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In 1964, Ormoc City passed a bill which read: There shall be paid to the
City Treasurer on any and all productions of centrifugal sugar milled at the
Ormoc Sugar Company Incorporated, in Ormoc City a municipal tax
equivalent to one per centum (1%) per export sale to the United States of
America and other foreign countries. Though referred to as a production
tax, the imposition actually amounts to a tax on the export of centrifugal
sugar produced at Ormoc Sugar Company, Inc. For production of sugar
alone is not taxable; the only time the tax applies is when the sugar
produced is exported. Ormoc Sugar paid the tax (P7,087.50) in protest
averring that the same is violative of Sec 2287 of the Revised
Administrative Code which provides: It shall not be in the power of the
municipal council to impose a tax in any form whatever, upon goods and
merchandise carried into the municipality, or out of the same, and any
attempt to impose an import or export tax upon such goods in the guise of
an unreasonable charge for wharfage, use of bridges or otherwise, shall be
void. And that the ordinance is violative to equal protection as it singled
out Ormoc Sugar As being liable for such tax impost for no other sugar mill
is found in the city.
HELD: The SC held in favor of Ormoc Sugar. The SC noted that even if Sec
2287 of the RAC had already been repealed by a latter statute (Sec 2 RA
2264) which effectively authorized LGUs to tax goods and merchandise
carried in and out of their turf, the act of Ormoc City is still violative of
equal protection. The ordinance is discriminatory for it taxes only
centrifugal sugar produced and exported by the Ormoc Sugar Company,
Inc. and none other. At the time of the taxing ordinances enactment,
Ormoc Sugar Company, Inc., it is true, was the only sugar central in the
city of Ormoc. Still, the classification, to be reasonable, should be in terms
applicable to future conditions as well. The taxing ordinance should not be
singular and exclusive as to exclude any subsequently established sugar
central, of the same class as plaintiff, from the coverage of the tax. As it is
now, even if later a similar company is set up, it cannot be subject to the
tax because the ordinance expressly points only to Ormoc Sugar
Company, Inc. as the entity to be levied upon.
Tiu vs CA
On March 13, 1992, Congress, with the approval of the President, passed
into law RA 7227. This was for the conversion of former military bases into
industrial and commercial uses. Subic was one of these areas. It was made
into a special economic zone.
In the zone, there were no exchange controls. Such were liberalized. There
was also tax incentives and duty free importation policies under this law.
On June 10, 1993, then President Fidel V. Ramos issued Executive Order
No. 97 (EO 97), clarifying the application of the tax and duty incentives. It
said that
On Import Taxes and Duties. Tax and duty-free importations shall apply
only to raw materials, capital goods and equipment brought in by business
enterprises into the SSEZ
On All Other Taxes. In lieu of all local and national taxes (except import
taxes and duties), all business enterprises in the SSEZ shall be required to
pay the tax specified in Section 12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the President issued Executive Order
No. 97-A (EO 97-A), specifying the area within which the tax-and-duty-free
privilege was operative.
Section 1.1.
The Secured Area consisting of the presently fenced-in
former Subic Naval Base shall be the only completely tax and duty-free
area in the SSEFPZ. Business enterprises and individuals (Filipinos and
foreigners) residing within the Secured Area are free to import raw
materials, capital goods, equipment, and consumer items tax and dutyfree
Petitioners challenged the constitutionality of EO 97-A for allegedly being
violative of their right to equal protection of the laws. This was due to the
limitation of tax incentives to Subic and not to the entire area of Olongapo.
The case was referred to the Court of Appeals.
The appellate court concluded that such being the case, petitioners could
not claim that EO 97-A is unconstitutional, while at the same time
maintaining the validity of RA 7227.
The court a quo also explained that the intention of Congress was to
confine the coverage of the SSEZ to the "secured area" and not to include
the "entire Olongapo City and other areas mentioned in Section 12 of the
law
Hence, this was a petition for review under Rule 45 of the Rules of Court.
Issue:
ISSUE: Whether or not the properties of the church (in this case) is exempt
from taxes.
HELD: No, they are not tax exempt. It is true that the Constitution provides
that charitable institutions, mosques, and non-profit cemeteries are
required that for the exemption of lands, buildings, and improvements,
they should not only be exclusively but also actually and directly
used for religious or charitable purposes. The exemption from taxation is
not favored and is never presumed, so that if granted it must be strictly
construed against the taxpayer. However, in this case, there is no showing
that the said properties are actually and directly used for religious or
charitable uses.
Jose V. Herrera and Ester Herrera vs. The Quezon City Board
Of Assessment Appeals
FACTS:
Petitioners Jose and Ester Herrera were authorized by the Director of the
Bureau of Hospital to establish and operate the St. Catherines Hospital. In
1953, the petitioners sent a letter to the Quezon City Assessor requesting
exemption from payment of real estate tax on the lot, building and other
improvements comprising the hospital stating that the same was
established for charitable and humanitarian purposes and not for
commercial gain which was granted effective the years 1953 to 1955.
Subsequently, however, in a letter dated August 10, 1955 the Quezon City
Assessor notified the petitioners that the aforesaid properties were reclassified from exempt to taxable and thus assessed for real property
taxes effective 1956. The petitioners appealed the assessment to the
Quezon City Board of Assessment Appeals, which, affirmed the decision of
the City Assessor. A motion for reconsideration thereof was denied. From
this decision, the petitioners instituted
the instant appeal. The building involved in this case is principally used as
a hospital. From the evidence presented by petitioners, it is made to
appear that there are two kinds of charity patients (a) those who come for
consultation only (out-charity patients); and (b) those who remain in the
hospital for treatment (lying-in-patients). Petitioners also operate within
the premises of the hospital the St. Catherines School of Midwifery
which was granted government recognition by the Secretary of Education.
The students practice in the St. Catherines Hospital, as well as in the St.
Marys Hospital, which is also owned by the petitioners. A separate set of
accounting books is maintained by the school for midwifery distinct from
that kept by the hospital. However, the petitioners have refused to submit
a separate statement of accounts of the school.
ISSUE:
Whether or not the said properties are used exclusively for charitable or
educational purposes which are exempt from real property tax
HELD:
The Supreme Court ruled in the affirmative. The Court of Tax Appeals
decided the issue in the negative, upon the ground that the St. Catherines
Hospital has a pay ward for ... pay-patients, who are charged for the use of
the private rooms, operating room, laboratory room, delivery room, etc.,
like other hospitals operated for profit and that petitioners and their family
occupy a portion of the building for their residence. It should be noted,
however, that, according to the very statement of facts made in the
decision appealed from, of the thirty-two (32) beds in the hospital, twenty
(20) are for charity-patients; that the income realized from pay-patients is
spent for improvement of the charity wards; and that petitioners, Dr. Ester
Ochangco Herrera, as directress of said hospital,does not receive any
salary, although its resident physician gets a monthly salary of P170.00. It
is well settled, in this connection, that 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. In other words, where rendering charity is its primary object, and
the funds derived from payments made by patients able to pay are
devoted to the benevolent purposes of the institution, the mere fact that a
profit has been made will not deprive the hospital of its benevolent
character. Moreover, the exemption in favor of property used exclusively
for charitable or educational purposes is not limited to property actually
indispensable therefor but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes, such as, in
the case of hospitals, a school for training nurses, a nurses home,
property use 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 Constitutional exemption from taxation, the St. Catherines Hospital is,
therefore, a charitable institution, and the fact that it admits pay-patients
does not bar it from claiming that it is devoted exclusively to benevolent
purposes, it being admitted that the income derived from pay-patients is
devoted to the improvement of the charity wards, which represent almost
two-thirds (2/3) of the bed capacity of the hospital, aside from outcharity
patients who come only for consultation.
Case Digest: Lung Center of the Philippines vs. Quezon City and
Constantino Rosas
FACTS:
The Petitioner is a non-stock, non-profit entity which owns a parcel of land
in Quezon City. Erected in the middle of the aforesaid lot is a hospital
known as the Lung Center of the Philippines. The ground floor is being
leased to a canteen, medical professionals whom use the same as their
private clinics, as well as to other private parties. The right portion of the
lot is being leased for commercial purposes to the Elliptical Orchids and
Garden Center. The petitioner accepts paying and non-paying patients. It
also renders medical services to out-patients, both paying and non-paying.
Aside from its income from paying patients, the petitioner receives annual
subsidies from the government.
Petitioner filed a Claim for Exemption from realty taxes amounting to
about Php4.5 million, predicating its claim as a charitable institution. The
city assessor denied the Claim. When appealed to the QC-Local Board of
Assessment, the same was dismissed. The decision of the QC-LBAA was
affirmed by the Central Board of Assessment Appeals, despite the
Petitioners claim that 60% of its hospital beds are used exclusively for
charity.
HELD:
The Court held that the petitioner is indeed a charitable institution based
on its charter and articles of incorporation. As a general principle, a
charitable institution does not lose its character as such and its exemption
from taxes simply because it derives income from paying patients,
whether out-patient or confined in the hospital, or receives subsidies from
the government, so long as the money received is devoted or used
altogether to the charitable object which it is intended to achieve; and no
money inures to the private benefit of the persons managing or operating
the institution.
Despite this, the Court held that the portions of real property that are
leased to private entities are not exempt from real property taxes as these
are not actually, directly and exclusively used for charitable purposes.
(strictissimi juris) Moreover, P.D. No. 1823 only speaks of tax exemptions
as regards to:
income and gift taxes for all donations, contributions, endowments
and equipment and supplies to be imported by authorized entities or
persons and by the Board of Trustees of the Lung Center of the Philippines
for the actual use and benefit of the Lung Center; and
taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment
purchases (expression unius est exclusion alterius/expressium facit
cessare tacitum).
CIR vs Johnson
Facts:
Respondent is a domestic corporation organized and operating under the
Philippine Laws, entered into a licensed agreement with the SC Johnson
and Son, USA, a non-resident foreign corporation based in the USA
pursuant to which the respondent was granted the right to use the
trademark, patents and technology owned by the later including the right
to manufacture, package and distribute the products covered by the
FACTS:
Mambulao Lumber Company paid the Government a total of P9,127.50 as
reforestation charges. Having found liable for an aggregate amount of
P4,802.37 for forest charges, it contended that since the Republic
(Government) has not made use of the reforestation charges for
reforesting the denuded area of the land covered by the companys
license, the Republic should refund said amount or, if it cannot be
refunded, at least the company should be compensated with what it owed
the Republic for reforestation charges.
ISSUE:
Whether taxes may be subject of set-off or compensation.
HELD:
Internal revenue taxes, such as forest charges, cannot be the subject of
set-off or compensation. A claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off under the statutes of setoff, which are construed uniformly, in the light of public policy, to exclude
the remedy in an action or any indebtedness of the State or municipality
to one who is liable to the State or municipality for taxes. Neither are they
subject of recoupment since they do not arise out of the contract or
transaction sued on.
Taxes are not in the nature of contracts between the parties but grow out
of a duty to, and are the positive acts of the government, to the making
and enforcing of which, the personal consent of individual taxpayers is not
required.
Francia vs IAC
FACTS
Engracio Francia was the owner of a 328 square meter land in Pasay
City. In October 1977, a portion of his land (125 square meter) was
expropriated by the government for P4,116.00. The expropriation
was made to give way to the expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since
1963 amounting to P2,400.00. So in December 1977, the remaining
203 square meters of his land was sold at a public auction (after due
notice was given him). The highest bidder was a certain Ho
Fernandez who paid the purchase price of P2,400.00 (which was
lesser than the price of the portion of his land that was
expropriated).
Later, Francia filed a complaint to annul the auction sale on the
ground that the selling price was grossly inadequate. He further
argued that his land should have never been auctioned because the
P2,400.00 he owed the government in taxes should have been setoff by the debt the government owed him (legal compensation). He
alleged that he was not paid by the government for the expropriated
portion of his land because though he knew that the payment
therefor was deposited in the Philippine National Bank, he never
withdrew it.
ISSUE: Whether or not the tax owed by Francia should be set-off by
the debt owed him by the government.
HELD: No. As a rule, set-off of taxes is not allowed. There is no legal
basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). This
is not applicable in taxes. There can be no off-setting of taxes
against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that
the government owes him an amount equal to or greater than the
tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.
The Supreme Court emphasized: A claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the
light of public policy, to exclude the remedy in an action or any
indebtedness of the state or municipality to one who is liable to the
state or municipality for taxes. Neither are they a proper subject of
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
ISSUE: Can there be an off-setting between the tax liabilities vis-avis claims of tax refund of the petitioner?
Ruling:
Yes. Section 143 of the Tax Reform Act of 1997 is clear and
unambiguous. It provides for two periods: the first is the 3- year
transition period beginning January 1, 1997, the date when R.A. No.
8240 took effect, until December 31, 1999; and the second is the
period thereafter. During the 3-year transition period, Section 143
provides that "the excise tax from any brand of fermented
liquor...shall not be lower than the tax which was due from each
brand on October 1, 1996." After the transitory period, Section 143
provides that the excise tax rate shall be the figures provided under
paragraphs (a), (b) and (c) of Section 143 but increased by 12%,
without regard to whether the revenue collection starting January 1,
2000 may turn out to be lower than that collected prior to said date.
Revenue Regulations No. 17-99, however, created a new tax rate
when it added in the last paragraph of Section 1 thereof, the
qualification that the tax due after the 12% increase becomes
effective "shall not be lower than the tax actually paid prior to
January 1, 2000."
It bears reiterating that tax burdens are not to be imposed, nor
presumed to be imposed beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris
against the government. In case of discrepancy between the basic
law and a rule or regulation issued to implement said law, the basic
law prevails as said rule or regulation cannot go beyond the terms
and provisions of the basic law.
As there is nothing in Section 143 of the Tax Reform Act of 1997
which clothes the BIR with the power or authority to rule that the
new specific tax rate should not be lower than the excise tax that is
actually being paid prior to January 1, 2000, such interpretation is
clearly an invalid exercise of the power of the Secretary of Finance
to interpret tax laws and to promulgate rules and regulations
necessary for the effective enforcement of the Tax Reform Act of
1997.