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Tiu vs Videogram Regulatory Commission (Police Power; Unlimited reach of Taxation)

Facts: The case is a petition filed by petitioner on behalf of videogram operators adversely affected by
Presidential Decree No. 1987, An Act Creating the Videogram Regulatory Board with broad powers to
regulate and supervise the videogram industry.
A month after the promulgation of the said Presidential Decree, the amended the National Internal
Revenue Code provided that:
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.
The rationale behind the tax provision is to curb 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 movie houses and theaters. Such unregulated
circulation have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a
tremendous drop in the collection of sales, contractors specific, amusement and other taxes, thereby
resulting in substantial losses estimated at P450 Million annually in government revenues.
Videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and these earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year.
The unregulated activities of videogram establishments have also affected the viability of the movie
industry.
Issues: (1) Whether or not tax imposed by the DECREE is a valid exercise of police power.
Held: Taxation has been made the implement of the states police power. 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.
We find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree
No. 1987 as unconstitutional and void. 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 Mayors permit and municipal license fees are required to
engage in business.
Kapatiran ng mga Naglilingkod sa pamahalaan vs tan vat law was declared valid. A tax is
considered uniform when it operates with the same force and effect in every place where the subject may
be found." It is principally aimed to rationalize the system of taxes on goods and services. (administrative
feasibility)

Planters Products, Inc. vs. Fertiphil Corporation (Ponente: Reyes)


Doctrine/s:
(1) 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.
(2) The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it
should be used only for a public purpose.
Facts:
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws. They are both engaged in the importation and distribution of fertilizers, pesticides and
agricultural chemicals.
On 3 June 1985, then President Ferdinand Marcos, exercising his legislative powers, issued LOI
No. 1465 which provided, among others, for the imposition of a capital recovery component (CRC)
on the domestic sale of all grades of fertilizers in the Philippines. The LOI provides:
3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula
a capital contribution component of not less than P10 per bag. This capital contribution shall
be collected until adequate capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the Philippines. (Underscoring
supplied)
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic market to
the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected to the Far East
Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8,
1985 to January 24, 1986
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. With the
return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid under LOI No.
1465, but PPI refused to accede to the demand.
Fertiphil filed a complaint for collection and damages against FPA and PPI with the RTC in Makati.
It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable, oppressive, invalid and
an unlawful imposition that amounted to a denial of due process of law. Fertiphil alleged that the LOI
solely favored PPI, a privately owned corporation, which used the proceeds to maintain its
monopoly of the fertilizer industry.
In its Answer, FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was
a valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in
the country. It also averred that Fertiphil did not sustain any damage from the LOI because the burden
imposed by the levy fell on the ultimate consumer, not the seller.
RTC: the imposition of the P10 CRC was an exercise of the States inherent power of taxation;
invalidated the levy for violating the basic principle that taxes can only be levied for public
purpose. (PPI filed a M.R. -> denied; In a separate but related proceeding, SC allowed appeal but
remanded to CA)

CA: affirmed with modification; even on the assumption that LOI No. 1465 was issued under the
police power of the state, it is still unconstitutional because it did not promote public welfare; the
levy was NOT for the benefit, as alleged, of Planters Foundation, Inc. (on the strength of the Letter
of Understanding (LOU) issued by then Prime Minister Cesar Virata on 18 April 1985 and affirmed
by the Secretary of Justice in an Opinion dated 12 October 1987. (PPI filed a M.R. -> denied)
Issue/s:
(1) Whether the imposition of the levy was an exercise by the State of its taxation power.
(2) Whether LOI 1465 constitutes a valid legislation pursuant to the exercise of taxation.
(3) Whether LOI 1465 constitutes a valid legislation pursuant to the exercise of police power.
Held:
(1) Yes;
The imposition of the levy was an exercise by the State of its taxation power. While it is true that the
power of taxation can be used as an implement of police power, the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax.
In Philippine Airlines, Inc. v. Edu, it was held that the imposition of a vehicle registration fee is not an
exercise by the State of its police power, but of its taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land
Transportation and Traffic Code 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. x x x Fees may be properly regarded as taxes even though they also
serve as an instrument of regulation.
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. Such is the case of motor vehicle registration
fees. The same provision appears as Section 59(b) 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." x x x 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. 59(b) of the Code as taxes like the
motor vehicle registration fee and chauffeurs license fee. Such fees are to go into the
expenditures of the Land Transportation Commission as provided for in the last proviso of Sec.
61. (Underscoring supplied)
The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no
doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer
by as much as five percent. A plain reading of the LOI also supports the conclusion that the levy

was for revenue generation. The LOI expressly provided that the levy was imposed "until
adequate capital is raised to make PPI viable."
(2) No;
The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give
undue benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public
purpose. They cannot be used for purely private purposes or for the exclusive benefit of private
persons. The reason for this is simple. The power to tax exists for the general welfare; hence,
implicit in its power is the limitation that it should be used only for a public purpose.
The term "public purpose" is not defined. It is an elastic concept that can be hammered to fit modern
standards. Jurisprudence states that "public purpose" should be given a broad interpretation. It
does not only pertain to those purposes which are traditionally viewed as essentially government
functions, such as building roads and delivery of basic services, but also includes those
purposes designed to promote social justice. Thus, public money may now be used for the relocation
of illegal settlers, low-cost housing and urban or agrarian reform.
While the categories of what may constitute a public purpose are continually expanding in light of the
expansion of government functions, the inherent requirement that taxes can only be exacted for a
public purpose still stands. Public purpose is the heart of a tax law. When a tax law is only a mask to
exact funds from the public when its true intent is to give undue benefit and advantage to a
private enterprise, that law will not satisfy the requirement of "public purpose."
Indications that it is not for the public purpose
1. The LOI expressly provided that the levy be imposed to benefit PPI, a private company.
2. The LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI
becoming financially "viable."
3. The levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and
Trust Company, the depositary bank of PPI which proves that PPI benefitted from the LOI
4. The levy was used to pay the corporate debts of PPI.
(3) No;
Even if We consider LOI No. 1695 enacted under the police power of the State, it would still be invalid
for failing to comply with the test of "lawful subjects" and "lawful means." Jurisprudence states the
test as follows: (1) the interest of the public generally, as distinguished from those of particular class,
requires its exercise; and (2) the means employed are reasonably necessary for the accomplishment of
the purpose and not unduly oppressive upon individuals.
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation.
Dispositive Portion: WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated
November 28, 2003 is AFFIRMED.

PUBLIC PURPOSE OF TAX


BAGATSING vs. RAMIREZ
74 SCRA 306
GR No. L-41631, December 17, 1976
"The entrusting of the tax collection to private entities does not destroy the public purpose of a tax
ordinance."
FACTS: Aside from the issue on publication, private respondent bewails that the market stall fees
imposed in the disputed City Ordinance No. 7522, which regulates public markets and prescribes fees for
rentals of stalls, are diverted to the exclusive private use of the Asiatic Integrated Corporation since the
collection of said fees had been let by the City of Manila to the said corporation in a "Management and
Operating Contract."
ISSUE: Does the delegation of the collection of taxes to a private entity invalidates a tax ordinance and
defeats its public purpose?
HELD: No. The assumption is of course saddled on erroneous premise. The fees collected do not go
direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation but
for the purpose of raising revenues for the city. That is the object it serves. The entrusting of the collection
of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does
not matter whether the agency through which the money is dispensed is public or private. The right to tax
depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the
nature or character of the person or corporation whose intermediate agency is to be used in applying it.
The people may be taxed for a public purpose, although it be under the direction of an individual or
private corporation.

PASCUAL VS SECRETARY OF PUBLIC WORKS (SUPPLEMENT WITH BOOK RATIO)


FACTS: Pascual, in his official capacity as the Provincial Governor of Rizal, petitioned for a writ of
certiorari against the dismissal of the case and dissolving of the preliminary injunction held by the Court of
the First Instance. Petitioner prayed for that RA #920 be declared null and void, that the alleged Deed of
Donation made by Zulueta be declared unconstitutional. Petitioner also prayed for an injunction enjoining
Secretary of Public Works and Communications, Director of Public Works and Highways and the
disbursing officers of the latter department from making and securing any further release of funds for the
said road project. RA# 920 contained an item appropriating P85,000.00 which the petitioner alleged that it
was for the construction of roads improving the private property of Jose Zuleta, a member of the Senate.
ISSUES:
1. Whether or not RA # 920 is unconstitutional.
2. Whether or not Pascual has the legal capacity or to sue.

HELD:
1. RA #920 is unconstitutional because the Congress is without power to appropriate public revenue for
anything but public purpose.
2. Pascual has the personality to sue as a taxpayer recognizing the right of the taxpayer to assail the
constitutionality of a legislation appropriating public funds.
CIR vs BOAC
Facts: British Overseas Airways Corp (BOAC) is a 100% British Government-owned corporation engaged
in international airline business and is a member of the Interline Air Transport Association, and thus, it
operates air transportation services and sells transportation tickets over the routes of the other airline
members.
From 1959 to 1972, BOAC had no landing rights for traffic purposes in the Philippines and thus, did not
carry passengers and/or cargo to or from the Philippines but maintained a general sales agent in the
Philippines - Warner Barnes & Co. Ltd. and later, Qantas Airways - which was responsible for selling
BOAC tickets covering passengers and cargoes. The Commissioner of Internal Revenue assessed
deficiency income taxes against BOAC.

Issue: Whether the revenue derived by BOAC from ticket sales in the Philippines, constitute income of
BOAC from Philippine sources, and accordingly taxable.

Held: The source of an income is the property, activity, or service that produced the income. For the
source of income to be considered as coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines. Herein, the sale of tickets in the Philippines is the activity that
produced the income. The tickets exchanged hands here and payment for fares were also made here in
the Philippine currency.

The situs of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred
within Philippine territory, enjoying the protection accorded by the Philippine government. In consideration
of such protection, the flow of wealth should share the burden of supporting the government. PD 68, in
relation to PD 1355, ensures that international airlines are taxed on their income from Philippine sources.
The 2 1/2% tax on gross billings is an income tax. If it had been intended as an excise tax or percentage
tax, it would have been placed under Title V of the Tax Code covering taxes on business.

ATLAS CONSOLIDATED MINING v CIR (refer to the book for the ratio) (destination/crossboarder
doctrine)

FACTS:
Atlas is a corporation engaged in the mining industry registered. On August 1962, CIR assessed against
Atlas for deficiency income taxes for the years 1957 and 1958. For the year 1957, it was the opinion of
the CIR that Atlas is not entitled to exemption from the income tax under RA 909 because same covers
only gold mines. For the year 1958, the deficiency income tax covers the disallowance of items claimed
by Atlas as deductible from gross income. Atlas protested for reconsideration and cancellation, thus the
CIR conducted a reinvestigation of the case.
On October 1962, the Secretary of Finance ruled that the exemption provided in RA 909 embraces all
new mines and old mines whether gold or other minerals. Accordingly, the CIR recomputed Atlas
deficiency income tax liabilities in the light of said ruling. On June 1964, the CIR issued a revised
assessment entirely eliminating the assessment for the year 1957. The assessment for 1958 was reduced
from which Atlas appealed to the CTA, assailing the disallowance of the following items claimed as
deductible from its gross income for 1958: Transfer agent's fee, Stockholders relation service fee, U.S.
stock listing expenses, Suit expenses, and Provision for contingencies. The CTA allowed said items as
deduction except those denominated by Atlas as stockholders relation service fee and suit expenses.
Both parties appealed the CTA decision to the SC by way of two (2) separate petitions for review. Atlas
appealed only the disallowance of the deduction from gross income of the so-called stockholders relation
service fee.
ISSUE/HELD: W/N the annual public relations expense (aka stockholders relation service fee) paid to a
public relations consultant is a deductible expense from gross income
RATIO: Section 30 (a) (1) of the Tax Code allows a deduction of "all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade or business." An item of expenditure, in
order to be deductible under this section of the statute, must fall squarely within its language. To be
deductible as a business expense, three conditions are imposed, namely: (1) the expense must be
ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it must be paid or
incurred in carrying in a trade or business. In addition, not only must the taxpayer meet the business test,
he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the
same will be disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and
necessary does not justify its deduction.
The SC has never attempted to define with precision the terms "ordinary and necessary." As a guiding
principle, ordinarily, an expense will be considered "necessary" where the expenditure is appropriate and
helpful in the development of the taxpayer's business. It is "ordinary" when it connotes a payment which is
normal in relation to the business of the taxpayer and the surrounding circumstances. The term "ordinary"
does not require that the payments be habitual or normal in the sense that the same taxpayer will have to
make them often; the payment may be unique or non-recurring to the particular taxpayer affected.
There is thus no hard and fast rule on the matter. The right to a deduction depends in each case on the
particular facts and the relation of the payment to the type of business in which the taxpayer is engaged.
The intention of the taxpayer often may be the controlling fact in making the determination. Assuming that
the expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the

question as to whether the expenditure is an allowable deduction as a business expense must be


determined from the nature of the expenditure itself, which in turn depends on the extent and permanency
of the work accomplished by the expenditure.
It appears that on December 1957, Atlas increased its capital stock. It claimed that its shares of stock
were sold in the United States because of the services rendered by the public relations firm. The
information about Atlas given out and played up in the mass communication media resulted in full
subscription of the additional shares issued by Atlas; consequently, the stockholders relation service fee,
the compensation for services carrying on the selling campaign, was in effect spent for the acquisition of
additional capital, ergo, a capital expenditure, and not an ordinary expense. It is not deductible from Atlas
gross income in 1958 because expenses relating to recapitalization and reorganization of the corporation,
the cost of obtaining stock subscription, promotion expenses, and commission or fees paid for the sale of
stock reorganization are capital expenditures. That the expense in question was incurred to create a
favorable image of the corporation in order to gain or maintain the public's and its stockholders'
patronage, does not make it deductible as business expense. As held in a US case, efforts to establish
reputation are akin to acquisition of capital assets and, therefore, expenses related thereto are not
business expense but capital expenditures.
Note: The burden of proof that the expenses incurred are ordinary and necessary is on the taxpayer and
does not rest upon the Government. To avail of the claimed deduction, it is incumbent upon the taxpayer
to adduce substantial evidence to establish a reasonably proximate relation petition between the
expenses to the ordinary conduct of the business of the taxpayer. A logical link or nexus between the
expense and the taxpayer's business must be established by the taxpayer.

DELEGATION
Pepsi vs butuan (non delegability)
Facts: Ordinance 110 was enacted by the City of Butuan imposing a tax of P0.10 per case of 24 bottles of
softdrinks or carbonated drinks. The tax was imposed upon dealers engeged in selling softdrinks or
carbonated drinks. When Ordinance 110, the tax was imposed upon an agent or consignee of any
person, association, partnership, company or corporation engaged in selling softdrinks or carbonated
drinks, with agent or consignee being particularly defined on the inserted provision Section 3-A. In
effect, merchants engaged in the sale of softdrinks, etc. are not subject to the tax unless they are agents
or consignees of another dealer who must be one engaged in business outside the City. Pepsi-Cola
Bottling Co. filed suit to recover sums paid by it to the city pursuant to the Ordinance, which it claims to be
null and void.

Issue: Whether the Ordinance is discriminatory. WON there is valid delegation

Held: The Ordinance, as amended, is discriminatory since only sales by agents or consignees of outside
dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants,
regardless of the volume of their sales , and even if the same exceeded those made by said agents or
consignees of producers or merchants established outside the city, would be exempt from the tax. The
classification made in the exercise of the authority to tax, to be valid must be reasonable, which would be
satisfied if the classification is based upon substantial distinctions which makes real differences; these are
germane to the purpose of legislation or ordinance; the classification applies not only to present
conditions but also to future conditions substantially identical to those of the present; and the classification
applies equally to all those who belong to the same class. These conditions are not fully met by the
ordinance in question.
Then, again, the general principle against delegation of legislative powers, in consequence of the theory
of separation of powers2 is subject to one well-established exception, namely: legislative powers may be
delegated to local governments to which said theory does not apply3 in respect of matters of local
concern.

69 SCRA 460 Taxation Delegation to Local Governments Double Taxation


Pepsi cola vs leyte
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the Municipality
approved Ordinance No. 23 which levies and collects from soft drinks producers and manufacturers a tai
of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked.

In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects on soft
drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of one centavo
P0.01) on each gallon of volume capacity.

Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double taxation in two
instances: a) double taxation because Ordinance No. 27 covers the same subject matter and impose
practically the same tax rate as with Ordinance No. 23, b) double taxation because the two ordinances
impose percentage or specific taxes.

Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the delegation of
taxing powers to local government units; that allowing local governments to tax companies like Pepsi Cola
is confiscatory and oppressive.

The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that only
Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance No. 23, hence
there is no double taxation.

ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is double
taxation.

HELD: No. There is no undue delegation. The Constitution even allows such delegation.
Legislative powers may be delegated to local governments in respect of matters of local concern.
By necessary implication, the legislative power to create political corporations for purposes of
local self-government carries with it the power to confer on such local governmental agencies the
power to tax. Under the New Constitution, local governments are granted the autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI provides: Each local
government unit shall have the power to create its sources of revenue and to levy taxes, subject to such
limitations as may be provided by law. Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact and vest in local governments the
power of local taxation.

There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi Colas
assertion that the delegation of taxing power in itself constitutes double taxation cannot be merited. It
must be observed that the delegating authority specifies the limitations and enumerates the taxes over
which local taxation may not be exercised. The reason is that the State has exclusively reserved the
same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental
law unlike in other jurisdictions. Double taxation becomes obnoxious only where the taxpayer is taxed
twice for the benefit of the same governmental entity or by the same jurisdiction for the same purpose, but
not in a case where one tax is imposed by the State and the other by the city or municipality.

OSMEA vs. ORBOS


220 SCRA 703
GR No. 99886, March 31, 1993
" To avoid the taint of unlawful delegation of the power to tax, there must be a standard which implies that
the legislature determines matter of principle and lays down fundamental policy."

FACTS: Senator John Osmea assails the constitutionality of paragraph 1c of PD 1956, as amended by
EO 137, empowering the Energy Regulatory Board (ERB) to approve the increase of fuel prices or
impose additional amounts on petroleum products which proceeds shall accrue to the Oil Price
Stabilization Fund (OPSF) established for the reimbursement to ailing oil companies in the event of
sudden price increases. The petitioner avers that the collection on oil products establishments is an
undue and invalid delegation of legislative power to tax. Further, the petitioner points out that since a
'special fund' consists of monies collected through the taxing power of a State, such amounts belong to
the State, although the use thereof is limited to the special purpose/objective for which it was created. It
thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers
granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the
State.

ISSUE: Is there an undue delegation of the legislative power of taxation?

HELD: None. It seems clear that while the funds collected may be referred to as taxes, they are exacted
in the exercise of the police power of the State. Moreover, that the OPSF as a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in
what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny
and review of the COA. The Court is satisfied that these measures comply with the constitutional
description of a "special fund."
With regard to the alleged undue delegation of legislative power, the
Court finds that the provision conferring the authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by which the authority must be exercised. In addition to
the general policy of the law to protect the local consumer by stabilizing and subsidizing domestic pump
rates, P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of
the Fund.
Sufficient standard test
Completeness test

GOVERNMENT TAXING ITSELF


Standard Oil Company vs Juan Posadas See page 63
BOARD OF ASSESSMENT APPEALS OF LAGUNA vs. CTA, NWSA
8 SCRA 224
GR No. L-18125, May 31, 1963

"A tax on property of the Government, whether national or local, would merely have the effect of taking
money from one pocket to put it in another pocket."

FACTS: National Waterworks and Sewerage Authority (NWSA), a public corporation owned by the
Government of the Philippines as well as all property comprising waterworks and sewerage systems
placed under it, took over the Cabuyao-Sta. Rosa-Bian Waterworks System in 1956. It was assessed by
the Provincial Assessor of Laguna, for purposes of real estate taxes, on the real properties owned by
Cabuyao Waterworks. The respondent protested claiming it is exempted from the payment of real estate
taxes in view of the nature and kind of said property and functions and activities of petitioner. The
petitioner denied the protest arguing that such real properties are subject to real estate tax because
although said properties belong to the Republic of the Philippines, the same holds it, not in its
governmental, political or sovereign capacity, but in a private, proprietary or patrimonial character, which,
allegedly, is not covered by the exemption contained in section 3(a) of Republic Act No. 470.

ISSUE: Are the real properties owned by the respondent public corporation subject to real estate tax?

HELD: No. Republic Act No. 470 makes no distinction between property held in a sovereign,
governmental or political capacity and those possessed in a private, proprietary or patrimonial character.
And where the law does not distinguish neither may we, unless there are facts and circumstances clearly
showing that the lawmaker intended the contrary, but no such facts and circumstances have been brought
to our attention. Indeed, the noun "property" and the verb "owned" used in said section 3(a) strongly
suggest that the object of exemption is considered more from the view point of dominion, than from that of
domain.
Moreover, taxes are financial burdens imposed for the purpose of raising revenues with which to defray
the cost of the operation of the Government, and a tax on property of the Government, whether national
or local, would merely have the effect of taking money from one pocket to put it in another pocket. Hence,
it would not serve, in the final analysis, the main purpose of taxation. What is more, it would tend to defeat
it, on account of the paper work, time and consequently, expenses it would entail.

NDC vs CEBU City see page 64. Quick facts: president reserved some property for future use,
possession or administration was given to NDC. NDC was assessed property taxes.
ESSO standard eastern vs acting commissioner of customs see also page 66.
18 SCRA 488
GR No. L-21841, October 28, 1966

"Exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority."

FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc., claims for the refund of
special import taxes paid pursuant to the provision of RA 1394 which imposed a special import tax "on all
goods, articles or products imported or brought into the Philippines." Exempt from this tax, by express
mandate of Section 6 of the same law are "machinery, equipment, accessories, and spare parts, for the
use of industries, miners, mining enterprises, planters and farmers". Petitioner argued that the importation
it made of gas pumps used by their gasoline station operators should fall under such exemptions, being
directly used in its industry. The Collector of Customs of Manila rejected the claim, and so as the Court on
Tax Appeals. The CTA noted that the pumps imported were not used in the processing of gasoline and
other oil products but by the gasoline stations, owned by the petitioner, for pumping out, from
underground barrels, gasoline sold on retail to customers.

ISSUE: Is the contention of the petitioner tenable? Does the subject imports fall into the exemptions?

HELD: No. The contention runs smack against the familiar rules that exemption from taxation is not
favored, and that exemptions in tax statutes are never presumed. Which are but statements in adherence
to the ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority. Tested by this precept, we cannot indulge in expansive
construction and write into the law an exemption not therein set forth. Rather, we go by the reasonable
assumption that where the State has granted in express terms certain exemptions, those are the
exemptions to be considered, and no more. Since the law states that, to be tax-exempt, equipment and
spare parts should be "for the use of industries", the coverage herein should not be enlarged to include
equipment and spare parts for use in dispensing gasoline at retail.

DUE PROCESS
CARLOS SUPERDRUG COR VS DSWD
Facts: Petitioners are domestic corporations and proprietors operating drugstores in the Philippines.
Petitioners assail the constitutionality of Section 4(a) of RA 9257, otherwise known as the Expanded
Senior Citizens Act of 2003. Section 4(a) of RA 9257 grants twenty percent (20%) discount as privileges

for the Senior Citizens. Petitioner contends that said law is unconstitutional because it constitutes
deprivation of private property.

Issue: Whether or not RA 9257 is unconstitutional

Held: Petition is dismissed. The law is a legitimate exercise of police power which, similar to the power of
eminent domain, has general welfare for its object.

Accordingly, it has been described as the most essential, insistent and the least limitable of powers,
extending as it does to all the great public needs. It is the power vested in the legislature by the
constitution to make, ordain, and establish all manner of wholesome and reasonable laws, statutes, and
ordinances, either with penalties or without, not repugnant to the constitution, as they shall judge to be for
the good and welfare of the commonwealth, and of the subjects

REYES VS ALMANZOR
REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as
dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the
Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly
rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses
were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of
Manila re-classified and reassessed the value of the subject properties based on the schedule of market
values, which entailed an increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly
exceeded the annual income derived from their properties. They argued that the income approach should
have been used in determining the land values instead of the comparable sales approach which the City
Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?
HELD: No. The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government's act must not be prompted by a 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.

Consequently, it stands to reason that petitioners who are burdened by the government by its Rental
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford and
eventually result in the forfeiture of their properties
CIR vs CA and fortune tobacco
CIR vs. CA, CTA and FORTUNE TOBACCO CORP.
G.R. No. 119761; August 29, 1996

Facts: Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands
of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as foreign
brands since they were listed in the World Tobacco Directory as belonging to foreign companies.
However, Fortun changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby
removing the said brands from the foreign brand category.

A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted
55% for locally manufactured foreign brand while 45% for locally manufactured brands. 2 days before
the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the
BIR saying since there is no showing who the real owner/s are of Champion, Hope and More, it follows
that the same shall be considered locally manufactured foreign brand for purposes of determining the ad
valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in
particular. Then Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. CIR
assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.

Fortune Tobacco filed a petition for review with the CTA. 8 CTA upheld the position of Fortune. CA
affirmed.

Issue: WON it was necessary for BIR to follow the legal requirements when it issued its RMC

Held. YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which
publication, filing, and prior hearing.
When an administrative rule is merely interpretative in nature, its applicability needs nothing further than
its bare issuance for it gives no real consequence more than what the law itself has already prescribed.
BUT when, upon the other hand, the administrative rule goes beyond merely providing for the means that
can facilitate or render least cumbersome the implementation of the law but substantially increases the
burden of those governed, the agency must accord, at least to those directly affected, a chance to be
heard, before that new issuance is given the force and effect of law.

RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has,
in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and
"Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to
thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR not simply
interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the
requirements of notice, of hearing, and of publication should not have been then ignored.
EQUAL PROTECTION OF THE LAW
GOMEZ VS PALOMAR
Gomez v Palomar
GR No L-23645, October 29, 1968

FACTS:
Petitioners question the constitutionality of the RA 1635 claiming that the law which helps raise funds for
the Philippine Tuberculosis Society violates the equal protection cause because it constitutes mail users
into a class for tax purposes while leaving untaxed the rest of the population.

ISSUE:
Is the equal protection clause violated?

RULING:
No. The legislature has the inherent power to select the subjects of taxation and to grant exemptions.
Traditionally, classification has been a device for fitting tax programs to local need and usages in order to
achieve an equitable distribution of the tax burden.

EASTERN TEATRICAL CO VS ALFONSO


Eastern Theatrical Co. v Alfonso
Perfecto, J.
1949

Facts

The Municipal Board of the City of Manila enacted Ordinance No. 2958 which imposes a fee on
the price of every admission ticket sold by theaters and other similar amusement establishments. The
fees imposed are graduated according to the price of the ticket sold.


Twelve corporations (Petitioners) engaged in the motion picture business instituted a complaint in
the CFI to impugn the validity of the ordinance.

CFI upheld the validity of the ordinance and held that:

o
Under Sec 2444(m) of the Revised Administrative Code (RAC), the City of Manila had the power
to enact the ordinance.
o

Sec 2444(m) of the RAC was not repealed by the NIRC nor the power granted by it withdrawn.

Ordinance did not violate the principle of equality and uniformity of taxation.

Issues and Arguments:


1.

WON ordinance was enacted beyond the charter powers of the City of Manila?

Petitioners: Sec 2444(m) of the Revised Administrative Code, which grants to the City the power
to regulate theaters, confers only the power to tax on business but not on amusement.
2.

WON Sec 2444(m) of the RAC has been impliedly repealed by the NIRC?

Petitioners: Since the NIRC was passed later the RAC and since both taxing powers cover the
same field of legislation, Sec 2444(m) of the RAC must have been repealed by the NIRC and
consequently, the power to regulate theaters granted to the City was withdrawn.
3.
WON the ordinance violates the principle of equality and uniformity of taxation enjoined by the
Constitution?

Petitioners: Ordinance does not tax other kinds of amusements (e.g. race tracks, cockpits,
cabarets, concert halls)

Held and Ratio:


1.
NO. The tax imposed by Sec 2444(m) cannot be defined as and be restricted to tax on business.
The fact that said section includes theaters and similar amusement establishments shows that the power
to tax amusement is expressly included within the power granted by Sec 2444(m).
2.

NO. Both provisions of law may stand together and enforced at the same time.

3.
NO. Equality and uniformity of 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. Petitioners cannot point out what places of amusement do
not constitute a class by themselves and which can be confused with those not included in the ordinance.

MANILA RACE HORSE TRAINERS VS DE LA FUENTE see page 82 complete na yun

SILVESTRE PUNSALAN VS CITY OF MANILA


Facts: Municipal Board of Manila enacted Ordinance No. 3398 imposing municipal occupation tax on
persons exercising various professions in the city and penalizing non-payment of the same. Punsalan, et
al paid the same under protest and filed suit with the court. Petitioners contend that the ordinance is
unjust and oppressive and amounts to double taxation. The lower court upheld the validity of the provision
of law authorizing the enactment of the ordinance but declared the ordinance itself illegal and void on the
ground that the penalty there in provided for non-payment of the tax was not legally authorized. Both
parties appealed the courts decision.
Issue: Whether or not Ordinance No 3398 constitute double taxation?
Decision: Decision reversed. The Legislature may select what occupations shall be taxed, and in the
exercise of that discretion it may tax all, or it may select for taxation certain classes and leave the others
untaxed. Manila offers a more lucrative field for the practice of the professions, so that it is but fair that the
professionals in Manila be made to pay a higher occupation tax than their brethren in the provinces. The
ordinance imposes the tax upon every person exercising or pursuing in the City of Manila naturally
any one of the occupations named, but does not say that such person must have his office in Manila. The
argument against double taxation may not be invoked where one tax is imposed by the state and the
other is imposed by the city.
CITY OF BAGUIO VS DE LEON
CITY OF BAGUIO v. DE LEON
Facts:

Fortunato de Leon appealed to the SC questioning the validity of an ordinance enacted by the
Baguio City Council to collect taxes from real estate dealers. The source of councils power to create such
ordinance is the amending act (RA 329) of the Baguio Charter empowering the city to fix the license fee
and regulate business, trades, and occupations as may be established or practiced in the City.

He was held liable as a real estate dealer with a property worth more than P10,000 but not in
excess of P50,000. He was obligated to pay a P50 annual fee. He was further engaged in the rental of
his property in Baguio deriving income therefrom during the period in 1958-1962.

The complaint was thereafter filed by the City Attorney of Baguio for his failure to pay P300 as
license fee covering the period aforementioned.
Issues:
1)

WON RA 329 is broad enough to justify the enactment of the ordinance

2)

WON there was a violation of the rule of uniformity established by the Constitution

Held/Ratio:
1)
YES. Even a cursory reading of the above amendment readily discloses that the enactment of the
ordinance in question finds support in the power thus conferred. In our opinion, the amendment above
adverted to empowers the city council not only to impose a license fee but also to levy a tax for purposes
of revenue, more so when in amending section 2553 (b), the phrase 'as provided by law' has been
removed by section 2 of Republic Act No. 329. The city council of Baguio, therefore, has now the power to

tax, to license and to regulate provided that the subjects affected be one of those included in the charter.
In this sense, the ordinance under consideration cannot be considered ultra vires whether its purpose be
to levy a tax or impose a license fee. The terminology used is of no consequence."

2)
NO. According to the challenged ordinance, a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If the property is worth P10,000 but not over P50,000,
then he pays P50 and P24 if the value is less than P10,000. On its face, therefore, the above ordinance
cannot be assailed as violative of the constitutional requirement of uniformity. In Philippine Trust Company
v. Yatco, Justice Laurel, speaking for the Court, stated: "A tax is considered uniform when it operates with
the same force and effect in every place where the subject may be found."

There was no occasion in that case to consider the possible effect on such a constitutional requirement
where there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso. Thus: "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;

JUAN LUNA VS SARMIENTO


Juan Luna Subdivision, Inc. v Sarmiento (1952)

Juan Luna Subdivision, Inc. v Sarmiento GR No. L-3538, May 28, 1952

FACTS:
Plaintiff issued to the City Treasurer of Manila checks amounting for P2,210.52 drawn upon the Philippine
Trust Company.
This check was to be applied to plaintiffs land tax, the exact amount of which was yet undetermined. The
City after liberation from Japanese to refund the plaintiffs deposit or apply it to such future taxes as might
be found due. Plaintiff, however, claims that the whole amount of the check contending that taxes during
period have been remitted by Commonwealth Act No. 703.

ISSUE:
Does CA 703 cover taxes paid before its enactment as the plaintiff maintains and the courts below held,
or does it refer,
as the City Treasurer believes, only to taxes which were still unpaid?

RULING:
The law is clear that it applies to taxes and penalties due and payable, i.e. taxes owed and owing. The
remission of
taxes due and payable to the exclusion of taxes already collected does not constitute unfair
discrimination. The taxpayers who paid their taxes before liberation and those who had not were not on
the same footing on the need of material relief. Taxpayers who had been in arrears in their obligation
would have to satisfy their liability with genuine currency, while the taxes paid during the occupation had
been satisfied in Japanese War Notes, many of them at a time when those notes were well-nigh
worthless. To refund those taxes with restored currency would unduly enrich many of the payers at a
greater expense to the people at large.

ASSOCIATION OF CUSTOM BROKERS VS MUN BOARD OF CITY OF MANILA


Associaiton of Customs Brokers vs Manila
GRN L-4376 May 22, 1953
En Banc
FACTS:
The Municipal Board of Manila passed ordinance No. 3379 which imposes a property tax that is within the
power of the City under its revised charter. The ordinance was passed by the Municipal Board under the
authority conferred by section 18 of RA 409

ISSUE:
Whether or not the ordinance infringes on the uniformity of taxes as ordained by the Constitution. It does.
See page 87
RULING:
The Ordinance exacts the tax upon all motor vehicles operating within Manila and does not distinguish
between a motor vehicle registered in the City and one registered in another place nor does it distinguish
private of vehicle for hire. The distinction is important if we note that the ordinance intends to burden with
the tax only those registered in Manila. There is no pretense that the Ordinance equally applies to
vehicles who come to Manila for a temporary purpose.

ORMOC SUGAR COMPANY VS TREASURER OF ORMOC see page 87

REYES VS ALMANZOR

REYES v. ALMANZOR
GR Nos. L-49839-46, April 26, 1991
196 SCRA 322

FACTS: Petitioners JBL Reyes et al. owned a parcel of land in Tondo which are leased and occupied as
dwelling units by tenants who were paying monthly rentals of not exceeding P300. Sometimes in 1971 the
Rental Freezing Law was passed prohibiting for one year from its effectivity, an increase in monthly
rentals of dwelling units where rentals do not exceed three hundred pesos (P300.00), so that the Reyeses
were precluded from raising the rents and from ejecting the tenants. In 1973, respondent City Assessor of
Manila re-classified and reassessed the value of the subject properties based on the schedule of market
values, which entailed an increase in the corresponding tax rates prompting petitioners to file a
Memorandum of Disagreement averring that the reassessments made were "excessive, unwarranted,
inequitable, confiscatory and unconstitutional" considering that the taxes imposed upon them greatly
exceeded the annual income derived from their properties. They argued that the income approach should
have been used in determining the land values instead of the comparable sales approach which the City
Assessor adopted.
ISSUE: Is the approach on tax assessment used by the City Assessor reasonable?
HELD: No. The taxing power has the authority to make a reasonable and natural classification for
purposes of taxation but the government's act must not be prompted by a 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.
Consequently, it stands to reason that petitioners who are burdened by the government by its Rental
Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes petitioners can ill afford and
eventually result in the forfeiture of their properties
VILLEGAS VS ARCA SUPRA PAGE 89. Alien is being taxed to seek employment. No valid
classification.
MISAMIS ORIENTAL ASSOC OF COCONUT TRADERS VS SECRETARY OF FINANCE pp 89
TOLENTINO VS SECRETARY OF FINANCE page 90

UNIFORMITY OF TAXATION
-

All taxable articles or kinds of property of the same class shall be taxed at the same rate

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS VS TAN


Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan [G.R. No. 81311 June 30, 1988]
Post under case digests, Taxation at Wednesday, March 07, 2012 Posted by Schizophrenic Mind
Facts: These four (4) petitions seek to nullify Executive Order No. 273 issued by the President of the
Philippines, and which amended certain sections of the National Internal Revenue Code and adopted the
value-added tax, for being unconstitutional in that its enactment is not allegedly within the powers of the
President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal
protection clauses and other provisions of the 1987 Constitution.

The VAT is a tax levied on a wide range of goods and services. It is a tax on the value, added by every
seller, with aggregate gross annual sales of articles and/or services, exceeding P200,00.00, to his
purchase of goods and services, unless exempt. VAT is computed at the rate of 0% or 10% of the gross
selling price of goods or gross receipts realized from the sale of services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and
producers, advance sales tax, and compensating tax on importations. The framers of EO 273 that it is
principally aimed to rationalize the system of taxing goods and services; simplify tax administration; and
make the tax system more equitable, to enable the country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form, before EO 273 was issued. As
pointed out by the Solicitor General, the Philippine sales tax system, prior to the issuance of EO 273, was
essentially a single stage value added tax system computed under the "cost subtraction method" or "cost
deduction method" and was imposed only on original sale, barter or exchange of articles by
manufacturers, producers, or importers. Subsequent sales of such articles were not subject to sales tax.
However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on a second sale,
which was reduced to 1.5% upon the issuance of PD 2006 on 31 December 1985, to take effect 1
January 1986. Reduced sales taxes were imposed not only on the second sale, but on every subsequent
sale, as well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or exempt.

Issue: Whether or not EO 273 is unconstitutional

Held: No. Petitioners have failed to show that EO 273 was issued capriciously and whimsically or in an
arbitrary or despotic manner by reason of passion or personal hostility. It appears that a comprehensive
study of the VAT had been extensively discussed by this framers and other government agencies involved
in its implementation, even under the past administration. As the Solicitor General correctly sated. "The

signing of E.O. 273 was merely the last stage in the exercise of her legislative powers. The legislative
process started long before the signing when the data were gathered, proposals were weighed and the
final wordings of the measure were drafted, revised and finalized. Certainly, it cannot be said that the
President made a jump, so to speak, on the Congress, two days before it convened."

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and regressive.

The petitioners" assertions in this regard are not supported by facts and circumstances to warrant their
conclusions. They have failed to adequately show that the VAT is oppressive, discriminatory or unjust.
Petitioners merely rely upon newspaper articles which are actually hearsay and have evidentiary value.
To justify the nullification of a law, there must be a clear and unequivocal breach of the Constitution, not a
doubtful and argumentative implication.

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. A tax is considered
uniform when it operates with the same force and effect in every place where the subject may be found."
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the public, which
are not exempt, at the constant rate of 0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons
engage in business with an aggregate gross annual sales exceeding P200,000.00. Small corner sari-sari
stores are consequently exempt from its application. Likewise exempt from the tax are sales of farm and
marine products, spared as they are from the incidence of the VAT, are expected to be relatively lower
and within the reach of the general public.

The Court likewise finds no merit in the contention of the petitioner Integrated Customs Brokers
Association of the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal
Revenue Code, unduly discriminates against customs brokers.

At any rate, the distinction of the customs brokers from the other professionals who are subject to
occupation tax under the Local Tax Code is based upon material differences, in that the activities of
customs brokers (like those of stock, real estate and immigration brokers) partake more of a business,
rather than a profession and were thus subjected to the percentage tax under Sec. 174 of the National
Internal Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT.

PROGRESSIVE TAXATION
-

It is progressive when its rate goes up depending on the resources of the person affected

It is based on the taxpayers ability to pay

NON-IMPAIRMENT CLAUSE
-

No law shall be passed impairing the obligations of contract

TAX EXEMPTION; REVOCABLE?


-

It depends if the grant is gratuitous, it is.


If it is by virtue of a franchise, it may be revoked.
If the exemption constitutes a binding contract, the government cannot unilaterally revoke the
exemption.

8 Phil 125 CASANOVAS vs HORD - NON IMPAIRMENT CLAUSE


FACTS:
In 1897, the Spanish Government, in accordance with the provisionsof the royal decree of 14 may 1867,
granted J. Casanovas certain mines in theprovince of Ambos Camarines, of which mines the latter is now
the owner. That these were validly perfected mining concessions granted to prior to 11April 1899 is
conceded. They were so considered by the Collector of InternalRevenue and were by him said to fall
within the provisions of section 134 of Act No. 1189, known as the Internal Revenue Act. That section is
as follows:SEC. 134. On all valid perfected mining concessions granted prior toApril eleventh, eighteen
hundred and ninety-nine, there shall be leviedand collected on the after January first, nineteen hundred
and five, thefollowing taxes:2. (a) On each claim containing an area of sixty thousand square meters,an
annual tax of one hundred pesos; (b) and at the same rateproportionately on each claim containing an
area in excess of, or lessthan, sixty thousand square meters.3. On the gross output of each an ad
valorem tax equal to three percentum of the actual market value of such output. The defendant
accordingly imposed upon these properties the tax mentionedin section 134, which tax, as has before
been stated, J. Casanovas paid underprotest.
ISSUE:
Whether Section 134 of Act 1189 is valid.
HELD:
The fact that this concession was made by the Government of Spain,and not by the Government of the
United States, is not important. Ourconclusion is that the concessions granted by the Government of
Spain to theplaintiff, constitute contracts between the parties; that section 134 of theInternal Revenue Law
impairs the obligation of these contracts, and istherefore void as to them.We think that this section is also
void because in conflict with section 60 of theact of Congress of July 1, 1902. This section is as follows:
That nothing in this Act shall be construed to effect the rights of anyperson, partnership, or
corporation, having a valid, perfected miningconcession granted prior to April eleventh, eighteen
hundred and ninety-nine, but all such concessions shall be conducted under the provisions of the
law in force at the time they were granted, subject at all times tocancellation by reason of illegality

in the procedure by which they wereobtained, or for failure to comply with the conditions
prescribed asrequisite to their retention in the laws under which they were granted:
Provided, That the owner or owners of every such concession shall causethe corners made by its
boundaries to be distinctly marked withpermanent monuments within six months after this act has
beenpromulgated in the Philippine Islands, and that any concessions, theboundaries of which are
not so marked within this period shall be freeand open to explorations and purchase under the
provisions of this act.
This section seems to indicate that concessions, like those in question, can be canceled only by reason of
illegality in the procedure by which they were obtained, or for failure to comply with the conditions
prescribed as requisitefor their retention in the laws under which they were granted. There is nothingin the
section which indicates that they can be canceled for failure to comply with the conditions prescribed by
subsequent legislation. In fact, the realintention of the act seems to be that such concession should be
subject to theformer legislation and not to any subsequent legislation. There is no claim inthis case that
there was any illegality in the procedure by which theseconcessions were obtained, nor is there any claim
that the plaintiff has notcomplied with the conditions prescribed in the said royal decree of 1867. The
judgment of the court below is reversed, and judgment is ordered in favorof the plaintiff and against the
defendant for P9,600, with interest thereon, at6 per cent, from the 21st day of February, 1906, and the
costs of the Court of First Instance. No costs will be allowed to either party in this court.

Tolentino v Secretary of Finance NON IMPAIRMENT CLAUSE (see pages 103 and 108 for longer
facts)

Cagayan Electric Power & Light Co. Inc. v CIR 138 SCRA 629 EXCEPTION TO NON IMPAIRMENT
CLAUSE
FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment of 3% tax on gross
earning is in lieu of all taxes and assessments upon privileges. In 1968, RA 5431 amended the franchise
by making all corporate taxpayers liable for income tax. In 1969, through RA 6020, its franchise was
extended to two other towns and the tax exemption was reenacted. The commissioner required the
company to pay deficiency income taxes for the intervening period (1968-1969).
ISSUE:
Is CEPALCO liable for the tax?
RULING:
Yes. Congress could impair the companys legislative franchise by making it liable for income tax. The
Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public
interest so requires. However, it cannot be denied that the said 1969 assessment appears to be highly
controversial. It had reason not to pay income tax because of the tax exemption its franchise. For this
reason, it should be liable only for tax proper and should not be held liable for surcharge and interest.

Phil. Power and Development Co. vs. CIR EXCEPTION TO NON IMPAIRMENT CLAUSE NO
DIGEST

YMCA v. Collector of Internal Revenue [GR 7988, 19 January 1916]


First division, Moreland (J): 4 concur
Facts: The Young Men's Christian Association came to the Philippines with the army of occupation in
1898. The association is nonsectarian, it is preeminently religious; and the fundamental basis and
groundwork is the Christian religion. All of the officials of the association are devoted Christians, members
of a church, and have dedicated their lives to the spread of the Christian principles and the building of
Christian character. Its building is located in Calle Concepcion, Ermita, which was formally dedicated on
20 October 1909. The building is composed of three parts. The main structure is three stories high and
includes a reception hall, social hall and game rooms, lecture room, library, reading room and rooming
apartments. The small building lying to the left of the principal structure is the kitchen and servants'
quarters. The bowling alleys, swimming pool, locker rooms and gymnasium-auditorium are located at the
large wing to the right (athletic building).The association claimed exemption from taxation on ground that
it is a religious, charitable and educational institution combined, under Section 48 of the Charter of the
City of Manila. The city of Manila, contending that the property is taxable, assessed it and levied a tax
thereon. It was paid under protest and this action begun to recover it on the ground that the property was
exempt from taxation under the charter of the city of Manila. The decision was made in favor of the city,
and the association appealed.
Issue: Whether the institution must be devoted exclusive for religious purposes, or exclusively for
charitable purposes, or exclusively to educational purposes, to be entitled to tax exemption.
Held: It may be admitted that there are 64 persons occupying rooms in the main building as lodgers or
roomers and that they take their meals at the restaurant below. These facts, however, are far from
constituting a business in the ordinary acceptation of the word; as there is no profit realized by the
association in any sense; and that the purpose of the association is not, primarily, to obtain the money
which comes from the lodgers and boarders. The real purpose is to keep the membership continually
within the sphere of influence of the institution; and thereby to prevent, as far as possible, the
opportunities which vice presents to young men in foreign countries who lack home or other similar
influences. There is no doubt about the correctness of the contention that an institution must devote itself
exclusively to one or the other of the purposes mentioned in the statute before it can be exempt from
taxation; but the statute does not say that it must be devoted exclusively to any one of the purposes
therein mentioned. It may be a combination of two or three or more of those purposes and still be entitled
to exemption. The YMCA cannot be said to be an institution used exclusively for religious purposes, or
exclusively for charitable purposes, or exclusively to educational purposes; but the Court believed that it is
an institution used exclusively for all three purposes. As such, it is entitled to be exempted from taxation.

Bishop of Nueva Segovia v. Provincial Board, Ilocos Norte [GR 27588, 31 December 1927]
En Banc, Avancena (J): 5 concur
Facts: The Roman Catholic Apostolic Church, represented by the Bishop of Nueva Segovia, possesses
and is the owner of a parcel of land in the municipality of San Nicolas, Ilocos Norte, all four sides of which
face on public streets. On the south side is a part of the church yard, the convent and an adjacent lot
used for a vegetable garden, containing an area of 1,624 square meters, in which there is a stable and a
well for the use of the convent. In the center is the remainder of the churchyard and the church. On the
north side is an old cemetery with two of its walls still standing, and a portion where formerly stood a
tower, the base of which may still be seen, containing a total area of 8,955 square meters. As required by
the provincial board, the Church paid on 3 July 1925, under protest, the land tax on the lot adjoining the
convent and the lot which formerly was the cemetery with the portion where the tower stood. The Church
filed an action for the recovery of the sum paid by it to Board by way of land tax, alleging that the
collection of this tax is illegal.
The lower court absolved the Board from the complaint in regard to the lot adjoining the convent and
declared that the tax collected on the lot, which formerly was the cemetery and on the portion where the
tower stood, was illegal. Both parties appealed from this judgment.
Issue: Whether the churchyard, the adjacent lot used for a vegetable garden, and the old cemetery,
besides the church and the convent, are exempt from land taxes.
Held: The exemption in favor of the convent in the payment of the land tax (sec. 344 [c] Administrative
Code) refers to the home of the priest who presides over the church and who has to take care of himself
in order to discharge his duties. It therefore must, in this sense, include not only the land actually
occupied by the church, but also the adjacent ground destined to the ordinary incidental uses of man.
Except in large cities where the density of the population and the development of commerce require the
use of larger tracts of land for buildings, a vegetable garden belongs to a house and, in the case of a
convent, its use is limited to the necessities of the priest, which comes under the exemption. Also, land
used as a lodging house by the people who participate in religious festivities, which constitutes an
incidental use in religious functions, not for commercial purposes, comes within the exemption. It cannot
be taxed according to its former use (cemetery).

Herrera vs. Quezon City Board of Assessment Appeals


G.R. L-15270
Facts:

In 1952, the Director of the Bureau of Hospitals authorized Jose V. Herrera and Ester Ochangco
Herrera to establish and operate the St. Catherines Hospital. In 1953, the Herreras sent a letter to the
Quezon City Assessor requesting exemption from payment of real estate tax on the hospital, stating that
the same was established for charitable and humanitarian purposes and not for commercial gain. The
exemption was granted effective years 1953 to 1955. In 1955, however, the Assessor reclassified the
properties from exempt to taxable effective 1956, as it was ascertained that out 32 beds in the hospital,
12 of which are for pay-patients. A school of midwifery is also operated within the premises of the hospital.

Issue: Whether St. Catherines Hospital is exempt from reallty tax.


Ruling:
The admission of pay-patients does not detract from the charitable character of a hospital, if all its funds
are devoted exclusively to the maintenance of the institution as a public charity. The exemption in favour
of property used exclusively for charitable or educational purpose is not limited to property actually
indispensable therefore, but extends to facilities which are incidental to and reasonably necessary for the
accomplishment of said purpose, such as in the case of hospitals a school for training nurses; a
nurses home; property used to provide housing facilities for interns, resident doctors, superintendents
and other members of the hospital staff; and recreational facilities for student nurses, interns and
residents. Within the purview of the Constitution, St. Catherines Hospital is a charitable institution exempt
from taxation.

Abra v. Hernando [GR L-49336, 31 August 1981]


Second Division, Fernando (J): 3 concur, 1 concur in result, 1 on leave
Facts: The provincial assessor made a tax assessment on the properties of the Roman Catholic Bishop of
Bangued. The bishop claims tax exemption from real estate tax, through an action for declaratory relief.
Judge Hernando of the CFI Abra presided over the case. The Province of Abra filed a motion to dismiss,
based on lack of jurisdiction, which was denied. It was followed by a summary judgment granting the
exemption without hearing the side of the province.
Issue: Whether the properties of the Roman Catholic Bishop of Bangued are tax exempt.
Held: Exemption from taxation is not favored and is never presumed, so that if granted it must be strictly
construed against the taxpayer. Affirmatively put, the law frowns on exemption from taxation, hence, an
exempting provision should be construed strictissimi juris. Herein, the judge accepted at its face the
allegation of Bishop that the certain parcels of land owned by it, are used "actually, directly and
exclusively" as sources of support of the parish priest and his helpers and also of the Bishop instead of
demonstrating that there is compliance with the constitutional provision that allows an exemption. There
was an allegation of lack of jurisdiction (contesting that the validity of the assessment may be questioned
before the Local Board of Assessment Appeals and not the court), and of lack of cause of action
(contesting that declaratory relief is not proper, as there had been breach or violation of the right of
government to assess and collect taxes on such property), which should have compel the judge to accord
a hearing to the petitioner rather than deciding the case immediately in favor of the Bishop.

ESSO Standard vs. Acting Commissioner of Customs Tax exemption


ESSO STANDARD EASTERN, INC. vs. ACTING COMMISSIONER OF CUSTOMS
18 SCRA 488
GR No. L-21841, October 28, 1966

"Exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority."
FACTS: Petitioner, engaged in the industry of processing gasoline, oils etc., claims for the refund of
special import taxes paid pursuant to the provision of RA 1394 which imposed a special import tax "on all
goods, articles or products imported or brought into the Philippines." Exempt from this tax, by express
mandate of Section 6 of the same law are "machinery, equipment, accessories, and spare parts, for the
use of industries, miners, mining enterprises, planters and farmers". Petitioner argued that the importation
it made of gas pumps used by their gasoline station operators should fall under such exemptions, being
directly used in its industry. The Collector of Customs of Manila rejected the claim, and so as the Court on
Tax Appeals. The CTA noted that the pumps imported were not used in the processing of gasoline and
other oil products but by the gasoline stations, owned by the petitioner, for pumping out, from
underground barrels, gasoline sold on retail to customers.
ISSUE: Is the contention of the petitioner tenable? Does the subject imports fall into the exemptions?
HELD: No. The contention runs smack against the familiar rules that exemption from taxation is not
favored, and that exemptions in tax statutes are never presumed. Which are but statements in adherence
to the ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer
and liberally in favor of the taxing authority. Tested by this precept, we cannot indulge in expansive
construction and write into the law an exemption not therein set forth. Rather, we go by the reasonable
assumption that where the State has granted in express terms certain exemptions, those are the
exemptions to be considered, and no more. Since the law states that, to be tax-exempt, equipment and
spare parts should be "for the use of industries", the coverage herein should not be enlarged to include
equipment and spare parts for use in dispensing gasoline at retail.

Villanueva vs. Iloilo City LOCAL TAXATION


GR L-26521, 28 December 1968
En Banc, Castro (J): 8 concur
Facts: On 30 September 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing license
tax fees upon tenement house (P25); tenemen house partly engaged or wholly engaged in and dedicated
to business in Baza, Iznart, and Aldeguer Streets (P24 per apartment); and tenement house, padtly or
wholly engaged in business in other streets (P12 per apartment). The validity of such ordinance was
challenged by Eusebio and Remedios Villanueva, owners of four tenement houses containing 34
apartments. The Supreme Court held the ordinance to be ultra vires. On 15 January 1960, however, the
municipal board, believing that it acquired authority to enact an ordinance of the same nature pursuant to
the Local Autonomy Act, enacted Ordinance 11 (series of 1960), Eusebio and Remedios Villaniueva
assailed the ordinance anew.
Issue: Whether Ordinance 11 violate the rule of uniformity of taxation.
Held: The Court has ruled that tenement houses constitute a distinct class of property; and that taxes are
uniform and equal when imposed upon all property of the same class or character within the taxing
authority.

The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance,
or that tenement taxes are imposed in other cities do not violate the rule of equality and uniformity. The
rule does not require that taxes for the same purpose should be imposed in different territorial
subdivisions at the same time. So long as the burden of tax falls equally and impartially on all owners or
operators of tenement houses similarly classified or situated, equality and uniformity is accomplished. The
presumption that tax statutes are intended to operate uniformly and equally was not overthrown herein.

CIR vs. PASCOR Taxation Avoidance and Evasion


309 SCRA 402
GR No. 128315 June 29, 1999
"An assessment is not necessary before a criminal charge can be filed."

FACTS: The BIR examined the books of account of Pascor Realty and Devt Corp for years 1986, 1987
and 1988, from which a tax liability of 10.5 Million Pesos was found. Based on the recommendations of
the examiners, the CIR filed an information with the DOJ for tax evasion against the officers of Pascor.
Upon receipt of the subpoena, the latter filed an urgent request for reconsideration/reinvestigation with the
CIR, which was immediately denied upon the ground that no formal assessment has yet been issued by
the Commisioner. Pascor elevated the CIR's decision to the CTA on a petition for review. The CIR filed a
Motion to Dismiss on the ground of lack of jurisdiction of CTA as there was no formal assessment made
against the respondents. The CTA dismissed the motion, hence this petition.

ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?

HELD: No. Section 222 of the NIRC states that an assessment is not necessary before a criminal charge
can be filed. This is the general rule. Private respondents failed to show that they are entitled to an
exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file
a required return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an
assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is
then given a chance to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the
taxpayer informing the latter specifically and clearly that an assessment has been made against him or
her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with
the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the
commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.

Questions:
1) When is taxation equitable?
- When its burden falls on those better able to pay;
2) When it is progressive?
- When its rate goes up depending on the resources of the persons affected
3) What are the principles of a sound tax system?
- Fiscal adequacy
- Theoretical justice
- Administrative feasibility
4)