2. Partly No.
Under PD 1823, the lung center does not enjoy any property
LUNG CENTER OF THE PHILIPPINES VS QUEZON CITY
Posted by kaye lee on 5:15 PM
G.R. No. 144104, June 29, 2004 [Constitutional Law - Article VI:
Legislative Department; Taxation ]
FACTS:
Petitioner is a non-stock, non-profit entity established by virtue of PD No.
1823, seeks exemption from real property taxes when the City Assessor
issued Tax Declarations for the land and the hospital building. Petitioner
predicted on its claim that it is a charitable institution. The request was
denied, and a petition hereafter filed before the Local Board of
Assessment Appeals of Quezon City (QC-LBAA) for reversal of the
resolution of the City Assessor. Petitioner alleged that as a charitable
institution, is exempted from real property taxes under Sec 28(3) Art VI of
the Constitution. QC-LBAA dismissed the petition and the decision was
likewise affirmed on appeal by the Central Board of Assessment Appeals of
Quezon City. The Court of Appeals affirmed the judgment of the CBAA.
ISSUE:
1. Whether or not petitioner is a charitable institution within the context of
PD 1823 and the 1973 and 1987 Constitution and Section 234(b) of RA
7160.
2. Whether or not petitioner is exempted from real property taxes.
RULING:
1. Yes. The Court hold that the petitioner is a charitable institution within
the context of the 1973 and 1987 Constitution. Under PD 1823, the
petitioner is a non-profit and non-stock corporation which, subject to the
provisions of the decree, is to be administered by the Office of the
President with the Ministry of Health and the Ministry of Human
Settlements. The purpose for which it was created was to render medical
services to the public in general including those who are poor and also the
rich, and become a subject of charity. Under PD 1823, petitioner is
entitled to receive donations, even if the gift or donation is in the form of
subsidies granted by the government.
tax exemption privileges for its real properties as well as the building
constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the Constitution
of the property taxes only. This provision was implanted by Sec.243 (b) of
RA 7160.which provides that in order to be entitled to the exemption, the
lung center must be able to prove that: it is a charitable institution and;
its real properties are actually, directly and exclusively used for charitable
purpose. Accordingly, the portions occupied by the hospital used for its
patients are exempt from real property taxes while those leased to private
entities are not exempt from such taxes.
LUNG CENTER v. QUEZON CITY
NATURE: Petition for review on certiorari
FACTS: The petitioner Lung Center of the Philippines is a
non-stock and non-profit entity established by virtue of Presidential
Decree No. 1823. It owns a piece of land, in the middle of which is a
hospital stands. A big space at the ground floor is being leased to private
parties for canteen and small stores and to medical and to professional
practitioners. A big portion of the lot is being leased for commercial
purposes to a private enterprise. In 1993, both land and the hospital
building were assessed for real property taxes in the amount of about Php
4.5 Million. The petitioner avers that it is a charitable institution within the
context of Section 28(3), Article VI of the 1987 Constitution. It asserts
that its character as a charitable institution is not altered by the fact that
it admits paying patients and renders medical services to them, leases
portions of the land to private parties, and rents out portions of the
hospital to private medical practitioners from which it derives income to
be used for operational expenses.
ISSUE: Whether or not the property is tax exempt under the
1987 Constitution.

HELD: Only the hospital is exempt from property tax.

RATIONALE: The test whether an enterprise is charitable or not is

whether it exists to carry out a purpose reorganized in law as charitable or
whether it is maintained for gain, profit, or private advantage. 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. However, under the 1973 and 1987
Constitutions and Rep. Act No. 7160 in order to be entitled to the
exemption, the petitioner is burdened to prove, by clear and unequivocal
proof, that (a) it is a charitable institution; and (b) its real properties are
ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
Accordingly, only those portions of the hospital used for patients whether
paying or non-paying are exempt from real property taxes. Those portions
of its real property that are leased to private entities are not exempt from
real property taxes as these are not actually, directly and exclusively
Comm. Of Internal Revenue vs. St. Luke’s Medical Center, Inc.
(G.R. No. 195909-195960; Sept. 26, 2012)
Facts: St. Luke’s (respondent) is a hospital organized as a non-stock and
non-profit organization. Sometime in 2002, BIR assessed St. Luke’s
deficiency taxes amounting to P76M for 1998 which was subsequently
reduced to P63M during trial in the CTA. St. Luke’s protested and filed an
administrative protest with BIR but was not acted by the latter within the
180 period thus reaching to the CTA.
According to BIR, Section 27B of the NIRC imposing a 10%
preferential tax rate applies to St. Luke’s. Its reason is that it amends the
exemption on non-profit hospitals and which prevails over the exemption
on income tax granted under Section 30 (E and G) for non-stock,
nonprofit charitable institution and civic organizations promoting social
welfare. It further claimed that St. Luke’s was actually operating for profit
because only 13% came from charitable purposes and that it had a total
revenue of P1.73B from patient services in 1998.
Meanwhile, St. Luke’s contended that its operating income only
totaled P334 M (less the operating expenses) and out of that P218M
(65%) made up its free services and further claimed that its income does
not inure to the benefit of anyone. Furthermore, it argued that it falls
under the exception provided under Sec. 30 (E) and (G) of NIRC and
making of profit per se does not destroy its tax exemption.
CTA En Banc ruled in favor of St. Luke’s exemption under Sec. 30
and reiterated its earlier fiding in another case identifying St. Luke’s as a
charitable institution. CTA adopted the test in Hospital de San Juan de
Dios, Inc. v. Pasay City, which states that "a charitable institution does
not lose its charitable character and its consequent exemption from
taxation merely because recipients of its benefits who are able to pay are
required to do so, where funds derived in this manner are devoted to the
charitable purposes of the institution . . . ." (The generation of income
from paying patients does not per se destroy the charitable nature of St.
Luke's.)
Issue: WON St. Luke’s is liable for deficiency income tax under Sec. 27 (B)
of the NIRC which imposes a 10% preferential rate.
Held: Petition partly granted. YES, St. Luke’s is liable under Sec. 27 (B)
of the NIRC.
Under Sec. 30 (E) of the NIRC provides that a charitable institution
must be: (1) non-stock corporation or association; (2)ORGANIZED
EXCLUSIVELY for charitable purposes; (3) OPERATED EXCLUSIVELY for
charitable purposes; (4) No part of its net income or asset shall inure to
the benefit of any member , officer or any person. Under the last
paragraph of Sec. 30 of the NIRC if a tax exempt charitable institution
conducts "any" activity for profit, such activity is NOT TAX EXEMPT even
as its not-for-profit activities remain tax exempt. It simply means that
even if a charitable institution organized and operated exclusively for
charitable purposes is nevertheless allowed to engage in “activities
conducted for profit” without losing its tax exempt status for its no-for-
profit activities. However, as a consequence "income of whatever kind
and character" of a charitable institution "from any of its activities
conducted for profit, regardless of the disposition made of such
income, shall be subject to tax." (Sec. 30, last par.). Therefore,
services rendered to paying patients are activities conducted for profit and
thus taxable under Sec. 27 (B) of the NIRC.
St. Luke's fails to meet the requirements under Section 30 (E) and
(G) of the NIRC to be completely tax exempt from all its income.
However, it remains a proprietary non-profit hospital under Section
27 (B) of the NIRC as long as it does not distribute any of its profits to its
members and such profits are reinvested pursuant to its corporate
purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to
the preferential tax rate of 10% on its net income from its for-
profit activities.

Notes:

1. TEST OF CHARITY - as a gift, to be applied consistently with

existing laws, for the benefit of
an indefinite number of persons, either by bringing their minds
and hearts under the influence of education or religion, by
assisting them to establish themselves in life or [by]
otherwise lessening the burden of government." (In other
words, charitable institutions provide for free goods and
services to the public which would otherwise fall on the
shoulders of government.)
2. Solely is synonymous with EXCLUSIVELY. (Lung center of the
Phil.)
3. Proprietary- means private.
4. Non-profit- no net income accrues to the benefit of any person
and with all its income devoted to the institutions purpose and all
its activities CONDUCTED NOT FOR PROFIT.
 Manila Electric Company vs. Province of Laguna
G.R. No. 131359 May 5, 1999
Facts:
Certain municipalities of the Province of Laguna,by virtue of existing laws
then in effect, issued resolutions through their respective municipal
councils granting franchise in favor of Manila Electric Company
("MERALCO") for the supply of electric light, heat and power within their
concerned areas. MERALCO was likewise granted a franchise by the
National Electrification Administration to operate an electric light and
power service in the Municipality of Calamba, Laguna. On 12 September
1991, Republic Act No. 7160, otherwise known as the "Local Government
Code of 1991," was enacted to take effect on 01 January 1992 enjoining
local government units to create their own sources of revenue and to levy
taxes, fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy. Pursuant to the
provisions of the Code, the Province enacted Laguna Provincial Ordinance
No. 01-92, effective 01 January 1993, providing, in part, as follows: “Sec.
2.09. Franchise Tax. — There is hereby imposed a tax on businesses
enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%)
of the gross annual receipts, which shall include both cash sales and sales
on account realized during the preceding calendar year within this
province, including the territorial limits on any city located in the
province.” On the basis of the ordinance, the Provincial Treasurer sent a
demand letter to MERALCO for the corresponding tax
payment. MERALCO, contended that the imposition of a franchise tax
under Section 2.09 of Laguna Provincial Ordinance No. 01-92, insofar as it
concerned MERALCO, contravened the provisions of Section 1 of P.D. 551
which read: “Any provision of law or local ordinance to the contrary
notwithstanding, the franchise tax payable by all grantees of franchises to
generate, distribute and sell electric current for light, heat and power shall
be two per cent (2%) of their gross receipts received from the sale of
electric current and from transactions incident to the generation,
distribution and sale of electric current. Such franchise tax shall be
payable to the Commissioner of Internal Revenue or his duly authorized
representative on or before the twentieth day of the month following the
end of each calendar quarter or month, as may be provided in the
respective franchise or pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other law to the contrary
notwithstanding, be in lieu of all taxes and assessments of whatever
nature imposed by any national or local authority on earnings, receipts,
income and privilege of generation, distribution and sale of electric
current.”
Issue:
Whether the Local Government Code of 1991, has repealed, amended or
modified Presidential Decree No. 551.
Held:
Local governments do not have the inherent power to tax except to the
extent that such power might be delegated to them either by the basic law
or by statute. Presently, under Article X of the 1987 Constitution, a
general delegation of that power has been given in favor of local
government units. Under the now prevailing Constitution, where there is
neither a grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may provide statutory limitations and
guidelines. The basic rationale for the current rule is to safeguard the
viability and self-sufficiency of local government units by directly granting
them general and broad tax powers. Nevertheless, the fundamental law
did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local
government units are being strengthened and made more
autonomous, 6 the legislature must still see to it that (a) the taxpayer will
not be over-burdened or saddled with multiple and unreasonable
impositions; (b) each local government unit will have its fair share of
available resources; (c) the resources of the national government will not
be unduly disturbed; and (d) local taxation will be fair, uniform, and just.
The Local Government Code of 1991 has incorporated and adopted, by
and large, the provisions of the now repealed Local Tax Code, which had
been in effect since 01 July 1973, promulgated into law by Presidential
Decree
No. 231 7 pursuant to the then provisions of Section 2, Article XI, of the
1973 Constitution. The 1991 Code explicitly authorizes provincial
governments, notwithstanding "any exemption granted by any law or
other special law, . . . (to) impose a tax on businesses enjoying a
franchise." Section 137 thereof provides: “Sec. 137. Franchise Tax —
 Notwithstanding any exemption granted by any law or other special law,
the province may impose a tax on businesses enjoying a franchise, at a
rate not exceeding fifty percent (50%) of one percent (1%) of the gross
annual receipts for the preceding calendar year based on the incoming
receipt, or realized, within its territorial jurisdiction. In the case of a newly
started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year,
regardless of when the business started to operate, the tax shall be based
on the gross receipts for the preceding calendar year, or any fraction
thereof, as provided herein. “ Indicative of the legislative intent to carry
out the Constitutional mandate of vesting broad tax powers to local
government units, the Local Government Code has effectively withdrawn
under Section 193 thereof, tax exemptions or incentives theretofore
enjoyed by certain entities. This law states: “Sec. 193. Withdrawal of Tax
Exemption Privileges — Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons,
whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code. “ The
Code, in addition, contains a general repealing clause in its Section 534;
thus: “Sec. 534. Repealing Clause. — . . .(f) All general and special laws,
acts, city charters, decrees, executive orders, proclamations and
administrative regulations, or part or parts thereof which are inconsistent
with any of the provisions of this Code are hereby repealed or modified
accordingly. “
PEPSI-COLA vs MUNICIPALITY OF TANAUAN G.R. No. L-31156 February
27, 1976
Facts: The municipality of Tanauan, Leyte enacted two ordinances in
1962:
The first one, Municipal Ordinance No. 23 levies and collects "from soft
drinks producers and manufacturers a tax of one-sixteenth (1/16) of a
centavo for every bottle of soft drink corked." For the purpose of
computing the taxes due, the person, firm, company or corporation
producing soft drinks shall submit to the Municipal Treasurer a monthly
report, of the total number of bottles produced and corked during the
month.
Municipal Ordinance No. 27 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 (128 fluid ounces, U.S.) of volume
capacity." For the purpose of computing the taxes due, the person, firm,
company, partnership, corporation or plant producing soft drinks shall
submit to the Municipal Treasurer a monthly report of the total number of
gallons produced or manufactured during the month.
Pepsi-Cola commenced a complaint with preliminary injunction before the
Court of First Instance of Leyte for that court to declare Section 2 of the
Local Autonomy Act unconstitutional as an undue delegation of taxing
authority as well as to declare Ordinances Nos. 23 and 27 null and void.
Section 2 of the Local Autonomy Act of 1959 provides: “xxx, all chartered
cities, municipalities and municipal district shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or
municipal districts xxxx.” Pepsi said both Ordinances Nos. 23 and 27
embrace or cover the same subject matter and the production tax rates
imposed therein are practically the same, and second, that on January 17,
1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter
addressed to the Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter of the provisions
of said Ordinance No. 27 series of 1962.
Issues: 1. — Is Section 2, Republic Act No. 2264 an undue delegation of
power, confiscatory and oppressive and invalid as double taxation? 2. —
Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes? 3. — Are Ordinances Nos. 23 and 27 unjust
and unfair?
Held: 1. As to undue delegation: The rule is that the power of taxation
is purely legislative and cannot be delegated. The exception, however, lies
in the case of municipal corporations. 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.
Moreover, under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy
taxes. The plenary nature of the taxing power thus delegated,
contrary to plaintiff-appellant's pretense, would not suffice to
invalidate the said law as confiscatory and oppressive.
As to the ordinances being confiscatory and oppressive: The taking
of property without due process of law may not be passed over under the
guise of taxing power. This is not to say though that the constitutional
injunction against deprivation of property without due process of law may
be passed over under the guise of the taxing power, except when the
taking of the property is in the lawful exercise of the taxing power, as
when (1) the tax is for a public purpose; (2) the rule on uniformity of
taxation is observed; (3) either the person or property taxed is within the
jurisdiction of the government levying the tax; and (4) in the assessment
and collection of certain kinds of taxes notice and opportunity for hearing
are provided. Due process does not require that the property subject to
the tax or the amount of tax to be raised should be determined by judicial
inquiry, and a notice and hearing as to the amount of the tax and the
manner in which it shall be apportioned are generally not necessary to due
process of law.
As to the municipal ordinance being invalid on the ground of
double taxation resulting for delegation by the National Government:
There is no validity to the assertion that the delegated authority
can be declared unconstitutional on the theory of double taxation.
It must be observed that the delegating authority specifies the limitations
and enumerates the taxes over which local taxation may not be exercised.
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.
2. There is no double taxation here. Ordinance No. 23, the first tax, levies
or collects from soft drinks producers or manufacturers a tax of one-
sixteen (1/16) of a centavo for every bottle corked, irrespective of the
volume contents of the bottle used. When it was discovered that the
producer or manufacturer could increase the volume contents of the bottle
and still pay the same tax rate, the Municipality of Tanauan enacted
Ordinance No. 27 imposing a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity. The difference between the
two ordinances clearly lies in the tax rate of the soft drinks produced: in
Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in
Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid
ounces, U.S.) of volume capacity.
The intention of the Municipal Council of Tanauan in enacting Ordinance
No. 27 is thus clear: it was intended as a plain substitute for the prior
Ordinance No. 23, and operates as a repeal of the latter, even without
words to that effect. Moreover, the municipality mentioned in its letter
that it was only seeking to enforce Ordinance No. 27, series of 1962.
[As to the remaining Ordinance No. 27 imposes a percentage or a specific
tax? Undoubtedly, the taxing authority conferred on local governments
under Section 2, Republic Act No. 2264, is broad enough as to extend to
almost "everything, accepting those which are mentioned therein." As long
as the tax levied under the authority of a city or municipal ordinance is
not within the exceptions and limitations in the law, the same comes
within the ambit of the general rule. The limitation applies, particularly, to
the prohibition against municipalities and municipal districts to impose
"any percentage tax or other taxes in any form based thereon nor impose
taxes on articles subject to specific tax except gasoline, under the
provisions of the National Internal Revenue Code." For purposes of this
particular limitation, a municipal ordinance which prescribes a set ratio
between the amount of the tax and the volume of sale of the taxpayer
imposes a sales tax and is null and void for being outside the power of the
municipality to enact.
The imposition of "a tax of one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity" on all soft drinks
produced or manufactured under Ordinance No. 27 does not
partake of the nature of a percentage tax on sales, or other taxes
in any form based thereon. The tax is levied on the produce
(whether sold or not) and not on the sales. The volume capacity of
the taxpayer's production of soft drinks is considered solely for
purposes of determining the tax rate on the products, but there is
not set ratio between the volume of sales and the amount of the
tax.
Nor can the tax levied on softdrinks be treated as a specific tax.
Specific taxes are those imposed on specified articles, such as
distilled spirits, wines, fermented liquors, products of tobacco other than
cigars and cigarettes, matches firecrackers, manufactured oils and other
fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, saccharine, opium and other habit-forming drugs. Soft drink is
not one of those specified.]
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of
volume capacity on all softdrinks, produced or manufactured, or an
equivalent of 1-½ centavos per case is not unjust and unfair. Municipal
corporations are allowed much discretion in determining the rates of
imposable taxes. This is in line with the constitutional policy of according
the widest possible autonomy to local governments in matters of local
taxation. Unless the amount is so excessive as to be prohibitive, courts
will go slow in writing off an ordinance as unreasonable.
(Commissioner of Customs and the District Collector of the Port of Subic
vs Hypermix Feeds Corporation, G.R. No 179579, February 1, 2012)
Customs officer must first
assess and determine the
classification of the
imported article before tariff
may be imposed.
Facts: The Commissioner of Customs issued CM 27-2003 classifying wheat
as (1) importer or consignee; (2) country of origin; and (3) port of
discharge and depending on these factors, wheat would be
classified further as either food grade with a tariff rate of 3% or
feed grade with a tariff rate of 7%. The regulation also provides for
an exclusive list of corporations, ports of discharge, commodity
descriptions and countries of origin. On December 19, 2003, the
respondent filed a Petition for Declaratory Relief with the Regional
Trial Court of Las Pinas contending the following: (1) the regulation
was issued without following the mandate of the Revised
Administrative Code, (2) that the regulation classified them to be a
feed grade supplier without prior assessment and examination, (3)
the equal protection clause of the Constitution was violated when
the regulation treated the non-flour millers differently from flour
millers for no reason at all, and (4) the retroactive application of
the regulation is confiscatory. The petitioners thereafter filed a
motion to dismiss contending that: (1) the RTC does not have
jurisdiction of the subject matter, (2) an action for declaratory
relief was improper, (3) CM 27-2003 was an internal administrative
rule and not legislative in nature; and (4) the claims of the
respondent were speculative and premature. On March 10, 2005,
the Regional Trial Court rendered a decision ruling in favour of the
respondent. It held that the jurisdiction is properly held because
the subject matter is quasi-legislative in nature. It also held that
the petition for declaratory relief was proper remedy and that the
respondent was the proper party to file it. On matters relating to
the validity of the regulation, the court held that the regulation is
invalid because the basic requirements of hearing and publication
were not complied with. The petitioners then appealed to Court of
Appeals but it was, however, dismissed. Hence, this petition for
review on certiorari under Rule 45 assailing the decision of the
Court of Appeals.
Issue: Was the issuance of CMO 27-2003 within the powers of the
Commissioner of Customs?
Held: The provision mandates that the customs officer must first assess
and determine the classification of the imported article before tariff
may be imposed. Unfortunately, CMO 23-2007 has already
classified the article even before the customs officer had the
chance to examine it. In effect, petitioner Commissioner of
Customs diminished the powers granted by the Tariff and Customs
Code with regard to wheat importation when it no longer required
the customs officer’s prior examination and assessment of the
proper classification of the wheat.
It is well-settled that rules and regulations, which are the product
of a delegated power to create new and additional legal provisions
that have the effect of law, should be within the scope of the
statutory authority granted by the legislature to the administrative
agency. It is required that the regulation be germane to the
objects and purposes of the law; and that it be not in contradiction
to, but in conformity with, the standards prescribed by law.
Sison v Ancheta G.R. No. L-59431. July 25, 1984. For petitioner, therefore, there is a transgression of both the equal
protection and due process clauses of the Constitution as well as of the
C. J. Fernando rule requiring uniformity in taxation.

Declaratory Relief

The OSG prayed for dismissal of the petition due to lack of merit.
Facts:

Issue: Whether the imposition of a higher tax rate on taxable net income
derived from business or profession than on compensation is
Petitioners challenged the constitutionality of Section 1 of Batas Pambansa
constitutionally infirm.
Blg. 135. It amended

Section 21 of the National Internal Revenue Code of 1977, which provides

for rates of tax on citizens or residents on (a) taxable compensation (WON there is a transgression of both the equal protection and due
income, (b) taxable net income, (c) royalties, prizes, and other winnings, process clauses of the Constitution as well as of the rule requiring
(d) interest from bank deposits and yield or any other monetary benefit uniformity in taxation)
from deposit substitutes and from trust fund and similar arrangements,
(e) dividends and share of individual partner in the net profits of taxable
partnership, (f) adjusted gross income.
Held: No. Petition dismissed

Petitioner as taxpayer alleged that "he would be unduly discriminated

against by the imposition of higher rates of tax upon his income arising Ratio:
from the exercise of his profession vis-a-vis those which are imposed upon
The need for more revenues is rationalized by the government's role to
fixed income or salaried individual taxpayers." He characterizes the above
fill the gap not done by public enterprise in order to meet the needs of the
section as arbitrary amounting to class legislation, oppressive and
times. It is better equipped to administer for the public welfare.
capricious in character.

The power to tax, an inherent prerogative, has to be availed of to assure

the performance of vital state functions. It is the source of the bulk of
public funds.

The power to tax is an attribute of sovereignty and the strongest power of
the government. There are restrictions, however, diversely affecting as it
does property rights, both the due process and equal protection clauses
may properly be invoked, as petitioner does, to invalidate in appropriate
cases a revenue measure. If it were otherwise, taxation would be a
destructive power.
The petitioner failed to prove that the statute ran counter to the
Constitution. He used arbitrariness as basis without a factual foundation.
This is merely to adhere to the authoritative doctrine that where the due
process and equal protection clauses are invoked, considering that they
are not fixed rules but rather broad standards, there is a need for proof of
such persuasive character as would lead to such a conclusion.
It is undoubted that the due process clause may be invoked where a
taxing statute is so arbitrary that it finds no support in the Constitution.
An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power.
It has also been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in case of a
retroactive statute is so harsh and unreasonable, it is subject to attack on
due process grounds.
For equal protection, the applicable standard to determine whether this
was denied in the exercise of police power or eminent domain was the
presence of the purpose of hostility or unreasonable discrimination.
It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the
same manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed. Favoritism and undue preference
cannot be allowed. For the principle is that equal protection and security
shall be given to every person under circumstances, which if not identical
are analogous. If law be looks upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest.
The equal protection clause is, of course, inspired by the noble concept of
approximating the ideal of the laws's benefits being available to all and
the affairs of men being governed by that serene and impartial uniformity,
which is of the very essence of the idea of law.
The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal
protection of the laws,' and laws are not abstract propositions. They do
not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, addressed to the attainment of specific
ends by the use of specific remedies. The Constitution does not require
things which are different in fact or opinion to be treated in law as though
they were the same.
Lutz v Araneta- it is inherent in the power to tax that a state be free to taxpayers are not entitled to make deductions for income tax purposes
select the subjects of taxation, and it has been repeatedly held that because they are in the same situation more or less.
'inequalities which result from a singling out of one particular class for
taxation, or exemption infringe no constitutional limitation.

Taxpayers who are recipients of compensation income are set apart as a

class.
Petitioner- kindred concept of uniformity- Court- Philippine Trust
Company- The rule of uniformity does not call for perfect uniformity or
perfect equality, because this is hardly attainable
On the other hand, in the case of professionals in the practice of their
calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard
Equality and uniformity in taxation means that all taxable articles or kinds the disparities by giving all of them zero deduction and indiscriminately
of property of the same class shall be taxed at the same rate. The taxing impose on all alike the same tax rates on the basis of gross income.
power has the authority to make reasonable and natural classifications for
purposes of taxation

There was a lack of a factual foundation, the forcer of doctrines on due

process and equal protection, and he reasonableness of the distinction
There is quite a similarity then to the standard of equal protection for all between compensation and taxable net income of professionals and
that is required is that the tax "applies equally to all persons, firms and businessmen not being a dubious classification.
corporations placed in similar situation"

There was a difference between a tax rate and a tax base. There is no
legal objection to a broader tax base or taxable income by eliminating all
deductible items and at the same time reducing the applicable tax rate.

The discernible basis of classification is the susceptibility of the income to

the application of generalized rules removing all deductible items for all
taxpayers within the class and fixing a set of reduced tax rates to be
applied to all of them. As there is practically no overhead expense, these
American Tobacco v. Camacho (2008)
G.R. No. 163583 August 20, 2008
YNARES-SANTIAGO, J.
Lessons Applicable: Court of Tax Appeals Jurisdiction, Regional Trial Court
Jurisdiction, Equal Protection and Uniformity of Taxation (constitutional
issue), BIR Power to Conduct Resurvey and Reclassification (delegated by
express legislation)
Laws Applicable:
FACTS:
 June 2001, petitioner British American Tobacco introduced and sold
Lucky Strike, Lucky Strike Lights and Lucky Strike Menthol Lights
cigarettes w/ SRP P 9.90/pack - Initial assessed excise tax: P
8.96/pack (Sec. 145 [c])
 February 17, 2003: RR 9-2003: Periodic review every 2 years or
earlier of the current net retail price of new brands and variants
thereof for the purpose of the establishing and updating their tax
classification
 March 11, 2003: RMO 6-2003: Guidelines and procedures in
establishing current net retail prices of new brands of cigarettes and
alcohol products
 August 8, 2003: RR 22-2003: Implement the revised tax classification
of certain new brands introduced in the market after January 1, 1997
based on the survey of their current net retail prices. This increased
the excise tax to P13.44 since the average net retail price is above P
10/pack. This cause petitioner to file before the RTC of Makati a
petition for injunction with prayer for issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction sought to
enjoin the implementation of Sec. 145 of the NIRC, RR No. 1-97, 9-
2003, 22-2003 and 6-2003 on the ground that they discriminate
against new brands of cigarettes in violation of the equal protection
and uniformity provisions of the Constitution
 RTC: Dismissed
 While petitioner's appeal was pending, RA 9334 amending Sec. 145 of
the 1997 NIRC among other took effect on January 1, 2005 which in
effect increased petitioners excise tax to P25/pack
 Petitioner filed a Motion to Admit attached supplement and a
supplement to the petition for review assailing the constitutionality of
RA 9334 and praying a downward classification of Lucky Strike
products at the bracket taxable at P 8.96/pack since existing brands
are still taxed based on their price as of October 1996 eventhough
they are equal or higher than petitioner's product price.
 Philip Morris Philippines Manufacturing Incorporated, Fortune Tobacco
Corp., Mighty Corp. and JT International Intervened.
 Fortune Tobacco claimed that the CTA should have the exclusive
appellate jurisdiction over the decision of the BIR in tax disputes
ISSUE:
1. W/N the RTC rather than the CTA has jurisdiction.
2. W/N RA 9334 of the classification freeze provision is unconstitutional
for violating the equal protection and uniformity provisions of the
Constitution
3. W/N RR Nos. 1-97, 9-2003, 22-2003 and RA 8243 even prior to its
amendment by RA 9334 can authorize the BIR to conduct resurvey
and reclassification.
HELD:
1. Yes. The jurisdiction of the CTA id defined in RA 1125 which
confers on the CTA jurisdiction to resolve tax disputes in
general. BUT does NOT include cases where the constitutionality of
a law or rule is challenged which is a judicial power belonging to
regular courts.
2. No. In Sison Jr. v. Ancheta, the court held that "xxx 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. If the law be
looked upon in tems of burden on charges, those that fall within a
class should be treated in the same fashion, whatever restrictions
cast on some in the group equally binding on the rest. xxx" Thus, cannot be usurped by the former. These are however modified by
classification if rational in character is allowable. In Lutz v. RA 9334.
Araneta: "it is inherent in the power to tax that a state be free to
select the subjects of taxation, and it has been repeatedly held that
'inequalities which result from a singling out of one particular class
for taxation, or exemption infringe no constitutional limitation" SC
previously held: "Equality and uniformity in taxation means that all
taxable articles or kinds of property of the same class shall be
taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of
taxation"

Under the the rational basis test, a legislative classification, to

survive an equal protection challenge, must be shown to rationally
further a legitimate state interest. The classifications must be
reasonable and rest upon some ground of difference having a fair
and substantial relation to the object of the legislation

A legislative classification that is reasonable does not offend the

constitutional guaranty of the equal protection of the laws. The
classification is considered valid and reasonable provided that: (1)
it rests on substantial distinctions; (2) it is germane to the purpose
of the law; (3) it applies, all things being equal, to both present
and future conditions; and (4) it applies equally to all those
belonging to the same class.

Moreover, petitioner failed to clearly demonstrate the exact extent

of such impact as the price is not the only factor that affects
competition.

3. NO. Unless expressly granted to the BIR, the power to reclassify

cigarette brands remains a prerogative of the legislature which
 American Bible Society vs. City of Manila
GR No. L-9637 | April 30, 1957
Facts:
· American Bible Society is a foreign, non-stock, non-profit, religious,
missionary corporation duly registered and doing business in the
Philippines through its Philippine agency established in Manila in
November, 1898
· City of Manila is a municipal corporation with powers that are to be
exercised in conformity with the provisions of Republic Act No. 409, known
as the Revised Charter of the City of Manila
· American Bible Society has been distributing and selling bibles and/or
gospel portions throughout the Philippines and translating the same into
several Philippine dialect
· City Treasurer of Manila informed American Bible Society that it was
violating several Ordinances for operating without the necessary permit
and license, thereby requiring the corporation to secure the permit and
license fees covering the period from 4Q 1945-2Q 1953
· To avoid closing of its business, American Bible Society paid the City of
Manila its permit and license fees under protest
· American Bible filed a complaint, questioning the constitutionality and
legality of the Ordinances 2529 and 3000, and prayed for a refund of the
payment made to the City of Manila. They contended:
a. They had been in the Philippines since 1899 and were not required to
pay any license fee or sales tax
b. it never made any profit from the sale of its bibles
· City of Manila prayed that the complaint be dismissed, reiterating the
constitutionality of the Ordinances in question
· Trial Court dismissed the complaint
· American Bible Society appealed to the Court of Appeals
Issue: WON American Bible Society liable to pay sales tax for the
distribution and sale of bibles
Ruling: NO
· Under Sec. 1 of Ordinance 3000, one of the ordinance in question,
person or entity engaged in any of the business, trades or occupation
enumerated under Sec. 3 must obtain a Mayor’s permit and license from
the City Treasurer. American Bible Society’s business is not among those
enumerated
· However, item 79 of Sec. 3 of the Ordinance provides that all other
businesses, trade or occupation not mentioned, except those upon which
the City is not empowered to license or to tax P5.00
· Therefore, the necessity of the permit is made to depend upon the
power of the City to license or tax said business, trade or occupation.
· 2 provisions of law that may have bearing on this case:
a. Chapter 60 of the Revised Administrative Code, the Municipal
Board of the City of Manila is empowered to tax and fix the license fees on
retail dealers engaged in the sale of books
b. Sec. 18(o) of RA 409: to tax and fix the license fee on dealers in
general merchandise, including importers and indentors, except those
dealers who may be expressly subject to the payment of some other
municipal tax. Further, Dealers in general merchandise shall be classified
as (a) wholesale dealers and (b) retail dealers. For purposes of the tax on
retail dealers, general merchandise shall be classified into four main
classes: namely (1) luxury articles, (2) semi-luxury articles, (3) essential
commodities, and (4) miscellaneous articles. A separate license shall be
prescribed for each class but where commodities of different classes are
sold in the same establishment, it shall not be compulsory for the owner
to secure more than one license if he pays the higher or highest rate of
tax prescribed by ordinance. Wholesale dealers shall pay the license tax as
such, as may be provided by ordinance
· The only difference between the 2 provisions is the limitation as to the
amount of tax or license fee that a retail dealer has to pay per annum
· As held in Murdock vs. Pennsylvania, The power to impose a license
tax on the exercise of these freedoms provided for in the Bill of Rights, is
indeed as potent as the power of censorship which this Court has
repeatedly struck down. It is not a nominal fee imposed as a regulatory
measure to defray the expenses of policing the activities in question. It is
in no way apportioned. It is flat license tax levied and collected as a
condition to the pursuit of activities whose enjoyment is guaranteed by
the constitutional liberties of press and religion and inevitably tends to
suppress their exercise. That is almost uniformly recognized as the
inherent vice and evil of this flat license tax.
· Further, the case also mentioned that the power to tax the exercise of
a privilege is the power to control or suppress its enjoyment. Those who
 can tax the exercise of this religious practice can make its exercise so
costly as to deprive it of the resources necessary for its maintenance.
Those who can tax the privilege of engaging in this form of missionary
evangelism can close all its doors to all those who do not have a full purse
· Under Sec. 27(e) of Commonwealth Act No. 466 or the National
Internal Revenue Code,Corporations or associations organized and
operated exclusively for religious, charitable, . . . or educational purposes,
. . .: Provided, however, That the income of whatever kind and character
from any of its properties, real or personal, or from any activity conducted
for profit, regardless of the disposition made of such income, shall be
liable to the tax imposed under this Code shall not be taxed
· The price asked for the bibles and other religious pamphlets was in
some instances a little bit higher than the actual cost of the same but this
cannot mean that American Bible Society was engaged in the business or
occupation of selling said "merchandise" for profit
· Therefore, the Ordinance cannot be applied for in doing so it would
impair American Bible Society’s free exercise and enjoyment of its
religious profession and worship as well as its rights of dissemination of
religious beliefs.

Wherefore, and on the strength of the foregoing considerations,

We hereby reverse the decision appealed from, sentencing
defendant return to plaintiff the sum of P5,891.45 unduly collected
from it
 Commissioner of Internal Revenue vs. Central Luzon Drug
Corporation
GR No. 159647, April 15, 2005
Facts:
Respondent is a domestic corporation engaged in the retailing of
medicines and other pharmaceutical products. In 1996 it operated six (6)
drugstores under the business name and style “Mercury Drug.” From
January to December 1996 respondent granted 20% sales discount to
qualified senior citizens on their purchases of medicines pursuant to RA
7432. For said period respondent granted a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual ITR for taxable year 1996
declaring therein net losses. On Jan. 16, 1998 respondent filed with
petitioner a claim for tax refund/credit of ₱ 904,769.00 alledgedly arising
from the 20% sales discount. Unable to obtain affirmative response from
petitioner, respondent elevated its claim to the CTA via Petition for
Review. CTA dismissed the same but on MR, CTA reversed its earlier ruling
and ordered petitioner to issue a Tax Credit Certificate in favor of
respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug
Corp. vs. CIR) citing that Sec. 229 of RA 7432 deals exclusively with
illegally collected or erroneously paid taxes but that there are other
situations which may warrant a tax credit/refund.
CA affirmed CTA decision reasoning that RA 7432 required neither a tax
liability nor a payment of taxes by private establishments prior to the
availment of a tax credit. Moreover, such credit is not tantamount to an
unintended benefit from the law, but rather a just compensation for the
taking of private property for public use.
ISSUE: W/N respondent, despite incurring a net loss, may still claim the
20% sales discount as a tax credit.
RULING:
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the
privilege of obtaining a 20% discount on their purchase of medicine from
any private establishment in the country. The latter may then claim the
cost of the discount as a tax credit. Such credit can be claimed even if the
establishment operates at a loss.
A tax credit generally refers to an amount that is “subtracted directly from
one’s total tax liability.” It is an “allowance against the tax itself” or “a
deduction from what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of
these is tax deduction – which is subtraction “from income for tax
purposes,” or an amount that is “allowed by law to reduce income prior to
the application of the tax rate to compute the amount of tax which is
due.” In other words, whereas a tax credit reduces the tax due, tax
deduction reduces the income subject to tax in order to arrive at the
taxable income.
Since a tax credit is used to reduce directly the tax that is due, there
ought to be a tax liability before the tax credit can be applied. Without
that liability, any tax credit application will be useless. There will be no
reason for deducting the latter when there is, to begin with, no existing
obligation to the government. However, as will be presented shortly,
the existence of a tax credit or its grant by law is not the same as
the availment or use of such credit. While the grant is mandatory, the
availment or use is not.

If a net loss is reported by, and no other taxes are currently due from, a
business establishment, there will obviously be no tax liability against
which any tax credit can be applied. For the establishment to choose the
immediate availment of a tax credit will be premature and
impracticable. Nevertheless, the irrefutable fact remains that, under RA
7432, Congress has granted without conditions a tax credit benefit to all
covered establishments. However, for the losing establishment to
immediately apply such credit, where no tax is due, will be an improvident
usance.

In addition, while a tax liability is essential to the availment or use of

any tax credit, prior tax payments are not. On the contrary, for
the existence or grant solely of such credit, neither a tax liability nor a
prior tax payment is needed. The Tax Code is in fact replete with
provisions granting or allowing tax credits, even though no taxes have
been previously paid.

Petition is denied.
Product v. Fertiphil Corp.
G.R. No. 166006 March 14, 2008
REYES, R.T., J.
Lessons Applicable: Bet. private and public suit, easier to file public suit,
Apply real party in interest test for private suit and direct injury test for
public suit, Validity test varies depending on which inherent power
Laws Applicable:
FACTS:
 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 which resulted in having Fertiphil paying P 10/bag sold to
the Fertilizer and Perticide Authority (FPA).
 FPA remits its collection to Far East Bank and Trust Company who
applies to the payment of corporate debts of Planters Products Inc.
(PPI)
 After the Edsa Revolution, FPA voluntarily stopped the imposition of
the P10 levy. Upon return of democracy, Fertiphil demanded a refund
but PPI refused. Fertiphil filed a complaint for collection and damages
against FPA and PPI with the RTC on the ground that LOI No. 1465 is
unjust, unreaonable oppressive, invalid and unlawful resulting to
denial of due process of law.
 FPA answered that it is a valid exercise of the police power of the state
in ensuring the stability of the fertilizing industry in the country and
that Fertiphil did NOT sustain damages since the burden imposed fell
on the ultimate consumers.
 RTC and CA favored Fertiphil holding that it is an exercise of the power
of taxation ad is as such because it is NOT for public purpose as PPI is
a private corporation.
ISSUE:
1. W/N Fertiphil has locus standi
2. W/N LOI No. 1465 is an invalid exercise of the power of taxation rather
the police power
Held:
1. Yes. In private suits, locus standi requires a litigant to be a "real party
in interest" or party who stands to be benefited or injured by the
judgment in the suit. In public suits, there is the right of the ordinary
citizen to petition the courts to be freed from unlawful government
intrusion and illegal official action subject to the direct injury test or
where there must be personal and substantial interest in the case such
that he has sustained or will sustain direct injury as a result. Being a
mere procedural technicality, it has also been held that locus standi may
be waived in the public interest such as cases of transcendental
importance or with far-reaching implications whether private or public
suit, Fertiphil has locus standi.
2. As a seller, it bore the ultimate burden of paying the levy which made
its products more expensive and harm its business. It is also of
paramount public importance since it involves the constitutionality of a tax
law and use of taxes for public purpose.
3. Yes. Police power and the power of taxation are inherent powers of the
state but distinct and have different tests for validity. Police power is the
power of the state to enact the legislation that may interfere with personal
liberty on property in order to promote general welfare. While, the power
of taxation is the power to levy taxes as to be used for public
purpose. The main purpose of police power is the regulation of a behavior
or conduct, while taxation is revenue generation. The lawful subjects and
lawful means tests are used to determine the validity of a law enacted
under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.
In this case, it is for purpose of revenue. But it is a robbery for the State
to tax the citizen and use the funds generation for a private
purpose. Public purpose does NOT only pertain to those purpose which
are traditionally viewed as essentially governmental function 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.