TAXATION MIDTERM REVIEWER
ONGTECO, ERIKA THERESE GONZAGA
TOPIC
Meaning of Tax
Taxation as Inherent Power
Taxation as General Term, Legal Term
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CASE
1. CIR VS ALGUE
2. Abakada Guro Party List vs Ermita
Issue: Whether or not there is undue
delegation of legislative power in violation
of Article VI Sec 28(2) of the Constitution.
3. Compania General De Tabacos
Issue: Whether it is tax or license fee
RULING
o The amount of the promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to Algue Inc. was P125K. After deducting the
said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the
Sugar Estate properties.
o Sec. 30 of the Tax Code: allowed deductions in the net income Expenses - All the
ordinary and necessary expenses paid or incurred during the taxable year in carrying on
any trade or business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered xxx
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance, in accordance with law.
Ruling: There is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way in which the legislative process can
go forward.
Ruling: The term "tax" applies generally speaking to all kinds of exactions which become public
funds. The term is often loosely used to include levies for revenue as well as levies for regulatory
purposes. Thus license fees are commonly called taxes. Legally speaking, however, license fee is a
legal concept quite distinct from tax; the former is imposed in the exercise of police power for
purposes of regulation, while the latter is imposed under the taxing power for the purpose of raising
revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 26).
Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to engage in
the business of selling liquor or alcoholic beverages, having been enacted by the Municipal Board of
Manila pursuant to its charter power to fix license fees on, and regulate, the sale of intoxicating
liquors, whether imported or locally manufactured. (Section 18 [p], Republic Act 409, as amended).
The license fees imposed by it are essentially for purposes of regulation, and are justified, considering
that the sale of intoxicating liquor is, potentially at least, harmful to public health and morals, and must
be subject to supervision or regulation by the state and by cities and municipalities authorized to act in
the premises. (MacQuillin, supra, p. 445.)
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ONGTECO, ERIKA THERESE GONZAGA
Tax vs License and Regulatory Fee 4. Osmena vs Orbos
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."
5. Pal vs Edu
Issue: Whether or not motor vehicle
registration fees are considered as taxes.
6. Progressive Development vs QC
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On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the sales of
general merchandise, wholesale or retail, and are revenue measures enacted by the Municipal Board of
Manila by virtue of its power to tax dealers for the sale of such merchandise. (Section 10 [o], Republic
Act No. 409, as amended.).
It is already settled in this connection that both a license fee and a tax may be imposed on the same
business or occupation, or for selling the same article, this not being in violation of the rule against
double taxation.
Ruling: The OPSF was established precisely to protect local consumers from the adverse consequences
that such frequent oil price adjustments may have upon the economy. Thus, the OPSF serves as a
pocket, as it were, into which a portion of the purchase price of oil and petroleum products paid by
consumers as well as some tax revenues are inputted and from which amounts are drawn from time to
time to reimburse oil companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so
often, and oil companies are allowed to recover those portions of their costs which they would not
otherwise recover given the level of domestic prices existing at any given time. To the extent that
some tax revenues are also put into it, the OPSF is in effect a device through which the domestic prices
of petroleum products are subsidized in part. It appears to the Court that the establishment and
maintenance of the OPSF is well within that pervasive and non-waivable power and responsibility of
the government to secure the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State. The stabilization,
and subsidy of domestic prices of petroleum products and fuel oil clearly critical in importance
considering, among other things, the continuing high level of dependence of the country on imported
crude oil are appropriately regarded as public purposes.
Ruling: Yes. 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 motor vehicle registration fees are actually taxes intended for additional revenues
of the government even if one fifth or less of the amount collected is set aside for the operating
expenses of the agency administering the program.
Ruling: It is a license fee. A LICENSE FEE is imposed in the exercise of the police power primarily
for purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of
raising revenues.
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ONGTECO, ERIKA THERESE GONZAGA

Issue: Whether or not the supervision fee is an
income tax or a license fee.
(Rental Farmers Market)
If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition
is a tax; but if regulation is the primary purpose, the fact that incidentally, revenue is also obtained
does not make the imposition a tax.
To be considered a license fee, the imposition must relate to an occupation or activity that so engages
the public interest in health, morals, safety, and development as to require regulation for the protection
and promotion of such public interest; the imposition must also bear a reasonable relation to the
probable expenses of regulation, taking into account not only the costs of direct regulation but also its
incidental consequences.

In this case, the Farmers Market is a privately-owned market established for the rendition of service to
the general public. It warrants close supervision and control by the City for the protection of the health
of the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the buying
public, etc.

7. Tolentino vs Secretary of Finance Ruling:

Equity and uniformity in taxation means that all the taxable articles or kinds of properties of the same
The VAT is levied on the sale, barter, or exchanged of class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
the goods and properties as well as on the sale of classifications for purposes of taxation. To satisfy this requirement, it is enough that the statute or
services. RA7116 seeks to wider the tax base of the ordinance applies equally to all persons, firms, and corporations placed in a similar situation.
existing VAT system and enhance it administration on
by amending the NIRC. CRTBA asserts that R.A.
7116 is unconstitutional as it violates the rule that
taxes should be uniform and equitable.

Tax vs Special Assessment
8. Gerochi vs DOE The Universal Charge is not a tax because it is levied for a specific regulatory purpose, which is to
ensure the viability of the country's electric power industry, and is, therefore, an exaction in the
exercise of the State's police power
9. Republic vs Bacolod Murcia The tax is levied with a regulatory purpose, to provide means for the rehabilitation and stabilization of
the threatened sugar industry. In other words, the act is primarily an exercise of the police power.

Tax vs Tariff and Custom Duties 10. Garcia vs Executive Secretary Ruling: Under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue and

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TAXATION MIDTERM REVIEWER
ONGTECO, ERIKA THERESE GONZAGA
Issue: Whether or not EO 475 and 478 are
constitutional.
(9% ad valorem tax - Crude Oil)
Obligation to Pay Tax; Obligation to Pay Debts
11. Republic vs Mambulao Lumber
Issue: Whether taxes may be subject of set-off
or compensation. May reforestation charges be
set-off to forest charges owed by defendants to
the government?
12. Philex Mining vs CIR
Issue: Can there be an off-setting between the
tax liabilities vis-a-vis claims of tax refund of
the petitioner?
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tariff bills, like all other bills is, of course, within the province of the Legislative rather than the
Executive Department. It does not follow, however, that therefore Executive Orders Nos. 475 and 478,
assuming they may be characterized as revenue measures, are prohibited to the President, that they
must be enacted instead by the Congress of the Philippines. Section 28(2) of Article VI of the
Constitution provides as follows: (2) The Congress may, by law, authorize the President to fix within
specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of
the national development program of the Government. There is thus explicit constitutional permission
to Congress to authorize the President subject to such limitations and restrictions as [Congress] may
impose to fix within specific limits tariff rates . . . and other duties or imposts.
Ruling: 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 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 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.
Ruling: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the
lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex's whimsical reason would render ineffective our tax collection system. Too
simplistic, it finds no support in law or in jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it
has a pending tax claim for refund or credit against the government which has not yet been
granted.Taxes cannot be subject to compensation for the simple reason that the government and the
taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and
debt.
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Debts are due to the Government in its corporate capacity, while taxes are due to the Government in
its sovereign capacity.
The collection of a tax cannot await the results of a lawsuit against the government

13. Caltex vs COA Ruling:

Issue: Whether the amounts due from Caltex
to the OPSF may be offsetted against Caltexs
outstanding claims from said funds
No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of
government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation
and stabilization of a threatened industry which is affected with public interest as to be within the
police power of the State.
PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer
may not offset taxes due from the claims he may have against the government. Taxes cannot be subject
of compensation because the government and taxpayer are not mutually creditors and debtors of each
other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off.

14. Francia vs IAC
Issue: Whether the expropriation payment may
compensate for the real estate taxes due
Ruling: There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. A person canot 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 annot await the results
of a lawsuit agianst the government. Internal revenue taxes cannot be the subject of compensation. The
Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278
of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off.

Theory and Basis of Taxation
15. Lorenzo vs Posadas The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. It is in reality an excise or privilege tax imposed on the right to
succeed to, receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to
become operative at or after death.

General and Fiscal Revenue CIR vs Algue

Osmena vs Orbos
Pal v Edu
Tolentino vs Sec of Finance
Non Revenue, Special, Regulatory The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for
16. Tio vs Videogram regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of

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TAXATION MIDTERM REVIEWER
ONGTECO, ERIKA THERESE GONZAGA
17. Lutz vs Araneta
FACTS:
Walter Lutz, as Judicial Administrator of
the Intestate Estate of Antonio Jayme
Ledesma, sought to recover the sum of
P14,666.40 paid by the estate as taxes
from the Commissioner under Section e
of Commonwealth Act 567 or the Sugar
Adjustment Act, alleging that such tax is
unconstitutional as it levied for the aid
and support of the sugar industry
exclusively, which is in his opinion not a
public purpose.
Issue:
Is the tax valid?
18. ESSO vs CIR
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
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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.
Ruling:
Yes. The tax is levied with a regulatory purpose, i.e. to provide means for the rehabilitation and
stabilization of the threatened sugar industry. The act is primarily an exercise of police power and is
not a pure exercise of taxing power.
As sugar production is one of the great industries of the Philippines and its promotion, protection and
advancement redounds greatly to the general welfare, the legislature found that the general welfare
demanded that the industry should be stabilized, and provided that the distribution of benefits had to
sustain.
Further, it cannot be said that the devotion of tax money to experimental stations to seek increase of
efficiency in sugar production, utilization of by-products, etc., as well as to the improvement of living
and working conditions in sugar mills and plantations without any part of such money being channeled
directly to private persons, constitute expenditure of tax money for private purposes.
Hence, the tax is valid.
Ruling: 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
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ONGTECO, ERIKA THERESE GONZAGA
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?
As to Scope of Tax 19. Benguet vs CBAA
The Provincial Assessor of Benguet assessed
real property tax on the bunkhouses of
petitioner Benguet Corporation occupied for
residential purposes by its rank and file
employees
As to who shoulders the burden of the tax 20. Philippine Acetylene vs CIR
Issues of the Case:
Whether Philippine Acetylene is exempt from
paying tax on sales it made to NPC and VOA
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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.
Margin fee is not a tax but an exaction designed to curb the excessive demands upon our international
reserve. As to the contention that the margin levy is a tax on the purchase of foreign exchange and
hence should not form part of the exchange rate, suffice it to state that We have already held the
contrary for the reason that a tax is levied to provide revenue for government operations, while the
proceeds of the margin fee are applied to strengthen our country's international reserves.
We conclude then that the margin fee was imposed by the State in the exercise of its police power and
not the power of taxation.
Sec. 38 of the Real Property Tax Code, which states:jgc:chanrobles.com.ph
"Sec. 38. Incidence of Real Property Tax. There shall be levied, assessed and collected in all
provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real property not hereinafter specifically
exempted."cralaw virtua1aw library
It is thus clear from the foregoing that it is the national government, expressing itself through the
legislative branch, that levies the real property tax. Consequently, when local governments are
required to fix the rates, they are merely constituted as agents of the national government in the
enforcement of the Real Property Tax Code. The delegation of taxing power is not even involved here
because the national government has already imposed realty tax in Sec. 38 above-quoted, leaving only
the enforcement to be done by local governments.
Ruling of the Court:
No. The NPC enjoys tax exemption by virtue of an act of Congress. It is contended that the immunity
thus given to the NPC would be impaired by the imposition of a tax on sales made to it because while
the tax is paid by the manufacturer or producer, the tax is ultimately shifted by the latter to the former.
We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a tax
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ONGTECO, ERIKA THERESE GONZAGA
because both are exempt from taxation.
Petitioners Contention:
Its position is that it is not liable for the
payment of tax on the sales it made to the
NPC and the VOA because both entities are
exempt from taxation.
21. Maceda vs Macaraig
22. CIR vs John Gotamco
Issue: Whether respondent John Gotamco &
Sons, Inc. should pay the 3% contractor's tax
under Section 191 of the National Internal
Revenue Code on the gross receipts it realized
from the construction of the World Health
Organization office building in Manila.
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on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and
inconsequential sense. Accordingly its levy on the sales made to tax-exempt entities like the NPC is
permissible.
A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in.
Examples are the custom duties and ad valorem taxes paid by the oil companies to the Bureau of
Customs for their importation of crude oil, and the specific and ad valorem taxes they pay to the
Bureau of Internal Revenue after converting the crude oil into petroleum products.
On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ." For example, the excise and ad valorem taxes that oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like
the NPC, by adding them to the "cash" and/or "selling price."
The NPC is a non-profit public corporation created for the general good and welfare wholly owned by
the government of the Republic of the Philippines. From the very beginning of its corporate existence,
the NPC enjoyed preferential tax treatment to enable the Corporation to pay the indebtedness and
obligation and in furtherance and effective implementation of the policy enunciated in Section one of
"Republic Act No. 6395"
Ruling:
No. Direct taxes are those that are demanded from the very person who, it is intended or desired,
should pay them; while indirect taxes are those that are demanded in the first instance from one person
in the expectation and intention that he can shift the burden to someone else.
Herein, the contractors tax is payable by the contractor but it is the owner of the building that
shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter
of self-preservation. Such tax is an indirect tax on the organization, as the payment thereof or its
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As to object or subject matter of tax
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23. Villanueva vs City of Iloilo
24. CIR vs CA
25. Association of Custom Brokers vs
Municipal Board
inclusion in the bid price would have meant an increase in the construction cost of the building.
Hence, WHOs exemption from indirect taxes implies that Gotamco is exempt from contractors
tax.
THE CONTENTION OF THE PETITIONER THAT THE ORDINACE IS ILLEGAL BECAUSE IT
IMPOSES DOUBLE TAXATION IS DEVOID OF MERIT.
While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National
Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the
argument against double taxation may not be invoked. The same tax may be imposed by the national
government as well as by the local government. There is nothing inherently obnoxious in the exaction
of license fees or taxes with respect to the same occupation, calling or activity by both the State and a
political subdivision thereof.
The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate
taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-
settled rule that a license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax
"In order to constitute double taxation in the objectionable or prohibited sense the same property must
be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or
subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the
same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or
character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the
ordinance, although imposed by the same taxing authority, are not of the same kind or character.
There is no constitutional prohibition against double taxation in the Philippines. It is something not
favored, but is permissible, provided some other constitutional requirement is not thereby violated,
such as the requirement that taxes must be uniform."
THE TAX IN QUESTION WAS UNIFORMLY IMPOSED.
This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise
ruled that "taxes are uniform and equal when imposed upon all property of the same class or character
within the taxing authority."
The executive order has been designed to be in the nature of a general grant of tax amnesty subject
only to the cases specifically excepted by it.
Where an ordinance imposes a property tax on motor vehicles using the streets of Manila, such tax
being payable only by the owners residing in Manila, because owners of vehicles residing outside of
Manila who also use the streets are not made to share the corresponding burden.
Where the statute or ordinance in question applies alike to all persons, firms, or corporations placed in
similar situations, or differently to persons, firms, or corporations belonging to different classes
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provided all those belonging to one class are treated alike, there is no infringement of the constitutional
guarantee. What the Constitution requires is equal treatment under the law and this may involve same
or different treatment depending on the circumstances.
Thus, there is no violation of the protection
(a) Where those with different amounts of incomes are made to pay different rates for taxes; or
(b) Where compensation income is subject to a lower tax rate than business and professional income
because recipients of the former are not entitled to make deductions for income tax purposes, as there
are practically no overhead expenses;
(c) Where certain corporations (e.g., non-profit proprietary educational institutions and hospitals) are
made to pay lower amount of taxes than that paid by other corporations;
(d) Where unpaid real property taxes are condoned to the exclusion of taxes already collected. Each set
of taxpayers is a class by itself and all those belonging to one class are treated alike; or
(e) Where stables for race horses are taxed while stables for non- race horses are not (Manila Race
Horse Owners Association vs. De la Fuente, 88 Phil. 62 1951.);
(f) Where a tax is imposed by ordinance on person engaged in the business of operating buildings or
improvements offered for rent or lease, while owners of other classes of buildings (e.g., residential
houses) in the same taxing district (e.g., city or municipality) do not pay the same tax. Taxes are
(uniform and) equal when imposed upon all property of the same class or character within the taxing
authority. Tenement buildings constitute a district class of property.
There is denial of the protection:
(a) Where an ordinance imposes a property tax on motor vehicles using the streets of Manila, such tax
being payable only by the owners residing in Manila, because owners of vehicles residing outside of
Manila who also use the streets are not made to share the corresponding burden. (Association of
Customs Brokers vs. Municipal Board of Manila, 95 Phil. 107 1954.)
(b) Where a tax provision is enforced against manufacturers of filled milk (fatty part is removed and
substituted with coconut oil) only, but not against persons similarly situated such as manufacturers of
condensed skimmed milk (fatty part is removed and substituted with vegetable or corn oil) for the law,
if not equally enforced, would offend against the Constitution. (Vera vs. Cuevas, 90 SCRA 374, May
31, 1979.)
Here, there is likewise different tax treatment when both manufacturers belong to the same class or are
similarly situated.
All persons subject to legislation shall be treated alike under similar circumstances and conditions both
in the privileges conferred and liabilities imposed.
The doctrine does not require that persons or properties different in fact be treated in law as though
they were the same. What it prohibits is class legislation which discriminates against some and favors
others.
As long as there are rational or reasonable grounds for so doing, Congress may group persons or
properties to be taxed and it is sufficient if all members of the same class are subject to the same rate
and the tax is administered impartially upon them.

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Basic Principle of Sound Tax System
Nature of the Power of Taxation; Inherent in
Sovereignty
Therefore, Roxas
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26. Chavez vs Ongpin
Section 21 of Presidential Decree 464
provides that every 5 years starting
calendar year 1978, there shall be a
provincial or city general revision of real
property assessments. The general
revision was completed in 1984.
On November 25, 1986, President
Corazon Aquino issued EO 73 stating
that beginning January 1, 1987, the 1984
assessments shall be the basis of real
property taxes. Francisco Chavez, a
taxpayer and landowner, questioned the
constitutionality of EO 74. He alleges
that it will bring unreasonable increase
in real property taxes.
Issue:
Is EO 73 constitutional?
27. Roxas vs CTA
y Cia. cannot be
Requisites of a valid classification
1. It must be based on substantial distinctions which make real differences.
2. The classification must be germane to the purpose of the law.
3. The classification must not be limited to existing conditions only but must also apply to future
conditions substantially identical to those of the present.
4. The classification must apply equally to all members of the same class. [Tiu v. Court of Appeals,
301 SCRA 278 (1999)]
Tiu v. Court of Appeals, 301 SCRA 278 (1999)
The Constitutional right to equal protection of the law is not violated by an executive order, issued
pursuant to law, granting tax and duty incentives only to business within the secured area of the
Subic Special Economic Zone and denying them to those who live within the Zone but outside such
fenced in territory. The Constitution does not require absolute equality among residents. It is enough
that all persons under like circumstances or conditions are given the same privileges and required to
follow the same obligations. In short, a classification based on valid and reasonable standards does not
violate the equal protection clause.
We find real and substantial distinctions between the circumstances obtaining inside and those outside
the Subic Naval Base, thereby justifying a valid and reasonable classification
Ruling:
Yes. Without EO 73, the basis for collection of real property taxes will still be the 1978 revision of
property values. Certainly, to continue collecting real property taxes based on valuations arrived at
several years ago, in disregard of the increases in the value of real properties that have occurred since
then is not in consonance with a sound tax system.
Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that sources of
revenue must be adequate to meet government expenditures and their variations.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to
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considered a real estate dealer for the
sale in question. Hence, pursuant to
Section 34 of the Tax Code the lands sold
to the farmers are capital assets, and the
gain derived from the sale thereof is
capital gain, taxable only to the extent
of 50%
28. Tanada vs Angara
Extent of the Legislative Power to Tax 29. Tan vs Del Rosario
General Professional Partnership
30. CIR vs Santos
31. Sison vs Ancheta
(High Taxes than those who are receiving
salary)
32. Kapatiran vs Tan
(as the amended provision of the Tax
Code provides that service performed
in the exercise of profession or calling
(except custom brokers) subject to
occupational tax under the Local Tax
Code and professional services
performed by registered general
professional partnerships are exempt
from VAT. )
33. Reyes vs Almanzor
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maintain the general public's trust and confidence in the Government this power must be used justly
and not treacherously. It does not conform with Our sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly
answering the urgent call.
Senate, after deliberation and voting, voluntarily and overwhelmingly gave its consent to the
WTO Agreement thereby making it a part of the law of the land. The Senate did was a valid
exercise of its authority. As to whether such exercise was wise, beneficial or viable is outside
the realm of judicial inquiry and review.
With the legislature primarily lies the discretion to determine the nature (kind), object (purpose),
extent (rate), coverage (subjects) and situs (place) of taxation.
It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that "inequalities which result from a singling out or one particular class for taxation,
or exemption, infringe no constitutional limitation
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the same
class shall be taxed the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation
Issue:
Whether the E-VAT law is void for being discriminatory against customs brokers
Ruling:
No. The phrase except custom brokers is not meant to discriminate against custom brokers but to
avert a potential conflict between Sections 102 and 103 of the Tax Code, as amended. The distinction
of the customs brokers from the other professionals who are subject to occupation tax under the Local
Tax Code is based on material differences, in that the activities of customs partake more of a business,
rather than a profession and were thus subjected to the percentage tax under Section 174 of the Tax
Code prior to its amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the
VAT. If the Association did not protest the classification of customs brokers then, there is no reason
why it should protest now.
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of
government. But for all its plenitude the power to tax is not unconfined as there are restrictions.
Adversely effecting as it does property rights, both the due process and equal protection clauses of the
Constitution may properly be invoked to invalidate in appropriate cases a revenue measure. If it were
TAXATION MIDTERM REVIEWER
ONGTECO, ERIKA THERESE GONZAGA
Non Delegability of Power to Tax
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otherwise, there would be truth to the 1903 dictum of Chief Justice Marshall that "the power to tax
involves the power to destroy." The web or unreality spun from Marshall's famous dictum was brushed
away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not the power to destroy
while this Court sits.
34. Maceda vs ERB
The OPSF was established precisely to protect the consuming public from the erratic movement of oil
prices and to preclude oil companies from taking advantage of fluctuations occurring every so often.
As a buffer mechanism, it stabilizes domestic prices by bringing about a uniform rate rather than
leaving pricing to the caprices of the market.
ISSUE:
35. Maceda vs Macaraig Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the enactment of PD
938 on May 27, 1976 which amended PD 380 issued on January 11, 1974
RULING:
No, it is still exempt.
NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly
owned by the government of the Republic of the Philippines. From the very beginning of the
corporations existence, NAPOCOR enjoyed preferential tax treatment to enable the corporation to
pay the indebtedness and obligation and effective implementation of the policy enunciated in Section
1 of RA 6395.
From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be
interpreted liberally so as to enhance the tax exempt status of NAPOCOR.
It is recognized that the rule on strict interpretation does not apply in the case of exemptions in favor of
government political subdivision or instrumentality. In the case of property owned by the state or a city
or other public corporations, the express exception should not be construed with the same degree of
strictness that applies to exemptions contrary to the policy of the state, since as to such property
exception is the rule and taxation the exception.
36. Basco vs Pagcor
Ruling:
1. The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Their
charter or statute must plainly show an intent to confer that power, otherwise the municipality cannot
assume it. Its power to tax therefore must always yield to a legislative act which is superior having
been passed upon by the state itself which has the inherent power to tax.
The Charter of Manila is subject to control by Congress. It should be stressed that municipal
corporations are mere creatures of Congress, which has the power to create and abolish municipal
corporations due to its general legislative powers. Congress, therefore, has the power of control
TAXATION MIDTERM REVIEWER
ONGTECO, ERIKA THERESE GONZAGA
Who May Question the Validity of Tax
Inherent Limitations
1. Purpose must be public in nature
2. Prohibition against delegation of the taxing
power
Exceptions: Delegation to LGU
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37. Pepsi Cola vs City of Butuan
38. Lozada vs Comelec
39. Gonzales vs Marcos
40. Chavez vs PCGG
over the Local governments. And if Congress can grant the City of Manila the power to tax certain
matters, it can also provide for exemptions or even take back the power.
2. The City of Manilas power to impose license fees on gambling, has long been revoked by P.D. No.
771 and vested exclusively on the National Government. Therefore, only the National Government has
the power to issue license or permits for the operation of gambling.
3. Local governments have no power to tax instrumentalities of the National Government.
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.
As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax
money is being illegally spent. The act complained of is the inaction of the COMELEC to call a
special election, as is allegedly its ministerial duty under the constitutional provision above cited, and
therefore, involves no expenditure of public funds. It is only when an act complained of, which may
include a legislative enact mentor statute, involves the illegal expenditure of public money that the so-
called taxpayer suit may be allowed. What the case at bar seeks is one that entails expenditure
of public funds which may be illegal because it would be spent for a purpose that of calling a special
election which, as will be shown, has no authority either in the Constitution or a statute.
As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and
prosecute the present petition. The unchallenged rule is that the person who impugns the validity of a
statute must have a personal and substantial interest in the case such that he has sustained, or will
sustain, direct injury as a result of its enforcement.
TAXATION MIDTERM REVIEWER
ONGTECO, ERIKA THERESE GONZAGA

Exceptions: Delegation to the President

Exceptions: Delegation to administrative agencies

3. Exemption of Government Entities,

Agencies and Instrumentalities
4. International Comity
5. Limitation of Territorial Jurisdiction

Constitutional Limitations
1. Due Process of Law
2. Equal Protection of Laws
3. Uniformity and Equity in Taxation
4. Prohibition against non imprisonment for
non payment of poll tax
5. Prohibition against impairment of
obligation and contracts
6. Prohibition against infringement of
religious freedom
7. Prohibition against appropriation of
proceeds of taxation.
8. Prohibition against taxation of religious ,
charitable and educational entities
9. Prohibition against taxation of non stock
non profit educational institutions.
10. Others
a. Grant of Tax Exemption
b. Veto of Appropriation, Revenue, Tariff
Bills
c. Non impairment of Jurisdiction of the
Supreme Court
d. Revenue Bills shall originate from the
House of Representatives
e. Infringement of Press Freedom
f. Grant of Franchise

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