BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

PERCENTAGE TAX

Question No. 6 (2004)

As an incentive for investocrxs a law was passed giving newlt established

companies in certain economies zone exemption from all taex, duties, fees, imposts
and other charges for a period of three years. ABC Corp. was organized and was
granted such incentive. In the course of business, ABC Corp. purchased
mechanical equipment from XYZ Inc. Normally, the sale is subject to a sales tax.

a. XYZ Inc. claims, however, that since it sold the equipment to ABC Corp.
which is exempt. XYZ should not be liable to pay the sales tax. Is this claim
tenable? (5%)

Suggested Answer:

a. No. Exemption from taxes is personal in nature and covers only taxes for
which the taxpayer-grantee is directly liable. The sales tax is a tax on the
seller who is not exempt from taxes. Since XYZ Inc. is directly liable for the
sales tax and no tax exemption privilege is ever given to him, therefore, its
claim that the sale is tax exempt is not tenable. A tax exemption is construed
in strictissimi juris and it can not be permitted to exist upon vague
implications (Asiatic Petroleum Co., Ltd. V. Llanes, 49 Phil 466 (1926)).

b. Assume arguendo that XYZ had to and did pay the sales tax, ABC Corp.
later found out, however, that XYZ merely shifted or passed on to ABC the
amount of the sales tax by increasing the purchase price. ABC Corp. now
claims for a refund from the Bureau of Internal Revenue in an account
corresponding to the tax passed on to it since it is tax exempt. Is the claim of
ABC Corp. meritorious? (5%)

Suggested Answer:

b. No. The claim of ABC Corp. is not meritorious. Although the tax was
shifted to ABC Corp. by the seller, what is paid by it is not tax but part of
 BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

the cost it has assumed. Hence, since ABC Corp. is not a taxpayer, it has no
capacity to file a claim for a refund is the person statutorily liable for the
payment of the tax.