Commissioner v.

Algue, 158 SCRA 9 (1988)

Facts:

The Philippine Sugar Estate Development Company (PSEDC) appointed Algue

Inc. as its agent, authorizing it to sell its land, factories, and oil manufacturing
process. The Vegetable Oil Investment Corporation (VOICP) purchased PSEDC
properties. For the sale, Algue received a commission of P125,000 and it was from
this commission that it paid Guevara, et. al. organizers of the VOICP, P75,000 in
promotional fees. In 1965, Algue received an assessment from the Commissioner
of Internal Revenue in the amount of P83,183.85 as delinquency income tax for
years 1958 amd 1959. Algue filed a protest or request for reconsideration which
was not acted upon by the Bureau of Internal Revenue (BIR). The counsel for
Algue had to accept the warrant of distrant and levy. Algue, however, filed a petition
for review with the Coourt of Tax Appeals.

Issue: Whether the assessment was reasonable.

Held: Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. Every person who is able to pay must contribute his share
in the running of the government. The Government, for his part, is expected to
respond in the form of tangible and intangible benefits intended to improve the
lives of the people and enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the erroneous notion that
is an arbitrary method of exaction by those in the seat of power.

Tax collection, however, should be made in accordance with law as any

arbitrariness will negate the very reason for government itself. For all the awesome
power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate that the law has not been observed. Herein, the claimed deduction
(pursuant to Section 30 [a] [1] of the Tax Code and Section 70 [1] of Revenue
Regulation 2: as to compensation for personal services) had been legitimately by
Algue Inc. It has further proven that the payment of fees was reasonable and
necessary in light of the efforts exerted by the payees in inducing investors (in
VOICP) to involve themselves in an experimental enterprise or a business
requiring millions of pesos.

The assessment was not reasonable.

Osmeña v. Orbos, 220 SCRA 703 (1993)

Facts: Pres. Marcos created Special Account in the General Fund (P.D. 1956),
designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed

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to reimburse oil companies for cost increases in crude oil and imported petroleum
products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.. Pres. Aquino, amended and promulgated E.O. No. 137,
expanding the grounds for reimbursement to oil companies for possible cost under
recovery incurred as a result of the reduction of domestic prices of petroleum
products, the amount of the under recovery being left for determination by the
Ministry of Finance. The petition claimed that the status of the OPSF as of March
31, 1991 showed a ―Terminal Balance Deficit of some P12.877 billion and to
abate such, the Energy Regulatory Board issued an Order approving the increase
in pump prices of petroleum products. The OPSF deficit should have been fully
covered in a span of 6 months but Oscar Orbos, in his capacity as Executive
Secretary;Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao
de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman Rex V.
Tantiongco and the Energy Regulatory Board — are poised to accept, process and
pay claims not authorized under P.D. 1956.

Issue: What is the purpose of the Oil Price Stabilization Fund?

RULING: The OPSF is a "Trust Account" which was established ―for the purpose
of minimizing the frequent price changes brought about by exchange rate
adjustment and/or changes in world market prices of crude oil and imported
petroleum products.‖ It is clear that while the funds collected may be referred to as
taxes; they are exacted in the exercise of the police power of the State. Moreover,
that the OPSF is a special fund is plain from the special treatment given it by E.O.
137. It is segregated from the general fund; and while it is placed in what the law
refers to as a "trust liability account," the fund nonetheless remains subject to the
scrutiny and review of the COA. The Court is satisfied that these measures comply
with the constitutional description of a "special fund." The Court cited Valmonte v.
ERB and Gaston v. Republic Planters Bank, ―The tax collected is not in a pure
exercise of the taxing power. It is levied with a regulatory purpose, to provide a
means for the stabilization of the sugar (petroleum products) industry. The levy is
primarily in the exercise of the police power of the State.

ISSUE
Whether or not the powers granted to the ERB under PD 1956 partake of the
nature of the taxation power of the state such that the creation of the trust fund
violates Section 29(3),Article VI of the Constitution

RULING
It seems clear that while the funds collected may be referred to as taxes, they are
exacted inthe exercise of the police power of the State. Moreover, that the OPSF
is a special fund is plain from the special treatment given it by E.O. 137. It is
segregated from the general fund;and while it is placed in what the law refers to as

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a “trust liability account,” the fund nonetheless remains subject to the scrutiny and
review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a “special fund.” Indeed, the practice is not without
precedent.

Taxation may be used as an implement of police power in order to promote the

general welfare of the people.

Where under an executive order of the President, this special fund is transferred
from the general fund to a “trust liability account,” the constitutional mandate is not
violated. The OPSF, according to the court, remains as a special fund subject to
COA audit.

PAL v. Edu, 164 SCRA 320 (1988)

FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the air transportation
business under a legislative franchise, Act No. 42739. Under its franchise, PAL is
exempt from the payment of taxes.

Sometime in 1971, however, Land Transportation Commissioner Romeo F.

Elevate (Elevate) issued a regulation pursuant to Section 8, Republic Act 4136,
otherwise known as the Land and Transportation and Traffic Code, requiring all tax
exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, Elevate refused to register PAL's motor vehicles

unless the amounts imposed under Republic Act 4136 were paid. PAL thus paid,
under protest, registration fees of its motor vehicles. After paying under protest,
PAL through counsel, wrote a letter dated May 19,1971, to Land Transportation
Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu
denied the request for refund. Hence, PAL filed a complaint against Edu and
National Treasurer Ubaldo Carbonell (Carbonell).

The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals
which in turn certified the case to the Supreme Court.

ISSUE:
Whether or not motor vehicle registration fees are considered as taxes.

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

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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.

Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation... 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.

Republic v. Bacolod Murcia, 12 SCRA 632 (1966)

Facts: RA 632 created the Philippine Sugar Institute, a semi-public corporation. In

1951, the Institute acquired the Insular Sugar Refinery for P3.07 million payable in
installments from the proceeds of the sugar tax to be collected under RA 632. The
operation of the refinery for 1954 to 1957 was disastrous as the Institute suffered
tremendous losses. Contending that the purchase of the refinery with money from
the Institute’s fund was not authorized under RA 632, and that the continued
operation of the refinery is inimical to their interest, Bacolod-Murcia Milling Co.,
Ma-ao Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera del
Danao refused to continue with their contribution to said fund. The trial court found
them liable under RA 632.

Issue: Whether the taxpayers may refuse to pay the special assessment, allegedly
distinct from an ordinary tax which no one can refuse to pay.

Held: The nature of a “special assessment” similar to the case has been discussed
and explained in Lutz vs. Araneta. The special assessment or levy for the
Philippine Sugar Institute (Philsugin) Fund is not so much an exercise of the power
of taxation, nor the imposition of a special assessment, but the exercise of police
power for the general welfare of the entire country. It is, therefore, an exercise of a
sovereign power which no private citizen may lawfully resist. Section 2a of the
Charter authorizing Philsugin to “conduct research work for the sugar industry in
all its phases, either agricultural or industrial, for the purpose of introducing into the
sugar industry such practices or processes that will reduce the cost of production
and achieve greater efficiency in the industry, justifies the acquisition of the refinery
in question. The financial loss resulting from the operation thereof is no means an
index that the industry did not profit therefrom, as other gains of a different nature
(such as experience) may have been realized.

Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987)

Facts: The case is a petition filed by petitioner on behalf of videogram operators

adversely affected by Presidential Decree No. 1987, “An Act Creating the

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Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry.

A month after the promulgation of the said Presidential Decree, the amended the
National Internal Revenue Code provided that:

"SEC. 134. Video Tapes. — There shall be collected on each processed video-
tape cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be subject
to sales tax."

"Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding

any provision of law to the contrary, the province shall collect a tax of thirty percent
(30%) of the purchase price or rental rate, as the case may be, for every sale,
lease or disposition of a videogram containing a reproduction of any motion picture
or audiovisual program.”

“Fifty percent (50%) of the proceeds of the tax collected shall accrue to the
province, and the other fifty percent (50%) shall accrue to the municipality where
the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be
shared equally by the City/Municipality and the Metropolitan Manila Commission.”

The rationale behind the tax provision is to curb the proliferation and unregulated
circulation of videograms including, among others, videotapes, discs, cassettes or
any technical improvement or variation thereof, have greatly prejudiced the
operations of movie houses and theaters. Such unregulated circulation have
caused a sharp decline in theatrical attendance by at least forty percent (40%) and
a tremendous drop in the collection of sales, contractor's specific, amusement and
other taxes, thereby resulting in substantial losses estimated at P450 Million
annually in government revenues.

Videogram(s) establishments collectively earn around P600 Million per annum

from rentals, sales and disposition of videograms, and these earnings have not
been subjected to tax, thereby depriving the Government of approximately P180
Million in taxes each year.

The unregulated activities of videogram establishments have also affected the

viability of the movie industry.

Issues:
(1) Whether or not tax imposed by the DECREE is a valid exercise of police power.
(2) Whether or nor the DECREE is constitutional.

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Held: Taxation has been made the implement of the state's police power. The levy
of the 30% tax is for a public purpose. It was imposed primarily to answer the need
for regulating the video industry, particularly because of the rampant film piracy,
the flagrant violation of intellectual property rights, and the proliferation of
pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.

We find no clear violation of the Constitution which would justify us in pronouncing

Presidential Decree No. 1987 as unconstitutional and void. While the underlying
objective of the DECREE is to protect the moribund movie industry, there is no
question that public welfare is at bottom of its enactment, considering "the unfair
competition posed by rampant film piracy; the erosion of the moral fiber of the
viewing public brought about by the availability of unclassified and unreviewed
video tapes containing pornographic films and films with brutally violent
sequences; and losses in government revenues due to the drop in theatrical
attendance, not to mention the fact that the activities of video establishments are
virtually untaxed since mere payment of Mayor's permit and municipal license fees
are required to engage in business."

WHEREFORE, the instant Petition is hereby dismissed. No costs.

As long as a tax is for a public purpose, its validity is not affected by collateral
purposes or motives of the legislature in imposing the levy, or by the fact that it has
a regulatory effect (51 Am. Jur. 381-382.) or it discourages or even definitely deters
the activities taxed. The principle applies even though the revenue obtained from
the tax appears very negligible or the revenue purpose is only secondary.

Caltex v. Commissioner, 208 SCRA 754 (1992)

Facts: In 1989, COA sent a letter to Caltex, directing it to remit its collection to the
Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and 188 of
the additional tax on petroleum products authorized under Section 8 of PD 1956;
and that pending such remittance, all its claims for reimbursement from the OPSF
shall be held in abeyance. Caltex requested COA, notwithstanding an early release
of its reimbursement certificates from the OPSF, which COA denied. On 31 May
1989, Caltex submitted a proposal to COA for the payment and the recovery of
claims. COA approved the proposal but prohibited Caltex from further offseting
remittances and reimbursements for the current and ensuing years. Caltex moved
for reconsideration.

Issue: Whether the amounts due from Caltex to the OPSF may be offsetted against
Caltex’ outstanding claims from said funds.

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Held: 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 that he may
have against the government. Taxes cannot be the 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.

Taxes may be levied with a regulatory purpose to provide means for rehabilitation
and stabilization of a threatened industry which is imbued with public interest as to
be within the police power of the State.

Chavez v. Ongpin, 186 SCRA 331 (1990)

Facts: Chavez, owner of some number of parcels of land challenges the

constitutionality of EO 73, which increased the assessment for real property
taxes. Intervenor Realty Owners Association of the Phil (ROAP) also
challenged the constitutionality of EO 73and EO 464, the latter order having been
the basis for the enactment of EO 73.

Issue: Whether EO 73 imposes unreasonable increase in real property taxes,

thus, should be declared unconstitutional.

Held: Negative.

The attack on Executive Order No. 73 has no legal basis as the general
revision of assessments is a continuing process mandated by Section 21 of
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which
should be challenged as constitutionally infirm. However, Chavez failed to
raise any objection against said decree. It was ROAP, the intervenor, which
questioned the constitutionality thereof.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 revenues must be adequate to
meet government expenditures and their variations.

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

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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 revenues must be adequate to meet government expenditures and their
variations.

Effects of Violation of the Principles

A tax law will retain its validity even if it is not in consonance with the
principles of fiscal adequacy and administrative feasibility because the Constitution
does not expressly requires so. These principles are only designed to make our
tax system sound. However, if a tax law runs contrary to the principle of theoretical
justice, such violation will render the law unconstitutional considering that under
the Constitution, the rule of taxation should be uniform and equitable.

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