code repealed P.C. No. 26-73 and 26-A73 where section 19 of
which stated the municipality may impose taxes on business

C. PURPOSE OF TAXATION
Caltex Philippines, Inc. v Commission on Audit GR No.
92585, May 8, 1992
FACTS:
In 1989, COA sent a letter to Caltex, directing it to remit its
collection to the Oil Price Stabilization Fund (OPSF), excluding
that unremitted for the years 1986 and 1988, of the additional
tax on petroleum products authorized under the PD 1956.
Pending such remittance, all of its claims for reimbursement
from the OPSF shall be held in abeyance. The grant total of its
unremitted collections of the above tax is P1,287,668,820.
Caltex submitted a proposal to COA for the payment and the
recovery of claims. COA approved the proposal but prohibited
Caltex from further offsetting remittances and reimbursements
for the current and ensuing years. Caltex moved for
reconsideration but was denied. Hence, the present petition.
ISSUE:
Whether the amounts due from Caltex to the OPSF may be
offsetted against Caltexs outstanding claims from said funds
RULING:
No. Taxation is no longer envisioned as a measure merely to
raise revenue to support the existence of government. Taxes may
be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is
affected with public interest as to be within the police power of
the State.
PD 1956, as amended by EO 137, explicitly provides that the
source of OPSF is taxation. A taxpayer may not offset taxes due

from the claims he may have against the government. Taxes

cannot be subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other
and a claim for taxes is not such a debt, demand,, contract or
judgment as is allowed to be set-off.
Hence, COA decision is affirmed except that Caltexs claim for
reimbursement of underrecovery arising from sales to the
National Power Corporation is allowed.
Tio v Videogram
Facts:
1. Petitioner on his own behalf and purportedly on behalf of
other videogram operators adversely affected assailed the
constitutionality of PD 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry. The Decree promulgated on
October 5, 1985, took effect on April 10, 1986, fifteen (15) days
after completion of its publication in the Official Gazette.
2. PD 1994 issued a month thereafter reinforced PD 1987 and
in effect amended the National Internal Revenue Code (NIRC).
Petitioner contended among others that the tax provision of the
decree is a rider.
ISSUE: Whether or not the PD 1987 is unconstitutional due to
the tax provision included
RULING: PD 1987 is constitutional.
1. The title of the decree, which calls for the creation of the VRB
is comprehensive enough to include the purposes expressed in
its Preamble and reasonably covered in 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.
2. 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 VRB as expressed in its title. The tax provision is
not inconsistent with nor foreign to the general subject and title.
As a tool for regulation it is simply one of the regulatory and
control mechanisms scattered throughout the decree.

3. The express purpose of PD 1987 to include taxation of the

video industry in order to regulate and rationalize the heretofore
uncontrolled distribution of videos is evident from Preambles 2
and 5. Those preambles explain the motives of the lawmaker in
presenting the measure.
Philippine Airlines v Edu
GR No L-41383, August 15, 1988
FACTS:
PAL is engaged in the air transportation business under a
legislative franchise (Act 4271), wherein it is exempt from the
payment of taxes. On the strength of an opinion of the Secretary
of Justice, PAL was determined to have not been paying motor
vehicle registration fees since 1956. The Land Transportation
Commissioner required all tax-exempt entities, including PAL, to
pay motor vehicle registration fees. PAL protested. The trial court
dismissed PALs complaint. Hence, this petition.
ISSUE:
Are motor vehicle registration fees taxes or regulatory taxes?
RULING:
They are taxes. Tax are for revenue, whereas fees are exactions
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.
It is the object of the charge, and not the name, that determines
whether a charge is a tax or a fee. The money collected under the
Motor Vehicle Law is not intended for the expenditures of the
Motor Vehicle Law is not intended for the expenditures of the
Motor Vehicles Office but accrues to the funds for the
construction and maintenance of public roads, streets and
bridges.
As the fees are not collected for regulatory purposes as an
incident to the enforcement of regulations governing the
operation of motor vehicles on public highways, but to provide
revenue with which the Government is to construct and
maintain public highways for everyones use, they are veritable
taxes, not merely fees.

PAL is, thus, exempt from paying such fees, except for the period
between June 27, 1968 to April 9, 1979, where its tax exception
in the franchise was repealed.
LUTZ v ARANETA
Gaston vs. Republic Planters Bank
Facts: Petitioners are sugar producers and planters and millers
filed a MANDAMUS to implement the privatization of Republic
Planters Bank, and for the transfer of the shares in the
government bank to sugar producers and planters. (because
they are allegedly the true beneficial owners of the bank since
they pay P1.00 per picul of sugar from the proceeds of sugar
producers as STABILIZATION FEES)
The shares are currently held by Philsucom / Sugar Regulatory
Admin.
The Solgen countered that the stabilization fees are considered
government funds and that the transfer of shares to from
Philsucom to the sugar producers would be irregular.
Issue: What is the nature of the P1.00 stabilization fees collected
from sugar producers? Are they funds held in trust for them, or
are they public funds? Are the shares in the bank (paid using
these fees) owned by the government Philsucom or privately by
the different sugar planters from whom such fees were collected?
Held: PUBLIC FUNDS. While it is true that the collected fees
were used to buy shares in RPB, it did not collect said fees for
the account of sugar producers. The stabilization fees were
charged on sugar produced and milled which ACCRUED TO
PHILSUCOM, under PD 338.

The fees collected ARE IN THE NATURE OF A TAX., which is

within the power of the state to impose FOR THE PROMOTION
OF THE SUGAR INDUSTRY. They constitute sugar liens. The
collections accrue to a SPECIAL FUNDS. It is levied not purely
for taxation, but for regulation, to provide means TO STABILIZE
THE SUGAR INDUSTRY. The levy is primarily an exercise of
police powers.
The fact that the State has taken money pursuant to law is
sufficient to constitute them as STATE FUNDS, even though held
for a special purpose. Having been levied for a special purpose,
the revenues are treated as a special fund, administered in trust
for the purpose intended. Once the purpose has been fulfilled or
abandoned, the balance will be transferred to the general funds
of govt.
It is a special fund since the funds are deposited in PNB, not in
the National Treasury.
The sugar planters are NOT BENEFICIAL OWNERS. The money
is collected from them only because they it is also they who are
to be benefited from the expenditure of funds derived from it.
The investing of the funds in RPB is not alien to the purpose
since the Bank is a commodity bank for sugar, conceived for the
sugar industry growth and development.
Revenues derived from taxes cannot be used purely for private
purposes or for the exclusive benefit of private persons. The
Stabilization Fund is to be utilized for the benefit of the ENTIRE
SUGAR INDUSTRY, and all its components, stabilization of
domestic and foreign markets, since the sugar industry is of vital
importance to the countrys economy and national interest.