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TAXATION IN GENERAL
GENERAL PRINCIPLES OF TAXATION
TAXATION
 The power by which the sovereign raises revenue to defray the
necessary expenses of government
 A way of apportioning the cost of government among those who
is some measure are privileged to enjoy its benefits and must
bear the burdens
PHASES OF TAXATION
1. Levying or imposition of the taxes
a. Constituted of the provisions of law which determine or
work out the determination of the persons or property
to be taxed, the sum or sums to be thus raised, the rate
thereof, and the time and manner of levying and
receiving and collecting the taxes.
b. It definitely and conclusively establishes the sum to be
paid by each person taxed, or to be borne by each
property specifically assessed, and creates a fixed and
certain demand in favor of the state or a subordinate
governmental agency, and a definite and positive
obligation on the part of those taxed.
2. Collection of the taxes levied
a. It is constituted of the provisions of law which prescribe
the manner of enforcing the obligation on the part of
those taxed to pay the demand thus created.
3. Payment by the taxpayer
PURPOSE OF TAXATION
1. To provide funds or property with which to promote the general
welfare and protection of its citizens
2. For regulatory purposes, to attain non-revenue objectives and
pursue policy decisions
NATURE OF INTERNAL REVENUE LAWS
1. Inherent in sovereignty
2. Legislative in character
3. It is subject to constitutional and inherent limitations
4. Not political in nature
HILADO V. COURT OF TAX APPEALS
100 SCRA 289
FACTS:
Hilado filed his income tax return wherein from other things, he
deducted from his total gross income an amount pursuant to a General
Circular issued by the Collector of Internal Revenue, which was GC 123.
This deducted amount was pursuant to a war damage claim duly
approved by the War Damage Commission. He was assessed for a
deficiency in his payment of income tax later on. Thereafter, the
Collector issued a Circular declaring null and void his previous circular
and declared that property which were destroyed by fire, storm,
shipwreck or other casualty, robbery, theft or embezzlement during the
World War 2 were deductible in the year of actual loss or destruction of
said property. As a consequence of this, Hilado was disallowed the
deduction and was demanded to pay the deficiency. To this he appealed
but was denied.
HELD:
Assuming that a portion of his war damage claims haven’t been paid, it
was wrong for him to deduct this from his 1951 return when he admitted
that he received the last payment for it a year later, with the notice that
no more would be paid to him. At most, the rightful thing for him to do
was to deduct it from his 1950 return. Second, the amount cannot be
considered as a business asset deductible as a loss in contemplation of
law because its collection is not enforceable as a matter of right. It all
depended on the generosity and discretion of the US government.
Furthermore, while it is true that under the NIRC, the Collector has
authority to issue General Circular 123. Even so, it was revoked through
a later circular, with the finding that it was wrong.
Hilado contended that during the last war and as a consequence thereof,
there was no taxable year within the purview of our internal revenue
laws because during that period they were unenforceable. Such is bereft
of merit. Internal revenue laws are not political in nature and as such
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were continued in force during that period of enemy occupation and in
effect were actually enforced by the occupation government. Income tax
returns were actually filed during that period and income tax payment
were effected and considered valid and legal.
SCOPE AND NATURE OF TAXATION, IN GENERAL
 It involves the subjects or objects to be taxed, the purpose or
object of the tax so long as it is for a public purpose, the amount
or rate of the tax to be imposed, and the manner, means and
agencies for collection of the tax
SCOPE OF TAXATION
 In the absence of constitutional restrictions and subject to the
will of legislative bodies, and the discretion of the authorities
which exercise it, the power of taxation is regarded as:
o Comprehensive
o Unlimited
o Plenary
o Supreme (CUPS)
 The principle check upon its abuse rests in the responsibility of
the legislature to their constituents
 Even in the absence of Constitutional limitations, such exercise
of the power to tax must rest upon justice
 The power to tax is an imperious necessity of all governments
and isn’t to be restricted by mere legal fictions
 While the taxing power has been said to inhere in the obligation
of the sovereign state to protect its citizens, it is not dependent
upon the consent of the individual taxpayer nor upon his
enjoyment of any special benefit from the funds raised
SISON V. ANCHETA
130 SCRA 654
FACTS:
Section 1 of BP Blg. 135 is being assailed for being unconstitutional. The
said provision amends further the NIRC, which provides for rates of tax
on citizens or residents on taxable compensation income, taxable net
income, royalties, prizes, winnings, interest on bank deposits, among
others. Petitioner averts that as a taxpayer, he would be unduly
discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-à-vis those, which
are imposed upon fixed income or salaried individual taxpayers. He
characterized the section as arbitrary amounting to class legislation,
oppressive, and capricious in character.
HELD:
The areas which used to be left to private enterprise and initiative and
which the government was called upon to enter optionally, and only
'because it was better equipped to administer for the public welfare than
is any private individual or group of individuals,' continue to lose their
well-defined boundaries and to be absorbed within activities that the
government must undertake in its sovereign capacity if it is to meet the
increasing social challenges of the times. Hence the need for more
revenues. 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. It is the strongest of all the
powers of government, which is as well subject to restrictions set forth by
laws like the Constitution.
Petitioner alleged arbitrariness but this mere allegation doesn’t suffice.
There must be a factual foundation of such unconstitutional taint.
Considering that petitioner here would condemn such a provision as void
or its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that were the due process and equal protection
clauses are invoked, considering that they arc not fixed rules but rather
broad standards, there is a need for of such persuasive character as
would lead to such a conclusion. Absent such a showing, the presumption
of validity must prevail.
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 then
becomes the duty of this Court to say that such an arbitrary act
amounted to the exercise of an authority not conferred. That properly
calls for the application of the Holmes dictum. It has also been held that
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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.
In addition, the concept of equal protection is also applicable to taxation
measures. Nonetheless, 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, address 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.
On the issue of uniformity, this is met when it operates with the same
force and effect in every place where the subject may be found. The rule
of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable. 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.
Apparently, what misled petitioner is his failure to take into
consideration the distinction 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. Taxpayers may be classified into different categories. To repeat, it.
is enough that the classification must rest upon substantial distinctions
that make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, 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.
Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e
not entitled to make deductions for income tax purposes because they are
in the same situation more or less. 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 the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the same tax
rates on the basis of gross income. There is ample justification then for
the Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income
taxation as regards professional and business income.
NOTE:
 Power to tax is the power to destroy and the statement that it is
not the power to destroy as long as this Court sits can be
reconciled
REYES V. ALMANZAR
129 SCRA 322
FACTS:
Petitioners were the owners of parcels of land being occupied and rented
by tenants. The tenants were paying rentals not exceeding P300. A law
was passed wherein for one year, it was prohibited to increase rentals for
those paying rentals not exceeding P300 but allowing an increase by not
more than 10% thereafter. A law was also passed suspending the
effectivity of a Civil Code provision allowing for the ejectment of tenants
who failed to pay rentals. These laws were amended by a Presidential
Decree making absolute the prohibition to increase rentals and by
indefinitely suspending the CC provision. Thereafter, an assessment of
the lands was made, resulting to an increase in the corresponding tax
rates. This prompted petitioners to question this. They alleged that the
income approach would have been a more proper approach in assessing
their properties. The assessment for tax of their properties greatly
exceeded the income derived.
HELD:
The crux of the controversy is in the method used in tax assessment of
the properties in question. Petitioners maintain that the "Income
Approach" method would have been more realistic for in disregarding the
effect of the restrictions imposed by P.D. 20 on the market value of the
properties affected, respondent Assessor of the City of Manila unlawfully
and unjustifiably set increased new assessed values at levels so high and
successive that the resulting annual real estate taxes would admittedly
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exceed the sum total of the yearly rentals paid or payable by the dweller
tenants under P.D. 20. Hence, petitioners protested against the levels of
the values assigned to their properties as revised and increased on the
ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the
rule of taxation must not only be uniform, but must also be equitable and
progressive. Uniformity has been defined as that principle by which all
taxable articles or kinds of property of the same class shall be taxed at the
same rate. Taxation is said to be equitable when its burden falls on those
better able to pay. Taxation is progressive when its rate goes up depending
on the resources of the person affected.
The taxing power has the authority to make a reasonable and natural
classification for purposes of taxation but the government's act must not
be prompted by a spirit of hostility, or at the very least discrimination
that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that
all persons must be treated in the same manner, the conditions not being
different both in the privileges conferred and the liabilities imposed.
Under the Real Property Tax Code (P.D. 464 as amended), it is declared
that the first Fundamental Principle to guide the appraisal and
assessment of real property for taxation purposes is that the property
must be "appraised at its current and fair market value."
By no strength of the imagination can the market value of properties
covered by P.D. No. 20 be equated with the market value of properties
not so covered. The former has naturally a much lesser market value in
view of the rental restrictions.
Ironically, in the case at bar, not even the factors determinant of the
assessed value of subject properties under the "comparable sales
approach" were presented by the public respondents, namely: (1) that the
sale must represent a bona fide arm's length transaction between a
willing seller and a willing buyer and (2) the property must be
comparable property. Nothing can justify or support their view as it is of
judicial notice that for properties covered by P.D. 20 especially during the
time in question, there were hardly any willing buyers. As a general rule,
there were no takers so that there can be no reasonable basis for the
conclusion that these properties were comparable with other residential
properties not burdened by P.D. 20. Neither can the given circumstances
be nonchalantly dismissed by public respondents as imposed under
distressed conditions clearly implying that the same were merely
temporary in character. At this point in time, the falsity of such premises
cannot be more convincingly demonstrated by the fact that the law has
existed for around twenty (20) years with no end to it in sight.
Verily, taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. However, such collection should be made
in accordance with law as any arbitrariness will negate the very reason
for government itself It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxations, which is the promotion of the common good, may be
achieved. Consequently, it stands to reason that petitioners who are
burdened by the government by its Rental Freezing Laws (then R.A. No.
6359 and P.D. 20) under the principle of social justice should not now be
penalized by the same government by the imposition of excessive taxes
petitioners can ill afford and eventually result in the forfeiture of their
properties.
NATURE OF TAXATION
 The power of taxation is inherent in sovereignty as an incident
or attribute thereof, being essential to the existence of
independent government
 Thus, a sovereign state has inherent power to determine the
subjects of taxation for general or particular public purposes and
may make appropriate changes in the selections and
classifications of the properties made subject to or exempted
from taxation
 The right to tax exists apart from Constitutions and without
being expressly conferred by the people, resides in the
government as part of itself, and is coextensive with that to
which it is an incident
 It follows that the power of taxation should be exercised
carefully, wisely and clearly within the limitations of the power
which may be vested in a government agency
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Article 6, Section 28.
1. The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
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.
3. Charitable institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from
taxation.
4. No law granting any tax exemption shall be passed without the
concurrence of a majority of all the Members of the Congress.
COMMISSIONER OF INTERNAL REVENUE V. PINEDA
21 SCRA 105
FACTS:
Anastasio died and was survived by his wife and 15 children, the eldest
being Manuel. After estate proceedings were closed, the BIR
investigated the tax liability of the estate and made an assessment.
Manuel contested the amount to be paid, especially those that pertain to
him as a heir. The CTA reversed the assessment of the Commissioner on
the ground that his right to assess has already prescribed. This was
appealed and the SC decided that the right to assess only prescribed with
respect to the later years.
HELD:
Government can require Manuel B. Pineda to pay the full amount of the
taxes assessed.
Pineda is liable for the assessment as an heir and as a holder-transferee
of property belonging to the estate/taxpayer. As an heir he is individually
answerable for the part of the tax proportionate to the share he received
from the inheritance. His liability, however, cannot exceed the amount of
his share.
As a holder of property belonging to the estate, Pineda is liable for he tax
up to the amount of the property in his possession. The reason is that the
Government has a lien on the P2,500.00 received by him from the estate
as his share in the inheritance, for unpaid income taxes4a for which said
estate is liable, pursuant to the last paragraph of Section 315 of the Tax
Code, which we quote hereunder—If any person, corporation,
partnership, joint-account (cuenta en participacion), association, or
insurance company liable to pay the income tax, neglects or refuses to
pay the same after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the assessment was
made by the Commissioner of Internal Revenue until paid with interest,
penalties, and costs that may accrue in addition thereto upon all
property and rights to property belonging to the taxpayer.
By virtue of such lien, the Government has the right to subject the
property in Pineda's possession, i.e., the P2,500.00, to satisfy the income
tax assessment in the sum of P760.28. After such payment, Pineda will
have a right of contribution from his co-heirs, to achieve an adjustment of
the proper share of each heir in the distributable estate.
All told, the Government has two ways of collecting the tax in question.
One, by going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received. The reason
for this method is to achieve thereby two results: first, payment of the
tax; and second, adjustment of the shares of each heir in the distributed
estate as lessened by the tax.
Another remedy, pursuant to the lien created by Section 315 of the Tax
Code upon all property and rights to property belonging to the taxpayer
for unpaid income tax, is by subjecting said property of the estate which
is in the hands of an heir or transferee to the payment of the tax due, the
estate. This second remedy is the very avenue the Government took in
this case to collect the tax. The Bureau of Internal Revenue should be
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given, in instances like the case at bar, the necessary discretion to avail
itself of the most expeditious way to collect the tax as may be envisioned
in the particular provision of the Tax Code above quoted, because taxes
are the lifeblood of government and their prompt and certain availability
is an imperious need.7 And as afore-stated in this case the suit seeks to
achieve only one objective: payment of the tax. The adjustment of the
respective shares due to the heirs from the inheritance, as lessened by
the tax, is left to await the suit for contribution by the heir from whom
the Government recovered said tax.
PHIL. GUARANTY V. COMMISSIONER OF INTERNAL
REVENUE
13 SCRA 775
FACTS:
Petitioner entered into reinsurance contracts with foreign insurance
companies. It ceded to the foreign companies a portion of its insurance
premiums in exchange for a portion of liabilities to be shouldered by
them. The ceded insurance premiums were excluded by Phil. Guaranty
when it filed its income return. It was assessed by the BIR and it was
being held liable to pay a deficiency. Phil. Guaranty asserted that the
insurance premiums it ceded to the foreign companies by virtue of the
reinsurance agreements shouldn’t be included as income sourced from
the Philippines.
HELD:
Petitioner maintain that the reinsurance premiums in question did not
constitute income from sources within the Philippines because the
foreign reinsurers did not engage in business in the Philippines, nor did
they have office here.
The reinsurance contracts, however, show that the transactions or
activities that constituted the undertaking to reinsure Philippine
Guaranty Co., Inc. against loses arising from the original insurances in
the Philippines were performed in the Philippines. The liability of the
foreign reinsurers commenced simultaneously with the liability of
Philippine Guaranty Co., Inc. under the original insurances. Philippine
Guaranty Co., Inc. kept in Manila a register of the risks ceded to the
foreign reinsurers. Entries made in such register bound the foreign
resinsurers, localizing in the Philippines the actual cession of the risks
and premiums and assumption of the reinsurance undertaking by the
foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax
Code for the privilege of doing insurance business in the Philippines were
payable by the foreign reinsurers when the same were not recoverable
from the original assured. The foreign reinsurers paid Philippine
Guaranty Co., Inc. an amount equivalent to 5% of the ceded premiums,
in consideration for administration and management by the latter of the
affairs of the former in the Philippines in regard to their reinsurance
activities here. Disputes and differences between the parties were subject
to arbitration in the City of Manila. All the reinsurance contracts, except
that with Swiss Reinsurance Company, were signed by Philippine
Guaranty Co., Inc. in the Philippines and later signed by the foreign
reinsurers abroad. Although the contract between Philippine Guaranty
Co., Inc. and Swiss Reinsurance Company was signed by both parties in
Switzerland, the same specifically provided that its provision shall be
construed according to the laws of the Philippines, thereby manifesting a
clear intention of the parties to subject themselves to Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their
income from sources within the Philippines. The word "sources" has been
interpreted as the activity, property or service giving rise to the income.
The reinsurance premiums were income created from the undertaking of
the foreign reinsurance companies to reinsure Philippine Guaranty Co.,
Inc., against liability for loss under original insurances. Such
undertaking, as explained above, took place in the Philippines. These
insurance premiums, therefore, came from sources within the Philippines
and, hence, are subject to corporate income tax.
The foreign insurers' place of business should not be confused with their
place of activity. Business should not be continuity and progression of
transactions while activity may consist of only a single transaction. An
activity may occur outside the place of business. Section 24 of the Tax
Code does not require a foreign corporation to engage in business in the
Philippines in subjecting its income to tax. It suffices that the activity
creating the income is performed or done in the Philippines. What is
controlling, therefore, is not the place of business but the place of activity
that created an income.
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The power to tax is an attribute of sovereignty. It is a power emanating
from necessity. It is a necessary burden to preserve the state's sovereignty
and a means to give the citizenry an army to resist an aggression, a navy
to defend its shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and those which
come within the state's territory, and facilities and protection which a
government is supposed to provide. Considering that the reinsurance
premiums in question were afforded protection by the government and
the recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and reinsurers
should share the burden of maintaining the state.
COMMISSIONER OF INTERNAL REVENUE V. YUSECO
3 SCRA 313
FACTS:
It was found out that for two years, Yuseco failed to file his income tax
returns. This prompted the tax authorities to assess and hold Yuseco
liable for the deficiency in payment. Yuseco asked for a report on how
the amount was derived but this request was denied. He asked for
reconsideration which was also denied. This prompted BIR to ask still
for payment. Yuseco then filed a petition for prohibition with the CTA,
which the latter granted and now is being questioned by the
Commissioner.
HELD:
Nowhere does the law expressly vest in the Court of Tax Appeals original
jurisdiction to issue writs of prohibition and injunction independently of,
and apart from, an appealed case. The writ of prohibition or injunction
that it may issue under the provisions of section 11, Republic Act No.
1125, to suspend the collection of taxes, is merely ancillary to and in
furtherance of its appellate jurisdiction in the cases mentioned in section
7 of the Act. The power to issue the writ exists only in cases appealed to
it.
COMMISSIONER OF INTERNAL REVENUE V. ALGUE
158 SCRA 9
FACTS:
The question in this case revolves around the allowed deduction by the
CTA of an amount to be paid by Algue as income tax. Algue was engaged
in engineering, construction, and the like business and he was assessed
by the CIR for delinquency income taxes. A warrant for levy and
distraint was filed against Algue on which, was reconsidered by the CTA.
On the deduction of the subject amount, the CTA held that it was proper
to deduct it on the premise that it was a business expense in the form of
actual payment for services rendered. These was in the form of
promotional fees. The CIR held a different view however. The expenses
were properly disallowed, not constituting business expenses.
HELD:
The amount in question was earned through the joint efforts of the
persons among whom it was distributed It has been established that the
Philippine Sugar Estate Development Company had earlier appointed
Algue as its agent, authorizing it to sell its land, factories and oil
manufacturing process. Pursuant to such authority, Alberto Guevara,
Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez, worked for the formation of the Vegetable Oil Investment
Corporation, inducing other persons to invest in it. Ultimately, after its
incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. For this sale, Algue
received as agent a commission of P126,000.00, and it was from this
commission that the P75,000.00 promotional fees were paid to the
aforenamed individuals.
There is no dispute that the payees duly reported their respective shares
of the fees in their income tax returns and paid the corresponding taxes
thereon. The Court of Tax Appeals also found, after examining the
evidence, that no distribution of dividends was involved.
The petitioner claims that these payments are fictitious because most of
the payees are members of the same family in control of Algue. It is
argued that no indication was made as to how such payments were
made, whether by check or in cash, and there is not enough
substantiation of such payments. In short, the petitioner suggests a tax
dodge, an attempt to evade a legitimate assessment by involving an
imaginary deduction. These suspicions were adequately met by the
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private respondent when its President, Alberto Guevara, and the
accountant, Cecilia V. de Jesus, testified that the payments were not
made in one lump sum but periodically and in different amounts as each
payee's need arose. It should be remembered that this was a family
corporation where strict business procedures were not applied and
immediate issuance of receipts was not required. Even so, at the end of
the year, when the books were to be closed, each payee made an
accounting of all of the fees received by him or her, to make up the total
of P75,000.00. Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
The position of the CTA is sustained as to holding that the amount of the
promotional fees was not excessive. The total commission paid by the
Philippine Sugar Estate Development Co. to the private respondent was
P125,000.00. 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.
The Solicitor General is correct when he says that the burden is on the
taxpayer to prove the validity of the claimed deduction. In the present
case, however, we find that the onus has been discharged satisfactorily.
The private respondent has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees
in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it
was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes,
the government would be paralyzed for lack of the motive power to
activate and operate it. Hence, despite the natural reluctance to surrender
part of one's hard earned income to the taxing authorities, every person
who is able to must contribute his share in the running of the government.
The government for its 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 it is
an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation,
it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. If it is not,
then the taxpayer has a right to complain and the courts will then come
to his succor. For all the awesome power of the tax collector, he may still
be stopped in his tracks if the taxpayer can demonstrate, as it has here,
that the law has not been observed.
ASPECTS OF TAXATION (PHASES)
1. Levying or imposition of the taxes
a. Constituted of the provisions of law which determine or
work out the determination of the persons or property
to be taxed, the sum or sums to be thus raised, the rate
thereof, and the time and manner of levying and
receiving and collecting the taxes.
b. It definitely and conclusively establishes the sum to be
paid by each person taxed, or to be borne by each
property specifically assessed, and creates a fixed and
certain demand in favor of the state or a subordinate
governmental agency, and a definite and positive
obligation on the part of those taxed.
2. Collection of the taxes levied
a. It is constituted of the provisions of law which prescribe
the manner of enforcing the obligation on the part of
those taxed to pay the demand thus created.
3. Payment by the taxpayer
UNDERLYING THEORY AND BASIS
1. Taxes proper, or general taxes, proceed upon the theory that the
existence of government is a necessity; that it cannot continue
without means to pay its expenses; and that for those means it
has the right to compel all citizens and property within its limits
to contribute. The state demands and receives taxes so that it
may be enabled to carry its mandates into effect and perform the
functions of government, and the citizen pays from his property
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the portion demanded, in order that he may, by means thereof,
be secured in the enjoyment of the benefits of organized society.
2. Inherent in the theory underlying general taxation is the factor
that for the contributions received, the government renders no
return or special benefit to any particular property, but only
secures to the citizen that general benefit which results from
protection to his person and property and the promotion of those
various schemes which have for their object the welfare of all.
Thus, the general levy of taxes is understood to exact
contributions in return for the general benefits of government,
and it promises nothing to the person taxed beyond what may be
anticipated from an administration of the laws for individual
protection and the general public good.
3. Benefits-received principle
a. The theory of taxation is that taxes are imposed for the
support of the government in return for the general
advantages and protection which the government
affords the taxpayer and the taxpayer's property.
Broadly speaking, where there is no such benefit, there
is no power to tax.
b. The basis for taxation in any context assumes a rational
relationship between the tax collected and the benefits
or services provided by the government, but the benefits
or services need not be wholly proportional to the tax or
dispensed in a manner designed to confer a direct
benefit upon any individual taxpayer.
PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal adequacy—requires that the sources of revenue be
adequate to meet government expenditures and their variations
2. Equality or theoretical justice—involves the ability to pay
principle that the tax burden should be in proportion to the
taxpayer’s ability to pay; taxation should be equitable and
uniform
3. Administrative feasibility—tax laws should be capable of
convenient, just and effective administration
CHAVEZ V. ONGPIN
186 SCRA 331
FACTS:
This is a petition seeking to declare unconstitutional the following EO:
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES
BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED
FOR UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS
AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978
revision of property values;
WHEREAS, the latest general revision of real property assessments
completed in 1984 has rendered the 1978 revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real
property values was deferred to take effect on January 1, 1988 instead of
January 1, 1985, thus depriving the local government units of an
additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment
their financial resources to meet the rising cost of rendering effective
services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the
Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as
determined by the local assessors during the latest general revision of
assessments shall take effect beginning January 1, 1987 for purposes of
real property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules
and regulations to implement this Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby
repealed.
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which should be challenged as constitutionally infirm. However, Chavez

SEC. 4. All laws, orders, issuances, and rules and regulations or parts failed to raise any objection against said decree. Furthermore,
thereof inconsistent with this Executive Order are hereby repealed or Presidential Decree No. 464 furnishes the procedure by which a tax
modified accordingly. assessment may be questioned.

SEC. 5. This Executive Order shall take effect immediately. COMPARISON WITH POLICE POWER AND EMINENT DOMAIN
 Police power—power of the state to enact such laws in relation
Petitioner averred that such accelerated the general revision of to persons and property as may promote public health, public
assessments with respect to tax, causing undue burden to people. morals, public safety, and the general prosperity and welfare of
the inhabitants
HELD:  Power of eminent domain—power of the state or those to whom
Petitioner Chavez and intervenor ROAP question the constitutionality of the power has been designated to take private property for
Executive Order No. 73 insofar as the revision of the assessments and public use upon paying the owner the just compensation to be
the effectivity thereof are concerned. It should be emphasized that ascertained according to law
Executive Order No. 73 merely directs, in Section 1 thereof, that:
SIMILARITIES
SECTION 1. Real property values as of December 31, 1984 as 1. All rest upon necessity because there can be no effective
determined by the local assessors during the latest general revision of government without them
assessments shall take effect beginning January 1, 1987 for purposes of 2. They all underlie and exist independently of the Constitution,
real property tax collection. (emphasis supplied) although the conditions for their exercise may be described by
the Constitution and by laws
The general revision of assessments completed in 1984 is based on 3. They are ways which a state interferes with private rights and
Section 21 of Presidential Decree No. 464 which provides, as follows: properties
4. They are legislative in nature and character, although the
SEC. 21. General Revision of Assessments. Beginning with the assessor actual exercise is given to the executive
shall make a calendar year 1978, the provincial or city general revision of 5. They all presuppose an equivalent compensation received,
real property assessments in the province or city to take effect January 1, directly or indirectly, by the persons affected by the exercise of
1979, and once every five years thereafter: Provided; however, That if these powers by the government
property values in a province or city, or in any municipality, have greatly
changed since the last general revision, the provincial or city assesor POLICE POWER V. TAXATION
may, with the approval of the Secretary of Finance or upon bis direction, TAXATION POLICE POWER
undertake a general revision of assessments in the province or city, or in Taxing power is exercised for the Police power is exercised for the
any municipality before the fifth year from the effectivity of the last purpose of raising revenue and is promotion of the public welfare by
general revision. subject to certain designated means of the regulation of
constitutional limitations dangerous or potentially dangerous
Thus, We agree with the Office of the Solicitor General that the attack on activities.
Executive Order No. 73 has no legal basis as the general revision of
assessments is a continuing process mandated by Section 21 of
EMINENT DOMAIN V. TAXATION
Presidential Decree No. 464. If at all, it is Presidential Decree No. 464
TAXATION EMINENT DOMAIN

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It is an exercise of the taxing Where land is taken for public

power for the legislature to
authorize the whole or part of the
cost of a public improvement to be
assessed upon the lands benefited.
Property may be taken through a
tax proceeding without the notice
required in exercising the right of
eminent domain, and such a
proceeding is not rendered
unconstitutional as depriving the
taxpayer of property without due
process of law.
improvements, the setting off of
benefits against damages is an
incident of the exercise of the
power of eminent domain.
Philippine Match sought the refund of a portion of the sales tax collected
from them by virtue of a part of it was assessed based on sales which
transpired outside of the city and that some of the matches were just
stored in the city and delivered directly to customers outside of Cebu.
This was denied by the City Treasurer, prompting Philippine Match to
file a case in court. The trial court invalidated the tax on transfers of
matches to salesmen assigned to different agencies outside of the city
and on shipments of matches to provincial customers pursuant to the
instructions of the newsmen It ordered the defendants to refund to the
plaintiff the sum of P8,923.55 as taxes paid out the said out-of-town
deliveries with legal rate of interest from the respective dates of
payment.

The trial court characterized the tax on the other two transactions as a
PHIL. MATCH CO. LTD. V. CITY OF CEBU
"storage tax" and not a sales tax. It assumed that the sales were
JANUARY 18, 1978
consummated outside of the city and, hence, beyond the city's taxing
power.
FACTS:
Ordinance No. 279 of Cebu City (approved by the mayor on March 10,
The city did not appeal from that decision. The company appealed from
1960 and also approved by the provincial board) is "an ordinance
that portion of the decision upholding the tax on sales of matches to
imposing a quarterly tax on gross sales or receipts of merchants, dealers,
customers outside of the city but which sales were booked and paid for in
importers and manufacturers of any commodity doing business" in Cebu
Cebu City, and also from the dismissal of its claim for damages against
City. It imposes a sales tax of one percent (1%) on the gross sales,
the city treasurer.
receipts or value of commodities sold, bartered, exchanged or
manufactured in the city in excess of P2,000 a quarter. Section 9 of the
HELD:
ordinance provides that, for purposes of the tax, "all deliveries of goods or
We hold that the appeal is devoid of merit bemuse the city can validly tax
commodities stored in the City of Cebu, or if not stored are sold" in that
the sales of matches to customers outside of the city as long as the orders
city, "shall be considered as sales" in the city and shall be taxable. Thus,
were booked and paid for in the company's branch office in the city.
it would seem that under the tax ordinance sales of matches
Those matches can be regarded as sold in the city, as contemplated in the
consummated outside of the city are taxable as long as the matches sold
ordinance, because the matches were delivered to the carrier in Cebu
are taken from the company's stock stored in Cebu City.
City. Generally, delivery to the carrier is delivery to the buyer. A
different interpretation would defeat the tax ordinance in question or
The Philippine Match Co., Ltd., whose principal office is in Manila, is
encourage tax evasion through the simple expedient of arranging for the
engaged in the manufacture of matches. Its factory is located at Punta,
delivery of the matches at the out. skirts of the city through the purchase
Sta. Ana, Manila. It ships cases or cartons of matches from Manila to its
were effected and paid for in the company's branch office in the city.
branch office in Cebu City for storage, sale and distribution within the
territories and districts under its Cebu branch or the whole Visayas-
The taxing power of cities, municipalities and municipal districts may be
Mindanao region. Cebu City itself is just one of the eleven districts under
used (1) "upon any person engaged in any occupation or business, or
the company's Cebu City branch office.

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exercising any privilege" therein; (2) for services rendered by those
political subdivisions or rendered in connection with any business,
profession or occupation being conducted therein, and (3) to levy, for
public purposes, just and uniform taxes, licenses or fees. Applying that
jurisdictional test to the instant case, it is at once obvious that sales of
matches to customers outside oil Cebu City, which sales were booked and
paid for in the company's branch office in the city, are subject to the city's
taxing power. The sales in the instant case were in the city and the
matches sold were stored in the city. The fact that the matches were
delivered to customers, whose places of business were outside of the city,
would not place those sales beyond the city's taxing power. Those sales
formed part of the merchandising business being assigned on by the
company in the city. In essence, they are the same as sales of matches
fully consummated in the city.
MATALIN COCONUT V. MUNICIPAL COUNCIL OF MALABANG,
LANAO DEL SUR
143 SCRA 404
FACTS:
Municipal Council of Malabang, Lanao del Sur, invoking the authority of
Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, enacted Municipal Ordinance No. 45-46, entitled "AN
ORDINANCE IMPOSING A POLICE INSPECTION FEE OF P.30 PER
SACK OF CASSAVA STARCH PRODUCED AND SHIPPED OUT OF
THE MUNICIPALITY OF MALABANG AND IMPOSING PENALTIES
FOR VIOLATIONS THEREOF." The ordinance made it unlawful for any
person, company or group of persons "to ship out of the Municipality of
Malabang, cassava starch or flour without paying to the Municipal
Treasurer or his authorized representatives the corresponding fee fixed
by (the) ordinance." It imposed a "police inspection fee" of P.30 per sack
of cassava starch or flour, which shall be paid by the shipper before the
same is transported or shipped outside the municipality. Any person or
company or group of individuals violating the ordinance "is liable to a
fine of not less than P100.00, but not more than P1,000.00, and to pay
Pl.00 for every sack of flour being illegally shipped outside the
municipality, or to suffer imprisonment of 20 days, or both, in the
discretion of the court.
This ordinance is now being questioned as unconstitutional.
HELD:
The amount collected under the ordinance in question partakes of the
nature of a tax, although denominated as "police inspection fee" since its
undeniable purpose is to raise revenue. However, we cannot agree with
the trial court's finding that the tax imposed by the ordinance is a
percentage tax on sales which is beyond the scope of the municipality's
authority to levy under Section 2 of the Local Autonomy Act. Under the
said provision, municipalities and municipal districts are prohibited from
imposing" any percentage tax on sales or other taxes in any form based
thereon. " The tax imposed under the ordinance in question is not a
percentage tax on sales or any other form of tax based on sales. It is a
fixed tax of P.30 per bag of cassava starch or flour "shipped out" of the
municipality. It is not based on sales.
However, the tax imposed under the ordinance can be stricken down on
another ground. According to Section 2 of the abovementioned Act, the
tax levied must be "for public purposes, just and uniform" (Emphasis
supplied.) As correctly held by the trial court, the so-called "police
inspection fee" levied by the ordinance is "unjust and unreasonable." Said
the court a quo:
... It has been proven that the only service rendered by the Municipality
of Malabang, by way of inspection, is for the policeman to verify from the
driver of the trucks of the petitioner passing by at the police checkpoint
the number of bags loaded per trip which are to be shipped out of the
municipality based on the trip tickets for the purpose of computing the
total amount of tax to be collect (sic) and for no other purpose. The
pretention of respondents that the police, aside from counting the
number of bags shipped out, is also inspecting the cassava flour starch
contained in the bags to find out if the said cassava flour starch is fit for
human consumption could not be given credence by the Court because,
aside from the fact that said purpose is not so stated in the ordinance in
question, the policemen of said municipality are not competent to
determine if the cassava flour starch are fit for human consumption. The
further pretention of respondents that the trucks of the petitioner
hauling the bags of cassava flour starch from the mill to the bodega at
the beach of Malabang are escorted by a policeman from the police
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checkpoint to the beach for the purpose of protecting the truck and its
cargoes from molestation by undesirable elements could not also be given
credence by the Court because it has been shown, beyond doubt, that the
petitioner has not asked for the said police protection because there has
been no occasion where its trucks have been molested, even for once, by
bad elements from the police checkpoint to the bodega at the beach, it is
solely for the purpose of verifying the correct number of bags of cassava
flour starch loaded on the trucks of the petitioner as stated in the trip
tickets, when unloaded at its bodega at the beach. The imposition,
therefore, of a police inspection fee of P.30 per bag, imposed by said
ordinance is unjust and unreasonable.
The Court finally finds the inspection fee of P0.30 per bag, imposed by
the ordinance in question to be excessive and confiscatory. It has been
shown by the petitioner, Matalin Coconut Company, Inc., that it is
merely realizing a marginal average profit of P0.40, per bag, of cassava
flour starch shipped out from the Municipality of Malabang because the
average production is P15.60 per bag, including transportation costs,
while the prevailing market price is P16.00 per bag. The further
imposition, therefore, of the tax of P0.30 per bag, by the ordinance in
question would force the petitioner to close or stop its cassava flour
starch milling business considering that it is maintaining a big labor
force in its operation, including a force of security guards to guard its
properties. The ordinance, therefore, has an adverse effect on the
economic growth of the Municipality of Malabang, in particular, and of
the nation, in general, and is contrary to the economic policy of the
government.
LUTZ V. ARANETA
98 SCRA 148
FACTS:
A case was filed in court which tried to test the legality of the taxes
imposed by virtue of the Sugar Adjustment Act.
Promulgated in 1940, the law in question opens (section 1) with a
declaration of emergency, due to the threat to our industry by the
imminent imposition of export taxes upon sugar as provided in the
Tydings-McDuffie Act, and the "eventual loss of its preferential position
in the United States market"; wherefore, the national policy was
expressed "to obtain a readjustment of the benefits derived from the
sugar industry by the component elements thereof" and "to stabilize the
sugar industry so as to prepare it for the eventuality of the loss of its
preferential position in the United States market and the imposition of
the export taxes."
In section 2, Commonwealth Act 567 provides for an increase of the
existing tax on the manufacture of sugar, on a graduated basis, on each
picul of sugar manufactured; while section 3 levies on owners or persons
in control of lands devoted to the cultivation of sugar cane and ceded to
others for a consideration, on lease or otherwise a tax equivalent to the
difference between the money value of the rental or consideration
collected and the amount representing 12 per centum of the assessed
value of such land.
According to section 6 of the law—SEC. 6. All collections made under this
Act shall accrue to a special fund in the Philippine Treasury, to be known
as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any or all of the
following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite
the gradual loss of the preferntial position of the Philippine sugar in the
United States market, and ultimately to insure its continued existence
notwithstanding the loss of that market and the consequent necessity of
meeting competition in the free markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of
the component elements thereof the mill, the landowner, the planter of
the sugar cane, and the laborers in the factory and in the field so that all
might continue profitably to engage therein;
Third, to limit the production of sugar to areas more economically suited
to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to
improve their living and working conditions: Provided, That the
President of the Philippines may, until the adjourment of the next
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regular session of the National Assembly, make the necessary
disbursements from the fund herein created (1) for the establishment
and operation of sugar experiment station or stations and the
undertaking of researchers (a) to increase the recoveries of the
centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar
cane more adaptable to different district conditions in the Philippines, (c)
to lower the costs of raising sugar cane, (d) to improve the buying quality
of denatured alcohol from molasses for motor fuel, (e) to determine the
possibility of utilizing the other by-products of the industry, (f) to
determine what crop or crops are suitable for rotation and for the
utilization of excess cane lands, and (g) on other problems the solution of
which would help rehabilitate and stabilize the industry, and (2) for the
improvement of living and working conditions in sugar mills and sugar
plantations, authorizing him to organize the necessary agency or
agencies to take charge of the expenditure and allocation of said funds to
carry out the purpose hereinbefore enumerated, and, likewise,
authorizing the disbursement from the fund herein created of the
necessary amount or amounts needed for salaries, wages, travelling
expenses, equipment, and other sundry expenses of said agency or
agencies.
Petitioner sought the refund of taxes paid by the estate on which he was
the judicial administrator, maintaining that the law is unconstitutional.
HELD:
The basic defect in the plaintiff's position is his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the
taxing power. Analysis of the Act, and particularly of section 6
(heretofore quoted in full), will show that 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.
The Court can take judicial notice of the fact that sugar production is one
of the great industries of our nation, sugar occupying a leading position
among its export products; that it gives employment to thousands of
laborers in fields and factories; that it is a great source of the state's
wealth, is one of the important sources of foreign exchange needed by our
government, and is thus pivotal in the plans of a regime committed to a
policy of currency stability. Its promotion, protection and advancement,
therefore redounds greatly to the general welfare. Hence it was
competent for the legislature to find that the general welfare demanded
that the sugar industry should be stabilized in turn; and in the wide field
of its police power, the lawmaking body could provide that the
distribution of benefits therefrom be readjusted among its components to
enable it to resist the added strain of the increase in taxes that it had to
sustain.
Once it is conceded, as it must, that the protection and promotion of the
sugar industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative
discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in
section 6 of the law (above quoted) bear no relation to the objective
pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes
to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power. That the tax to be levied
should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely
from those who are to be benefited from the expenditure of the funds
derived from it. At any rate, 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".
NATIONAL TELECOMMUNICATIONS COMMISSION V. CA
311 SCRA 511
FACTS:
NTC served upon PLDT assessment notices for supervision and
regulation fees. This was protested by the PLDT on the ground that such
were to raise revenue only and not really service fees. Finding that the
protest is without merit, the NTC held PLDT liable to pay such assessed
amounts. The CA modified the decision by holding that the value should
be based on the par value of the subscribed capital stock.
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HELD:
Succinct and clear is the ruling of this Court in the case of Philippine
Long Distance Telephone Company vs. Public Service Commission, 66
SCRA 341, that the basis for computation of the fee to be charged by
NTC on PLDT, is “the capital stock subscribed or paid and not,
alternatively, the property and equipment.”
The law in point is clear and categorical. There is no room for
construction. It simply calls for application. To repeat, the fee in
question is based on the capital stock subscribed or paid, nothing less
nothing more.
It bears stressing that it is not the NTC that imposed such a fee. It is the
legislature itself. Since Congress has the power to exercise the State
inherent powers of Police Power, Eminent Domain and Taxation, the
distinction between police power and the power to tax, which could be
significant if the exercising authority were mere political subdivisions
(since delegation by it to such political subdivisions of one power does not
necessarily include the other), would not be of any moment when, as in
the case under consideration, Congress itself exercises the power. All
that is to be done would be to apply and enforce the law when sufficiently
definitive and not constitutional infirm.
The term “capital” and other terms used to describe the capital structure
of a corporation are of universal acceptance, and their usages have long
been established in jurisprudence. Briefly, capital refers to the value of
the property or assets of a corporation. The capital subscribed is the
total amount of the capital that persons (subscribers or shareholders)
have agreed to take and pay for, which need not necessarily be, and can
be more than, the par value of the shares. In fine, it is the amount that
the corporation receives, inclusive of the premiums if any, in
consideration of the original issuance of the shares. In the case of stock
dividends, it is the amount that the corporation transfers from its
surplus profit account to its capital account. It is the same amount that
can loosely be termed as the “trust fund” of the corporation. The “Trust
Fund” doctrine considers this subscribed capital as a trust fund for the
payment of the debts of the corporation, to which the creditors may look
for satisfaction. Until the liquidation of the corporation, no part of the
subscribed capital may be returned or released to the stockholder (except
in the redemption of redeemable shares) without violating this principle.
Thus, dividends must never impair the subscribed capital; subscription
commitments cannot be condoned or remitted; nor can the corporation
buy its own shares using the subscribed capital as the consideration
therefor.
TAXES
DEFINITION, 71 AM JUR 2ND 343-346
 A tax is a burden, charge, exaction, imposition, or contribution,
assessed in accordance with some reasonable rule of
apportionment by the authority of a sovereign state upon the
persons or property within its jurisdiction, to provide public
revenue for the support of the government, the administration of
the law, or the payment of public expenses. Any payment
exacted by the state or its municipal subdivisions as a
contribution toward the cost of maintaining governmental
functions, where the special benefits derived from their
performance is merged in the general benefit, is a tax.
 A tax operates in invitum, and is in no way dependent upon the
will or contractual assent, express or implied, of the person
taxed.
ESSENTIAL CHARACTERISTICS OF TAXES
1. Essential that tax be levied for public purpose
2. It is understood to be a pecuniary burden
3. Statutory liability
4. Imposed upon persons and property which is defined as taxable
5. Levied by the state which has jurisdiction over the persons and
property
6. An enforced contribution
7. Levied by the legislative body
8. Proportionate in character
* A tax generally will be considered to be a debt within the meaning of a
statute when the legislative intent to such effect can be plainly inferred.
Where a statute imposes a personal liability for a tax, the tax becomes, at
least in a broad sense, a debt.
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TAXES DISTINGUISHED FROM DEBTS
 The obligation of a tax is a statutory liability imposed upon all
the inhabitants of the state who are defined as taxable, to the
end that they may contribute their just share to the expenses of
the government.
 Accordingly, taxes generally are not considered "debts" in the
ordinary meaning of that word.
 A tax does not bear interest when past due, unless the statute so
provides
 It is not liable to setoff and it is not enforceable by a personal
action against the taxpayer, absent statutory authority
 The form of the procedure to collect taxes cannot change a tax
into a debt or contract obligation.
 Taxes are not "ordinary debts" for the purpose of determining
the priority of claims for taxes.
CALTEX V. COA
208 SCRA 726
FACTS:
COA sent a letter to petitioner, demanding unpaid remittances with
regard the OPSF. In its second letter, it mentioned that whatever claim
petitioner has with respect to the OPSF will be held in abeyance until
payment. Request was then made by petitioner for the early release of
its reimbursements based on claims with the Office of Energy Affairs.
This was denied by the COA and it repeated its demand. By a counter-
proposal, petitioner asked again for its collection and claims prerequisite
to payment. This was denied by COA.
HELD:
Petitioner may not offset whatever claims it may have against the
government in its payment of taxes.
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 taxpayers are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand or
contract or judgment as is allowed to be set-off.
FRANCIA V. IAC
162 SCRA 753
FACTS:
Francia is the owner of a residential lot and house, a portion of which
was expropriated by the government. His property was subsequently
sold in public auction for failure to pay real estate taxes. He wasn’t
present during the auction sale and upon knowing of the sale, he filed a
complaint to annul the same. He alleged that he is entitled to
compensation for the government owed him payment for the
expropriation of his house.
HELD:
There is no legal basis for compensation. By legal compensation,
obligations of persons, who in their own right are reciprocally debtors
and creditors of each other, are extinguished. The circumstances do not
satisfy the requirements. There can be no offsetting of taxes against the
claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him
an equal or greater than the tax being collected. The collection of tax
cannot await the results of a suit against the government.
RP V. ERICTA AND SAMPAGUITA PICTURES
172 SCRA 653
FACTS:
This has something to do with back pay certificates. The law enacting
these generally recognized the right of persons who at the outbreak of
war were employed in the classified and non-classified civil service as
well as in government-controlled or owned corporations, and those who
had served in the free local governments organized for the purposes of
resistance against the invaders, to salaries, wages, emoluments, per
deims, not received by them by reason of the war.
It appears that in relation to the production of movies, came to incur tax
obligations. To satisfy these, tendered and delivered back pay
certificates of indebtedness. However, these were denied receipt. In
reply, it was mentioned that back pay certificates weren’t valid tax
payments and payments should be made in cash.
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HELD: TAXES DISTINGUISHED FROM FEES

The taxes sought to be collected by the Republic were still unpaid, hence TAXES FEES
it ought properly to be sentenced to pay the taxes. It also ruled that even Any payment exacted by the state These confer a special benefit on
assuming the contrary, the legal compensation as a mode of or its municipal subdivisions as a feepayers in a manner not shared
extinguishing an obligation to pay taxes was nonetheless availing contribution toward the cost of by those not paying the fee.
against the government. maintaining governmental
functions, where the special
On the other hand, 10 years have transpired from the date when the benefits derived from their
certificates are redeemable, the obligation thereby was evidenced was performance is merged in the
undeniably already due and payable. Hence, Sampaguita was entitled to general benefit
payment against the government. They are both liable with respect one Charges reasonably calculated to
another. do nothing more than compensate
a governmental agency for its
DOMINGO V. CARLITOS services even though they must be
8 SCRA 443 paid in order that the right may be
enjoyed.
FACTS: Revenue raising purposes Regulatory or punitive purposes
In an earlier case, the court has declared final and executory the order
for the payment of inheritance and estate taxes by the estate. In order to
 To aid the analysis of whether a charge is a "fee" or a "tax,"
enforce the decision, the prosecutor in this case filed a petition for the
courts use a three-part test that looks to:
execution of the decision but this was denied by the trial court by saying
1. What entity imposes the charge;
that the government owed for a certain amount the subject estate. To
2. What population is subject to the charge, and;
this order, Domingo wished to appeal.
3. What purposes are served by the use of the monies
obtained by the charge.
HELD:
The ordinary procedure to settle claims against an estate is to present
the claim against the estate in the probate court so that the same can LICENSE FEES
order the administrator to pay the amount thereof.
The term "license fee" or "license tax" implies an imposition or exaction
The legal basis for such procedure is the fact that in testate or intestate on the right to use or dispose of property, to pursue a business,
proceedings to settle the estate of a deceased person, the properties occupation, or calling, or to exercise a privilege. Such charges may be
belonging to the estate are under the jurisdiction of the court and such imposed either under the police power for purposes of regulation or
jurisdiction continues until said properties have been distributed among under the taxing power for purposes of revenue. A regulatory license fee
the heirs entitled thereto. During the pendency, all the estate is in imposed by a municipal corporation under the police power is not a tax
custodia legis and the proper procedure is not to allow the sheriff in case and is not subject to any of the particular constitutional limitations
of a court judgment, to seize the properties but to ask the court for an which apply to the taxing power as such. Fees for licenses required for
order to require the administrator to pay the amount due from the estate the operation of various businesses are not taxes. If money collected is for
and required to be paid. a license to engage in business and the proceeds therefrom are purposed

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mainly to service, regulate and police such business or activity, it is
regarded as license fee.
PROGRESSIVE DEVELOPMENT CORP. V. QC
172 SCRA 629
FACTS:
An ordinance was adopted ordering the payment as supervision fee of
10% of gross receipts by stall-owners in privately-owned and public
markets. This was assailed by petitioner, alleging that the said tax was
in fact an income tax, which the respondent may not impose. The trial
court held that the tax was a license tax and not an income tax.
HELD:
Local governments have the authority to impose license taxes upon their
constituents. This notwithstanding, petitioner alleged that the tax
imposed on their rentals was income tax.
Tax frequently applies to all kinds of exactions of monies which become
public funds. It is often loosely used to include levies on revenues as well
as levies for regulatory purposes such that license fees are frequently
called taxes although it is a legal concept distinguishable from tax—
former is imposed in the exercise of police power while latter is imposed
under the taxing power primarily for purposes of raising revenue. Thus,
it 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 obtain doesn’t
make the imposition a tax.
To be considered a license fee, the imposition questioned 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 only the costs of direct regulation but also its
incidental consequences as well.
The 5% tax imposed by virtue of the ordinance is not an income tax but
rather a license tax for the regulation of the business in which the
petitioner is engaged.
PAL V. EDU
164 SCRA 320
FACTS:
Commissioner Edu imposed motor vehicle registration fees in pursuant
of the Land Transportation and Traffic Code. Under the franchise given
to PAL, it shall be exempted from payment of taxes. In relation to this, it
was found out that it hasn’t been paying its motor vehicle registration
fees. By virtue of this, a resolution was issued ordering tax-exempted
entities to pay the corresponding registration fees.
HELD:
The purpose for the motor vehicle registration fee is mainly to raise
funds for the construction and maintenance of highways and to a much
lesser degree, pay for the operating expenses of the administrative
agency.
If the primary purpose is revenue, or if revenue, at least is one of the real
and substantial purposes, then the exaction of property is called a tax.
Such is the case of motor vehicle registration fees.
In the beginning, the intent for the registration fees were regulatory in
purpose. Over the years however, a vehicular traffic exploded in number
and motor vehicles became absolute necessities without which modern
life as we know it would stand still, Congress found the registration of
vehicles a very convenient way of raising must needed revenues.
Without changing their denomination, their nature has become that of
taxes.
ESSO V. CIR
175 SCRA 149
FACTS:
ESSO deducted from its gross income operating and necessary expenses,
the amount it spent for drilling and exploration of its petroleum
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concessions. The Commissioner denied this claim, on the ground that Levied for the support of Compensation for the use of
the expenses should be capitalized and might be written off as loss only government, and their amount is another's property, or of
when a dry hole should result. ESSO then filed an amended return regulated by its necessities improvements made by another,
where it asked refund for its abandonment as dry holes several of its oil and their amount is determined by
wells. It also claimed as expenses margin fees it had paid to the CB on the cost of the property, or of the
profit remittances it had paid. A partial of this claim was allowed by the improvements, and a consideration
Commissioner. Thereafter, ESSO was assessed for a deficiency amount. of the return which such values or
This deficiency was settled by ESSO by applying the tax credit, which expenditures should yield.
was disallowed by the Commissioner. Demand of sovereignty Demand of proprietorship

HELD:
TAXES DISTINGUISHED FROM PENALTIES
Margin fee is not a tax but an exaction designed to curb the excessive
demands upon international reserves. It is a form of control or restriction TAXES PENALTIES
designed to ultimately curtail excessive demand in order to stabilize Generally intended to raise Generally intended to regulate
industry. revenue conduct
Imposed only by the government Imposed by the government or
TAXES DISTINGUISHED FROM SPECIAL ASSESSMENTS even private individuals and
(APOSTOLIC PREFECT V. TREASURER OF BAGUIO; 71 PHIL entities
547)
TAXES AND CUSTOMS DUTIES
HELD:  Custom duties are taxes imposed on goods exported from or
While tax in its broad meaning includes both general taxes and special imported into a country
assessments, and in a general sense a tax is an assessment, and an  Taxes includes customs duties
assessment is a tax, yet there is a recognized distinction between them in
that assessment is confined to local impositions upon property for the NDC V. CIR
payment of costs of public improvements in its immediate vicinity and 151 SCRA 472
levied with reference to special benefits to the property assessed. The
differences between a special assessment and a tax are that –a special FACTS:
assessment can be levied only on land, a special assessment cannot be NDC entered into contracts with several shipbuilders in Japan for the
made a personal liability of the person assessed, a special assessment is construction of ocean-going vessels. The purchase price was to be
based on benefits, and a special assessment is exceptional both as to time secured by proceeds of bonds issued by the Central Bank. Cash
and locality. The imposition of a charge on property in a prescribed area payments were made together with letters of credit as well as promissory
is a tax and not an assessment although the purpose is to make a local notes. In the end, it made a huge remittance to the companies and was
improvement on a street or highway. The charge imposed only on then assessed by the BIR for deficiency in taxes because NDC failed to
property owners benefited is an assessment rather than a tax withhold tax from its payments.
notwithstanding the statute calls it a tax.
HELD:
TAXES AS DISTINGUISHED FROM TOLLS Petitioner forgets that it is not the NDC that is being taxed. The tax was
TAXES TOLLS due from the interests earned by the shipbuilders. It was the income of

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these companies and not the RP that was subject to the tax that the NDC
didn’t withhold.
In effect, the imposition of deficiency taxes on the NDC was a penalty for
its failure to withhold the same from the shipbuilders. It was remiss in
the discharge of its obligations as the withholding agent of the
government and so should be held liable for its omission.
CLASSIFICATION OF TAXES
The character or nature of a particular tax must be determined by its
operation, practical results, and incidents, and by the substance and
natural and legal effect of the language employed in the statute or law
imposing it. Such factors should be relied upon, rather than the name
given the tax by the legislature or the particular descriptive language
which may have been applied to it.
1. As to subject matter
a. Capitation, personal or poll taxes—
i. These are taxes of a fixed amount upon all the
persons, or upon all the persons of a certain
class, resident within a specified territory,
without regard to their property or the
occupations in which they may be engaged.
ii. They are fixed taxes assessed on each eligible
person.
iii. Taxes of a specified amount upon each person
performing a certain act or engaging in a
certain business or profession are not, however,
poll taxes.
b. Property taxes
i. Taxes assessed on all property or on all
property of a certain class located within a
certain territory on a specified date in
proportion to its value, or in accordance with
some other reasonable method of
apportionment, the obligation to pay which is
absolute and unavoidable and is not based
upon any voluntary action of the person
assessed, or upon any particular use made of
the property.
ii. A property tax is measured by the amount of
property owned by the taxpayer on a given day,
and not by the total amount owned by him
during the year.
c. Excise taxes
i. Where a tax is levied directly by the legislature
without assessment and is measured by the
extent to which a privilege is exercised by the
taxpayer without regard to the nature or value
of his assets
ii. Any tax which does not fall within the
classification of a poll tax or a property tax,
and which embraces every form of burden not
laid directly upon persons or property.
iii. The obligation to pay an excise is based upon
the voluntary action of the person taxed in
performing the act, enjoying the privilege, or
engaging in the occupation which is the subject
of the excise, and the element of absolute and
unavoidable demand is lacking.
iv. It is said to be an excise tax when—
1. It is a charge imposed upon the
performance of an act, the enjoyment
of a privilege, or the engaging in an
occupation.
2. It is a tax laid upon the manufacture,
sale, or consumption of commodities
within the country, upon licenses to
pursue certain occupations, and upon
corporate privileges.
3. It is a tax upon a pursuit, trade, or
occupation, which generally takes the
form of an exaction for a license fee to
pursue the particular occupation.
4. It is a direct tax laid upon
merchandise or commodities, which
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may or may not have an ad valorem
factor.
5. It is a tax imposed on a particular use
of property or a particular power over
property incidental to ownership.
2. As to incidence
a. Direct—demanded from the person who also shoulders
the burden of the tax; the taxpayer is directly or
primarily liable and cannot shift the burden to another
b. Indirect—taxes paid primarily by persons who can shift
the burden upon someone else, or who are under no
legal compulsion to pay them
3. As to determination of amount
a. Specific—of a fixed amount by the head or number, or
by some standard of weight or measurement, and
require no assessment other than a listing or
classification of the subjects to be taxed.
b. Ad valorem—
i. The essential characteristic of an ad valorem
tax is that the tax is levied according to the
value of property, as determined by an
assessment or appraisal.
ii. Assessment on a regular basis is common
characteristic of an ad valorem tax
4. As to purposes
a. General—taxes are exactions placed upon citizens for
the support of the government
b. Special assessments—taxes imposed upon property
within a limited area for the payment of special or local
improvements.
5. As to scope
a. National
b. Local/municipal
6. As to graduation or rate
LIMITATION UPON THE POWER OF TAXATION
PUBLIC PURPOSE (AM.JUR.2D STATELOCL §38)
Although the principle that taxes may be levied for public purposes only
is one of universal acceptance, its application to the facts and
circumstances of the particular case, which, of course, determine the
nature of the purpose involved, is often difficult. What constitutes a
public purpose is not easy to define. It must be determined on a case-by-
case basis, according to each case's own peculiar circumstances as from
time to time arise. Two guiding principles for determining whether a
municipality has acted with a public purpose and has complied with the
state constitution when imposing a tax are whether the action involves a
reasonable connection with the convenience and necessity of the
particular municipality and whether the action benefits the public
generally, as opposed to special interests or persons.
The term "public purpose," as used in a constitutional provision that
taxes shall be levied for public purposes only, is synonymous with
"governmental purpose." It means a purpose affecting the inhabitants of
the state or taxing district as a community, and not merely as
individuals. This does not mean, however, that a tax is not for a public
purpose unless the benefits from the funds to be raised are to be spread
equally over the whole community or a large portion thereof. A use may
be public although it is of benefit primarily to the inhabitants of a small
and restricted locality. A tax is not unconstitutional because one
taxpayer receives a greater benefit from a public improvement or service
than another.
LUTZ V. ARANETA
98 PHIL 48
HELD:
Once it is conceded, as it must, that the protection and promotion of the
sugar industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds what is necessary
for its protection and expedient for its promotion. Here, the legislative
discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in
section 6 of the law (above quoted) bear no relation to the objective
pursued or are oppressive in character. If objective and methods are alike
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constitutionally valid, no reason is seen why the state may not levy taxes
to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power. That the tax to be levied
should burden the sugar producers themselves can hardly be a ground of
complaint; indeed, it appears rational that the tax be obtained precisely
from those who are to be benefited from the expenditure of the funds
derived from it. At any rate, 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".
PASCUAL V. SECRETARY OF PUBLIC WORKS
110 PHIL 331
FACTS:
Pascual filed an action for declaratory relief, questioning a recently
passed law appropriating public funds for the construction, repairs,
renovation of feeder road terminals in Pasig. Pascual was then the
governor of Rizal and he questioned the law, averring that the roads
were nothing but projected and planned. It was found out that the
projected roads were part of the donated lots from a subdivision owned
by one of the senators. Further, Congress all the while thought that the
subject roads were public and not private streets.
HELD:
As regards the legal feasibility of appropriating public funds for a public
purpose, the principle according to Ruling Case Law, is this:
It is a general rule that the legislature is without power to appropriate
public revenue for anything but a public purpose. . . . It is the essential
character of the direct object of the expenditure which must determine
its validity as justifying a tax, and not the magnitude of the interest to be
affected nor the degree to which the general advantage of the
community, and thus the public welfare, may be ultimately benefited by
their promotion. Incidental to the public or to the state, which results
from the promotion of private interest and the prosperity of private
enterprises or business, does not justify their aid by the use public
money.
The rule is set forth in Corpus Juris Secundum in the following
language:
In accordance with the rule that the taxing power must be exercised for
public purposes only, discussed supra sec. 14, money raised by taxation
can be expended only for public purposes and not for the advantage of
private individuals. Generally, under the express or implied provisions of
the constitution, public funds may be used only for public purpose. The
right of the legislature to appropriate funds is correlative with its right to
tax, and, under constitutional provisions against taxation except for
public purposes and prohibiting the collection of a tax for one purpose
and the devotion thereof to another purpose, no appropriation of state
funds can be made for other than for a public purpose. The test of the
constitutionality of a statute requiring the use of public funds is whether
the statute is designed to promote the public interest, as opposed to the
furtherance of the advantage of individuals, although each advantage to
individuals might incidentally serve the public.
The validity of a statute depends upon the powers of Congress at the
time of its passage or approval, not upon events occurring, or acts
performed, subsequently thereto, unless the latter consists of an
amendment of the organic law, removing, with retrospective operation,
the constitutional limitation infringed by said statute. Referring to the
P85,000.00 appropriation for the projected feeder roads in question, the
legality thereof depended upon whether said roads were public or private
property when the bill, which, later on, became Republic Act 920, was
passed by Congress, or, when said bill was approved by the President
and the disbursement of said sum became effective, or on June 20, 1953
(see section 13 of said Act). Inasmuch as the land on which the projected
feeder roads were to be constructed belonged then to respondent Zulueta,
the result is that said appropriation sought a private purpose, and hence,
was null and void.
TAXING POWER MAY NOT BE DELEGATED
 General rule—non-delegability of taxing power—the power of
taxation is purely legislative and Congress may not delegate it
to others. This limiation arises from the doctrine of separation
of powers. Hence, it is also a limitation contained in the
Constitution although not expressly provided therein.
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EXCEPTIONS TO THE GENERAL RULE
1. Delegation to the president—for purposes of practicality and
expediency, the Constitution expressly allows Congress to
authorize the president to fix within specified limits, tariff rates,
import or export quotas, tonnage and wharfage dues and other
duties and imposts
2. Delegation to local governments
a. Although it is well settled that the sovereign power of
taxation is incapable of delegation, there is a recognized
exception to this rule for political subdivisions of the
state, and the power of the legislature to authorize
municipal corporations to levy taxes for the purpose of
providing the necessary revenue to defray the expenses
of municipal government and to pay for the construction
of public improvements within their respective limits
has been exercised for so long a time that its existence
is not open to dispute.
b. An instance why this is permitted—it has been stated
that municipalities are public corporations created by
the government for political purposes, and invested
with subordinate legislative powers for local purposes
connected with the public good; to carry out these
objects of local government, there must be money, and
hence the necessity of taxation for the purpose
c. Furthermore, it has been stated that the delegation of
power to such local units of government possessing a
legislative body chosen by the people does not actually
remove the important subject of taxation from the
control of the people. This process maintains in a
manner the basic institution of popular representation,
one of the attributes of our lesser units of government.
3. Delegation to administrative agencies
a. Certain aspects of the taxing process that are not
legislative in character may be vested in administrative
agencies
b. These include the following—
i. Power to value the property pursuant to fixed
rules
ii. Power to assess and collect the taxes
iii. Power to perform the details of computation,
assessment, appraisement, and adjustment,
and the delegation of such details
c. Powers that cannot be delegated—determining the
source, power, amount or rate, manner, means and
agencies of collection of tax
d. Particular tax statutes have frequently been held
unconstitutional upon the ground that they attempted
to delegate some fundamental element of the taxing
power to an administrative agency. However, a
legislature may delegate to administrative officers and
agencies the power to make reasonable rules and
regulations in order to apply and enforce legislation.
e. Thus, it has been said that the delegation of power to
administrative agency will not be deemed unreasonable
and therefore unlawful unless it is not accompanied by
sufficient standards or safeguards.
PHILCOMSAT V. ALCUAZ
180 SCRA 218
FACTS:
PHILCOMSAT was granted a franchise for international satellite
communications. Part of the franchise was to construct what was needed
in ground operations. It was also granted authority to be the signatory
on behalf of the Philippines to various organizations and agreements.
Before, it wasn’t under the jurisdiction of the then Public Service
Commission, now the NTC. But with amendments here and there, it was
no longer exempted from the jurisdiction of NTC. PHILCOMSAT then
applied anew for the operations of its business. It was only granted
provisional authority, subject to the order for it to charge reduce rates.
This prompted PHILCOMSAT to question said order on the ground that
such was unconstitutional.
HELD:
Fundamental is the rule that delegation of legislative power may be
sustained only upon the ground that some standard for its exercise is
provided and that the legislature in making the delegation has
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prescribed the manner of the exercise of the delegated power. Therefore,
when the administrative agency concerned, respondent NTC in this case,
establishes a rate, its act must both be non- confiscatory and must have
been established in the manner prescribed by the legislature; otherwise,
in the absence of a fixed standard, the delegation of power becomes
unconstitutional. In case of a delegation of rate-fixing power, the only
standard which the legislature is required to prescribe for the guidance
of the administrative authority is that the rate be reasonable and just.
However, it has been held that even in the absence of an express
requirement as to reasonableness, this standard may be implied.
Pursuant to Executive Orders Nos. 546 and 196, respondent NTC is
empowered, among others, to determine and prescribe rates pertinent to
the operation of public service communications which necessarily include
the power to promulgate rules and regulations in connection therewith.
And, under Section 15(g) of Executive Order No. 546, respondent NTC
should be guided by the requirements of public safety, public interest and
reasonable feasibility of maintaining effective competition of private
entities in communications and broadcasting facilities. Likewise, in
Section 6(d) thereof, which provides for the creation of the Ministry of
Transportation and Communications with control and supervision over
respondent NTC, it is specifically provided that the national economic
viability of the entire network or components of the communications
systems contemplated therein should be maintained at reasonable rates.
We need not go into an in-depth analysis of the pertinent provisions of
the law in order to conclude that respondent NTC, in the exercise of its
rate-fixing power, is limited by the requirements of public safety, public
interest, reasonable feasibility and reasonable rates, which conjointly
more than satisfy the requirements of a valid delegation of legislative
power.
If the nature of the administrative agency is essentially legislative, the
requirements of notice and hearing are not necessary. The validity of a
rule of future action which affects a group, if vested rights of liberty or
property are not involved, is not determined according to the same rules
which apply in the case of the direct application of a policy to a specific
individual) ... It is said in 73 C.J.S. Public Administrative Bodies and
Procedure, sec. 130, pages 452 and 453: 'Aside from statute, the necessity
of notice and hearing in an administrative proceeding depends on the
character of the proceeding and the circumstances involved. In so far as
generalization is possible in view of the great variety of administrative
proceedings, it may be stated as a general rule that notice and hearing
are not essential to the validity of administrative action where the
administrative body acts in the exercise of executive, administrative, or
legislative functions; but where a public administrative body acts in a
judicial or quasi-judicial matter, and its acts are particular and
immediate rather than general and prospective, the person whose rights
or property may be affected by the action is entitled to notice and
hearing.
The order in question which was issued by respondent Alcuaz no doubt
contains all the attributes of a quasi-judicial adjudication. Foremost is
the fact that said order pertains exclusively to petitioner and to no other.
Further, it is premised on a finding of fact, although patently superficial,
that there is merit in a reduction of some of the rates charged- based on
an initial evaluation of petitioner's financial statements-without
affording petitioner the benefit of an explanation as to what particular
aspect or aspects of the financial statements warranted a corresponding
rate reduction. Respondent has no authority to make such order without
first giving petitioner a hearing, whether the order be temporary or
permanent, and it is immaterial whether the same is made upon a
complaint, a summary investigation, or upon the commission's own
motion as in the present case. That such a hearing is required is evident
in respondents' order which granted PHILCOMSAT a provisional
authority "to continue operating its existing facilities, to render the
services it presently offers, and to charge the rates as reduced by them
"under the condition that "(s)ubject to hearing and the final consideration
of the merit of this application, the Commission may modify, revise or
amend the rates ..." While it may be true that for purposes of rate-fixing
respondents may have other sources of information or data, still, since a
hearing is essential, respondent NTC should act solely on the basis of the
evidence before it and not on knowledge or information otherwise
acquired by it but which is not offered in evidence or, even if so adduced,
petitioner was given no opportunity to controvert.
The rule is that the power of the State to regulate the conduct and
business of public utilities is limited by the consideration that it is not
the owner of the property of the utility, or clothed with the general power
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of management incident to ownership, since the private right of
ownership to such property remains and is not to be destroyed by the
regulatory power. The power to regulate is not the power to destroy
useful and harmless enterprises, but is the power to protect, foster,
promote, preserve, and control with due regard for the interest, first and
foremost, of the public, then of the utility and of its patrons. Any
regulation, therefore, which operates as an effective confiscation of
private property or constitutes an arbitrary or unreasonable
infringement of property rights is void, because it is repugnant to the
constitutional guaranties of due process and equal protection of the laws.
Hence, the inherent power and authority of the State, or its authorized
agent, to regulate the rates charged by public utilities should be subject
always to the requirement that the rates so fixed shall be reasonable and
just. A commission has no power to fix rates which are unreasonable or
to regulate them arbitrarily. This basic requirement of reasonableness
comprehends such rates which must not be so low as to be confiscatory,
or too high as to be oppressive.
What is a just and reasonable rate is not a question of formula but of
sound business judgment based upon the evidence it is a question of fact
calling for the exercise of discretion, good sense, and a fair, enlightened
and independent judgment. In determining whether a rate is
confiscatory, it is essential also to consider the given situation,
requirements and opportunities of the utility. A method often employed
in determining reasonableness is the fair return upon the value of the
property to the public utility. Competition is also a very important factor
in determining the reasonableness of rates since a carrier is allowed to
make such rates as are necessary to meet competition.
A cursory perusal of the assailed order reveals that the rate reduction is
solely and primarily based on the initial evaluation made on the financial
statements of petitioner, contrary to respondent NTC's allegation that it
has several other sources of information without, however, divulging
such sources. Furthermore, it did not as much as make an attempt to
elaborate on how it arrived at the prescribed rates. It just perfunctorily
declared that based on the financial statements, there is merit for a rate
reduction without any elucidation on what implications and conclusions
were necessarily inferred by it from said statements. Nor did it deign to
explain how the data reflected in the financial statements influenced its
decision to impose a rate reduction.
MERALCO V. PROV. OF LAGUNA
306 SCRA 750
FACTS:
MERALCO is granted the franchise for the supply of electricity and heat.
It was also granted authority to construct and operate an electric plant
in Calamba. Thereafter, the LGC was enacted, authorizing local
government units to implement revenue-raising schemes. Pursuant to
this, the local government imposed upon MERALCO to pay additional
taxes. This was paid but under protest. It requested for refund but was
denied.
HELD:
Prefatorily, it might be well to recall that local governments do not have
the inherent power to tax[4] 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
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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, x x x (to) impose a tax on businesses enjoying a
franchise.
These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they
enjoy genuine and meaningful local autonomy to enable them to attain
their fullest development as self-reliant communities and make them
effective partners in the attainment of national goals. The power to tax
is the most effective instrument to raise needed revenues to finance and
support myriad activities of local government units for the delivery of
basic service essential to the promotion of the general welfare and the
enhancement of peace, progress, and prosperity of the people. It may
also be relevant to recall that the original reasons for the withdrawal of
tax exemption privileges granted to government-owned and controlled
corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment
of similarly situated enterprises, and there was a need for these entities
to share in the requirements of development, fiscal or otherwise, by
paying the taxes and other charges due from them. In the recent case of
the City Government of San Pablo, etc., et al. vs. Hon. Bienvenido V.
Reyes, et al., the Court has held that the phrase in lieu of all taxes “have
to give way to the peremptory language of the Local Government Code
specifically providing for the withdrawal of such exemptions, privileges,”
and that “upon the effectivity of the Local Government Code all
exemptions except only as provided therein can no longer be invoked by
MERALCO to disclaim liability for the local tax.” In fine, the Court has
viewed its previous rulings as laying stress more on the legislative intent
of the amendatory law – whether the tax exemption privilege is to be
withdrawn or not – rather than on whether the law can withdraw,
without violating the Constitution, the tax exemption or not.
While the Court has, not too infrequently, referred to tax exemptions
contained in special franchises as being in the nature of contracts and a
part of the inducement for carrying on the franchise, these exemptions,
nevertheless, are far from being strictly contractual in nature.
Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are
those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its private
capacity, sheds its cloak of authority and waives its governmental
immunity. Truly, tax exemptions of this kind may not be revoked
without impairing the obligations of contracts. These contractual tax
exemptions, however, are not to be confused with tax exemptions granted
under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution.
Indeed, Article XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973 Constitutions, is explicit
that no franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to
amendment, alteration or repeal by Congress as and when the common
good so requires.
PEPSI COLA V. CITY OF BUTUAN
24 SCRA 789
FACTS:
Pepsi Cola operated a storage house for the storage of their products in
Butuan. An ordinance was enacted, imposing an additional tax upon the
goods. This was paid by Pepsi Cola but under protest. It demanded for
refund and assailed the validity of the tax imposed.
HELD:
the tax prescribed in section 3 of Ordinance No. 110, as originally
approved, was imposed upon dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that the intent was then to levy a
tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee
of any person, association, partnership, company or corporation engaged
in selling ... soft drinks or carbonated drinks." And, pursuant to section
3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
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partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to
whom is consigned or shipped no less than 1,000 cases of hard liquors or
soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or
carbonated drinks, are not subject to the tax, unless they are agents
and/or consignees of another dealer, who, in the very nature of things,
must be one engaged in business outside the City. Besides, the tax would
not be applicable to such agent and/or consignee, if less than 1,000 cases
of soft drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" not sold but
"received" by the taxpayer, the intention to limit the application of the
ordinance to soft drinks and carbonated drinks brought into the City
from outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's
authority to impose by express provision of law.
Even however, if the burden in question were regarded as a tax on the
sale of said beverages, it would still be invalid, as discriminatory, and
hence, violative of the uniformity required by the Constitution and the
law therefor, 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 of Butuan, would be
exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power
of taxation does not require identity or equality under all circumstances,
or negate the authority to classify the objects of taxation.5 The
classification made in the exercise of this authority, to be valid, must,
however, be reasonable6 and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions,
but, also, to future conditions substantially identical to those of the
present; and (4) the classification applies equally all those who belong to
the same class.
These conditions are not fully met by the ordinance in question. Indeed,
if its purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers
other than agents or consignees of producers or merchants established
outside the City of Butuan should be exempt from the tax.
SMITH BEL AND CO. V. CIR
L-28271, JULY 25, 1975
FACTS:
Smith Bell imported 119 cases of "Chatteau Gay" wine which it declared
as "still wine" under Section 134(b)of the Tax Code and paid thereon the
specific tax of P1.00 per liter of volume capacity. To determine the correct
amount of the specific tax due on the petitioner's importation, the
Commissioner ordered it tested and analyzed in the Bureau of Internal
Revenue Laboratory Center. The analyst who conducted the laboratory
test reported that Chatteau Gay "is a delicate table wine, with an alcohol
content of 9.5% by volume (volume 745 cc @ 290C), characterized with
explosion upon opening and effervescence due to CO2 (residual)," and
concluded that it should be classified as "sparkling wine." On the basis of
the analyst's report and recommendation, the Commissioner assessed
the petitioner a deficiency specific tax on the 119 cases of imported
Chatteau Gay.
The petitioner does not dispute the mathematical correctness of the
Commissioner's assessment, but contends that the assessment is
unconstitutional because Section 134(a) of the Tax Code under which it
was issued lays down an insufficient and hazy standard by which the
policy and purpose of the law may be ascertained and as well gives the
Commissioner blanket authority to decide what is or is not the meaning
of "sparkling wines." The argument is thus advanced that there is here
an abdication of legislative power violative of the established doctrine,
delegata potestas non potest delegate, and the due process clause of the
Constitution.
HELD:
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Section 134 of the Tax Code provides:
Specific tax on wines. On wines and imitation wines there shall be
collected, per liter of volume capacity, the following taxes:
(a) Sparkling wines, regardless of proof, twelve pesos.
(b) Still wines containing fourteen per centum of alcohol or less, except
those produced from casuy and duhat, one peso.
(c) Still wines containing more than fourteen per centum of alcohol, two
pesos.
Imitation wines containing more than twenty-five per centum of alcohol
shall be taxed as distilled spirits.
There can be no uncertainty that the purpose of the abovequoted
provision is to impose a specific tax on wines and imitation wines. The
first clause of Section 134 states so in plain language. The sole object of
the sub-enumeration that follows is in turn unmistakably to prescribe
the amount of the tax specifically to be paid for each type of wine and/or
imitation wine so classified and described. The section therefore clearly
and indubitably discloses the legislative will, leaving to the officers
charged with implementation and execution thereof no more than the
administrative function of determining whether a particular kind of wine
or imitation wine falls in one class or another. In the performance of this
function, the internal revenue officers are demonstrably guided by the
sound established practices and technology of the wine industry, an
industry as aged and widely dispersed as one can care to know.
In the case at bar, the Commissioner had the petitioner's wine examined
and analyzed. The petitioner, on the other hand, does not appear to have
made a similar effort. On the bases of the test thus made and the
authoritative and published work on the subject of wines, the
Commissioner ordered the corresponding deficiency assessment to be
issued. Having chosen to engage in the wine trading business, the
petitioner is duty bound to know the kinds of wine it deals in,
particularly insofar as such knowledge may be relevant to the proper
appreciation of its tax liabilities, and cannot take comfort in its
pretended ignorance of what sparkling wine is.
EXEMPTION OF GOVERNMENT AGENCIES
(REASONS FOR THE EXEMPTION)
 Agencies and instrumentalities of the government are generally
exempt from taxation because it would mean that the
government would be taxing itself in order to raise money that it
will then pay over to itself
 This rests upon fundamental principles of government being
necessary in order that functions of government wouldn't be
unduly impeded
 Exemption of governmental agencies also reduces the amount of
money to be handled by the government in the course of its
operations
 Unless otherwise provided by law, the exemption applies only to
government entities through which the government immediately
and directly exercises its sovereign powers
 There is no constitutional prohibition against government taxing
itself
EXCEPTION TO THE ABOVE…
SEC. 27. Rates of Income tax on Domestic Corporations. –
(C) Government-owned or Controlled-Corporations, Agencies or
Instrumentalities. - The provisions of existing special or general laws to
the contrary notwithstanding, all corporations, agencies, or
instrumentalities owned or controlled by the Government, except the
Government Service Insurance System (GSIS), the Social Security System
(SSS), the Philippine Health Insurance Corporation (PHIC), the
Philippine Charity Sweepstakes Office (PCSO) and the Philippine
Amusement and Gaming Corporation (PAGCOR), shall pay such rate of
tax upon their taxable income as are imposed by this Section upon
corporations or associations engaged in s similar business, industry, or
activity.
SEC. 30. Exemptions from Tax on Corporations. - The following
organizations shall not be taxed under this Title in respect to income
received by them as such:
(I) Government educational institution;
INTERNATIONAL COMITY
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 International comity provides that a property of a foreign state
or government may not be taxed by another.
 This is based on the following—
o Sovereign equality among states by virtue of which one
state cannot exercise its sovereign powers over another
o Usage among states
o Foreign government may not be sued without its
consent
 Note that what is important is the property and not the owner
TERRITORIALITY OR SITUS OF TAXATION
 A state may not tax property lying outside its borders or lay an
excise or privilege tax upon the exercise or enjoyment of a right
or privilege derived from the laws of another state and therein
exercised and enjoyed
o Tax laws don't operate beyond a country’s territorial
limits
o Property which is wholly and exclusively within the
jurisdiction of another state receives none of the
protection for which a tax is supposed to be a
compensation
 Exception—a person may be taxed when there is between him
and the taxing state a privity of relationship justifying the levy
o Thus, a citizen’s income may be taxed even if he resides
abroad as the personal jurisdiction of his government
remains over him.
o As a citizen of the state, he is entitled whenever to the
protection of the government and therefore he has also
the obligation to provide its support in the form of taxes
SITUS OF TAXATION, MEANING
 Objects of taxation
 Basic rule—state where the subject to be taxed has a situs may
rightfully levy and collect the tax; and the situs is necessarily in
the state which has jurisdiction or which exercises dominion
over the subject in question
 A person may be a subject of taxation in several taxing
jurisdictions
DETERMINATION OF SITUS
1. Residence of the subject
2. Place of taxation
3. Source of income
SITUS OF SUBJECTS OF TAXATION
 Taxable situs will depend upon various factors—nature of the
tax, subject matter, the possible protection and benefit that may
accrue both to the government and the taxpayer, the residence
or the citizenship of the taxpayer and the source of income
PERSONS
Section 157. Individuals Liable to Community Tax. - Every inhabitant of
the Philippines eighteen (18) years of age or over who has been regularly
employed on a wage or salary basis for at least thirty (30) consecutive
working days during any calendar year, or who is engaged in business or
occupation, or who owns real property with an aggregate assessed value
of One thousand pesos (P1,000.00) or more, or who is required by law to
file an income tax return shall pay an annual additional tax of Five pesos
(P5.00) and an annual additional tax of One peso (P1.00) for every One
thousand pesos (P1,000.00) of income regardless of whether from
business, exercise of profession or from property which in no case shall
exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall
be based upon the total property owned by them and the total gross
receipts or earnings derived by them.
Section 158. Juridical Persons Liable to Community Tax. - Every
corporation no matter how created or organized, whether domestic or
resident foreign, engaged in or doing business in the Philippines shall
pay an annual community tax of Five hundred pesos (P500.00) and an
annual additional tax, which, in no case, shall exceed Ten thousand
pesos (P10,000.00) in accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in
the Philippines owned by it during the preceding year based on the
valuation used for the payment of real property tax under existing laws,
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found in the assessment rolls of the city or municipality where the real
property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or
earnings derived by it from its business in the Philippines during the
preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation
however shall, for the purpose of the additional tax, be considered as part
of the gross receipts or earnings of said corporation.
Section 159. Exemptions. - The following are exempt from the community
tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed
three (3) months.
REAL PROPERTY
 Subject to taxation in the state in which it is located whether
the owner is a resident or non-resident and is taxable only there
 Rule of lex rei sitae
PERSONAL PROPERTY
 Taxable where it has actual situs—where it is physically located
(tangible)
 For intangibles, it follows the owner’s domicile
INCOME
 Where it is produced
BUSINESS TRANSACTIONS
 Where it happened
ESTATE PROCEEDINGS
 Where the decedent is resident
PPA V. CITY OF ILOILO
GR 109791, JULY 14, 2003
FACTS:
Respondent filed a suit for collection of money against PPA for payment
of real estate and business taxes. It alleges that petitioner is engaged in
the business of arrastre and stevedoring services and the leasing of real
estate for which it should be obligated to pay business taxes. It further
alleges that [petitioner] is the declared and registered owner of a
warehouse, which is used in the operation of its business and is also
thereby subject to real property taxes.
HELD:
In the case at bar, no proof was adduced to establish that the port was
constructed by the State. Petitioner cannot have us automatically
conclude that its port qualified as "property of public dominion." It would
be unfair to respondent, which would be deprived of its opportunity to
present evidence to disprove the factual basis of the new theory. It is
thus clear that the Lianga exception cannot apply in the case at bar.
Now before us, petitioner contradicts its earlier admission by claiming
that the subject warehouse is a property of public dominion. This
inconsistency is made more apparent by looking closely at what public
dominion means. Tolentino explains this in this wise—Private ownership
is defined elsewhere in the Code; but the meaning of public dominion is
nowhere defined. From the context of various provisions, it is clear that
public dominion does not carry the idea of ownership; property of public
dominion is not owned by the State, but pertains to the State, which as
territorial sovereign exercises certain judicial prerogatives over such
property. The ownership of such property, which has the special
characteristics of a collective ownership for the general use and
enjoyment, by virtue of their application to the satisfaction of collective
needs, is in the social group, whether national, provincial, or municipal.
Their purpose is not to serve the State as a juridical person, but the
citizens; they are intended for the common and public welfare, and so
they cannot be the object of appropriation, either by the State or by
private persons.
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Following the above, properties of public dominion are owned by the
general public and cannot be declared to be owned by a public
corporation, such as petitioner.
In any case, granting that petitioners present theory is allowed at this
stage, we nevertheless find it untenable. Concededly, "ports constructed
by the State" are properties of the public dominion, as Article 420 of the
Civil Code enumerates these as properties "intended for public use." It
must be stressed however that what is being taxed in the present case is
petitioners warehouse, which, although located within the port, is
distinct from the port itself.
Previously, petitioner, as a government-owned or controlled corporation,
enjoyed an exemption from real property taxes. However, P.D. 1931
effectively withdrew all tax exemption privileges granted to government-
owned or controlled corporations, which was even more bolstered by EO
93. Hence, petitioner is liable for real property taxes on its warehouse,
computed from the last quarter of 1984 up to December 1986.
It should be noted further that nothing can prevent Congress from
decreeing that even instrumentalities or agencies of the Government
performing governmental functions may be subject to tax. Where it is
done precisely to fulfill a constitutional mandate and national policy, no
one can doubt its wisdom." The fact that tax exemptions of government-
owned or controlled corporations have been expressly withdrawn by the
present Local Government Code clearly attests against petitioners claim
of absolute exemption of government instrumentalities from local
taxation.
It is imperative to say that the primary reason for the withdrawal of tax
exemption privileges granted to government-owned and controlled
corporations and all other units of government was that such privilege
resulted in serious tax base erosion and distortions in the tax treatment
of similarly situated enterprises, hence resulting in the need for these
entities to share in the requirements of development, fiscal or otherwise,
by paying the taxes and other charges due from them.
MANILA INTERNATIONAL AIRPORT AUTHORITY V. COURT
OF APPEALS
GR 155650, JULY 20, 2006
FACTS:
The Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061. The OGCC opined that the Local Government Code of 1991
withdrew the exemption from real estate tax granted to MIAA under
Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent
City of Parañaque to pay the real estate tax imposed by the City. MIAA
then paid some of the real estate tax already due. Nonetheless, it was
assessed by the city government for deficiency real estate taxes. Due to
non-payment, the city government through its City Treasurer, issued
notices of levy and warrants of levy on the Airport Lands and Buildings.
The mayor threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency. MIAA
thus sought a clarification of OGCC Opinion No. 061.
Subsequently, to the rescue was the OGCC who issued another opinion
clarifying OGCC Opinion No. 061. The OGCC pointed out that Section
206 of the Local Government Code requires persons exempt from real
estate tax to show proof of exemption. The OGCC opined that Section 21
of the MIAA Charter is the proof that MIAA is exempt from real estate
tax.
MIAA admits that the MIAA Charter has placed the title to the Airport
Lands and Buildings in the name of MIAA. However, MIAA points out
that it cannot claim ownership over these properties since the real owner
of the Airport Lands and Buildings is the Republic of the Philippines.
The MIAA Charter mandates MIAA to devote the Airport Lands and
Buildings for the benefit of the general public. Since the Airport Lands
and Buildings are devoted to public use and public service, the ownership
of these properties remains with the State. The Airport Lands and
Buildings are thus inalienable and are not subject to real estate tax by
local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that it
is also exempt from real estate tax under Section 234 of the Local
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Government Code because the Airport Lands and Buildings are owned by
the Republic. To justify the exemption, MIAA invokes the principle that
the government cannot tax itself. MIAA points out that the reason for tax
exemption of public property is that its taxation would not inure to any
public advantage, since in such a case the tax debtor is also the tax
creditor.
Respondents invoke Section 193 of the Local Government Code, which
expressly withdrew the tax exemption privileges of "government-owned
and-controlled corporations" upon the effectivity of the Local Government
Code. Respondents also argue that a basic rule of statutory construction
is that the express mention of one person, thing, or act excludes all
others. An international airport is not among the exceptions mentioned
in Section 193 of the Local Government Code. Thus, respondents assert
that MIAA cannot claim that the Airport Lands and Buildings are
exempt from real estate tax.
HELD:
First, MIAA is not a government-owned or controlled corporation but an
instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic
of the Philippines and thus exempt from real estate tax.
On the first, there is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA is not a
government-owned or controlled corporation. A government-owned or
controlled corporation refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public needs whether
governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least
fifty-one (51) percent of its capital stock. A government-owned or
controlled corporation must be "organized as a stock or non-stock
corporation."
MIAA is not organized as a stock or non-stock corporation. MIAA is not a
stock corporation because it has no capital stock divided into shares.
MIAA has no stockholders or voting shares.
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as
"one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is considered as the
sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their
members. Section 11 of the MIAA Charter mandates MIAA to remit 20%
of its annual gross operating income to the National Treasury. This
prevents MIAA from qualifying as a non-stock corporation.
MIAA is a government instrumentality vested with corporate powers to
perform efficiently its governmental functions. MIAA is like any other
government instrumentality, the only difference is that MIAA is vested
with corporate powers. Instrumentality refers to any agency of the
National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if
not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. When the law vests in
a government instrumentality corporate powers, the instrumentality
does not become a corporation. Unless the government instrumentality is
organized as a stock or non-stock corporation, it remains a government
instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent
domain, police authority and the levying of fees and charges. At the same
time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order."
A government instrumentality like MIAA falls under Section 133(o) of
the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. Unless otherwise provided herein, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxxx
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(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units. (Emphasis
and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments
cannot tax the national government, which historically merely delegated
to local governments the power to tax. While the 1987 Constitution now
includes taxation as one of the powers of local governments, local
governments may only exercise such power "subject to such guidelines
and limitations as the Congress may provide."[18]
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be
clear language in the law imposing the tax. Any doubt whether a person,
article or activity is taxable is resolved against taxation. This rule
applies with greater force when local governments seek to tax national
government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local taxation,
such exemption is construed liberally in favor of the national government
instrumentality.
MANILA GAS V. COLLECTOR
62 PHIL 895
FACTS:
The plaintiff is a corporation that operates a gas plant in the City of
Manila and furnishes gas service to the people of the metropolis and
surrounding municipalities by virtue of a franchise granted to it by the
Philippine Government. Associated with the plaintiff are the Islands Gas
and Electric Company domiciled in New York, United States, and the
General Finance Company domiciled in Zurich, Switzerland. Neither of
these last mentioned corporations is resident in the Philippines.
For the years 1930, 1931, and 1932, dividends were paid by the plaintiff
to the Islands Gas and Electric Company in the capacity of stockholders
upon which withholding income taxes were paid to the defendant. For
the same years interest on bonds was paid by the plaintiff to the Islands
Gas and Electric Company upon which withholding income taxes were
paid to the defendant. Finally for the stated time period, interest on
other indebtedness was paid by the plaintiff to the Islands Gas and
Electric Company and the General Finance Company respectively upon
which withholding income taxes were paid to the defendant. An action
was brought by the Manila Gas Corporation against the Collector of
Internal Revenue for the recovery of sums it paid, which the plaintiff was
required by the defendant to deduct and withhold from the various sums
paid it to foreign corporations as dividends and interest on bonds and
other indebtedness and which the plaintiff paid under protest. It
contends that, as the Islands Gas and Electric Company and the General
Finance Company are domiciled in the United States and Switzerland
respectively, and as the interest on the bonds and other indebtedness
earned by said corporations has been paid in their respective domiciles,
this is not income from Philippine sources within the meaning of the
Philippine Income Tax Law. Citing sections 10 (a) and 13 (e) of Act No.
2833, the Income Tax Law, appellant asserts that their applicability has
been squarely determined by decisions of this court in the cases of
Manila Railroad Co. vs. Collector of Internal Revenue (No. 31196,
promulgated December 2, 1929, nor reported), and Philippine Railway
Co. vs. Posadas (No. 38766, promulgated October 30, 1933 [58 Phil., 968])
wherein it was held that interest paid to non-resident individuals or
corporations is not income from Philippine sources, and hence not subject
to the Philippine Income Tax.
HELD:
The approved doctrine is that no state may tax anything not within its
jurisdiction without violating the due process clause of the constitution.
The taxing power of a state does not extend beyond its territorial limits,
but within such it may tax persons, property, income, or business. If an
interest in property is taxed, the situs of either the property or interest
must be found within the state. If an income is taxed, the recipient
thereof must have a domicile within the state or the property or business
out of which the income issues must be situated within the state so that
the income may be said to have a situs therein. Personal property may be
separated from its owner, and he may be taxed on its account at the
place where the property is although it is not the place of his own
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domicile and even though he is not a citizen or resident of the state
which imposes the tax. But debts owing by corporations are obligations of
the debtors, and only possess value in the hands of the creditors.
These views concerning situs for taxation purposes apply as well to an
organized, unincorporated territory or to a Commonwealth having the
status of the Philippines.
Pushing to one side that portion of Act No. 3761 which permits taxation
of interest on bonds and other indebtedness paid without the Philippine
Islands, the question is if the income was derived from sources within the
Philippine Islands.
In the judgment of the majority of the court, the question should be
answered in the affirmative. The Manila Gas Corporation operates its
business entirely within the Philippines. Its earnings, therefore come
from local sources. The place of material delivery of the interest to the
foreign corporations paid out of the revenue of the domestic corporation
is of no particular moment. The place of payment even if conceded to be
outside of tho country cannot alter the fact that the income was derived
from the Philippines. The word "source" conveys only one idea, that of
origin, and the origin of the income was the Philippines.
In synthesis, therefore, we hold that conditions have not been provided
which justify the court in passing on the constitutional question
suggested; that the facts while somewhat obscure differ from the facts to
be found in the cases relied upon, and that the Collector of Internal
Revenue was justified in withholding income taxes on interest on bonds
and other indebtedness paid to non-resident corporations because this
income was received from sources within the Philippine Islands as
authorized by the Income Tax Law. For the foregoing reasons, the second
assigned error will be overruled.
Before concluding, it is but fair to state that the writer's opinion on the
first subject and the first assigned error herein discussed is accurately
set forth, but that his opinion on the second subject and the second
assigned error is not accurately reflected, because on this last division
his views coincide with those of the appellant. However, in the interest of
the prompt disposition of this case, the decision has been written up in
accordance with instructions received from the court.
VEGETABLE OIL CORP. V. TRINIDAD
45 PHIL 222
FACTS:
The plaintiff is a foreign corporation, duly licensed to transact business
in the Philippine Islands and having its principal place of business
therein in the City of Manila. Defendant is the duly appointed and acting
Collector of Internal Revenue of the Philippine Islands. It is engaged in
the purchase of copra, in the Philippine Islands, and the shipment of
such copra to its mills in the United States of America for manufacture
into vegetable oil. Plaintiff during said period has been, and is now,
engaged in no other business in the Philippine Islands. The coconut oil
manufactured by the plaintiff is sold in the United States. On different
occasions, it purchased copra and shipped the same to the United States.
Consequently, the Commissioner taxed the shipments.
HELD:
In the present case it is not disputed that the plaintiff corporation was
the consignor of the merchandise, but it is strenuously argued that
inasmuch as it is not "engaged in the sale, barter, or exchanged of
personal property" in the Philippine Islands, it is not a merchant within
the statutory definition of the term and therefore cannot be required to
pay the consignment tax. Just upon what ground this assumption rests is
not quite clear; so far no adequate explanation has been vouchsafed us.
The statute itself does not provide that the sale, barter, or exchange
must take place in the Philippine Islands in order to make a person
engaged in such business a merchant.
But, presumably, the idea is the result of a misconception of the nature
of the tax on consignments, confusing it with the tax on sales. That the
consignment tax is not a sales tax is, however, too obvious for argument;
the fact that it is provided for in the same section as the sales tax does
not necessarily make it so. There is all the difference in the world
between a consignment and a sale. As stated by counsel for the appellee,
the tax on consignments is "a privilege tax pure and simple;" it is a tax
on the business of consigning commodities abroad from these Islands.
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The definition of the word "merchant" as a person who is engaged in the
sale, barter, or exchanged of personal property is merely descriptive of
the persons who are required to pay the tax and does not mean that, in
order to exact from them the payment of the consignment tax, the
Government must also be in position to impose taxes on their sales,
barter, or exchange.
If the tax were one on sales, we would readily agree that the sales, in
order to be taxable in the Philippine Islands, must be consummated
there; the Philippine Government cannot, of course, collect privilege
taxes on sales taking place in foreign countries no matter whether the
vendor is a Philippine merchant or whether he is a foreign one. Neither
can the Government impose such taxes on consignments from one foreign
port to another. But, with the approval of Congress, it may legally levy
taxes on consignments from Philippine ports. That is what has been done
in the present instance. It has imposed the tax on local transactions; it
does not seek to tax transactions carried out abroad. But when a foreign
merchant, as the word "merchant" is defined in our statutes, comes to
our shores and enters into transactions upon which a tax is laid, the
Government can, and does, place him on an equality with domestic
merchants and requires him to pay the same privilege taxes.
As we have seen, section 1459 provides that "All merchants not herein
especifically exempted shall pay a tax of one per centum on the gross
value in money of the commodities, goods, wares, and merchandise . . .
consigned abroad by them." (Emphasis ours.) It defines the word
"merchant" as a person who is engaged in the sale, barter, or exchange of
personal property, but does not say that he must be so engaged in the
Philippine Islands in order to be considered a merchant. As far as may be
gathered from the plain language of the statute, he may do his selling,
bartering or exchanging wherever he pleases, but if he consigns
merchandise abroad from the Philippine Islands he must pay the tax on
his consignments. Had it been the intention of the Legislature to require
only the local merchant to pay the tax, the definition of the word
"merchant" in section 1459 would have read: "Merchant" as here used
means a person engaged in the sale, barter or exchange of personal
property of whatever character in the Philippine Islands." But it does not
so read.
It is not disputed that the Legislature has the power to define the class of
persons who must pay certain local taxes; in fact, the appellee's
argument rests precisely on such a statutory definition. Neither can it be
questioned that the Government may impose taxes on local business
transacted by foreigners. In the absence of words of limitation or
exemption in the statute, why must we then assume that, in defining the
word "merchants," the class of persons required to pay consignment
taxes, the definition applies only to domestic and not to foreign
merchants?
Perhaps it will be argued that a statutory definition is only of local
application and is of no legal effect beyond the boundaries of the country
in which the statute is enacted. That is true, but has nothing to do with
the present case. We are not here applying the definition in relation to
the collection of a foreign tax; we are considering it in connection with
the tax on a local transaction.
To hold that only persons who engage in sales, barter or exchange in the
Philippine Islands are to pay the tax on consignments would place the
local merchants at a serious disadvantage in competition with the foreign
merchants, and would defeat the very evident purpose of the tax. The
language of the statute is perfectly clear and places the burden of the tax
on all merchants alike. Are we then justified in exempting some of the
merchants by reading non-existent provisions into the statute which
would defeat its unmistakable intent and seriously handicap the local
merchants, in some cases, perhaps, driving them out of business? We
submit that to do so would violate every canon of statutory construction
and would clearly amount to unwarranted judicial legislation.
It has been suggested that the tax applies only to a consignment or
shipment of merchandise destined for sale and that as it is in this case
appears that only the oil extracted from the copra and not the copra itself
was to be sold, the tax on the consignment was unlawfully imposed. We
find nothing in the law justifying this conclusion. A shipment is a
shipment mo matter what its purpose may be and the only requisite for
the collection of the tax upon it is that the consignor or shipper must be a
merchant. It would, indeed, be unreasonable to require the tax collector
to postpone the collection of the tax on a shipment until he could
ascertain what had ultimately been done with the goods shipped.
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WELLS FARGO BANK V. COLLECTOR
70 PHIL 325
NOTE: Exemption to the situs rule with respect to personal property.
Shares of stock of a domestic company is an exemption to the rule that it
follows the residence of the owner.
FACTS:
Birdie Lillian Eye died at Los Angeles, California, the place of her
alleged last residence and domicile. Among the properties she left her
one-half conjugal share in 70,000 shares of stock in the Benguet
Consolidated Mining Company, an anonymous partnership (sociedad
anonima), organized and existing under the laws of the Philippines, with
is principal office in the City of Manila. She left a will, which was duly
admitted to probate in California where her estate was administered and
settled. Petitioner-appellant, Wells Fargo Bank & Union Trust Company,
was duly appointed trustee of the created by the said will. The Federal
and State of California's inheritance taxes due on said shares have been
duly paid. Respondent Collector of Internal Revenue sought to subject
anew the aforesaid shares of stock to the Philippine inheritance tax, to
which petitioner-appellant objected. Petitioner tried to question this by
invoking US rulings to the effect that an inheritance tax can be imposed
with respect to intangibles only by the State where the decedent was
domiciled at the time of his death, and that, under the due-process
clause, the State in which a corporation has been incorporated has no
power to impose such tax if the shares of stock in such corporation are
owned by a non-resident decedent.
HELD:
At any rate, we see nothing of consequence in drawing any distinct
between the operation and effect of the due-process clause as it applies to
the individual states and to the national government of the United
States. The question here involved is essentially not one of due-process,
but of the power of the Philippine Government to tax. If that power be
conceded, the guaranty of due process cannot certainly be invoked to
frustrate it, unless the law involved is challenged, which is not, on
considerations repugnant to such guaranty of due process of that of the
equal protection of the laws, as, when the law is alleged to be arbitrary,
oppressive or discriminatory.
Originally, the settled law in the United States is that intangibles have
only one situs for the purpose of inheritance tax, and that such situs is in
the domicile of the decedent at the time of his death. But this rule has, of
late, been relaxed. The maxim mobilia sequuntur personam, upon which
the rule rests, has been described as a mere "fiction of law having its
origin in consideration of general convenience and public policy, and
cannot be applied to limit or control the right of the state to tax property
within its jurisdiction" (State Board of Assessors vs. Comptoir National
D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact
of legal ownership, actual presence and control elsewhere, and cannot be
applied if to do so result in inescapable and patent injustice." (Safe
Deposit & Trust Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a
marked shift from artificial postulates of law, formulated for reasons of
convenience, to the actualities of each case.
An examination of the adjudged cases will disclose that the relaxation of
the original rule rests on either of two fundamental considerations: (1)
upon the recognition of the inherent power of each government to tax
persons, properties and rights within its jurisdiction and enjoying, thus,
the protection of its laws; and (2) upon the principle that as o intangibles,
a single location in space is hardly possible, considering the multiple,
distinct relationships which may be entered into with respect thereto.
In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled therein. And besides, the
certificates of stock have remained in this country up to the time when
the deceased died in California, and they were in possession of one
Syrena McKee, secretary of the Benguet Consolidated Mining Company,
to whom they have been delivered and indorsed in blank. This
indorsement gave Syrena McKee the right to vote the certificates at the
general meetings of the stockholders, to collect dividends, and dispose of
the shares in the manner she may deem fit, without prejudice to her
liability to the owner for violation of instructions. For all practical
purposes, then, Syrena McKee had the legal title to the certificates of
stock held in trust for the true owner thereof. In other words, the owner
residing in California has extended here her activities with respect to her
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intangibles so as to avail herself of the protection and benefit of the
Philippine laws. Accordingly, the jurisdiction of the Philippine
Government to tax must be upheld.
CONSTITUTIONAL LIMITATIONS
DUE PROCESS CLAUSE
Section 1. No person shall be deprived of life, liberty, or property without
due process of law, nor shall any person be denied the equal protection of
the laws.
COMMISSIONER OF CUSTOMS V. CTA
152 SCRA 641
FACTS:
Campos Rueda Corporation on several occasions imported from the US
tungsol flashers and sealed beams. The commissioner assessed the
imported goods for import duties. This was paid under protest.
HELD:
The dutiable value of an imported article is based on the home
consumption price as declared in the consular, commercial, sales, or
trade invoice. But where there is reasonable doubt, the correct dutiable
value shall be ascertained from the reports of the Revenue Attache or
Commercial Attache and from such other information that may be
available. Also required is the publication from time to time of the lists
of the home consumption value.
In the corresponding import entries, respondent quoted the price of the
imported merchandise as declared in the consular invoices. Reasonable
doubt wasn’t proven by the Commissioner in reassessing the values as
well as there was no compliance to the publication from time to time of
the list of home consumption values.
PHIL. BANK OF COMM. V. CIR
302 SCRA 241
FACTS:
PBCOM filed quarterly income tax returns, which were settled by
applying tax credit memos issued by the BIR. Subsequently, it suffered
losses so that when it filed the next two income tax returns, it reported a
net loss. Nonetheless, it was shown in the records that it earned rental
income, its lessees remitting withholding taxes. It then requested for a
tax credit pursuant to overpayment of taxes through previous tax years.
HELD:
After a careful study of the records and applicable jurisprudence on the
matter, we find that, contrary to the petitioner's contention, the
relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period set by law.
Basic is the principle that "taxes are the lifeblood of the nation." The
primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common weal. 13 Due process of law
under the Constitution does not require judicial proceedings in tax cases.
This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations
and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little
as possible.
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
The rule states that the taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after
payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing
the Adjustment Return and final payment of the tax for the year.
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing,
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the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty
is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially
found to be erroneous. Thus, courts will not countenance administrative
issuances that override, instead of remaining consistent and in harmony
with the law they seek to apply and implement.
On the second issue, the petitioner alleges that the Court of Appeals
seriously erred in affirming CTA's decision denying its claim for refund of
P234,077.69 (tax overpaid in 1986), based on mere speculation, without
proof, that PBCom availed of the automatic tax credit in 1987.
Sec. 69 of the 1977 NIRC 29 (now Sec. 76 of the 1997 NIRC) provides
that any excess of the total quarterly payments over the actual income
tax computed in the adjustment or final corporate income tax return,
shall either (a) be refunded to the corporation, or (b) may be credited
against the estimated quarterly income tax liabilities for the quarters of
the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return
(by marking the option box provided in the BIR form) its intention,
whether to request for a refund or claim for an automatic tax credit for
the succeeding taxable year. To ease the administration of tax collection,
these remedies are in the alternative, and the choice of one precludes the
other.
SISON V. ANCHETA
130 SCRA 654
FACTS:
Section 1 of BP Blg. 135 is being assailed for being unconstitutional. The
said provision amends further the NIRC, which provides for rates of tax
on citizens or residents on taxable compensation income, taxable net
income, royalties, prizes, winnings, interest on bank deposits, among
others. Petitioner averts that as a taxpayer, he would be unduly
discriminated against by the imposition of higher rates of tax upon his
income arising from the exercise of his profession vis-à-vis those, which
are imposed upon fixed income or salaried individual taxpayers. He
characterized the section as arbitrary amounting to class legislation,
oppressive, and capricious in character.
HELD:
Where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards,
there is need for proof of such persuasive character as would lead to such
a conclusion. Absent such showing, the presumption of validity must
prevail.
It suffices 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
EQUAL PROTECTION CLAUSE
ORMOC SUGAR CO. V. TREASURER OF ORMOC CITY
22 SCRA 603
FACTS:
An ordinance was passed imposing on any and all productions of
centrifugal sugar milled at the Ormoc Sugar Central Company in Ormoc
City a municipal tax equivalent to 1% per export sale to the United
States. Petitioner paid such taxes but under protest. It filed a case
against the City government, assailing the constitutionality of the
ordinance, for being violative of the equal protection clause.
HELD:
A perusal of the requisites for a valid classification shows that the
questioned ordinance doesn’t meet them, for it taxes centrifugal sugar
produced and exported by the petitioner and none other. At the time of
the enactment of the ordinance, petitioner was the only sugar central in
the city.
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The classification to be reasonable should be in terms applicable to
future conditions as well. The taxing ordinance should not be singular
and exclusive as to exclude any subsequently established sugar central,
of the class of the plaintiff, for the coverage of the tax.
VILLEGAS V. HSUI CHIONG TSAI PAO
86 SCRA 270
FACTS:
The City of Manila passed an ordinance making it unlawful for any non-
citizen of the Philippines to be employed in any place of employment or to
be engaged in any kind of trade, business, or occupation within the city
without first securing an employment permit from the mayor of Manila.
Violation of said ordinance is punishable by fine and imprisonment.
Private respondent prayed for the issuance of a writ of injunction as well
as for a judgment declaring the ordinance as void and unconstitutional.
HELD:
Although the equal protection clause of the Constitution doesn’t forbid
classification, it is imperative that the classification should be based on
substantial and real differences having a reasonable relation to the
subject of the particular legislation. It also doesn’t contain any standard
or criterion to guide the mayor in the exercise of the power which has
been granted to him by the ordinance. The ordinance is violative of the
due process and equal protection clause of the Constitution.
Furthermore, while it is true that the Philippines as a State is not
obliged to admit aliens within its territory, once an alien is admitted, he
cannot be deprived of life, liberty or property without due process of law.
This guarantee includes the means of livelihood. The shelter of
protection under the due process and equal protection clause is given to
all persons, both aliens and citizens.
SHELL CO. V. VANO
94 PHIL 388
FACTS:
The Municipal Council of Cordova, Province of Cebu, adopted the
following ordinances: No. 10, series of 1946, which imposes an annual tax
of P150 on occupation or the exercise of the privilege of installation
manager; No. 9, series of 1947, which imposes an annual tax of P40 for
local deposits in drums of combustible and inflammable materials and an
annual tax of P200 for tin can factories; and No. 11, series of 1948, which
imposes an annual tax of P150 on tin can factories having a maximum
output capacity of 30,000 tin cans. The Shell Co. of P.I. Ltd., a foreign
corporation, filed suit for the refund of the taxes paid by it, on the ground
that the ordinances imposing such taxes are ultra vires. The defendant
denies that they are so.
HELD:
It is contended that as the municipal ordinance imposing an annual tax
of P40 for "minor local deposit in drums of combustible and inflammable
materials," and of P200 "for tin factory" was adopted under and pursuant
to section 2244 of the Revised Administrative Code, which provides that
the municipal council in the exercise of the regulative authority may
require any person engaged in any business or occupation, such as
"storing combustible or explosive materials" or "the conducting of any
other business of an unwholesome, obnoxious, offensive, or dangerous
character," to obtain a permit for which a reasonable fee, in no case to
exceed P10 per annum, may be charged, the annual tax of P40 and P200
are unauthorized and illegal. The permit and the fee referred to may be
required and charged by the Municipal Council of Cordova in the exercise
of its regulative authority, whereas the ordinance which imposes the
taxes in question was adopted under and pursuant to the provisions of
Commonwealth Act No. 472, which authorizes municipal councils and
municipal district councils "to impose license taxes upon persons engaged
in any occupation or business, or exercising privileges in the municipality
or municipal district, by requiring them to secure licenses at rates fixed
by the municipal council or municipal district council," which shall be
just and uniform but not "percentage taxes and taxes on specified
articles." Likewise, Ordinance No. 10, series of 1946, which imposes an
annual tax of P150 on "installation manager" comes under the provisions
of Commonwealth Act No. 472. But it is claimed that "installation
manager" is a designation made by the plaintiff and such designation
cannot be deemed to be a "calling" as defined in section 178 of the
National Internal Revenue Code (Com. Act No. 466), and that the
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installation manager employed by the plaintiff is a salaried employee
which may not be taxed by the municipal council under the provisions of
Commonwealth Act No. 472. This contention is without merit, because
even if the installation manager is a salaried employee of the plaintiff,
still it is an occupation "and one occupation or line of business does not
become exempt by being conducted with some other occupation or
business for which such tax has been paid'1 and the occupation tax must
be paid "by each individual engaged in a calling subject thereto."2 And
pursuant to section 179 of the National Internal Revenue Code, "The
payment of . . . occupation tax shall not exempt any person from any tax,
. . . provided by law or ordinance in places where such . . . occupation in .
. . regulated by municipal law, nor shall the payment of any such tax be
held to prohibit any municipality from placing a tax upon the same . . .
occupation, for local purposes, where the imposition of such tax is
authorized by law." It is true that, according to the stipulation of facts,
Ordinance No. 10, series of 1946, was approved by the Provincial Board
of Cebu in its Resolution No. 1070, series of 1946, and that it does not
appear that it was approved by the Department of Finance, as provided
for and required in section 4, paragraph 2, of Commonwealth Act No.
472, the rate of municipal tax being in excess of P50 per annum. But at
this point on the approval of the Department of Finance was not raised
in the court below, it cannot be raised for the first time on appeal. The
issue joined by the parties in their pleadings and the point raised by the
plaintiff is that the municipal council was not empowered to adopt the
ordinance and not that it was not approved by the Department of
Finance. The fact that it was not stated in the stipulation of facts
justifies the presumption that the ordinance was approved in accordance
with law.
The contention that the ordinance is discriminatory and hostile because
there is no other person in the locality who exercises such "designation"
or occupation is also without merit, because the fact that there is no
other person in the locality who exercises such a "designation" or calling
does not make the ordinance discriminatory and hostile, inasmuch as it
is and will be applicable to any person or firm who exercises such calling
or occupation named or designated as "installation manager."
Lastly, Ordinance No. 11, series of 1948, which imposes a municipal tax
of P150 on tin can factories having a maximum annual output capacity of
30,000 tin cans which, according to the stipulation of facts, was approved
by the Provincial Board of Cebu and the Department of Finance, is valid
and lawful, because it is neither a percentage tax nor one on specified
articles which are the only exceptions provided in section 1,
Commonwealth Act No. 472. Neither does it fall under any of the
prohibitions provided for in section 3 of the same Act. Specific taxes
enumerated in the National Internal Revenue Code are those that are
imposed upon "things manufactured or produced in the Philippines for
domestic sale or consumption" and upon "things imported from the
United States and foreign countries," such as distilled spirits, domestic
denatured alcohol, fermented liquors, products of tobacco, cigars and
cigarettes, matches, mechanical lighters, firecrackers, skimmed milk,
manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil,
cinematographic films, playing cards, sacharine.3 And it is not a
percentage tax because it is tax on business and the maximum annual
output capacity is not a percentage, because it is not a share or a tax
based on the amount of the proceeds realized out of the sale of the tin
cans manufactured therein but on the business of manufacturing tin
cans having a maximum annual output capacity of 30,000 tin cans.
In an action for refund of municipal taxes claimed to have been paid and
collected under an illegal ordinance, the real party in interest is not the
municipal treasurer but the municipality concerned that is empowered to
sue and be sued.
TIU V. CA
301 SCRA 279
FACTS:
The Congress passed into law RA 7227 entitled “An Act Accelerating the
Conversion of Military Reservations Into Other Productive Uses,
Creating the Bases Conversion and Development Authority for this
Purpose, Providing Funds Therefore and for Other Purposes”, creating
the Subic Special Economic Zone (SSEZ). SSEZ has multiple benefits
such as (1) free flow or movement of goods and capital; (2) tax and duty-
free importations of raw materials, capital and equipment; (3) no
exchange control policy; (4) banking and finance shall be liberalized.
HELD:
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(1) The equal-protection guarantee does not require territorial
uniformity of laws.
(2) The fundamental right of equal protection of the law is not
absolute, but is subject to reasonable classification.
(3) Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to the purpose of the law, (3) not be
limited to existing conditions only, and (4) apply equally to all
members of the same class.
(4) Furthermore, RA 7227 clearly vests in the President the
authority to delineate the metes and bounds of the SSEZ.
RULE OF TAXATION SHALL BE UNIFORM AND EQUITABLE
Section 28.
1. The rule of taxation shall be uniform and equitable. The Congress
shall evolve a progressive system of taxation.
PEPSI COLA V. BUTUAN CITY
24 SCRA 789
FACTS:
Pepsi Cola operated a storage house for the storage of their products in
Butuan. An ordinance was enacted, imposing an additional tax upon the
goods. This was paid by Pepsi Cola but under protest. It demanded for
refund and assailed the validity of the tax imposed.
HELD:
The tax prescribed in section 3 of Ordinance No. 110, as originally
approved, was imposed upon dealers "engaged in selling" soft drinks or
carbonated drinks. Thus, it would seem that the intent was then to levy a
tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee
of any person, association, partnership, company or corporation engaged
in selling ... soft drinks or carbonated drinks." And, pursuant to section
3-A, which was inserted by said Ordinance No. 122:
... Definition of the Term Consignee or Agent. For purposes of this
Ordinance, a consignee of agent shall mean any person, association,
partnership, company or corporation who acts in the place of another by
authority from him or one entrusted with the business of another or to
whom is consigned or shipped no less than 1,000 cases of hard liquors or
soft drinks every month for resale, either retail or wholesale.
As a consequence, merchants engaged in the sale of soft drink or
carbonated drinks, are not subject to the tax, unless they are agents
and/or consignees of another dealer, who, in the very nature of things,
must be one engaged in business outside the City. Besides, the tax would
not be applicable to such agent and/or consignee, if less than 1,000 cases
of soft drinks are consigned or shipped to him every month. When we
consider, also, that the tax "shall be based and computed from the cargo
manifest or bill of lading ... showing the number of cases" not sold but
"received" by the taxpayer, the intention to limit the application of the
ordinance to soft drinks and carbonated drinks brought into the City
from outside thereof becomes apparent. Viewed from this angle, the tax
partakes of the nature of an import duty, which is beyond defendant's
authority to impose by express provision of law.
Even however, if the burden in question were regarded as a tax on the
sale of said beverages, it would still be invalid, as discriminatory, and
hence, violative of the uniformity required by the Constitution and the
law therefor, 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 of Butuan, would be
exempt from the disputed tax.
It is true that the uniformity essential to the valid exercise of the power
of taxation does not require identity or equality under all circumstances,
or negate the authority to classify the objects of taxation.5 The
classification made in the exercise of this authority, to be valid, must,
however, be reasonable6 and this requirement is not deemed satisfied
unless: (1) it is based upon substantial distinctions which make real
differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions,
but, also, to future conditions substantially identical to those of the
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present; and (4) the classification applies equally all those who belong to
the same class.
These conditions are not fully met by the ordinance in question. Indeed,
if its purpose were merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales thereof by sealers
other than agents or consignees of producers or merchants established
outside the City of Butuan should be exempt from the tax.
MANILA RACE HORSE V. DELA FUENTE
88 PHIL 60
FACTS:
First, it is maintained that the ordinance under consideration is a tax on
race horses as distinct from boarding stables. It is argued that by section
2 the basis of the license fees "is the number of race horses kept or
maintained in the boarding stables to be paid by the maintainers at the
rate of P10.00 a year for each race horse;" that "the fee is increased
correspondingly P10 for each additional race horse maintained or fed in
the stable;" and that "by the same token, an empty stable for race horse
pays no license fee at all."
HELD:
The spirit, rather than the letter, of an ordinance determines the
construction thereof, and the court looks less to its words and more to the
context, subject matter, consequence and effect. Accordingly, what is
within the spirit is within the ordinance although it is not within the
letter thereof, while that which is in the letter, although not within the
spirit, is not within the ordinance. (62 C. J. S., 845.) From the context of
Ordinance No. 3065, the intent to tax or license stables and not horses is
clearly manifest. The tax is assessed not on the owners of the horses but
on the owners of the stables, as counsel admit in their brief, although
there is nothing, of course, to stop stable owners from shifting the tax to
the horse owners in the form of increased rents or fees, which is
generally the case.
It is also plain from the text of the whole ordinance that the number of
horses is used in the assessment purely as a method of fixing an
equitable and practical distribution of the burden imposed by the
measure. Far from being obnoxious, the method is fair and just. It is but
fair and just that for a boarding stable where only one horse is
maintained proportionately less amount should be exacted than for a
stable where more horses are kept and from which greater income is
derived.
We do not share plaintiff's opinion, apropos the second proposition, that
the ordinance in question is discriminatory and savors of class
legislation. In taxing only boarding stables for race horses, we do not
believe that the ordinance, makes arbitrary classification. In the case of
Eastern Theatrical Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p.
303,* it was said there is equality and uniformity in taxation if all
articles or kinds of property of the same class are taxed at the same rate.
Thus, it was held in that case, that "the fact that some places of
amusement are not taxed while others, such as cinematographs,
theaters, vaudeville companies, theatrical shows, and boxing exhibitions
and other kinds of amusements or places of amusement are taxed, is not
argument at all against the equality and uniformity of tax imposition."
Applying this criterion to the present case, there would be discrimination
if some boarding stables of the same class used for the same number of
horses were not taxed or were made to pay less or more than others.
From the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses
dedicated to other purposes is not indefensible. The owners of boarding
stables for race horses and, for that matter, the race horse owners
themselves, who in the scheme of shifting may carry the taxation burden,
are a class by themselves and appropriately taxed where owners of other
kinds of horses are taxed less or not at all, considering that equity in
taxation is generally conceived in terms of ability to pay in relation to the
benefits received by the taxpayer and by the public from the business or
property taxed. Race horses are devoted to gambling if legalized, their
owners derive fat income and the public hardly any profit from horse
racing, and this business demands relatively heavy police supervision.
Taking everything into account, the differentiation against which the
plaintiffs complain conforms to the practical dictates of justice and equity
and is not discrimatory within the meaning of the Constitution.
SISON V. ANCHETA
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130 SCRA 654
HELD:
On the issue of uniformity, this is met when it operates with the same
force and effect in every place where the subject may be found. The rule
of uniformity does not call for perfect uniformity or perfect equality,
because this is hardly attainable. 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.
Apparently, what misled petitioner is his failure to take into
consideration the distinction 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. Taxpayers may be classified into different categories. To repeat, it.
is enough that the classification must rest upon substantial distinctions
that make real differences. In the case of the gross income taxation
embodied in Batas Pambansa Blg. 135, 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.
Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e
not entitled to make deductions for income tax purposes because they are
in the same situation more or less. 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 the disparities by giving all of them
zero deduction and indiscriminately impose on all alike the same tax
rates on the basis of gross income. There is ample justification then for
the Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income
taxation as regards professional and business income.
TOLENTINO V. SECRETARY OF FINANCE
249 SCRA 628
FACTS:
A case concerning the unconstitutionality of the Expanded VAT Law.
Alleged violations of the due process, equal protection and contract
clauses and the rule on taxation. CREBA asserts that R.A. No. 7716 (1)
impairs the obligations of contracts, (2) classifies transactions as covered
or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a
progressive system of taxation."
HELD:
Equality and uniformity of taxation means that all taxable articles or
kinds of property of the same class be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications
for purposes of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms and
corporations placed in similar situation. (City of Baguio v. De Leon,
supra; Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A.
No. 7716 was enacted. R.A. No. 7716 merely expands the base of the tax.
The validity of the original VAT Law was questioned in Kapatiran ng
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383
(1988) on grounds similar to those made in these cases, namely, that the
law was "oppressive, discriminatory, unjust and regressive in violation of
Art. VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the
law, this Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax.
It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and
services sold to the public, which are not exempt, at the constant rate of
0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of
goods or services by persons engaged in business with an aggregate gross
annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax
are sales of farm and marine products, so that the costs of basic food and
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other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
(The CREBA claims that the VAT is regressive. A similar claim is made
by the Cooperative Union of the Philippines, Inc. (CUP), while petitioner
Juan T. David argues that the law contravenes the mandate of Congress
to provide for a progressive system of taxation because the law imposes a
flat rate of 10% and thus places the tax burden on all taxpayers without
regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive. What it simply provides is that
Congress shall "evolve a progressive system of taxation." The
constitutional provision has been interpreted to mean simply that "direct
taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise,
sales taxes, which perhaps are the oldest form of indirect taxes, would
have been prohibited with the proclamation of Art. VIII, 17(1) of the 1973
Constitution from which the present Art. VI, 28(1) was taken. Sales taxes
are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult, if not impossible, to avoid them by imposing such
taxes according to the taxpayers' ability to pay. In the case of the VAT,
the law minimizes the regressive effects of this imposition by providing
for zero rating of certain transactions (R.A. No. 7716, 3, amending 102 (b)
of the NIRC), while granting exemptions to other transactions. (R.A. No.
7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and
services are exempted from the VAT:
(a) Goods for consumption or use which are in their original state
(agricultural, marine and forest products, cotton seeds in their original
state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and
poultry feeds) and goods or services to enhance agriculture (milling of
palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal
effects of citizens returning to the Philippines) and or professional use,
like professional instruments and implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used
for manufacture of petroleum products subject to excise tax and services
subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary
services, and services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international
agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding
P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are
those which involve goods and services which are used or availed of
mainly by higher income groups. These include real properties held
primarily for sale to customers or for lease in the ordinary course of trade
or business, the right or privilege to use patent, copyright, and other
similar property or right, the right or privilege to use industrial,
commercial or scientific equipment, motion picture films, tapes and discs,
radio, television, satellite transmission and cable television time, hotels,
restaurants and similar places, securities, lending investments, taxicabs,
utility cars for rent, tourist buses, and other common carriers, services of
franchise grantees of telephone and telegraph.
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The problem with CREBA's petition is that it presents broad claims of
constitutional violations by tendering issues not at retail but at
wholesale and in the abstract. There is no fully developed record which
can impart to adjudication the impact of actuality. There is no factual
foundation to show in the concrete the application of the law to actual
contracts and exemplify its effect on property rights. For the fact is that
petitioner's members have not even been assessed the VAT. Petitioner's
case is not made concrete by a series of hypothetical questions asked
which are no different from those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here, does not suffice. There must be
a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he
has not made out a case. 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. Absent such a showing, the presumption of
validity must prevail. (Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a
concrete case. It may be that postponement of adjudication would result
in a multiplicity of suits. This need not be the case, however.
Enforcement of the law may give rise to such a case. A test case, provided
it is an actual case and not an abstract or hypothetical one, may thus be
presented.
Nor is hardship to taxpayers alone an adequate justification for
adjudicating abstract issues. Otherwise, adjudication would be no
different from the giving of advisory opinion that does not really settle
legal issues.
NON-IMPAIRMENT OF CONTRACTS
Article 3, Section 10. No law impairing the obligation of contracts shall
be passed.
Article 12, Section 11. No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except
to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or
authorization be exclusive in character or for a longer period than fifty
years. Neither shall any such franchise or right be granted except under
the condition that it shall be subject to amendment, alteration, or repeal
by the Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public.
The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its
capital, and all the executive and managing officers of such corporation
or association must be citizens of the Philippines.
CIR V. LINGAYEN GULF ELECTRIC
164 SCRA 67
FACTS:
The respondent taxpayer, Lingayen Gulf Electric Power Co., Inc.,
operates an electric power plant serving the adjoining municipalities of
Lingayen and Binmaley, both in the province of Pangasinan, pursuant to
the municipal franchise granted it by their respective municipal councils,
under Resolution Nos. 14 and 25 of June 29 and July 2, 1946,
respectively. Section 10 of these franchises provide that:
...The said grantee in consideration of the franchise hereby granted, shall
pay quarterly into the Provincial Treasury of Pangasinan, one per
centum of the gross earnings obtained thru this privilege during the first
twenty years and two per centum during the remaining fifteen years of
the life of said franchise.
On February 24, 1948, the President of the Philippines approved the
franchises granted to the private respondent.
On November 21, 1955, the Bureau of Internal Revenue (BIR) assessed
against and demanded from the private respondent the total amount of
P19,293.41 representing deficiency franchise taxes and surcharges for
the years 1946 to 1954 applying the franchise tax rate of 5% on gross
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receipts from March 1, 1948 to December 31, 1954 as prescribed in
Section 259 of the National Internal Revenue Code, instead of the lower
rates as provided in the municipal franchises. On September 29, 1956,
the private respondent requested for a reinvestigation of the case on the
ground that instead of incurring a deficiency liability, it made an
overpayment of the franchise tax. On April 30, 1957, the BIR through its
regional director, denied the private respondent's request for
reinvestigation and reiterated the demand for payment of the same. In
its letters dated July 2, and August 9, 1958 to the petitioner
Commissioner, the private respondent protested the said assessment and
requested for a conference with a view to settling the liability amicably.
In his letters dated July 25 and August 28, 1958, the Commissioner
denied the request of the private respondent. Thus, the appeal to the
respondent Court of Tax Appeals on September 19, 1958, docketed as
C.T.A. Case No. 581.
HELD:
The first issue raised by the petitioner before us is whether or not the
five percent (5%) franchise tax prescribed in Section 259 of the National
Internal Revenue Code (Commonwealth Act No. 466 as amended by R.A.
No. 39) assessed against the private respondent on its gross receipts
realized before the effectivity of R.A- No. 3843 is collectible. It is the
contention of the petitioner Commissioner of Internal Revenue that the
private respondent should have been held liable for the 5% franchise tax
on gross receipts prescribed in Section 259 of the Tax Code, instead of the
lower franchise tax rates provided in the municipal franchises (1% of
gross earnings for the first twenty years and 2% for the remaining fifteen
years of the life of the franchises) because Section 259 of the Tax Code, as
amended by RA No. 39 of October 1, 1946, applied to existing and future
franchises. The franchises of the private respondent were already in
existence at the time of the adoption of the said amendment, since the
franchises were accepted on March 1, 1948 after approval by the
President of the Philippines on February 24, 1948. The private
respondent's original franchises did not contain the proviso that the tax
provided therein "shall be in lieu of all taxes;" moreover, the franchises
contained a reservation clause that they shag be subject to amendment,
alteration, or repeal, but even in the absence of such cause, the power of
the Legislature to alter, amend, or repeal any franchise is always deemed
reserved. The franchise of the private respondent have been modified or
amended by Section 259 of the Tax Code, the petitioner submits.
We find no merit in petitioner's contention. R.A. No. 3843 granted the
private respondent a legislative franchise in June, 1963, amending,
altering, or even repealing the original municipal franchises, and
providing that the private respondent should pay only a 2% franchise tax
on its gross receipts, "in lieu of any and all taxes and/or licenses of any
kind, nature or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national, now or in the
future ... and effective further upon the date the original franchise was
granted, no other tax and/or licenses other than the franchise tax of two
per centum on the gross receipts ... shall be collected, any provision of
law to the contrary notwithstanding." Thus, by virtue of R.A- No. 3843,
the private respondent was liable to pay only the 2% franchise tax,
effective from the date the original municipal franchise was granted.
On the question as to whether or not Section 4 of R.A. No. 3843 is
unconstitutional for being violative of the "uniformity and equality of
taxation" clause of the Constitution, and, if adjudged valid, whether or
not it should be given retroactive effect, the petitioner submits that the
said law is unconstitutional insofar as it provides for the payment by the
private respondent of a franchise tax of 2% of its gross receipts, while
other taxpayers similarly situated were subject to the 5% franchise tax
imposed in Section 259 of the Tax Code, thereby discriminatory and
violative of the rule on uniformity and equality of taxation.
A tax is uniform when it operates with the same force and effect in every
place where the subject of it is found. Uniformity means that all property
belonging to the same class shall be taxed alike The Legislature has the
inherent power not only to select the subjects of taxation but to grant
exemptions. Tax exemptions have never been deemed violative of the
equal protection clause. 1 It is true that the private respondents
municipal franchises were obtained under Act No. 667 2 of the Philippine
Commission, but these original franchises have been replaced by a new
legislative franchise, i.e. R.A. No. 3843. As correctly held by the
respondent court, the latter was granted subject to the terms and
conditions established in Act No. 3636, 3 as amended by C.A. No. 132.
These conditions Identify the private respondent's power plant as falling
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within that class of power plants created by Act No. 3636, as amended.
The benefits of the tax reduction provided by law (Act No. 3636 as
amended by C.A. No. 132 and R.A. No. 3843) apply to the respondent's
power plant and others circumscribed within this class. R.A-No. 3843
merely transferred the petitioner's power plant from that class provided
for in Act No. 667, as amended, to which it belonged until the approval of
R.A- No. 3843, and placed it within the class falling under Act No. 3636,
as amended. Thus, it only effected the transfer of a taxable property from
one class to another.
MISAMIS ORIENTAL V. CEPALCO
181 SCRA 38
FACTS:
The issue in this case is a legal one: whether or not a corporation whose
franchise expressly provides that the payment of the "franchise tax of
three per centum of the gross earnings shall be in lieu of all taxes and
assessments of whatever authority upon privileges, earnings, income,
franchise, and poles, wires, transformers, and insulators of the grantee."
is exempt from paying a provincial franchise tax.
Cagayan Electric Power and Light Company, Inc. (CEPALCO for short)
was granted a franchise on June 17, 1961 under Republic Act No. 3247 to
install, operate and maintain an electric light, heat and power system in
the City of Cagayan de Oro and its suburbs. Said franchise was amended
on June 21, 1963 by R.A. No. 3570 which added the municipalities of
Tagoloan and Opol to CEPALCO's sphere of operation, and was further
amended on August 4, 1969 by R.A. No. 6020 which extended its field of
operation to the municipalities of Villanueva and Jasaan.
R.A. Nos. 3247, 3570 and 6020 uniformly provide that:
Sec. 3. In consideration of the franchise and rights hereby granted, the
grantee shall pay a franchise tax equal to three per centum of the gross
earnings for electric current sold under this franchise, of which two per
centum goes into the National Treasury and one per centum goes into
the treasury of the Municipalities of Tagoloan, Opol, Villanueva and
Jasaan and Cagayan de Oro City, as the case may be: Provided, That the
said franchise tax of three per centum of the gross earnings shall be in
lieu of all taxes and assessments of whatever authority upon privileges
earnings, income, franchise, and poles, wires, transformers, and
insulators of the grantee from which taxes and assessments the grantee
is hereby expressly exempted. (Emphasis supplied.)
On June 28, 1973, the Local Tax Code (P.D. No. 231) was promulgated,
Section 9 of which provides:
Sec. 9. Franchise Tax.Any provision of special laws to the contrary
notwithstanding, the province may impose a tax on businesses enjoying
franchise, based on the gross receipts realized within its territorial
jurisdiction, at the rate of not exceeding one-half of one per cent of the
gross annual receipts for the preceding calendar year.
In the case of newly started business, the rate shall not exceed three
thousand pesos per year. Sixty per cent of the proceeds of the tax shall
accrue to the general fund of the province and forty per cent to the
general fund of the municipalities serviced by the business on the basis
of the gross annual receipts derived therefrom by the franchise holder. In
the case of a newly started business, forty per cent of the proceeds of the
tax shall be divided equally among the municipalities serviced by the
business.
Pursuant thereto, the Province of Misamis Oriental (herein petitioner)
enacted Provincial Revenue Ordinance No. 19, whose Section 12 reads:
Sec. 12. Franchise Tax.There shall be levied, collected and paid on
businesses enjoying franchise tax of one-half of one per cent of their gross
annual receipts for the preceding calendar year realized within the
territorial jurisdiction of the province of Misamis Oriental. (p. 27, Rollo.)
The Provincial Treasurer of Misamis Oriental demanded payment of the
provincial franchise tax from CEPALCO. The company refused to pay,
alleging that it is exempt from all taxes except the franchise tax required
by R.A. No. 6020. Nevertheless, in view of the opinion rendered by the
Provincial Fiscal, upon CEPALCO's request, upholding the legality of the
Revenue Ordinance, CEPALCO paid under protest on May 27, 1974 the
sum of P 4,276.28 and appealed the fiscal's ruling to the Secretary of
Justice who reversed it and ruled in favor of CEPALCO.
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HELD:
There is no provision in P.D. No. 231 expressly or impliedly amending or
repealing Section 3 of R.A. No. 6020. The perceived repugnancy between
the two statutes should be very clear before the Court may hold that the
prior one has been repealed by the later, since there is no express
provision to that effect (Manila Railroad Co. vs. Rafferty, 40 Phil. 224).
The rule is that a special and local statute applicable to a particular case
is not repealed by a later statute which is general in its terms, provisions
and application even if the terms of the general act are broad enough to
include the cases in the special law (id.) unless there is manifest intent to
repeal or alter the special law.
Republic Acts Nos. 3247, 3570 and 6020 are special laws applicable only
to CEPALCO, while P.D. No. 231 is a general tax law. The presumption
is that the special statutes are exceptions to the general law (P.D. No.
231) because they pertain to a special charter granted to meet a
particular set of conditions and circumstances.
The franchise of respondent CEPALCO expressly exempts it from
payment of "all taxes of whatever authority" except the three per centum
(3%) tax on its gross earnings.
In an earlier case, the phrase "shall be in lieu of all taxes and at any time
levied, established by, or collected by any authority" found in the
franchise of the Visayan Electric Company was held to exempt the
company from payment of the 5% tax on corporate franchise provided in
Section 259 of the Internal Revenue Code.
Those magic words: "shall be in lieu of all taxes" also excused the
Cotabato Light and Ice Plant Company from the payment of the tax
imposed by Ordinance No. 7 of the City of Cotabato (Cotabato Light and
Power Co. vs. City of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of the Carcar Electric and Ice
Plant Company when it was required to pay the corporate franchise tax
under Section 259 of the Internal Revenue Code, as amended by R.A. No.
39 (Carcar Electric & Ice Plant vs. Collector of Internal Revenue, 53 O.G.
[No. 4] 1068). This Court pointed out that such exemption is part of the
inducement for the acceptance of the franchise and the rendition of
public service by the grantee. As a charter is in the nature of a private
contract, the imposition of another franchise tax on the corporation by
the local authority would constitute an impairment of the contract
between the government and the corporation.
NON-IMPRISONMENT FOR NON-PAYMENT OF POLL TAX
Section 20. No person shall be imprisoned for debt or non-payment of a
poll tax.
PROHIBITION AGAINST TAXATION OF RELIGIOUS,
CHARITABLE ENTITIES
Article 6, Section 28 (3).
Charitable institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly, and exclusively used for
religious, charitable, or educational purposes shall be exempt from
taxation.
LLADOC V. CIR
14 SCRA 292
FACTS:
Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated
P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of
Victorias, Negros Occidental, and predecessor of herein petitioner, for the
construction of a new Catholic Church in the locality. The total amount
was actually spent for the purpose intended.
On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax
return. Under date of April 29, 1960, the respondent Commissioner of
Internal Revenue issued an assessment for donee's gift tax against the
Catholic Parish of Victorias, Negros Occidental, of which petitioner was
the priest. The tax amounted to P1,370.00 including surcharges,
interests of 1% monthly from May 15, 1958 to June 15, 1960, and the
compromise for the late filing of the return.
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Petitioner lodged a protest to the assessment and requested the
withdrawal thereof. The protest and the motion for reconsideration
presented to the Commissioner of Internal Revenue were denied. The
petitioner appealed to the Court of Tax Appeals on November 2, 1960. In
the petition for review, the Rev. Fr. Casimiro Lladoc claimed, among
others, that at the time of the donation, he was not the parish priest in
Victorias; that there is no legal entity or juridical person known as the
"Catholic Parish Priest of Victorias," and, therefore, he should not be
liable for the donee's gift tax. It was also asserted that the assessment of
the gift tax, even against the Roman Catholic Church, would not be
valid, for such would be a clear violation of the provisions of the
Constitution.
HELD:
Section 22 (3), Art. VI of the Constitution of the Philippines, exempts
from taxation cemeteries, churches and parsonages or convents,
appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious purposes. The exemption is only from the
payment of taxes assessed on such properties enumerated, as property
taxes, as contra distinguished from excise taxes. In the present case,
what the Collector assessed was a donee's gift tax; the assessment was
not on the properties themselves. It did not rest upon general ownership;
it was an excise upon the use made of the properties, upon the exercise of
the privilege of receiving the properties (Phipps vs. Com. of Int. Rec. 91 F
2d 627). Manifestly, gift tax is not within the exempting provisions of the
section just mentioned. A gift tax is not a property tax, but an excise tax
imposed on the transfer of property by way of gift inter vivos, the
imposition of which on property used exclusively for religious purposes,
does not constitute an impairment of the Constitution. As well observed
by the learned respondent Court, the phrase "exempt from taxation," as
employed in the Constitution (supra) should not be interpreted to mean
exemption from all kinds of taxes. And there being no clear, positive or
express grant of such privilege by law, in favor of petitioner, the
exemption herein must be denied.
PROVINCE OF ABRA V. HERNANDO
107 SCRA 1021
FACTS:
On the face of this certiorari and mandamus petition filed by the
Province of Abra, it clearly appears that the actuation of respondent
Judge Harold M. Hernando of the Court of First Instance of Abra left
much to be desired. First, there was a denial of a motion to dismiss 2 an
action for declaratory relief by private respondent Roman Catholic
Bishop of Bangued desirous of being exempted from a real estate tax
followed by a summary judgment 3 granting such exemption, without
even hearing the side of petitioner. In the rather vigorous language of the
Acting Provincial Fiscal, as counsel for petitioner, respondent Judge
"virtually ignored the pertinent provisions of the Rules of Court; ...
wantonly violated the rights of petitioner to due process, by giving due
course to the petition of private respondent for declaratory relief, and
thereafter without allowing petitioner to answer and without any
hearing, adjudged the case; all in total disregard of basic laws of
procedure and basic provisions of due process in the constitution, thereby
indicating a failure to grasp and understand the law, which goes into the
competence of the Honorable Presiding Judge."
It was the submission of counsel that an action for declaratory relief
would be proper only before a breach or violation of any statute,
executive order or regulation. Moreover, there being a tax assessment
made by the Provincial Assessor on the properties of respondent Roman
Catholic Bishop, petitioner failed to exhaust the administrative remedies
available under Presidential Decree No. 464 before filing such court
action. Further, it was pointed out to respondent Judge that he failed to
abide by the pertinent provision of such Presidential Decree which
provides as follows: "No court shall entertain any suit assailing the
validity of a tax assessed under this Code until the taxpayer, shall have
paid, under protest, the tax assessed against him nor shall any court
declare any tax invalid by reason of irregularities or informalities in the
proceedings of the officers charged with the assessment or collection of
taxes, or of failure to perform their duties within this time herein
specified for their performance unless such irregularities, informalities or
failure shall have impaired the substantial rights of the taxpayer; nor
shall any court declare any portion of the tax assessed under the
provisions of this Code invalid except upon condition that the taxpayer
shall pay the just amount of the tax, as determined by the court in the
pending proceeding."
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HELD:
Respondent Judge would not have erred so grievously had he merely
compared the provisions of the present Constitution with that appearing
in the 1935 Charter on the tax exemption of "lands, buildings, and
improvements." There is a marked difference. Under the 1935
Constitution: "Cemeteries, churches, and parsonages or convents
appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable, or educational purposes shall be
exempt from taxation." 10 The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and required that for
the exemption of ":lands, buildings, and improvements," they should not
only be "exclusively" but also "actually and "directly" used for religious or
charitable purposes. 11 The Constitution is worded differently. The
change should not be ignored. It must be duly taken into consideration.
Reliance on past decisions would have sufficed were the words "actually"
as well as "directly" not added. There must be proof therefore of the
actual and direct use of the lands, buildings, and improvements for
religious or charitable purposes to be exempt from taxation. According to
Commissioner of Internal Revenue v. Guerrero: 12 "From 1906, in
Catholic Church v. Hastings to 1966, in Esso Standard Eastern, Inc. v.
Acting Commissioner of Customs, it has been the constant and uniform
holding that exemption from taxation is not favored and is never
presumed, so that if granted it must be strictly construed against the
taxpayer. Affirmatively put, the law frowns on exemption from taxation,
hence, an exempting provision should be construed strictissimi juris."
LUNG CENTER V. QC
GR 144104, JUNE 29, 2004
FACTS:
Both the land and the hospital building of the petitioner were assessed
for real property taxes in the amount of P4,554,860 by the City Assessor
of Quezon City.[3] Accordingly, Tax Declaration Nos. C-021-01226 (16-
2518) and C-021-01231 (15-2518-A) were issued for the land and the
hospital building, respectively.[4] On August 25, 1993, the petitioner
filed a Claim for Exemption[5] from real property taxes with the City
Assessor, predicated on its claim that it is a charitable institution. The
petitioner’s request was denied, and a petition was, thereafter, filed
before the Local Board of Assessment Appeals of Quezon City (QC-LBAA,
for brevity) for the reversal of the resolution of the City Assessor. The
petitioner alleged that under Section 28, paragraph 3 of the 1987
Constitution, the property is exempt from real property taxes. It averred
that a minimum of 60% of its hospital beds are exclusively used for
charity patients and that the major thrust of its hospital operation is to
serve charity patients. The petitioner contends that it is a charitable
institution and, as such, is exempt from real property taxes. The QC-
LBAA rendered judgment dismissing the petition and holding the
petitioner liable for real property taxes.
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. The petitioner points out that for the
years 1995 to 1999, 100% of its out-patients were charity patients and of
the hospital’s 282-bed capacity, 60% thereof, or 170 beds, is allotted to
charity patients. It asserts that the fact that it receives subsidies from
the government attests to its character as a charitable institution. It
contends that the “exclusivity” required in the Constitution does not
necessarily mean “solely.” Hence, even if a portion of its real estate is
leased out to private individuals from whom it derives income, it does not
lose its character as a charitable institution, and its exemption from the
payment of real estate taxes on its real property. The petitioner cited our
ruling in Herrera v. QC-BAA[9] to bolster its pose. The petitioner
further contends that even if P.D. No. 1823 does not exempt it from the
payment of real estate taxes, it is not precluded from seeking tax
exemption under the 1987 Constitution.
In their comment on the petition, the respondents aver that the
petitioner is not a charitable entity. The petitioner’s real property is not
exempt from the payment of real estate taxes under P.D. No. 1823 and
even under the 1987 Constitution because it failed to prove that it is a
charitable institution and that the said property is actually, directly and
exclusively used for charitable purposes. The respondents noted that in
a newspaper report, it appears that graft charges were filed with the
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Sandiganbayan against the director of the petitioner, its administrative
officer, and Zenaida Rivera, the proprietress of the Elliptical Orchids and
Garden Center, for entering into a lease contract over 7,663.13 square
meters of the property in 1990 for only P20,000 a month, when the
monthly rental should be P357,000 a month as determined by the
Commission on Audit; and that instead of complying with the directive of
the COA for the cancellation of the contract for being grossly prejudicial
to the government, the petitioner renewed the same on March 13, 1995
for a monthly rental of only P24,000. They assert that the petitioner
uses the subsidies granted by the government for charity patients and
uses the rest of its income from the property for the benefit of paying
patients, among other purposes. They aver that the petitioner failed to
adduce substantial evidence that 100% of its out-patients and 170 beds
in the hospital are reserved for indigent patients.
HELD:
On the first issue, we hold that the petitioner is a charitable institution
within the context of the 1973 and 1987 Constitutions. To determine
whether an enterprise is a charitable institution/entity or not, the
elements which should be considered include the statute creating the
enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the
character of the services rendered, the indefiniteness of the beneficiaries,
and the use and occupation of the properties.[11]
In the legal sense, a charity may be fully defined 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
otherwise lessening the burden of government.[12] It may be applied to
almost anything that tend to promote the well-doing and well-being of
social man. It embraces the improvement and promotion of the
happiness of man.[13] The word “charitable” is not restricted to relief of
the poor or sick.[14] The test of a charity and a charitable organization
are in law the same. 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.
Under P.D. No. 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 of the Philippines with the
Ministry of Health and the Ministry of Human Settlements. It was
organized for the welfare and benefit of the Filipino people principally to
help combat the high incidence of lung and pulmonary diseases in the
Philippines.
Hence, the medical services of the petitioner are to be rendered to the
public in general in any and all walks of life including those who are poor
and the needy without discrimination. After all, any person, the rich as
well as the poor, may fall sick or be injured or wounded and become a
subject of charity.
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.
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner,
specifically provides that the petitioner shall enjoy the tax exemptions
and privileges—Section 2. TAX EXEMPTIONS AND PRIVILEGES.
Being a non-profit, non-stock corporation organized primarily to help
combat the high incidence of lung and pulmonary diseases in the
Philippines, all donations, contributions, endowments and equipment
and supplies to be imported by authorized entities or persons and by the
Board of Trustees of the Lung Center of the Philippines, Inc., for the
actual use and benefit of the Lung Center, shall be exempt from income
and gift taxes, the same further deductible in full for the purpose of
determining the maximum deductible amount under Section 30,
paragraph (h), of the National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be exempt from the payment of
taxes, charges and fees imposed by the Government or any political
subdivision or instrumentality thereof with respect to equipment
purchases made by, or for the Lung Center.[29]
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It is plain as day that under the decree, the petitioner does not enjoy any
property tax exemption privileges for its real properties as well as the
building constructed thereon. If the intentions were otherwise, the same
should have been among the enumeration of tax exempt privileges under
Section 2,
The exemption must not be so enlarged by construction since the
reasonable presumption is that the State has granted in express terms
all it intended to grant at all, and that unless the privilege is limited to
the very terms of the statute the favor would be intended beyond what
was meant.
Section 28(3), Article VI of the 1987 Philippine Constitution provides,
thus:
(3) Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
buildings, and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from
taxation.
The tax exemption under this constitutional provision covers property
taxes only.
PROHIBITION AGAINST TAXATION OF NON-PROFIT NON-
STOCK EDUCATIONAL INSTITUTIONS
Article 14. Section 28 (3).
All revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be
exempt from taxes and duties. Upon the dissolution or cessation of the
corporate existence of such institutions, their assets shall be disposed of
in the manner provided by law.
Proprietary educational institutions, including those cooperatively
owned, may likewise be entitled to such exemptions, subject to the
limitations provided by law, including restrictions on dividends and
provisions for reinvestment.
SEC. 30. Exemptions from Tax on Corporations. - The following
organizations shall not be taxed under this Title in respect to income
received by them as such:
(H) A nonstock and nonprofit educational institution;
CIR V. CA AND YMCA
298 SCRA 83
FACTS:
Private respondent earned, among others, an income of P676,829.80 from
leasing out a portion of its premises to small shop owners, like
restaurants and canteen operators, and P44,259.00 from parking fees
collected from non-members. On July 2, 1984, the commissioner of
internal revenue (CIR) issued an assessment to private respondent, in
the total amount of P415,615.01 including surcharge and interest, for
deficiency income tax, deficiency expanded withholding taxes on rentals
and professional fees and deficiency withholding tax on wages. Private
respondent formally protested the assessment. In reply, the CIR denied
the claims of YMCA.
HELD:
Petitioners argues that while the income received by the organizations
enumerated in Section 27 (now Section 26) of the NIRC is, as a rule,
exempted from the payment of tax “in respect to income received by them
as such,” the exemption does not apply to income derived “xxx from any if
their properties, real or personal, or from any of their activities
conducted for profit, regardless, of the disposition made of such income
xxx.”
Petitioner adds that “rented income derived by a tax-exempt
organization from the lease of its properties, real or personal, [is] not,
therefore, exempt from income taxation, even if such income [is]
exclusively used for the accomplishment of its objectives.” We agree with
the commissioner.
Because taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict interpretation in construing tax exemptions.
Furthermore, a claim of statutory exemption from taxation should be
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manifest and unmistakable from the language of the law on which it is
based. Thus, the claimed exemption “must expressly be granted in a
statute stated in a language too clear to be mistaken.”
In the instant case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Section 27
of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be
subject to the imposed by the same Code. Because the last paragraph of
said section unequivocally subjects to tax the rent income f the YMCA
from its rental property, the Court is duty-bound to abide strictly by its
literal meaning and to refrain from resorting to any convoluted attempt
at construction.
Invoking not only the NIRC but also the fundamental law, private
respondent submits that Article VI, Section 28 of par. 3 of the 1987
Constitution, exempts “charitable institutions” from the payment not
only of property taxes but also of income tax from any source. In support
of its novel theory, it compares the use of the words “charitable
institutions,” “actually” and “directly” in the 1973 and the 1987
Constitutions, on the hand; and in Article VI Section 22, par. 3 of the
1935 Constitution, on the other hand.
Private respondent enunciates three points. First, the present provision
is divisible into two categories: (1) “[c]haritable institutions, churches
and parsonages or convents appurtenant thereto, mosques and non-profit
cemeteries,” the incomes of which are, from whatever source, all tax-
exempt; and (2) “[a]ll lands, buildings and improvements actually and
directly used for religious, charitable or educational purposes,” which are
exempt only from property taxes. Second, Lladoc v. Commissioner of
Internal Revenue, which limited the exemption only to the payment of
property taxes, referred to the provision of the 1935 Constitution and not
to its counterparts in the 1973 and the 1987 Constitutions. Third, the
phrase “actually, directly and exclusively used for religious, charitable or
educational purposes” refers not only to “all lands, buildings and
improvements,” but also to the above-quoted first category which
includes charitable institutions like the private respondent.
The Court is not persuaded. The debates, interpellations and
expressions of opinion of the framers of the Constitution reveal their
intent which, in turn, may have guided the people in ratifying the
Charter.[32] Such intent must be effectuated.
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional
commissioner, who is now a member of this Court, stressed during the
Concom debates that “xxx what is exempted is not the institution itself
xxx; those exempted from real estate taxes are lands, buildings and
improvements actually, directly and exclusively used for religious,
charitable or educational purposes.”[33] Father Joaquin G. Bernas, an
eminent authority on the Constitution and also a member of the Concom,
adhered to the same view that the exemption created by said provision
pertained only to property taxes.
FREEDOM OF RELIGIOUS PROFESSIONAL AND WORSHIP
Section 5. No law shall be made respecting an establishment of religion,
or prohibiting the free exercise thereof. The free exercise and enjoyment
of religious profession and worship, without discrimination or preference,
shall forever be allowed. No religious test shall be required for the
exercise of civil or political rights.
AMERICAN BIBLE SOCIETY V. MANILA
101 PHIL 386
FACTS:
Petitioner is a missionary corporation involved in the sale of bibles and
gospel versions thereof. The City Treasurer informed it that it was
involved in the business of general merchandise without securing the
required permit. Petitioner was mandated to secure the required permit,
otherwise, would mean closure of its operations. It paid but under
protest, and filed charges against the City of Manila.
HELD;
The constitutional guaranty of the free exercise and enjoyment of
religious profession and worship carries with it the right to disseminate
religious information. Any restraint of such right could only be justified
like other restraints of freedom of expression on the grounds that there is
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clear and present danger of any substantive evil which the State has the
right to prevent.
PASSAGE OF TAX BILLS/GRANTING OF TAX EXEMPTIONS
Section 24. All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills,
shall originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments.
Section 28 (4). No law granting any tax exemption shall be passed
without the concurrence of a majority of all the Members of the Congress.
TOLENTINO V. SECRETARY OF FINANCE
249 SCRA 628
FACTS:
Alleged violation of policy towards cooperatives. On the other hand, the
Cooperative Union of the Philippines (CUP), after briefly surveying the
course of legislation, argues that it was to adopt a definite policy of
granting tax exemption to cooperatives that the present Constitution
embodies provisions on cooperatives. To subject cooperatives to the VAT
would therefore be to infringe a constitutional policy. Petitioner claims
that in 1973, P.D. No. 175 was promulgated exempting cooperatives from
the payment of income taxes and sales taxes but in 1984, because of the
crisis which menaced the national economy, this exemption was
withdrawn by P.D. No. 1955; that in 1986, P.D. No. 2008 again granted
cooperatives exemption from income and sales taxes until December 31,
1991, but, in the same year, E.O. No. 93 revoked the exemption; and that
finally in 1987 the framers of the Constitution "repudiated the previous
actions of the government adverse to the interests of the cooperatives,
that is, the repeated revocation of the tax exemption to cooperatives and
instead upheld the policy of strengthening the cooperatives by way of the
grant of tax exemptions," by providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of
goods and services produced by the nation for the benefit of the people;
and an expanding productivity as the key to raising the quality of life for
all, especially the underprivileged.
The State shall promote industrialization and full employment based on
sound agricultural development and agrarian reform, through industries
that make full and efficient use of human and natural resources, and
which are competitive in both domestic and foreign markets. However,
the State shall protect Filipino enterprises against unfair foreign
competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of
the country shall be given optimum opportunity to develop. Private
enterprises, including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of their
ownership.
15. The Congress shall create an agency to promote the viability and
growth of cooperatives as instruments for social justice and economic
development.
HELD:
Petitioner's contention has no merit. In the first place, it is not true that
P.D. No. 1955 singled out cooperatives by withdrawing their exemption
from income and sales taxes under P.D. No. 175, 5. What P.D. No. 1955,
1 did was to withdraw the exemptions and preferential treatments
theretofore granted to private business enterprises in general, in view of
the economic crisis which then beset the nation. It is true that after P.D.
No. 2008, 2 had restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, 1, but then again
cooperatives were not the only ones whose exemptions were withdrawn.
The withdrawal of tax incentives applied to all, including government
and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote
their growth and viability. Hence, there is no basis for petitioner's
assertion that the government's policy toward cooperatives had been one
of vacillation, as far as the grant of tax privileges was concerned, and
that it was to put an end to this indecision that the constitutional
provisions cited were adopted. Perhaps as a matter of policy cooperatives
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should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no
discrimination to cooperatives, no violation of any constitutional policy
can be charged.
Indeed, petitioner's theory amounts to saying that under the
Constitution cooperatives are exempt from taxation. Such theory is
contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by
reason of Art. VI, 28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, 4 (3).
VETO POWER OF THE PRESIDENT
Section 27.
1. Every bill passed by the Congress shall, before it becomes a law, be
presented to the President. If he approves the same he shall sign it;
otherwise, he shall veto it and return the same with his objections to the
House where it originated, which shall enter the objections at large in its
Journal and proceed to reconsider it. If, after such reconsideration, two-
thirds of all the Members of such House shall agree to pass the bill, it
shall be sent, together with the objections, to the other House by which it
shall likewise be reconsidered, and if approved by two-thirds of all the
Members of that House, it shall become a law. In all such cases, the votes
of each House shall be determined by yeas or nays, and the names of the
Members voting for or against shall be entered in its Journal. The
President shall communicate his veto of any bill to the House where it
originated within thirty days after the date of receipt thereof, otherwise,
it shall become a law as if he had signed it.
2. The President shall have the power to veto any particular item or
items in an appropriation, revenue, or tariff bill, but the veto shall not
affect the item or items to which he does not object.
NON-IMPAIRMENT OF SC JURISDICTION
Section 5. The Supreme Court shall have the following powers:
2. Review, revise, reverse, modify, or affirm on appeal or certiorari, as
the law or the Rules of Court may provide, final judgments and orders of
lower courts in:
2. All cases involving the legality of any tax, impost, assessment, or
toll, or any penalty imposed in relation thereto.
DOUBLE TAXATION
DEFINITION AND NATURE
(71 AM.JUR 2D 362-365)
 Not every kind of duplicate taxation is proscribed
 Although taxation of the same person twice because of his
ownership of the same property or more simply, taxation of the
same property twice is sometimes referred to as illegal or
unconstitutional, certain limitations and qualifications are laid
down
 Before double taxation may be said to exist, the following must
exist—
o Both taxes must have been imposed in the same year
o For the same purpose
o Upon property owned by the same person
o By the same taxing authority
o Both impositions must be taxes
 Construction to avoid double taxations: presumptions
o Double taxation isn’t to be avoided, but the intention of
the legislature to impose it will not be presumed
o The intention to impose double taxation must be shown
by clear and unequivocal language, which leaves no
doubt as to the legislative intent
 Methods for avoiding the occurrence of double taxation
o Remedy—to avoid or at least to reduce the consequent
burden, the taxing jurisdiction may
 Provide for exemptions or allowances of
deduction or tax credits for foreign taxes
 Enter into treaties with other states
PROCTER AND GAMBLE V. MUN. OF JAGNA
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94 SCRA 894
FACTS:
Procter and Gamble Philippines Manufacturing Corp. is a consolidated
corporation of Procter and Gamble Trading Company. It is engaged in
the manufacture of soap, edible oil, margarine and other similar
products; and maintains a “bodega” in the municipality of Jagna, where
it stores copra purchased in the municipality and therefrom ships the
same for its manufacturing and other operations. In 1954, the Municipal
Council enacted Ordinance 4, imposing storage fees of all exportable
copra deposits in the bodega within the jurisdiction of the municipality of
Jagna, Bohol. The company paid the municipality, allegedly under
protest, storage fees. It later filed a suit, wherein it prayed that the
Ordinance be declared inapplicable to it, and if not, that it be declared
ultra vires and void.
HELD:
The validity of the Ordinance must be upheld pursuant to the broad
authority conferred upon municipalites by Commonwealth Act 472
(promulgated 1939), which was the prevailing law when the Ordinance
is actually a municipal license tax or fee on persons, firms and
corporations exercising the privilege of storing copra within the
municipality’s territorial jurisdiction. Such fees imposed do not amount
to double taxation. For double taxation to exist, the same property must
be taxed twice, when it should be taxed but once. A tax on the company’s
producs is different from the tax on the privilege of storing copra in a
bodega situated within the territorial boundary of the municipality.
SANCHEZ V. CIR
97 PHIL 687
FACTS:
HELD:
License tax may be levied upon a business or occupation although the
land or property used therein is subject to property tax and that the state
may collect an ad valorem tax on property used in a calling, and at the
same time impose a license fee on the pursuit of that calling, the
imposition of the latter kind of tax being in no sense a double tax.
PUNZALAN V. MUNICIPAL BOARD OF MANILA
95 PHIL 46
FACTS:
HELD:
Double taxation may not be invoked where one tax is imposed by the
State and another by the city. It is widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling or activity
by both the state and the political subdivisions thereof.
CIR V. SC JOHNSON AND SONS
309 SCRA 87 (1999)
*INTERNATIONAL DOUBLE TAXATION
FACTS:
[Respondent], a domestic corporation organized and operating under the
Philippine laws, entered into a license agreement with SC Johnson and
Son, United States of America (USA), a non-resident foreign corporation
based in the U.S.A. pursuant to which the [respondent] was granted the
right to use the trademark, patents and technology owned by the latter
including the right to manufacture, package and distribute the products
covered by the Agreement and secure assistance in management,
marketing and production from SC Johnson and Son, U. S. A.
The said License Agreement was duly registered with the Technology
Transfer Board of the Bureau of Patents, Trade Marks and Technology
Transfer. For the use of the trademark or technology, [respondent] was
obliged to pay SC Johnson and Son, USA royalties based on a percentage
of net sales and subjected the same to 25% withholding tax on royalty
payments which [respondent] paid for the period covering July 1992 to
May 1993. [Respondent] filed with the International Tax Affairs Division
(ITAD) of the BIR a claim for refund of overpaid withholding tax on
royalties arguing that, "the antecedent facts attending [respondent's]
case fall squarely within the same circumstances under which said
MacGeorge and Gillete rulings were issued. Since the agreement was
approved by the Technology Transfer Board, the preferential tax rate of
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10% should apply to the [respondent]. It submit that royalties paid by
the [respondent] to SC Johnson and Son, USA is only subject to 10%
withholding tax pursuant to the most-favored nation clause of the RP-US
Tax Treaty [Article 13 Paragraph 2 (b) (iii)] in relation to the RP-West
Germany Tax Treaty [Article 12 (2) (b)]".
HELD:
With respect to the merits of this petition, the main point of contention is
the interpretation of Article 13 (2) (b) (iii) of the RP-US Tax Treaty
regarding the rate of tax to be imposed by the Philippines upon royalties
received by a non-resident foreign corporation.
The RP-US Tax Treaty is just one of a number of bilateral treaties which
the Philippines has entered into for the avoidance of double taxation.
More precisely, the tax conventions are drafted with a view towards the
elimination of international juridical double taxation, which is defined as
the imposition of comparable taxes in two or more states on the same
taxpayer in respect of the same subject matter and for identical periods.
The apparent rationale for doing away with double taxation is of
encourage the free flow of goods and services and the movement of
capital, technology and persons between countries, conditions deemed
vital in creating robust and dynamic economies.
Double taxation usually takes place when a person is resident of a
contracting state and derives income from, or owns capital in, the other
contracting state and both states impose tax on that income or capital. In
order to eliminate double taxation, a tax treaty resorts to several
methods. First, it sets out the respective rights to tax of the state of
source or situs and of the state of residence with regard to certain classes
of income or capital. In some cases, an exclusive right to tax is conferred
on one of the contracting states; however, for other items of income or
capital, both states are given the right to tax, although the amount of tax
that may be imposed by the state of source is limited.
The second method for the elimination of double taxation applies
whenever the state of source is given a full or limited right to tax
together with the state of residence. In this case, the treaties make it
incumbent upon the state of residence to allow relief in order to avoid
double taxation. There are two methods of relief the exemption method
and the credit method. In the exemption method, the income or capital
which is taxable in the state of source or situs is exempted in the state of
residence, although in some instances it may be taken into account in
determining the rate of tax applicable to the taxpayer's remaining
income or capital. On the other hand, in the credit method, although the
income or capital which is taxed in the state of source is still taxable in
the state of residence, the tax paid in the former is credited against the
tax levied in the latter. The basic difference between the two methods is
that in the exemption method, the focus is on the income or capital itself,
whereas the credit method focuses upon the tax.
In negotiating tax treaties, the underlying rationale for reducing the tax
rate is that the Philippines will give up a part of the tax in the
expectation that the tax given up for this particular investment is not
taxed by the other country. Thus the petitioner correctly opined that the
phrase "royalties paid under similar circumstances" in the most favored
nation clause of the US-RP Tax Treaty necessarily contemplated
"circumstances that are tax-related".
In the case at bar, the state of source is the Philippines because the
royalties are paid for the right to use property or rights, i.e. trademarks,
patents and technology, located within the Philippines. The United
States is the state of residence since the taxpayer, S. C. Johnson and
Son, U. S. A., is based there. Under the RP-US Tax Treaty, the state of
residence and the state of source are both permitted to tax the royalties,
with a restraint on the tax that may be collected by the state of source.
Furthermore, the method employed to give relief from double taxation is
the allowance of a tax credit to citizens or residents of the United States
(in an appropriate amount based upon the taxes paid or accrued to the
Philippines) against the United States tax, but such amount shall not
exceed the limitations provided by United States law for the taxable
year. Under Article 13 thereof, the Philippines may impose one of three
rates 25 percent of the gross amount of the royalties; 15 percent when
the royalties are paid by a corporation registered with the Philippine
Board of Investments and engaged in preferred areas of activities; or the
lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third
state.
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Given the purpose underlying tax treaties and the rationale for the most
favored nation clause, the concessional tax rate of 10 percent provided for
in the RP-Germany Tax Treaty should apply only if the taxes imposed
upon royalties in the RP-US Tax Treaty and in the RP-Germany Tax
Treaty are paid under similar circumstances. This would mean that
private respondent must prove that the RP-US Tax Treaty grants similar
tax reliefs to residents of the United States in respect of the taxes
imposable upon royalties earned from sources within the Philippines as
those allowed to their German counterparts under the RP-Germany Tax
Treaty.
The RP-US and the RP-West Germany Tax Treaties do not contain
similar provisions on tax crediting. Article 24 of the RP-Germany Tax
Treaty, supra, expressly allows crediting against German income and
corporation tax of 20% of the gross amount of royalties paid under the
law of the Philippines. On the other hand, the RP-US Tax Treaty does
not provide for similar crediting of 20% of the gross amount of royalties
paid.
The ultimate reason for avoiding double taxation is to encourage foreign
investors to invest in the Philippines—a crucial economic goal for
developing countries. The goal of double taxation conventions would be
thwarted if such treaties did not provide for effective measures to
minimize, if not completely eliminate, the tax burden laid upon the
income or capital of the investor. Thus, if the rates of tax are lowered by
the state of source, in this case, by the Philippines, there should be a
concomitant commitment on the part of the state of residence to grant
some form of tax relief, whether this be in the form of a tax credit or
exemption. Otherwise, the tax which could have been collected by the
Philippine government will simply be collected by another state,
defeating the object of the tax treaty since the tax burden imposed upon
the investor would remain unrelieved. If the state of residence does not
grant some form of tax relief to the investor, no benefit would redound to
the Philippines, i.e., increased investment resulting from a favorable tax
regime, should it impose a lower tax rate on the royalty earnings of the
investor, and it would be better to impose the regular rate rather than
lose much-needed revenues to another country.
[At the same time, the intention behind the adoption of the provision on
"relief from double taxation" in the two tax treaties in question should be
considered in light of the purpose behind the most favored nation clause.
The purpose of a most favored nation clause is to grant to the contracting
party treatment not less favorable than that which has been or may be
granted to the "most favored" among other countries. The most favored
nation clause is intended to establish the principle of equality of
international treatment by providing that the citizens or subjects of the
contracting nations may enjoy the privileges accorded by either party to
those of the most favored nation. The essence of the principle is to allow
the taxpayer in one state to avail of more liberal provisions granted in
another tax treaty to which the country of residence of such taxpayer is
also a party provided that the subject matter of taxation, in this case
royalty income, is the same as that in the tax treaty under which the
taxpayer is liable.
Since the RP-US Tax Treaty does not give a matching tax credit of 20
percent for the taxes paid to the Philippines on royalties as allowed
under the RP-West Germany Tax Treaty, private respondent cannot be
deemed entitled to the 10 percent rate granted under the latter treaty for
the reason that there is no payment of taxes on royalties under similar
circumstances.]
EXEMPTIONS FROM TAXATION
DEFINITION
 The grant of immunity to particular persons or corporations, or
to persons, or corporations of a particular class from a tax which
persons and corporations generally within the same state or
taxing district are obliged to pay
 It is an immunity or privilege; it is freedom from a financial
charge or burden to which others are subjected
KINDS OF EXEMPTION
1. As to manner of creation
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a. Express—when certain persons, property, or
transactions are by express provisions, exempted from
all or certain taxes either entirely or in part
b. Implied—when a tax is levied on certain classes of
person, properties or transactions without mentioning
the other classes. Every tax statute makes exemptions
since all those not mentioned are deemed exempted.
This omission may be accidental or intentional.
2. As to scope or extent
a. Total
b. Partial
3. As to object
a. Personal—directed in favor of some persons as are
within the contemplation of the law granting the
exemption
b. Impersonal—directed in favor of a certain class of
property
RATIONALE FOR GIVING TAX EXEMPTIONS
 Such will benefit the body of the people and not upon any idea of
lessening the burden of the individual owners of property
 Purpose is some public benefit or interest, which the law-making
body considers sufficient to offset the monetary loss entailed in
the grant of exemptions
NATURE OF POWER TO GRANT TAX EXEMPTIONS
 National government—power to exempt is an inherent power of
sovereignty. It is inherent in the exercise of the power to tax
that the sovereign state be free to select the subjects of taxation
and to grant exemptions therefrom.
 Municipal government—it doesn't have the inherent power to
tax and thus doesn't have the inherent power to grant
exemptions but the moment they are granted the power to
impose, they may also have the power to exempt.
GROUNDS FOR TAX EXEMPTION
1. May be based on contract
2. Based on some ground of public policy
3. Created in a treaty on grounds of reciprocity
EXAMPLES OF EXEMPTION
1. Constitutional exemptions
2. Statutory grants
a. Provided for in the tax code
b. Provided by special laws
3. Based on treaty
CIR V. BOTELLO
20 SCRA 487
FACTS:
The Reparations Commission entered into a Contract of Purchase and
Sales of Reparations Goods with Botelho Shipping, for the purchase of
vessels from Japan. Delivered in Japan to its respective buyers, acting on
behalf of the Commission, the vessels, upon their departure from Tokyo,
on the maiden trip thereof to the Philippines, were issued, by the
Philippine Vice-Consul in said city, provisional certificates of Philippine
registry in the name of the Commission, so that the vessels could proceed
to the Philippines and secure therein the respective final registration
document.
Upon arrival at the port of Manila, the Buyer filed the corresponding
applications for registration of the vessels, but, the Bureau of Customs
placed the same under custody and refused to give due course to said
applications, unless the aforementioned sums of P483,433 and P494,824
be paid as compensating tax. As the Commissioner of Customs refused to
reconsider the stand taken by his office, the Buyers simultaneously filed
with the Court of Tax Appeals their respective petitions for review,
against the Commissioner of Customs and the Commissioner of Internal
Revenue with urgent motion for suspension of the collection of said tax.
This was allowed by the tax court.
While the case was pending, an amendment was made to the Original
Reparations Act, which is being invoked by Botelho for the renovation of
their utilizations contracts with the Commission, which granted the
application, and, then, filed with the Tax Court, their supplemental
petitions for review.
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It seems clear that, under Republic Act No. 1789 pursuant to which the
contracts of Conditional Purchase and Sale in question had been
executed the vessels "M/S Maria Rosello" and "M/S General Lim" were
subject to compensating tax. Indeed, Section 14 of said Act provides that
"reparations goods obtained by private parties shall be exempt only from
the payment of customs duties, consular fees and the special import tax."
Although this Section was amended by R.A. No. 3079, to include the
compensating tax" among the exemptions enumerated therein, such
amendment took place, not only after the contracts involved in these
appeals had been perfected and partly consummated, but, also, after the
corresponding compensating tax had become due and payment thereof
demanded by Appellants herein. It is, moreover, obvious that said
additional exemption should not and cannot be given retroactive
operation, in the absence of a manifest intent of Congress to do this
effect. The issue in the cases at bar hinges on whether or not such intent
is clear.
HELD:
Section 14 of the Law on Reparations, as amended, exempts from the
compensating tax, not particular persons, but persons belonging to a
particular class. Indeed, appellants do not assail the constitutionality of
said section 14, insofar as it grants exemptions to end-users who, after
the approval of Republic Act No. 3079, on June 17, 1961, purchased
reparations goods procured by the Commission. From the viewpoint of
Constitutional Law, especially the equal protection clause, there is no
difference between the grant of exemption to said end-users, and the
extension of the grant to those whose contracts of purchase and sale
mere made before said date, under Republic Act No. 1789.
It is true that Republic Act No. 3079 does not explicitly declare that
those who purchased reparations goods prior to June 17, 1961, are
exempt from the compensating tax. It does not say so, because they do
not really enjoy such exemption, unless they comply with the proviso in
Section 20 of said Act, by applying for the renovation of their respective
utilization contracts, "in order to avail of any provision of the
Amendatory Act which is more favorable" to the applicant. In other
words, it is manifest, from the language of said section 20, that the same
intended to give such buyers the opportunity to be treated "in like
manner and to the same extent as an end-user filing his application after
this approval of this Amendatory Act." Like the "most-favored-nation-
clause" in international agreements, the aforementioned section 20 thus
seeks, not to discriminate or to create an exemption or exception, but to
abolish the discrimination, exemption or exception that would otherwise
result, in favor of the end-user who bought after June 17, 1961 and
against one who bought prior thereto. Indeed, it is difficult to find a
substantial justification for the distinction between the one and the
other.
CIR V. CA
207 SCRA 487
FACTS:
GCL Retirement Plan is an employees' trust maintained by the
employer, GCL Inc., to provide retirement, pension, disability and death
benefits to its employees. The Plan as submitted was approved and
qualified as exempt from income tax by Petitioner Commissioner of
Internal Revenue in accordance with Rep. Act No. 4917. Respondent
GCL made investsments and earned therefrom interest income from
which was witheld the fifteen per centum (15%) final witholding tax
imposed by Pres. Decree No. 1959. It filed for a refund of these withheld
taxes. The refund requested having been denied, Respondent GCL
elevated the matter to respondent Court of Tax Appeals (CTA). The
latter ruled in favor of GCL, holding that employees' trusts are exempt
from the 15% final withholding tax on interest income and ordering a
refund of the tax withheld. Upon appeal, originally to this Court, but
referred to respondent Court of Appeals, the latter upheld the CTA
Decision.
HELD:
It is to be noted that the exemption from withholding tax on interest on
bank deposits previously extended by Pres. Decree No. 1739 if the
recipient (individual or corporation) of the interest income is exempt
from income taxation, and the imposition of the preferential tax rates if
the recipient of the income is enjoying preferential income tax treatment,
were both abolished by Pres. Decree No. 1959. Petitioner thus submits
that the deletion of the exempting and preferential tax treatment
provisions under the old law is a clear manifestation that the single 15%
(now 20%) rate is impossible on all interest incomes from deposits,
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deposit substitutes, trust funds and similar arrangements, regardless of
the tax status or character of the recipients thereof. In short, petitioner's
position is that from 15 October 1984 when Pres. Decree No. 1959 was
promulgated, employees' trusts ceased to be exempt and thereafter
became subject to the final withholding tax.
Upon the other hand, GCL contends that the tax exempt status of the
employees' trusts applies to all kinds of taxes, including the final
withholding tax on interest income.
We uphold the exemption.
To begin with, it is significant to note that the GCL Plan was qualified as
exempt from income tax by the Commissioner of Internal Revenue in
accordance with Rep. Act No. 4917 approved on 17 June 1967. This law
specifically provided:
Sec. 1. Any provision of law to the contrary notwithstanding, the
retirement benefits received by officials and employees of private firms,
whether individual or corporate, in accordance with a reasonable private
benefit plan maintained by the employer shall be exempt from all taxes
and shall not be liable to attachment, levy or seizure by or under any
legal or equitable process whatsoever except to pay a debt of the official
or employee concerned to the private benefit plan or that arising from
liability imposed in a criminal action; . . . (emphasis ours).
In so far as employees' trusts are concerned, the foregoing provision
should be taken in relation to then Section 56(b) (now 53[b]) of the Tax
Code, as amended by Rep. Act No. 1983, supra, which took effect on 22
June 1957. This provision specifically exempted employee's trusts from
income tax and is repeated hereunder for emphasis:
Sec. 56. Imposition of Tax. (a) Application of tax. The taxes imposed by
this Title upon individuals shall apply to the income of estates or of any
kind of property held in trust.
xxx xxx xxx
(b) Exception. The tax imposed by this Title shall not apply to
employee's trust which forms part of a pension, stock bonus or profit-
sharing plan of an employer for the benefit of some or all of his
employees . . .
The tax-exemption privilege of employees' trusts, as distinguished from
any other kind of property held in trust, springs from the foregoing
provision. It is unambiguous. Manifest therefrom is that the tax law has
singled out employees' trusts for tax exemption.
The deletion in Pres. Decree No. 1959 of the provisos regarding tax
exemption and preferential tax rates under the old law, therefore, can
not be deemed to extent to employees' trusts. Said Decree, being a
general law, can not repeal by implication a specific provision, Section
56(b) now 53 [b]) in relation to Rep. Act No. 4917 granting exemption
from income tax to employees' trusts. Rep. Act 1983, which excepted
employees' trusts in its Section 56 (b) was effective on 22 June 1957
while Rep. Act No. 4917 was enacted on 17 June 1967, long before the
issuance of Pres. Decree No. 1959 on 15 October 1984. A subsequent
statute, general in character as to its terms and application, is not to be
construed as repealing a special or specific enactment, unless the
legislative purpose to do so is manifested. This is so even if the provisions
of the latter are sufficiently comprehensive to include what was set forth
in the special act (Villegas v. Subido, G.R. No. L-31711, 30 September
1971, 41 SCRA 190).
Notably, too, all the tax provisions herein treated of come under Title II
of the Tax Code on "Income Tax." Section 21 (d), as amended by Rep. Act
No. 1959, refers to the final tax on individuals and falls under Chapter
II; Section 24 (cc) to the final tax on corporations under Chapter III;
Section 53 on withholding of final tax to Returns and Payment of Tax
under Chapter VI; and Section 56 (b) to tax on Estates and Trusts
covered by Chapter VII, Section 56 (b), taken in conjunction with Section
56 (a), supra, explicitly excepts employees' trusts from "the taxes
imposed by this Title." Since the final tax and the withholding thereof
are embraced within the title on "Income Tax," it follows that said trust
must be deemed exempt therefrom. Otherwise, the exception becomes
meaningless.
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There can be no denying either that the final withholding tax is collected
from income in respect of which employees' trusts are declared exempt
(Sec. 56 [b], now 53 [b], Tax Code). The application of the withholdings
system to interest on bank deposits or yield from deposit substitutes is
essentially to maximize and expedite the collection of income taxes by
requiring its payment at the source. If an employees' trust like the GCL
enjoys a tax-exempt status from income, we see no logic in withholding a
certain percentage of that income which it is not supposed to pay in the
first place.
COMMISSIONER OF INTERNAL REVENUE V. GUERRERO
21 SCRA 180
FACTS:
The Commissioner of Internal Revenue, now petitioner before this Court,
denied the claim for refund in the sum of P2,441.93 filed by the
administrator of the estate of Paul I. Gunn, thereafter substituted by the
present respondent A. D. Guerrero as special administrator under the
above section of the National Internal Revenue Code.2 The deceased
operated an air transportation business under the business name and
style of Philippine Aviation Development; his estate, it was claimed, "was
entitled to the same rights and privileges as Filipino citizens operating
public utilities including privileges in the matter of taxation." The
Commissioner of Internal Revenue disagreed, ruling that such partial
exemption from the gasoline tax was not included under the terms of the
Ordinance and that in accordance with the statute, to be entitled to its
benefits, there must be a showing that the United States of which the
deceased was a citizen granted a similar exemption to Filipinos. The
refund as already noted was denied.
HELD:
We sustain the Commissioner of Internal Revenue; accordingly, the
Court of Tax Appeals is reversed. To the extent that a refund is
allowable, there is in reality a tax exemption. The rule applied with
undeviating rigidity in the Philippines is that for a tax exemption to
exist, it must be so categorically declared in words that admit of no
doubt. No such language may be found in the Ordinance. It furnishes no
support, whether express or implied, to the claim of respondent
Administrator for a refund.
If the language of the Ordinance applies to tax refund or exemption, then
the Court of Tax Appeals should be sustained. It does not, however. Its
terms are clear. Standing alone, without any franchise to supply that
omission, it affords no warrant for the claim here made. While good faith,
no less than adherence to the categorical wording of the Ordinance,
requires that all the rights and privileges thus granted to Americans and
business enterprises owned and controlled by them be respected,
anything further would not be warranted. Nothing less will suffice, but
anything more is not justified.
The Ordinance thus came into being at a time when the liberation of the
Philippines had elicited a vast reservoir of goodwill for the United States,
one that has lasted to this day notwithstanding irritants that mar ever
so often the relationship even among the most friendly of nations. Her
prestige was never so high. The Philippines after hearing opposing views
on the matter conceded parity rights. She adopted the Ordinance. To that
grant, she is committed. Its terms are to be respected. In view of the
equally fundamental postulate that legal concepts imperatively calling
for application cannot be ignored, however, it follows that tax exemption
to Americans or to business owned or controlled directly or indirectly by
American citizens, based solely on the language of the Ordinance, cannot
be allowed. There is nothing in its history that calls for a different view.
Had the parties been of a different mind, they would have employed
words indicative of such intention. What was not there included, whether
by purpose or inadvertence, cannot be judicially supplied.
One final consideration. The Ordinance is designed for a limited period to
allow what the Constitution prohibits; Americans may operate public
utilities. During its effectivity, there should be no thought of whittling
down the grant thus freely made. Nonetheless, being of a limited
duration, it should not be given an interpretation that would trench
further on the plain constitutional mandate to limit the operation of
public utilities to Filipino hands.
It would seem to follow from all the foregoing that the decision of the
Court of Tax Appeals enlarged the scope and operation of the Ordinance.
It failed unfortunately to abide by what the controlling precedents
require, namely, that tax exemption is not to be presumed and that if
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granted, it is to be most strictly construed. No such grant was apparent
on the face of the Ordinance. No such grant could be implied from its
history, much less from its transitory character. The Court of Tax
Appeals went too far. That cannot be done.
PHIL. ACETYLENE CO. INC. V. COMMISSIONER OF INTERNAL
REVENUE
20 SCRA 1967
FACTS:
The petitioner is a corporation engaged in the manufacture and sale of
oxygen and acetylene gases. It made various sales of its products to the
National Power Corporation, an agency of the Philippine Government,
and to the Voice of America an agency of the United States Government.
It was assessed for deficiency taxes and surcharges based on NIRC
provisions on percentage taxes on sales for other articles. Petitioner
denies liability as the two agencies it dealt with were allegedly exempted
from taxation.
HELD:
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. The petitioner invokes in support of its
position a 1954 opinion of the Secretary of Justice which ruled that the
NPC is exempt from the payment of all taxes "whether direct or indirect."
It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it does the tax becomes a part of the price which the
purchaser must pay. It does not matter that an additional amount is
billed as tax to the purchaser. The method of listing the price and the tax
separately and defining taxable gross receipts as the amount received
less the amount of the tax added, merely avoids payment by the seller of
a tax on the amount of the tax. The effect is still the same, namely, that
the purchaser does not pay the tax. He pays or may pay the seller more
for the goods because of the seller's obligation, but that is all and the
amount added because of the tax is paid to get the goods and for nothing
else.14
But the tax burden may not even be shifted to the purchaser at all. A
decision to absorb the burden of the tax is largely a matter of
economics.15 Then it can no longer be contended that a sales tax is a tax
on the purchaser.
We therefore hold that the tax imposed by section 186 of the National
Internal Revenue Code is a tax 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.
This conclusion should dispose of the same issue with respect to sales
made to the VOA, except that a claim is here made that the exemption of
such sales from taxation rests on stronger grounds.
With regard to petitioner's sales to the Voice of America, it appears that
the petitioner and the respondent are in agreement that the Voice of
America is an agency of the United States Government and as such, all
goods purchased locally by it directly from manufacturers or producers
are exempt from the payment of the sales tax under the provisions of the
agreement between the Government of the Philippines and the
Government of the United States, (See Commonwealth Act No. 733)
provided such purchases are supported by serially numbered Certificates
of Tax Exemption issued by the vendee-agency, as required by General
Circular No. V-41, dated October 16, 1947.
However, in conjunction with the Military Bases Agreement, only sales
made "for exclusive use in the construction, maintenance, operation or
defense of the bases," in a word, only sales to the quartermaster, are
exempt under article V from taxation. Sales of goods to any other party
even if it be an agency of the United States, such as the VOA, or even to
the quartermaster but for a different purpose, are not free from the
payment of the tax.
Therefore, that sales to the VOA are subject to the payment of
percentage taxes under section 186 of the Code.
MACEDA V. MACARAIG
197 SCRA 1991
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(*STANDING DOCTRINE)
FACTS:
Commonwealth Act 120 created NAPOCOR as a public corporation to
undertake the development of hydraulic power and the production of
power from other sources. RA 358 (1949) granted NAPOCOR tax and
duty exemption privileges. RA 6395 (1971) revised the charter of the
NAPOCOR, tasking it to carry out the policy of the national
electrification, and provided in detail NAPOCOR’s tax exceptions. PD
380 (1974) specified that NAPOCOR’s exemption includes all taxes, etc.
imposed “directly or indirectly.” PD 938 integrated the exemptions in
favor of GOCCs including their subsidiaries; however, empowering the
President or the Minister of Finance, upon recommendation of the Fiscal
Incentives Review Board (FIRB) to restore, partially or completely, the
exemptions withdrawn or revised. The FIRB issued Resolution 10-85 (7
February 1985) restoring the duty and tax exemptions privileges of
NAPOCOR for period 11 June 1984- 30 June 1985. Resolution 1-86
(1January 1986) restored such exemption indefinitely effective 1 July
1985. EO 93 (1987) again withdrew the exemption. FIRB issued
Resolution 17-87 (24 June 1987) restoring NAPOCOR’s exemption, which
was approved by the President on 5 October 1987.
Since 1976, oil firms never paid excise or specific and ad valorem taxes
for petroleum products sold and delivered to NAPOCOR. Oil companies
started to pay specific and ad valorem taxes on their sales of oil products
to NAPOCOR only in 1984. NAPOCOR claimed for a refund (P468.58
million). Only portion thereof, corresponding to Caltex, was approved
and released by way of a tax credit memo. The claim for refund of taxes
paid by PetroPhil, Shell and Caltex amounting to P410.58 million was
denied. NAPOCOR moved for reconsideration, starting that all
deliveries of petroleum products to NAPOCOR are tax exempt,
regardless of the period of delivery.
HELD:
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 corporation’s existence,
NAPOCOR enjoyed preferential tax treatment “to enable the corporation
to pay the indebtness 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 strictly
construed against NAPOCOR. On the contrary, the law mandates that it
should be interpreted liberally so as to enhance the tax exempt status of
NAPOCOR. It is recognized principle 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.”
**TAKE NOTE: IMPACT OF TAXATION AND INCIDENTS OF
TAXATION
Nota Bene:
1. Test in tax exemptions—When the law mentions that it is
exempted from taxes, this exemption is deemed to be an
exemption from direct taxes.
2. What is controlling is the wording of the provision
granting the exemption and not whether what is involved
is a government body or public property
SEA-LAND SERVICE V. COURT OF APPEALS
357 SCRA 441
FACTS:
Sea-Land Service Incorporated (SEA-LAND), an American international
shipping company licensed by the Securities and Exchange Commission
to do business in the Philippines entered into a contract with the United
States Government to transport military household goods and effects of
U.S. military personnel assigned to the Subic Naval Base.
From the aforesaid contract, SEA-LAND derived an income for the
taxable year 1984 amounting to P58,006,207.54. During the taxable year
in question, SEA-LAND filed with the Bureau of Internal Revenue (BIR)
the corresponding corporate Income Tax Return (ITR) and paid the
income tax due thereon of 1.5% as required in Section 25 (a)(2) of the
National Internal Revenue Code (NIRC) in relation to Article 9 of the
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RP-US Tax Treaty, amounting to P870,093.12.
Claiming that it paid the aforementioned income tax by mistake, a
written claim for refund was filed with the BIR on 15 April 1987.
However, before the said claim for refund could be acted upon by public
respondent Commissioner of Internal Revenue, petitioner-appellant filed
a petition for review with the CTA docketed as CTA Case No. 4149, to
judicially pursue its claim for refund and to stop the running of the two-
year prescriptive period under the then Section 243 of the NIRC.
CTA rendered its decision denying SEA-LAND’s claim for refund of the
income tax it paid in 1984.
HELD:
"Laws granting exemption from tax are construed strictissimi juris
against the taxpayer and liberally in favor of the taxing power. Taxation
is the rule and exemption is the exception." The law "does not look with
favor on tax exemptions and that he who would seek to be thus
privileged must justify it by words too plain to be mistaken and too
categorical to be misinterpreted."
Under Article XII (4) of the RP-US Military Bases Agreement, the
Philippine Government agreed to exempt from payment of Philippine
income tax nationals of the United States, or corporations organized
under the laws of the United States, residents in the United States in
respect of any profit derived under a contract made in the United States
with the Government of the United States in connection with the
construction, maintenance, operation and defense of the bases.
It is obvious that the transport or shipment of household goods and
effects of U.S. military personnel is not included in the term
"construction, maintenance, operation and defense of the bases." Neither
could the performance of this service to the U.S. government be
interpreted as directly related to the defense and security of the
Philippine territories. "When the law speaks in clear and categorical
language, there is no reason for interpretation or construction, but only
for application."9 Any interpretation that would give it an expansive
construction to encompass petitioners exemption from taxation would be
unwarranted.
The avowed purpose of tax exemption "is some public benefit or interest,
which the lawmaking body considers sufficient to offset the monetary loss
entailed in the grant of the exemption." The hauling or transport of
household goods and personal effects of U. S. military personnel would
not directly contribute to the defense and security of the Philippines.
PEOPLE V. CASTANEDA
165 SCRA 327
FACTS:
Criminal information was filed against several accused for allegedly
failing to pay specific taxes on locally manufactured distilled products. A
motion to quash was filed by some of the accused, averring that they
were granted tax amnesty on payment of the subject taxes.
HELD:
The scope of application of the tax amnesty declared by P.D. No. 370 is
marked out in the following broad terms:
A tax amnesty is hereby granted to any person, natural or juridical, who
for any reason whatsoever failed to avail of Presidential Decree No. 23
and Presidential Decree No. 157; or, in so availing of the said
Presidential Decrees failed to include all that were required to be
declared therein if he now voluntarily discloses under this decree all his
previously untaxed income and/or wealth such as earnings, receipts,
gifts, bequests or any other acquisitions from any source whatsoever
which are or were previously taxable under the National Internal
Revenue Code, realized here or abroad by condoning all internal revenue
taxes including the increments or penalties on account of non-payment
as well as all civil, criminal or administrative liabilities, under the
National Internal Revenue Code, the Revised Penal Code, the Anti-Graft
and Corrupt Practices Act, the Revised Administrative Code, the Civil
Service Laws and Regulations, laws and regulations on Immigration and
Deportation, or any other applicable law or proclamation, as it is hereby
condoned, provided a tax of fifteen (15%) per centum on such previously
untaxed income and/or wealth is imposed subject to the following
conditions:
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a. Such previously untaxed income and/or wealth must have been earned
or realized prior to 1973, except the following:
b. Capital gains transactions where the taxpayer has availed of
Presidential Decree No. 16, as amended, but has not complied with the
conditions thereof;
c. Tax liabilities with or without assessments, on withholding tax at
source provided under Sections 53 and 54 of the National Internal
Revenue Code, as amended;
d. Tax liabilities with assessment notices issued as of December 31, 1
973;
e. Tax cases which are the subject of a valid information under Republic
Act No. 2338 as of December 31, 1973; and
f. Property transferred by reason of death or by donation during the year
1972.
xxx xxx xxx
The first point that should be made in respect of P.D. No. 370 is that
compliance with all the requirements of availment of tax amnesty under
P.D. No. 370 would have the effect of condoning not just income tax
liabilities but also "all internal revenue taxes including the increments or
penalties on account of non-payment as well as all civil, criminal or
administrative liabilities, under the Internal Revenue Code, the Revised
Penal Code, the Anti-Graft and Corrupt Practices Act, the Revised
Administrative Code, the Civil Service Laws and Regulations, laws and
regulations on Immigration and Deportation, or any other applicable law
or proclamation." Thus, entitlement to benefits of P.D. No. 370 would
have the effect of condoning or extinguishing the liabilities consequent
upon possession of false and counterfeit internal revenue labels; the
manufacture of alcoholic products subject to specific tax without having
paid the annual privilege tax therefor, and the possession, custody and
control of locally manufactured articles subject to specific tax on which
the taxes had not been paid in accordance with law, in other words, the
criminal liabilities sought to be imposed upon the accused respondents
by the several informations quoted above.
It should be underscored, secondly, that to be entitled to the extinction of
liability provided by P.D. No. 370, the claimant must have voluntarily
disclosed his previously untaxed income or wealth and paid the required
fifteen percent (15%) tax on such previously untaxed income or wealth
imposed by P.D. No.370. Where the disclosure of such previously untaxed
income or wealth was not voluntary but rather the accompaniment or
result of tax cases or tax assessments already pending as of 31 December
1973, the claimant is not entitled to the benefits of P.D. No. 370. Section 1
(a) (4) of P.D. No. 370, expressly excluded from the coverage of P.D. No.
370: "tax cases which are the subject of a valid information under R.A.
No. 2338 as of December 31, 1973." In the instant case, the violations of
the National Internal Revenue Code with which the respondent accused
were charged, had already been discovered by the BIR when P.D. No. 370
took effect on 9 January 1974, by reason of the sworn information or
affidavit-complaints filed by informers with the BIR under Republic Act
No. 2338 prior to 31 December 1973.
It is necessary to note that the "valid information under Republic Act No.
2338" referred to in Section 1 (a) (4) of P.D. No. 370, refers not to a
criminal information filed in court by a fiscal or special prosecutor, but
rather to the sworn information or complaint filed by an informer with
the BIR under R.A. No. 2338 in the hope of earning an informer's reward.
The sworn information or complaint filed with the BIR under R.A. No.
2338 may be considered "valid" where the following conditions are
complied with:
(1) that the information was submitted by a person other than an
internal revenue or customs official or employee or other public official,
or a relative of such official or employee within the sixth degree of
consanguinity;
(2) that the information must be definite and sworn to and must state
the facts constituting the grounds for such information; and
(3) that such information was not yet in the possession of the BIR or the
Bureau of Customs and does not refer to "a case already pending or
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previously investigated or examined by the Commissioner of Internal
Revenue or the Commissioner of Customs, or any of their deputies,
agents or examiners, as the case may be, or the Secretary of Finance or
any of his deputies or agents.
In the instant case, not one but two (2) "informations' or affidavit-
complaints concerning private respondents' operations said to be in
violation of certain provisions of the National Internal Revenue Code,
had been filed with the BIR as of 31 December 1973. In fact, those two
(2) affidavit-complaints had matured into two (2) criminal informations
in court -Criminal Cases Nos. 439 and 440 against the respondent
accused, by 31 December 1973. The six (6) informations docketed as
Criminal Cases Nos. 538-543, while filed in court only on 14 March 1974,
had been based upon the sworn information previously submitted as of
31 December 1973 to the BIR.
It follows that, even assuming respondent accused Francisco Valencia
was otherwise entitled to the benefits of P.D. No. 370, none of the
informations filed against him could have been condoned under the
express provisions of the tax amnesty statute.
Accused Valencia argued that the People were estopped from questioning
his entitlement to the benefits of the tax amnesty, considering that
agents of the BIR had already accepted his application for tax amnesty
and his payment of the required fifteen percent (15%) special tax.
This contention does not persuade. At the time he paid the special fifteen
percent (15%) tax under P.D. No. 370, accused Francisco Valencia had in
fact already been subjected by the BIR to extensive investigation such
that the criminal charges against him could not be condoned under the
provisions of the amnesty statute. Further, acceptance by the BIR agents
of accused Valencia's application for tax amnesty and payment of the
fifteen percent (15%) special tax was no more than a ministerial duty on
the part of such agents. Accused Valencia does not pretend that the BIR
had actually ruled that he was entitled to the benefits of the tax amnesty
statute. In any case, even assuming, though only arguendo, that the BIR
had so ruled, there is the long familiar rule that "erroneous application
and enforcement of the law by public officers do not block, subsequent
correct application of the statute and that the government is never
estopped by mistake or error on the part of its agent." which finds
application in the case at bar. Still further, a tax amnesty, much like to a
tax exemption, is never favored nor presumed in law and if granted by
statute, the terms of the amnesty like that of a tax exemption must be
construed strictly against the taxpayer and liberally in favor of the taxing
authority. Valencia's payment of the special fifteen percent (15%) tax
must be regarded as legally ineffective.
FLORER V. SHERIDAN
36 NE 365; FEBRUARY 1864
FACTS:
The appellee, as plaintiff in the court below, brought her action against
the appellants and Melville W. Miller and George P. Haywood to prevent
the collection of certain taxes by appellant Florer, treasurer of
Tippecanoe county.
The complaint, in substance, alleges that on the 8th day of February,
1890, the defendants Melville W. Miller and George P. Haywood filed in
the office of said Barnes, auditor of Tippecanoe county, Ind., a paper
giving to said auditor the information that Alexander L. Sheridan, then
deceased, was, during the years 1884 to 1889, inclusive, a citizen of the
city of La Fayette and Tippecanoe county, and was the owner of certain
property, subject to taxation for said years, which had not been listed for
taxation, and by reason of which the property had been omitted, and no
taxes paid thereon; that said auditor, acting upon such information, gave
notice to the appellee, who was, at the time of filing the information, the
administratrix of decedent's estate, that he intended to place said
property on the tax duplicate, and required her to appear on the 22d day
of March, 1890, and show cause, if she could, why such assessment
should not be made; that, pursuant to said notice, appellee called upon
said auditor at his office, and informed him that decedent, in his life-
time, had no money loaned, but that for and during the years mentioned
he did own $8,800 of credits, but that the same had not been listed by the
decedent for taxation because, during said time, he was in debt to others
in excess of the credits owned by him; that said auditor, refusing to
investigate further as to the truth of the statements made by said
administratrix, but being advised as to the law by said Miller and
Haywood, claimed that, as the credits and debts were not placed on the
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schedule at the time of the assessment of the decedent, the deduction
could not then be made, and the property should be placed on the tax
duplicate, and taxed as other property, and he thereupon assessed said
credits, and placed the amounts and value on the tax duplicates; that
afterwards, said duplicates being in the hands of said Florer as treasurer
of said county, he was about to proceed to the collection of said taxes out
of the property of the decedent,-and prays that he be enjoined from so
doing. The complaint further avers that said decedent was the owner of
certain real estate in said county, and, inasmuch as said taxes had been
wrongfully assessed and placed on said tax duplicate, they were an
apparent lien on said land, and a claim against said estate, and asks that
they be stricken from said docket. There is also an allegation of a want of
description of the omitted property.
HELD:
The appellee had a right to show cause, if any existed, why such credit
should not be annexed to the tax duplicate to increase the liability of the
estate, unless the clause in section 6332, Rev. St. 1881, is
unconstitutional, which stipulates that, “in making up the amount of
credits which any person is required to list, for himself or for any other
person, company or corporation, he shall be entitled to deduct from the
gross amount of credits the amount of all bona fide debts owing by such
person, company or corporation to any other person, company or
corporation for a consideration received."From the facts averred in the
complaint, it is evident that whatever appellee might have done by way
of making statements before the auditor when she appeared before him
in response to notice to show cause, etc., or in whatever form she might
have presented her claim for deductions, it would, in any event, have
been unavailing, although she was notified to appear for that purpose,
because it is alleged that he refused to allow deductions. The complaint
shows that Miller and Haywood gave information to the auditor in a
paper, partly written and partly printed, that the decedent in his lifetime
had omitted to list “moneys loaned” and “credits” for the time stated, but
described no item of omitted property otherwise than as moneys loaned
or credits, and that, upon this information being filed, the auditor issued
a notice to the appellee in which no property was described as omitted
from taxation, except the amounts of “moneys loaned” and “credits” were
given; but to whom the moneys had been loaned or what the credits were
is not stated in the notice or elsewhere. But money loaned and credits
may, or may not, be of their face value, depending on many
contingencies; and to justify an assessment by the auditor of property of
that character he must know of specific loans and specific credits which
have been omitted, and upon which valuation may be placed.” Especially
is this principle found to be correct when we remember that all taxation
in this state is upon values, and none upon amounts.
CIR V. MARUBENI
372 SCRA 577
FACTS:
Respondent Marubeni Corporation is a foreign corporation organized and
existing under the laws of Japan. It is engaged in general import and
export trading, financing and the construction business. It is duly
registered to engage in such business in the Philippines and maintains a
branch office in Manila.
Sometime in November 1985, petitioner Commissioner of Internal
Revenue issued a letter of authority to examine the books of accounts of
the Manila branch office of respondent corporation for the fiscal year
ending March 1985. In the course of the examination, petitioner found
respondent to have undeclared income from two (2) contracts in the
Philippines, both of which were completed in 1984. One of the contracts
was with the National Development Company (NDC) in connection with
the construction and installation of a wharf/port complex at the Leyte
Industrial Development Estate in the municipality of Isabel, province of
Leyte. The other contract was with the Philippine Phosphate Fertilizer
Corporation (Philphos) for the construction of an ammonia storage
complex also at the Leyte Industrial Development Estate.
Petitioner found that the NDC and Philphos contracts were made on a
"turn-key" basis and that the gross income from the two projects
amounted to P967,269,811.14. Each contract was for a piece of work and
since the projects called for the construction and installation of facilities
in the Philippines, the entire income therefrom constituted income from
Philippine sources, hence, subject to internal revenue taxes. The
assessment letter further stated that the same was petitioner's final
decision and that if respondent disagreed with it, respondent may file an
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appeal with the Court of Tax Appeals within thirty (30) days from receipt
of the assessment.
Earlier, on August 2, 1986, Executive Order (E.O.) No. 412 declaring a
one-time amnesty covering unpaid income taxes for the years 1981 to
1985 was issued. Under this E.O., a taxpayer who wished to avail of the
income tax amnesty should, on or before October 31, 1986: (a) file a
sworn statement declaring his net worth as of December 31, 1985; (b) file
a certified true copy of his statement declaring his net worth as of
December 31, 1980 on record with the Bureau of Internal Revenue (BIR),
or if no such record exists, file a statement of said net worth subject to
verification by the BIR; and (c) file a return and pay a tax equivalent to
ten per cent (10%) of the increase in net worth from December 31, 1980
to December 31, 1985.
In accordance with the terms of E.O. No. 41, respondent filed its tax
amnesty return dated October 30, 1986 and attached thereto its sworn
statement of assets and liabilities and net worth as of Fiscal Year (FY)
1981 and FY 1986. The return was received by the BIR on November 3,
1986 and respondent paid the amount of P2,891,273.00 equivalent to ten
percent (10%) of its net worth increase between 1981 and 1986.
The main controversy in this case lies in the interpretation of the
exception to the amnesty coverage of E.O. Nos. 41 and 64. There are
three (3) types of taxes involved herein income tax, branch profit
remittance tax and contractor's tax. These taxes are covered by the
amnesties granted by E.O. Nos. 41 and 64. Petitioner claims, however,
that respondent is disqualified from availing of the said amnesties
because the latter falls under the exception in Section 4 (b) of E.O. No.
41.
Petitioner argues that at the time respondent filed for income tax
amnesty on October 30, 1986, CTA Case No. 4109 had already been filed
and was pending; before the Court of Tax Appeals. Respondent therefore
fell under the exception in Section 4 (b) of E.O. No. 41.
HELD:
Section 4 (b) of E.O. No. 41 is very clear and unambiguous. It excepts
from income tax amnesty those taxpayers "with income tax cases already
filed in court as of the effectivity hereof." The point of reference is the
date of effectivity of E.O. No. 41. The filing of income tax cases in court
must have been made before and as of the date of effectivity of E.O. No.
41. Thus, for a taxpayer not to be disqualified under Section 4 (b) there
must have been no income tax cases filed in court against him when E.O.
No. 41 took effect. This is regardless of when the taxpayer filed for
income tax amnesty, provided of course he files it on or before the
deadline for filing.
E.O. No. 41 took effect on August 22, 1986. CTA Case No. 4109
questioning the 1985 deficiency income, branch profit remittance and
contractor's tax assessments was filed by respondent with the Court of
Tax Appeals on September 26, 1986. When E.O. No. 41 became effective
on August 22, 1986, CTA Case No. 4109 had not yet been filed in court.
Respondent corporation did not fall under the said exception in Section 4
(b), hence, respondent was not disqualified from availing of the amnesty
for income tax under E.O. No. 41.
The same ruling also applies to the deficiency branch profit remittance
tax assessment. A branch profit remittance tax is defined and imposed in
Section 24 (b) (2) (ii), Title II, Chapter III of the National Internal
Revenue Code.6 In the tax code, this tax falls under Title II on Income
Tax. It is a tax on income. Respondent therefore did not fall under the
exception in Section 4 (b) when it filed for amnesty of its deficiency
branch profit remittance tax assessment.
The difficulty herein is with respect to the contractor's tax assessment
and respondent's availment of the amnesty under E.O. No. 64.
In view of the amendment introduced by E.O. No. 64, Section 4 (b) cannot
be construed to refer to E.O. No. 41 and its date of effectivity. The
general rule is that an amendatory act operates prospectively.9 While an
amendment is generally construed as becoming a part of the original act
as if it had always been contained therein,10 it may not be given a
retroactive effect unless it is so provided expressly or by necessary
implication and no vested right or obligations of contract are thereby
impaired.11
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There is nothing in E.O. No. 64 that provides that it should retroact to
the date of effectivity of E.O. No. 41, the original issuance. Neither is it
necessarily implied from E.O. No. 64 that it or any of its provisions
should apply retroactively. Executive Order No. 64 is a substantive
amendment of E.O. No. 41. It does not merely change provisions in E.O.
No. 41. It supplements the original act by adding other taxes not covered
in the first.12 It has been held that where a statute amending a tax law
is silent as to whether it operates retroactively, the amendment will not
be given a retroactive effect so as to subject to tax past transactions not
subject to tax under the original act.13 In an amendatory act, every case
of doubt must be resolved against its retroactive effect.14
Moreover, E.O. Nos. 41 and 64 are tax amnesty issuances. A tax amnesty
is a general pardon or intentional overlooking by the State of its authority
to impose penalties on persons otherwise guilty of evasion or violation of a
revenue or tax law. It partakes of an absolute forgiveness or waiver by the
government of its right to collect what is due it and to give tax evaders
who wish to relent a chance to start with a clean slate. A tax amnesty,
much like a tax exemption, is never favored nor presumed in law. If
granted, the terms of the amnesty, like that of a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing
authority. For the right of taxation is inherent in government. The State
cannot strip itself of the most essential power of taxation by doubtful
words. He who claims an exemption (or an amnesty) from the common
burden must justify his claim by the clearest grant of organic or state
law. It cannot be allowed to exist upon a vague implication. If a doubt
arises as to the intent of the legislature, that doubt must be resolved in
favor of the state.
TAX EVASION V. TAX AVOIDANCE
 A taxpayer can decrease the amount of, or altogether avoid,
taxes by any lawful means.
 A tax-saving motivation does not justify the taxing authorities
or the courts in nullifying or disregarding a taxpayer's otherwise
proper and bona fide choice among courses of action, and the
state cannot complain, when a taxpayer resorts to a legal
method available to him to compute his tax liability, that the
result is more beneficial to the taxpayer than was intended.
 It is not an evasion of taxation where changes in the basic facts
affecting tax liability are made for the purpose of avoiding
taxation, if such changes are actual and not merely simulated.
 Thus, one may change one's residence to avoid taxation, or
change the form of one's property by putting one's money into
nontaxable securities, or in the form of property which would be
taxed less, and not be guilty of fraud.
 However, income is taxed to the party who earns it and liability
may not be avoided by an anticipatory assignment of such
income.
CIR V. ESTATE OF TODA
438 SCRA 291
FACTS:
The case at bar stemmed from a Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for deficiency income tax arising from
an alleged simulated sale of a 16-storey commercial building known as
Cibeles Building, situated on two parcels of land on Ayala Avenue,
Makati City.
On 2 March 1989, CIC authorized Benigno P. Toda, Jr., President and
owner of 99.991% of its issued and outstanding capital stock, to sell the
Cibeles Building and the two parcels of land on which the building
stands for an amount of not less than P90 million.4
On 30 August 1989, Toda purportedly sold the property for P100 million
to Rafael A. Altonaga, who, in turn, sold the same property on the same
day to Royal Match Inc. (RMI) for P200 million. These two transactions
were evidenced by Deeds of Absolute Sale notarized on the same day by
the same notary public.5
For the sale of the property to RMI, Altonaga paid capital gains tax in
the amount of P10 million.6
On 16 April 1990, CIC filed its corporate annual income tax return7 for
the year 1989, declaring, among other things, its gain from the sale of
real property in the amount of P75,728.021. After crediting withholding
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taxes of P254,497.00, it paid P26,341,2078 for its net taxable income of
P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun
T. Choa for P12.5 million, as evidenced by a Deed of Sale of Shares of
Stocks.9 Three and a half years later, or on 16 January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an
assessment notice10 and demand letter to the CIC for deficiency income
tax for the year 1989 in the amount of P79,099,999.22.
The new CIC asked for a reconsideration, asserting that the assessment
should be directed against the old CIC, and not against the new CIC,
which is owned by an entirely different set of stockholders; moreover,
Toda had undertaken to hold the buyer of his stockholdings and the CIC
free from all tax liabilities for the fiscal years 1987-1989.
HELD:
Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation. Tax avoidance is the tax saving
device within the means sanctioned by law. This method should be used
by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when
availed of, it usually subjects the taxpayer to further or additional civil or
criminal liabilities.
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as being “evil,” in
“bad faith,” “willful,” or “deliberate and not accidental”; and (3) a course
of action or failure of action which is unlawful.
All these factors are present in the instant case.
The investigation conducted by the BIR disclosed that Altonaga was a
close business associate and one of the many trusted corporate executives
of Toda.
The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from
Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
Fraud in its general sense, “is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another.”
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga,
which was prompted more on the mitigation of tax liabilities than for
legitimate business purposes constitutes one of tax evasion. The objective
of the sale to Altonaga was to reduce the amount of tax to be paid
especially that the transfer from him to RMI would then subject the
income to only 5% individual capital gains tax, and not the 35% corporate
income tax. Altonagas sole purpose of acquiring and transferring title of
the subject properties on the same day was to create a tax shelter.
Altonaga never controlled the property and did not enjoy the normal
benefits and burdens of ownership. The sale to him was merely a tax
ploy, a sham, and without business purpose and economic substance.
Generally, a sale or exchange of assets will have an income tax incidence
only when it is consummated. The incidence of taxation depends upon the
substance of a transaction. The tax consequences arising from gains from
a sale of property are not finally to be determined solely by the means
employed to transfer legal title. Rather, the transaction must be viewed as
a whole, and each step from the commencement of negotiations to the
consummation of the sale is relevant. A sale by one person cannot be
transformed for tax purposes into a sale by another by using the latter as
a conduit through which to pass title. To permit the true nature of the
transaction to be disguised by mere formalisms, which exist solely to
alter tax liabilities, would seriously impair the effective administration of
the tax policies of Congress.
CONSTRUCTION OF STATUTORY EXEMPTIONS
GENERAL RULE
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 Exemptions are not favored and are construed strictissimi juris
against the taxpayer
 An exemption from the common burden cannot be permitted to
exist upon vague implication or inference
 The fundamental theory is that all taxable property should bear
the share of the cost and expense of government
 Applying a strict interpretation would minimize differential
treatment and foster fairness and equality among taxpayers
 Taxation is the rule and the exemption the exception
 Therefore, whoever claims exemption must be able to justify his
claim or right thereto by a grant expressed in terms too plain to
be mistaken and too categorical to be misinterpreted
 If not expressly mentioned by law, it must be at least within its
purview by clear legislative intent
APPLICABILITY TO CLAIMS FOR REFUNDS
 Claims for refunds partake of the nature of tax exemptions and
will not be allowed unless granted in the most explicit and
categorical language
WHEN EXEMPTION STATUTES ARE LIBERALLY CONSTRUED
1. When the law itself expressly provides for a liberal construction,
that is, in case of doubt, it shall be resolved in favor of the
exemption
2. When the exemption is in favor of the government itself or its
agencies, because the general rule is that they will always be
exempt from tax
3. When the exemption refers to charitable, religious, and
educational institutions
4. If there is an express mention or if the taxpayer falls within the
purview of the exemption by clear legislative intent, the rule on
strict construction doesn’t apply
5. When special taxes affecting a special class of people are
involved
E. RODRIGUEZ INC. V. COLLECTOR OF INTERNAL REVENUE
GR L-23041, JULY 31, 1969
FACTS:
Expropriation proceedings were done for a parcel of land for the
construction of a new capital city. This land was owned by the
petitioner. The court then ordered for the expropriation of the same and
the parties then entered into a compromise agreement for the payment
terms. Part of the forms of payment would be the issuance of bonds.
And when the petitioner filed its income tax return, it reported a loss and
didn’t consider in its return the value of the bonds received by it from the
government, thinking that it was exempt from taxation. It was then
assessed for the deficiency tax payment and for it, the petitioner moved
for reconsideration but was eventually denied. It tried to enter into
compromise with the BIR but again was denied.
HELD:
As petitioner correctly puts it, the only question to decide here is whether
or not in determining the profit realized from the payment of the
purchase price of its (petitioner’s) expropriated property, for income tax
purposes portion of the purchase price paid in the form of tax-exempt
bonds issued under Republic Act No. 333 should be included.
The pertinent provisions of law involved are found in Section 9 of the Act
abovementioned, which reads as follows:
SEC. 9. The President of the Philippines is authorized to issue, in the
name and behalf of the Republic of the Philippines, bonds in an amount
of twenty million pesos, the proceeds of which shall be used as a
revolving fund for the acquisition of private estates, the subdivision of
the area, and the construction of streets, bridges, waterworks, sewerage
and other municipal improvements in the Capital City of the Philippines.
The bonds so authorized to be issued shall bear such date and in such
form as the President of the Philippines may determine and shall bear
such rate of interest and run for such length of time as may be
determined by the President. Both principal and interest shall be
payable in Philippine currency or its equivalent in the United States
currency, in the discretion of the Secretary of Finance, at the Treasury of
the Philippines, and the interest shall be payable at such periods as the
President of the Philippines may determine.
Said bonds shall be exempt from taxation by the Government of the
Republic of the Philippines or by any political or municipal subdivisions
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thereof, which fact shall be stated upon their face, in accordance with
this Act, under which the said bonds are issued.
There can be no question that petitioner is taxable on its income derived
from the sale of its property to the Government. The fact that a portion of
the purchase price of the property was paid by the Government in the
form of tax exempt bonds does not operate to exempt said income from
income tax. The income from the sale of the land in question and the
bond are two different and distinct taxable items so that the exemption
of one does not operate to exempt the other, unless the law expressly so
provides.
It is alleged that to deny exemption from income tax on the amount
represented by the said bonds would be to nullify the purpose of the law
in granting exemption. The question has been asked: If income or gain
derived from the acceptance of such bonds in exchange for private estates
would be taxed, what inducement did such provision of Republic Act No.
333 give to landowners to accept payment in bonds for their properties in
the proposed site of the Capital City? To our mind, there is sufficient
inducement, and that is, the exemption not only of the bonds from
documentary stamp tax but also of the interest derived from such bonds.
Exemptions from taxation are highly disfavored, so much so that they
may almost be said to be odious to the law. He who claims an exemption
must be able to point to some positive provision of law creating the right.
It cannot be allowed to exist upon a vague implication. The right of
taxation is inherent in the State. It is a prerogative essential to the
perpetuity of the government; and he who claims an exemption from the
common burden, must justify his claim by the clearest grant of organic or
statute law.
The above rules should be applied to the case at bar where the law
invoked (Section 9 of Republic Act No. 333) does not make any reference
whatsoever to exemption of income derived from sale of expropriated
property thereunder unlike under Republic Act No. 1400 where relative
to the price paid by the Government for any agricultural land acquired
for resale to tenants there is an express declaration that the same “shall
not be considered as income of the landowner concerned for purposes of
the income tax.” Nor are We convinced by the argument that the
particular provision of Republic Act No. 333 relied upon which grants
exemption on bonds issued thereunder for purposes of inducement to
private landowners within the new capital site to part away with their
properties in favor of the Government other than for cash should be
taken to mean that said property owners need not pay income tax on
their income derived from the sale of such properties. The pertinent
Congressional Record of the proceedings held during the consideration of
the bill which later became Republic Act No. 333, does not show that
Congress had intended to exempt said property owners from the
payment of income tax on the proceeds of the sale of their properties
when the same is paid in government bonds issued under the said law.
REPUBLIC FLOUR MILLS CASE
WONDER MECHANICAL ENGINEERING V. CTA
64 SCRA 555
FACTS:
Wonder Mechanical Engineering Corp. was granted tax exemption
privilege under RA 35 in respect to the “manufacture of machines for
making cigarette papers, pails, washers, rivets, nails, candies, chairs,
etc.” The tax exemption expired on 30 May 1951. In 1953, the company
applied with the secretary of Finance for the reinstatement of the
exemption privilege under the provisions of RA 901, the reinstatement to
commence on the date RA 901 took effect. The company was given a
Certificate of Tax Exemption on 7 July 1954, exemption it similarly as in
RA 35 until 31 December 1958, with diminishing exemption until 20
June 1955. The Commissioner assessed sales tax on gross sales of
articles manufactured by it, including steel chairs. The company
appealed to the Court of Tax Appeals.
HELD:
The company was granted tax exemption in the manufacture and sale of
“machines for making cigarette paper, pails, etc.” but not for the
manufacture and sale of articles produced by those machines. The
manufacture of steel chairs, jeep parts, and other articles not
constituting machines for making certain products would not fall under
the classification of “new and necessary” industries envisioned in RA 35
and 901 as to entitle the company to tax exemption. Exemptions are
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highly disfavored in law and he who claims tax exemption must be able to
justify his claim or right thereto by the clearest grant of organic or statute
law. Tax exemption must be clearly expressed and cannot be established
by implication.
LUZON STEVEDORING CORP. V. CTA
163 SCRA 647
FACTS:
For the repair and maintenance of its tugboats, petitioner imported
various engine parts and other equipment for which it paid, under
protest, the assessed compensating tax. It filed for refund but was
denied the same because of lack of legal justification.
The petition hinges on the issue on whether tugboats of petitioner come
within the purview of vessels, which are considered as exempted from tax
in the NIRC. Petitioner contends that tugboats are embraced and
included in the term cargo vessel under the tax exemption provisions of
Section 190 of the Revenue Code, as amended by Republic Act. No. 3176.
He argues that in legal contemplation, the tugboat and a barge loaded
with cargoes with the former towing the latter for loading and unloading
of a vessel in part, constitute a single vessel. Accordingly, it concludes
that the engines, spare parts and equipment imported by it and used in
the repair and maintenance of its tugboats are exempt from
compensating tax.
HELD:
This Court has laid down the rule that “as the power of taxation is a high
prerogative of sovereignty, the relinquishment is never presumed and any
reduction or dimunition thereof with respect to its mode or its rate, must
be strictly construed, and the same must be coached in clear and
unmistakable terms in order that it may be applied.”
The general rule is that any claim for exemption from the tax statute
should be strictly construed against the taxpayer.
In order that the importations in question may be declared exempt from
the compensating tax, it is indispensable that the requirements of the
amendatory law be complied with, namely: (1) the engines and spare
parts must be used by the importer himself as a passenger and/or cargo,
vessel; and (2) the said passenger and/or cargo vessel must be used in
coastwise or oceangoing navigation. The imported items to be exempted
must be used by the importer himself as operator of passenger and/or
cargo vessel.
A tugboat is defined as follows—
A tugboat is a strongly built, powerful steam or power vessel, used for
towing and, now, also used for attendance on vessel. (Webster New
International Dictionary, 2nd Ed.); a tugboat is a diesel or steam power
vessel designed primarily for moving large ships to and from piers for
towing barges and lighters in harbors, rivers and canals. (Encyclopedia
International Grolier, Vol. 18, p. 256); a tug is a steam vessel built for
towing, synonymous with tugboat. (Bouvier’s Law Dictionary.)
Under the foregoing definitions, petitioner’s tugboats clearly do not fall
under the categories of passenger and/or cargo vessels. Thus, it is a
cardinal principle of statutory construction that where a provision of law
speaks categorically, the need for interpretation is obviated, no plausible
pretense being entertained to justify non-compliance. All that has to be
done is to apply it in every case that falls within its terms.
FLORO CEMENT V. HEN. GOROSPE
200 SCRA 480
FACTS:
The municipality of Lugait, province of Misamis Oriental, represented
jointly in this action by its Municipal Treasurer and the Provincial
Treasurer of the said province, filed with this Court a verified complaint
for collection of taxes against the defendant Floro Cement Corporation, a
company engaged in mining operations. Beforehand, when it was
granted authority to operate mines, it was given tax exemption for a
period of five years. After expiration of the first period, it was extended.
This was opposed to by the municipal government.
The defendant set up the defense that it is not liable to pay
manufacturer’s and exporter’s taxes alleging among others that the
plaintiffs power to levy and collect taxes, fees, rentals, royalties or
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charges of any kind whatsoever on defendant has been limited or
withdrawn by Section 52 of Presidential Decree No. 463 which provides:
Sec. 52. Power to Levy Taxes on Mines, Mining Corporation and Mineral
Products.Any law to the contrary notwithstanding, no province, city,
municipality, barrio or municipal district shall levy and collect taxes,
fees, rentals, royalties or charges of any kind whatsoever on mines,
mining claims, mineral products, or on any operation, process or activity
connected therewith.
HELD:
On the exemption claimed by petitioner, this Court has laid down the
rule that as the power of taxation is a high prerogative of sovereignty,
the relinquishment is never presumed and any reduction or diminution
thereof with respect to its mode or its rate, must be strictly construed,
and the same must be coached in clear and unmistakable terms in order
that it may be applied. More specifically stated, the general rule is that
any claim for exemption from the tax statute should be strictly construed
against the taxpayer (Luzon Stevedoring Corporation vs. Court of
Appeals, 163 SCRA 647 [1988]). He who claims an exemption must be
able to point out some provision of law creating the right; it cannot be
allowed to exist upon a mere vague implication or inference. It must be
shown indubitably to exist, for every presumption is against it, and a
well-founded doubt is fatal to the claim (Manila Electric Company vs.
Ver, 67 SCRA 351 [1975]). The petitioner failed to meet this requirement.
As held by the lower court, the exemption mentioned in Sec. 52 of P.D.
No. 463 refers only to machineries, equipment, tools for production, etc.,
as provided in Sec. 53 of the same decree. The manufacture and the
export of cement does not fall under the said provision for it is not a
mineral product.
It is not cement that is mined only the mineral products composing the
finished product
CIR V. LEDESMA
31 SCRA 95
FACTS:
Respondents, Carlos Ledesma, Julieta Ledesma and the spouses Amparo
Ledesma and Vicente Gustilo, Jr., purchased from their parents, Julio
Ledesma and Florentina de Ledesma, the sugar plantation known as
“Hacienda Fortuna”. After their purchase of the plantation, herein
respondents took over the sugar cane farming on the plantation. The
respondents shared equally the expenses of production, on the basis of
their respective one-third undivided portions of the plantation. The San
Carlos Milling Co., Ltd. issued to respondents separate quedans for the
sugar produced, based on the quota under the plantation audits
respectively issued to them. In their individual income tax returns for
the year 1949 the respondents included as part of their income their
respective net profits derived from their individual sugar production
from the “Hacienda Fortuna,” as herein-above stated.
Respondents organized themselves into a general co-partnership under
the firm name “Hacienda Fortuna”, for the “production of sugar cane for
conversion into sugar, palay and corn and such other products as may
profitably be produced on said hacienda, which products shall be sold or
otherwise disposed of for the purpose of realizing profit for the
partnership.”
The Collector assessed it for corporate income tax to which the
respondents opposed to. Respondents averred that they were operating
merely as co-owners of the plantation known as “Hacienda Fortuna”, so
that the case of the “Hacienda Fortuna” was really one of co-ownership
and not that of an unregistered co-partnership which was subject to
corporate tax.
HELD:
The provision of law that is relevant to this question is, that portion of
Section 24 of the National Internal Revenue Code which reads as follows:
Sec. 24. Rate of tax on corporation. (a) Tax on domestic corporations. In
general, there shall be levied, collected, and paid annually upon the total
net income received in the preceding taxable year from all sources by
every corporation organized in, or existing under the laws of, the
Philippines, no matter how created or organized, but not including duly
registered general co-partnerships ( rystalli colectivas), domestic life
insurance companies and foreign life insurance companies doing business
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in the Philippines, a tax upon such income equal to the sum of the
following: (Italics supplied.).
xxx xxx xxx
It is the contention of the Commissioner that it is only from the date of
the registration of the articles of general co- partnership in the
mercantile register when a co-partnership is exempt from the payment of
corporate income tax under Section 24 of the Tax Code. It is the position
of the Commissioner, in the present case, that the partnership known as
“Hacienda Fortuna” is exempt from the payment of corporate income tax
due only on income received from July 14, 1949, the date of the
registration of its articles of general co-partnership. In other words, from
January 1 to July 13, 1949 the partnership “Hacienda Fortune” should
be considered still an unregistered co-partnership for the purposes of the
assessment of the corporate income tax, notwithstanding the fact that
paragraph 14 of its articles of co-partnership provides that the
partnership agreement should retroact to January 1, 1949. Thus, as
stated at the earlier part of this decision, the Commissioner instructed
the provincial revenue agent in Negros Occidental to determine the net
income of the “Hacienda Fortuna” for the period from January 1 to July
13, 1949, said agent having reported that the net income of the
partnership during that period amounted to P131,477.20, and that the
corporate income tax due on that net income was P15,777.26. It is this
amount of P15,777.26 which the Commissioner insists in collecting from
the respondents.
On the other hand, the respondents contend that prior to July 14, 1949
they were operating the sugar plantation that they bought from their
parents under a system of co-ownership, and not as a partnership, so
that they were not under obligation to pay the corporate income tax
assessed by the Commissioner on the alleged income of the partnership
“Hacienda Fortuna” from January 1 to July 13, 1949. The respondents
further contend that even assuming that they were operating the sugar
plantation as a partnership the registration of the articles of general co-
partnership on July 14, 1949 had operated to exempt said partnership
from corporate income tax on its net income during the entire taxable
year, from January 1 to December 31, 1949.
The provision of law that is relevant to this question is, that portion of
Section 24 of the National Internal Revenue Code which reads as follows:
Sec. 24. Rate of tax on corporation. (a) Tax on domestic corporations. In
general, there shall be levied, collected, and paid annually upon the total
net income received in the preceding taxable year from all sources by
every corporation organized in, or existing under the laws of, the
Philippines, no matter how created or organized, but not including duly
registered general co-partnerships ( rystalli colectivas), domestic life
insurance companies and foreign life insurance companies doing business
in the Philippines, a tax upon such income equal to the sum of the
following: (Italics supplied.).
xxx xxx xxx
It is the contention of the Commissioner that it is only from the date of
the registration of the articles of general co- partnership in the
mercantile register when a co-partnership is exempt from the payment of
corporate income tax under Section 24 of the Tax Code. It is the position
of the Commissioner, in the present case, that the partnership known as
“Hacienda Fortuna” is exempt from the payment of corporate income tax
due only on income received from July 14, 1949, the date of the
registration of its articles of general co-partnership. In other words, from
January 1 to July 13, 1949 the partnership “Hacienda Fortune” should
be considered still an unregistered co-partnership for the purposes of the
assessment of the corporate income tax, notwithstanding the fact that
paragraph 14 of its articles of co-partnership provides that the
partnership agreement should retroact to January 1, 1949. Thus, as
stated at the earlier part of this decision, the Commissioner instructed
the provincial revenue agent in Negros Occidental to determine the net
income of the “Hacienda Fortuna” for the period from January 1 to July
13, 1949, said agent having reported that the net income of the
partnership during that period amounted to P131,477.20, and that the
corporate income tax due on that net income was P15,777.26. It is this
amount of P15,777.26 which the Commissioner insists in collecting from
the respondents.
On the other hand, the respondents contend that prior to July 14, 1949
they were operating the sugar plantation that they bought from their
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parents under a system of co-ownership, and not as a partnership, so
that they were not under obligation to pay the corporate income tax
assessed by the Commissioner on the alleged income of the partnership
“Hacienda Fortuna” from January 1 to July 13, 1949. The respondents
further contend that even assuming that they were operating the sugar
plantation as a partnership the registration of the articles of general co-
partnership on July 14, 1949 had operated to exempt said partnership
from corporate income tax on its net income during the entire taxable
year, from January 1 to December 31, 1949.
RESINS INC. V. AUDITOR GENERAL
25 SCRA 754
FACTS:
Petitioner here, as did petitioner in Casco Philippine Chemical Co., Inc.
v. Gimenez,1 would seek a refund2 from respondent Central Bank on the
claim that it was exempt from the margin fee under Republic Act No.
2609 for the importation of urea and formaldehyde, as separate units,
used for the production of synthetic glue of which it was a manufacturer.
Since the specific language of the Act speak of “urea formaldehyde,”3 and
petitioner admittedly did import urea and formaldehyde separately, its
plea could be granted only if it could be construed to read “urea and
formaldehyde.”
HELD:
‘Urea formaldehyde’ is clearly a finished product, which is patently
distinct and different from ‘urea’ and ‘formaldehyde’, as separate articles
used in the manufacture of the synthetic resins known as ‘urea
formaldehyde’. Petitioner contends, however, that the bill approved in
Congress contained the copulative conjunction ‘and’ between the terms
‘urea’ and ‘formaldehyde’, and that the members of Congress intended to
exempt ‘urea’ and ‘formaldehyde’ separately as essential elements in the
manufacture of the synthetic resin glue called ‘urea formaldehyde’ not
the latter as a finished product, citing in support of this view the
statements made on the floor of the Senate, during the consideration of
the bill before said House, by members thereof but following the enrolled
bill doctrine, the law is binding upon the courts.
As a refund undoubtedly partakes of a nature of an exemption, it cannot
be allowed unless granted in the most explicit and categorical language.
It has been the constant and uniform holding that exemption from
taxation is not favored and is never presumed, so that if granted it must
be strictly construed against the taxpayer. Affirmatively put, the law
frowns on exemption from taxation, hence, an exempting provision
should be construed strictissimi juris.” Certainly, whatever may be said
of the statutory language found in Republic Act 2609, it would be going
too far to assert that there was such a clear and manifest intention of
legislative will as to compel such a refund.
CIR V. CA AND YMCA
298 SCRA 83
FACTS:
Private Respondent YMCA is a non-stock, non-profit institution, which
conducts various programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational and
charitable objectives.
During the relevant year, private respondent earned, among others
income from leasing out a portion of its premises to small shop owners,
like restaurants and canteen operators, and from parking fees collected
from non-members. The Commissioner of internal revenue (CIR) issued
an assessment to private respondent for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. Private respondent formally
protested the assessment. In reply, the CIR denied the claims of YMCA.
HELD:
Because taxes are the lifeblood of the nation, the Court has always
applied the doctrine of strict in interpretation in construing tax
exemptions. Furthermore, a claim of statutory exemption from taxation
should be manifest. And unmistakable from the language of the law on
which it is based. Thus, the claimed exemption “must expressly be
granted in a statute stated in a language too clear to be mistaken.”
In the instant case, the exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Section 27
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of the NIRC which mandates that the income of exempt organizations
(such as the YMCA) from any of their properties, real or personal, be
subject to the tax imposed by the same Code. Because the last paragraph
of said section unequivocally subjects to tax the rent income of the YMCA
from its real property, the Court is duty-bound to abide strictly by its
literal meaning and to refrain from resorting to any convoluted attempt
at construction.
SOURCES AND CONSTRUCTION OF TAX LAWS
SOURCES OF TAX LAW
1. STATUTES
2. REVENUE REGULATIONS
3. REVENUE MEMORANDUM CIRCULARS/ORDERS (BIR
REVENUE ADMINISTRATIVE ORDER NO. 2-2001)
a. Clarification of the tax code, reminders and notices
b. Orders—guidelines and policies in following procedures
4. BIR RULINGS (BIR REVENUE ADMINISTRATIVE
ORDER NO. 2-2001)
a. The less general interpretations of the tax laws are
called rulings which are issued by tax officials in the
performance of their functions
b. They are usually rendered upon request of taxpayers to
clarify certain provisions of the tax law.
c. The rulings may be revoked by the Secretary of Finance
in case they are found to be not in accordance with the
law
d. Commissioner cannot delegate to any of his subordinate
officials the power to issue rulings of first impression
5. OPINIONS OF SECRETARY OF JUSTICE
a. The secretary is the chief legal counsel of the
government
b. His opinions have the character of substantive rules
and are generally binding and effective if otherwise not
contrary to the Constitution and the laws
c. They are sought when there is conflict between
interpretations of the BIR and the DOF
6. LEGISLATIVE MATERIALS
a. Minutes of deliberations
7. COURT DECISIONS
THE STATUTE
1. EXISTING TAX LAW
a. National
i. NATIONAL INTERNAL REVENUE CODE OF
1997
ii. TARIFF AND CUSTOMS CODE
b. Local—BOOK II, 1991 LOCAL GOVERNMENT CODE
REVENUE REGULATIONS: BIR-RR
SEC. 244. Authority of Secretary of Finance to Promulgate Rules and
Regulations. — The Secretary of Finance, upon recommendation of the
Commissioner, shall promulgate all needful rules and regulations for the
effective enforcement of the provisions of this Code.
SEC. 245. Specific Provisions to be Contained in Rules and Regulations.
— The rules and regulations of the Bureau of Internal Revenue shall,
among other thins, contain provisions specifying, prescribing or defining:
(a) The time and manner in which Revenue Regional Director shall
canvass their respective Revenue Regions for the purpose of discovering
persons and property liable to national internal revenue taxes, and the
manner in which their lists and records of taxable persons and taxable
objects shall be made and kept;
(b) The forms of labels, brands or marks to be required on goods
subject to an excise tax, and the manner in which the rystall, branding
or marking shall be effected;
(c) The conditions under which and the manner in which goods
intended for export, which if not exported would be subject to an excise
tax, shall be rystal, branded or marked;
(d) The conditions to be observed by revenue officers respecting the
institutions and conduct of legal actions and proceedings;
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(e) The conditions under which goods intended for storage in bonded
warehouses shall be conveyed thither, their manner of storage and the
method of keeping the entries and records in connection therewith, also
the books to be kept by Revenue Inspectors and the reports to be made by
them in connection with their supervision of such houses;
(f) The conditions under which denatured alcohol may be removed
and dealt in, the character and quantity of the denaturing material to be
used, the manner in which the process of denaturing shall be effected, so
as to render the alcohol suitably denatured and unfit for oral intake, the
bonds to be given, the books and records to be kept, the entries to be
made therein, the reports to be made to the Commissioner, and the signs
to be displayed in the business or by the person for whom such
denaturing is done or by whom, such alcohol is dealt in;
(g) The manner in which revenue shall be collected and paid, the
instrument, document or object to which revenue stamps shall be affixed,
the mode of cancellation of the same, the manner in which the proper
books, records, invoices and other papers shall be kept and entries
therein made by the person subject to the tax, as well as the manner in
which licenses and stamps shall be gathered up and returned after
serving their purposes;
(h) The conditions to be observed by revenue officers respecting the
enforcement of Title III imposing a tax on estate of a decedent, and other
transfers mortis causa, as well as on gifts and such other rules and
regulations which the Commissioner may consider suitable for the
enforcement of the said Title III;
(i) The manner in which tax returns, information and reports shall be
prepared and reported and the tax collected and paid, as well as the
conditions under which evidence of payment shall be furnished the
taxpayer, and the preparation and publication of tax statistics;
(j) The manner in which internal revenue taxes, such as income tax,
including withholding tax, estate and donor’s taxes, value-added tax,
other percentage taxes, excise taxes and documentary stamp taxes shall
be paid through the collection officers of the Bureau of Internal Revenue
or through duly authorized agent banks which are hereby deputized to
receive payments of such taxes and the returns, papers and statements
that may be filed by the taxpayers in connection with the payment of the
tax: Provided, however, That notwithstanding the other provisions of this
Code prescribing the place of filing of returns and payment of taxes, the
Commissioner may, by rules and regulations, require that the tax
returns, papers and statements that may be filed by the taxpayers in
connection with the payment of the tax. Provided, however, That
notwithstanding the other provisions of this Code prescribing the place of
filing of returns and payment of taxes, the Commissioner may, by rules
and regulations require that the tax returns, papers and statements and
taxes of large taxpayers be filed and paid, respectively, through collection
officers or through duly authorized agent banks: Provided, further, That
the Commissioner can exercise this power within six (6) years from the
approval of Republic Act No. 7646 or the completion of its comprehensive
computerization program, whichever comes earlier: Provided, finally,
That separate venues for the Luzon, Visayas and Mindanao areas may be
designated for the filing of tax returns and payment of taxes by said
large taxpayers.
For the purpose of this Section, “large taxpayer” means a taxpayer who
satisfies any of the following criteria;
(1) Value-Added Tax (VAT). — Business establishment with VAT paid or
payable of at least One hundred thousand pesos (P100,000) for any
quarter of the preceding taxable year;
(2) Excise Tax. — Business establishment with excise tax paid or payable
of at least One million pesos (P1,000,000) for the preceding taxable year;
(3) Corporate Income Tax. — Business establishment with annual
income tax paid or payable of at least One million pesos (P1,000,000) for
the preceding taxable year; and
Withholding Tax. — Business establishment with withholding tax
payment or remittance of at least One million pesos (P1,000,000) for the
preceding taxable year.
Provided, however, That the Secretary of Finance, upon recommendation
of the Commissioner, may modify or add to the above criteria for
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determining a large taxpayer after considering such factors as inflation,
volume of business, wage and employment levels, and similar economic
factors.
The penalties prescribed under Section 248 of this Code shall be imposed
on any violation of the rules and regulations issued by the Secretary of
Finance, upon recommendation of the Commissioner, prescribing the
place of filing of returns and payments of taxes by large taxpayers.
(Civil Code) Art. 7. Laws are repealed only by subsequent ones, and their
violation or non-observance shall not be excused by disuse, or custom or
practice to the contrary.
When the courts declared a law to be inconsistent with the Constitution,
the former shall be void and the latter shall govern.
Administrative or executive acts, orders and regulations shall be valid
only when they are not contrary to the laws or the Constitution. (5a)
ASTURIAS SUGAR CENTRAL V. COMM.
29 SCRA 617
FACTS:
The petitioner is engaged in the production and milling of centrifugal
sugar for rysta, the sugar so produced being placed in containers known
as jute bags. On a relevant year, it made two importations of jute bags.
The first shipment consisting of 44,800 jute bags and declared under
entry 48 on January 8, 1967, entered free of customs duties and special
import tax upon the petitioner’s filing of Re-exportation and Special
Import Tax Bond no. 1 in the amounts of P25,088 and P2,464.50,
conditioned upon the exportation of the jute bags within one year from
the date of importation. A second shipment was made and declared
under entry 243 likewise entered free of customs duties and special
import tax upon the petitioner’s filing of Re-exportation and Special
Import Tax Bond no. 6 in the amounts of P42,112 and P7,984.44, with
the same conditions as stated in bond no. 1.
Not all jute bags were exported. A letter was written to the
Commissioner for an extension of one year and it altogether cited reasons
for the delay like typhoons, etc. The commissioner denied the request
and upon showing that not all bags were exported, petitioner was
assessed to pay for customs duties and other relevant taxes.
HELD:
It will be noted that section 23 of the Philippine Tariff Act of 1909 and
the superseding sec. 105(x) of the Tariff and Customs Code, while fixing
at one year the period within which the containers therein mentioned
must be exported, are silent as to whether the said period may be
extended. It was surely by reason of this silence that the Bureau of
Customs issued Administrative Orders 389 and 66, already adverted to,
to eliminate confusion and provide a guide as to how it shall apply the
law, and, more specifically, to make officially known its policy to consider
the one-year period mentioned in the law as non-extendible.
The administrative orders in question appear to be in consonance with
the intention of the legislature to limit the period within which to export
imported containers to one year, without extension, from the date of
importation. Otherwise, in enacting the Tariff and Customs Code to
supersede the Philippine Tariff Act of 1909, Congress would have
amended section 23 of the latter law so as to overrule the long-standing
view of the Commissioner of Customs that the one-year period therein
mentioned is not extendible.
Considering that the Bureau of Customs is the office charged with
implementing and enforcing the provisions of our Tariff and Customs
Code, the construction placed by it thereon should be given controlling
weight.
If it is further considered that exemptions from taxation are not favored,
and that tax statutes are to be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority, then we are hard
put to sustain the petitioner’s stand that it was entitled to an extension
of time within which to export the jute bags and, consequently, to a
refund of the amount it had paid as customs duties.
BIR RULINGS
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POWER OF CIR TO INTERPRET TAX LAWS
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide
Tax Cases. — The power to interpret the provisions of this Code and
other tax laws shall be under the exclusive and original jurisdiction of
the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, or
other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals.
NON-RETROACTIVITY OF RULINGS
SEC. 246. Non-Retroactivity of Rulings. — Any revocation, modification
or reversal of any of the rules and regulations promulgated in accordance
with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial
to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts
from his return or any document required of him by the Bureau of
Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based; or
(c) Where the taxpayer acted in bad faith.
CIR V. BURROUGHS LTD.
GR 66653, JUNE 19, 1986
FACTS:
Burroughs Limited is a foreign corporation authorized to engage in trade
or business in the Philippines through a branch office. On a relevant
date, it secured authority from the Central Bank to remit to its main
office an nth amount of cash. Paying the 15% profit remittance tax, it
made the remittance. Claiming that the 15% profit remittance tax should
have been computed on the basis of the amount actually remitted and
not on the amount before profit remittance tax, private respondent filed a
written claim for the refund or tax credit
In a BIR ruling dated by then Acting Commissioner of Internal Revenue
Plana, the relevant provision had been interpreted to mean that “the tax
base upon which the 15% branch profit remittance tax … shall be
imposed…(is) the profit actually remitted abroad and not on the total
branch profits out of which the remittance is to be made. “. It is on this
basis that Burroughs is asking for a refund. The Commissioner concedes
to this nonetheless he averred that his recent ruling made it clear that
effective on a certain date, the profit remittance tax to be remitted shall
be based on the actual amount remitted and not the amount after tax.
and that the ruling of Plana had long been revoked.
HELD:
Petitioner’s aforesaid contention is without merit. What is applicable in
the case at bar is still the Revenue Ruling of January 21, 1980 because
private respondent Burroughs Limited paid the branch profit remittance
tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated
March 17, 1982 cannot be given retroactive effect in the light of Section
327 of the National Internal Revenue Code which provides-
Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or
reversal of any of the rules and regulations promulgated in accordance
with the preceding section or any of the rulings or circulars promulgated
by the Commissioner shag not be given retroactive application if the
revocation, modification, or reversal will be prejudicial to the taxpayer
except in the following cases (a) where the taxpayer deliberately
misstates or omits material facts from his return or in any document
required of him by the Bureau of Internal Revenue; (b) where the facts
subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based, or (c) where the
taxpayer acted in bad faith.
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CIR V. MEGA GEN. MERCHANDISING
166 SCRA 166
FACTS:
Prior to the promulgation of P.D. No. 392 on February 18, 1974, all
importations of paraffin wax, irrespective of kind and nature, were
subject to 7% advance sales tax on landed costs plus 25% mark up
pursuant to Section 183(b) now Section 197(II) in relation to Section 186
(now Section 200) of the Tax Code.
With the promulgation of P.D. No. 392, a new provision for the
imposition of specific tax was added to Section 142 of the Tax Code, that
is, sub- section (i) which reads:
Section 142. Specific tax on manufactured oils and other fuels.On refined
and manufactured mineral oils and other motor fuels, there shall be
collected the following taxes:
xxx xxx xxx
8. Greases, waxes and petroleum, per kilogram, thirty-five
centavos; …
Therefore, beginning the date of effectivity of P.D. No. 392, all
importations of paraffin wax were subject to the specific tax imposed
under Section 142(i) of the Tax Code, instead of the former 7% sales tax.
Respondent corporation then wrote a letter for clarification on whether
crude paraffin wax was to be subjected to the specific tax or the advance
sales tax. In response, Former Commissioner Misael P. Vera in his reply
to said query dated May 14, 1975 ruled that only wax used as high
pressure lubricant and micro rystalline is subject to specific tax; that
paraffin which was used as raw material in the manufacture of candles,
wax paper, matches, crayons, drugs, appointments etc., is subject to the
7% advance sales tax, the tax to be based on the landed cost thereof, plus
25% mark-up. This prompted respondent corporation together with
others to ask for refund. But this was denied by the Acting
Commissioner Plana, using as basis that the tax code provision in
question does not make any distinction as to the kind of wax subject to
specific tax.
HELD:
The controlling interpretation is that given by Commissioner Plana and
not that of Commissioner Vera.
The request of respondent corporation’s for refund of the amount of
P321,436.79 was granted in the letter of petitioner dated January 11,
1978 because the importation of private respondent was made on April
18,1975 wherein petitioner made clear that all importation of crude
paraffin wax only after the ruling of January 28, 1977, is subject to
specific tax prescribed in Section 142(i) of the Tax Code as amended by
P.D. No. 392.
Moreover, the importation which gave rise to the assessment in the
amount of P275,652.00 subject of this case, was made on June 27, 1977
and August 17, 1977 and that the petitioner’s ruling of January 28,1977
was not revoked or overruled by his letter of January 11, 1978 granting
respondent corporation’s request for refund of the amount of
P321,436.79.
Contrary to the Court of Tax Appeals’ ruling, We believe that the letter
of Commissioner Plana dated January 11, 1978 did not in any way
revoke his ruling dated January 28,1977 which ruling applied the
specific tax to wax (without distinction). The reason he removed in 1978
private respondent’s liability for the specific tax was NOT (as
erroneously pointed out by the Court of Tax Appeals) because he wanted
to revoke, expressly or implicitly, his ruling of January 28, 1977 but
because the P321,436.79 tax referred to importation BEFORE January
28, 1977 and hence still covered by the ruling of Commissioner Vera, and
not by the January 28,1977 ruling of Commissioner Plana.
EXCEPTIONS
PBCOM V. CIR
302 SCRA 241
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FACTS:
Petitioner is a commercial banking corporation duly organized under
Philippine laws, filed its quarterly income tax returns for the first and
second quarters of the relevant year, reported profits, and paid the
income tax. The taxes due were settled by applying PBCom’s tax credit
memos. Subsequently, however, PBCom suffered losses so that when it
filed its Annual Income Tax Returns for the relevant year, it reported a
net loss and that it has no tax payable. It should be noted that during
the two years, it incurred rental income and made the corresponding
remittances to the BIR. This prompted the bank to ask for tax refund or
credit for its alleged overpayments.
Its claims were however denied by the CTA on the ground that it has
already prescribed, having a prescriptive period of 2 years. However, the
bank averred that in accordance to a memorandum circular, the
prescriptive period was now 10 years.
HELD:
After a careful study of the records and applicable jurisprudence on the
matter, contrary to the petitioner’s contention, the relaxation of revenue
regulations by RMC 7-85 is not warranted as it disregards the two-year
prescriptive period set by law.
Basic is the principle that “taxes are the lifeblood of the nation.” The
primary purpose is to generate funds for the State to finance the needs of
the citizenry and to advance the common weal. 13 Due process of law
under the Constitution does not require judicial proceedings in tax cases.
This must necessarily be so because it is upon taxation that the
government chiefly relies to obtain the means to carry on its operations
and it is of utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered with as little
as possible.
From the same perspective, claims for refund or tax credit should be
exercised within the time fixed by law because the BIR being an
administrative body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
Sec. 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec.
229, NIRC of 1997) provides for the prescriptive period for filing a court
proceeding for the recovery of tax erroneously or illegally collected:
Sec. 230. Recovery of tax erroneously or illegally collected. No
suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or
of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been
duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum
has been paid under protest or duress.
In any case, no such suit or proceedings shall begun after the
expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise
after payment; Provided however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid.
(Emphasis supplied)
The rule states that the taxpayer may file a claim for refund or credit
with the Commissioner of Internal Revenue, within two (2) years after
payment of tax, before any suit in CTA is commenced. The two-year
prescriptive period provided, should be computed from the time of filing
the Adjustment Return and final payment of the tax for the year.
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of
excess quarterly income tax payments, such circular created a clear
inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing,
the BIR did not simply interpret the law; rather it legislated guidelines
contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general
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interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose duty
is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially
found to be erroneous.
CONSTRUCTION OF TAX LAW
GENERAL RULES OF CONSTRUCTION OF TAX LAWS
1. Legislative intention must be considered—tax statutes are to
receive a reasonable construction with the view to carrying out
their purpose and intent. They shouldn’t be construed allowing
the taxpayer to easily evade the tax.
2. When there is doubt—no person or property is subject to
taxation unless within the terms or plain import of a taxing
statute. In every doubt, tax statutes are construed strictly
against ht e government and liberally in favor of the taxpayer.
3. Where language is plain—if the language of the statute is plain
and clear, and there is no doubt as to the legislative intent, then
the words employed should be given their ordinary meaning.
4. Where taxpayer claims exemption—exemption provisions are
strictly construed against the taxpayer and it is incumbent upon
him to prove his exemption.
LUZON STEVEDORING V. TRINIDAD
43 PHIL 803
FACTS:
By virtue of taxes collected from petitioner, it now seeks refund.
Collector averred that the petitioner engaged himself in to business as a
contract for a relevant period.
According to the findings, petitioner was engaged in the stevedoring
business in said city, and said business consisting of loading and
unloading cargo from vessels in port, at certain rates of charge per unit of
cargo; that all the work done by it is conducted under the direct
supervision of the officers of the ships and under the instruction given to
plaintiff’s men by the captain and officers of said ships; that no liability
attaches to the plaintiff for the improper loading or unloading of vessels,
the captain being responsible for said work; that the captain answers for
all the cargo placed on board and for the manner in which said cargo is
loaded; that, while it is true that the plaintiff undertakes to work in the
loading or unloading of cargo from any vessel in port, yet it always does
the work under the direct supervision of the officers of the vessel; that
said supervision is so effective that, while the loading is made, plaintiff’s
laborers are under the direct control of the officers of the ship; and that
said supervision is so direct, that no discretion is left to the plaintiff nor
its men.
HELD:
Generally speaking, every person who enters into a contract may be
denominated a contractor, but evidently the Legislature did not mean to
apply the word “contractor,” as used in said section 1462, to every person,
partnership or corporation who entered into a contract; or, otherwise, it
would not have been necessary to have mentioned in the same section
other classes of business, such as warehousemen, proprietors of
dockyards and persons selling light, heat, or power, as well as persons
engaged in conducting telephone or telegraph line or exchanges, and
proprietors of steam laundries and of shops for the constructions and
repair of bicycles or vehicles of any kind, and keepers of hotels and
restaurants, etc. If the word “contractor” in said section 1462 meant
every person who entered into a contract, then it would have included
warehousemen, and the other classes of business mentioned in said
section, for the reason that every transaction by the other persons
mentioned in said section is by virtue of an express or implied contract.
The same thing might be said with reference to section 1463, where
keepers of every stables and garages, transportation contractors, persons
who transport passengers or freight for hire, and common carriers, etc.
are also subject to an internal revenue tax. If the Legislature had
intended the word “contractor,” as used in section 1462, to cover all
persons who entered into a contract then it would have been unnecessary
to have mentioned the other persons referred to in sections 1462 and
1463.
From all of the foregoing it does appear that the word “contractor,” as
used in said section 1462, must have a limited and a very restricted
meaning. It cannot have the broad meaning which would include every
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person who entered into a contract. The lower court in holding that the
plaintiff was not a contractor in the sense that that word is used in said
section, relied upon the definition given in vol. 13 Corpus Juris, page
211, where we find a “contractor” defined. The definition is: “One who
agrees to do anything for another; one who executes plans under a
contract; one who contracts or covenants, whether with a government or
other public body or with private parties, to furnish supplies, or to
construct works, or to erect buildings, or to perform any work or service,
at a certain price to rate, as a paving contractor, or a labor contractor;
one who contracts to perform work, or supply articles on a large scale, at
a certain price or rate, as in building houses or provisioning troops, or
constructing a railroad. Although, in a general sense, every person who
enters into a contract may be called a contractor, yet the word, for want
of a better one, has come to be used with special reference to a person
who, in the pursuit of an independent business, undertakes to do a
specific piece or job or work for other persons, using his own means and
methods without submitting himself to control as to the petty details.
The true test of a ‘contractor’ would seem to be that he renders the
service in the course of an independent occupation, representing the will
of his employer only as to the result of his work, and not as to the means
by which it is accomplished.”
SERAFICA V. TREASURER OF ORMOC CITY
27 SCRA 110
FACTS:
Serafica seeks a declaration of nullity of Ordinance No. 13, Series of
1964, of Ormoc City, imposing a “tax of five pesos (P5.00) for every one
thousand (1,000) board feet of lumber sold at Ormoc City by any person,
partnership, firm, association, corporation, or entities”, pursuant to
which the Treasurer of said City levied on and collected from said
plaintiff, as owner of the Serafica Sawmill on board lumber sold.
Serafica averred that the ordinance was invalid on the following
grounds—(1) the Charter of Ormoc City (Republic Acts Nos. 179 and 429)
authorizes the same to “regulate”, but not to “tax” lumber yards; (2) the
ordinance in question imposes, in effect, double taxation, because the
business of lumberyard is already regulated under said Charter and the
sale of lumber is “a mere incident to the business of lumber yard”; (3) the
tax imposed is “unfair, unjust, arbitrary, unreasonable, oppressive and
contrary to the principles of taxation”; and (4) “the public was not heard
and given a chance to air its views” thereon.
The lower court upheld the validity of the ordinance.
HELD:
The last objection is based upon Provincial Circular No. 24 of the
Department of Finance, dated March 31, 1960, suggesting that, “in the
enactment of tax ordinances .. under the Local Autonomy Act … where
practicable, public hearings be held wherein the views of the public …
may be heard.” This is, however, a mere suggestion, compliance with
which is not obligatory, so that failure to act in accordance therewith can
not and does not affect the validity of the tax ordinance. Indeed, since
local governments are subject, not to the control, but merely to the
general supervision of the President, it is to say the least, doubtful that
the latter could have made compliance with said circular obligatory.
APPLICATION OF TAX LAWS
1. Tax laws are generally prospective in operation—the nature and
amount of the tax couldn't be foreseen and understood by the
taxpayer at the time the transaction which the law seeks to task
was completed
2. While it is not favored, it could be done especially if the
legislature expressly declared it to be retroactive in operation or
if it's the clear legislative intent. It shouldn't however be made
retroactive when it would be harsh and oppressive. The
constitutional limitation on due process would be violated if that
happens.
MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2010