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Renato V. Diaz v.

Secretary of Finance (October 2011)

The toll fees collected by tollway operators may be subject to VAT. VAT is imposed on “all
kinds of services” and tollway operators who are engaged in constructing, maintaining, and
operating expressways are no different from lessors of property, transportation contractors, etc.
Not only do they fall under the broad term under (1) but also come under those described as “all
other franchise grantees” which is not confined only to legislative franchise grantees since the
law does not distinguish. They are also not a franchise grantee under Section 119 which would
have made them subject to percentage tax and not VAT. Hence, neither are the services part of
the enumeration under Section 109 on VAT-exempt transactions.

The toll fee is not a user’s tax and thus it is permissible to impose a VAT on the said fee. The
MIAA case does not apply and the Court emphasized that toll fees are not taxes since they are
not assessed by the BIR and do not go the general coffers of the government. Toll fees are
collected by private operators as reimbursement for their costs and expenses with a view to a
profit while taxes are imposed by the government as an attribute of its sovereignty. Even if the
toll fees were treated as user’s tax, the VAT can not be deemed as a ‘tax on tax’ since the VAT is
imposed on the tollway operator and the fact that it might pass-on the same to the tollway user, it
will not make the latter directly liable for VAT since the shifted VAT simply becomes part of the
cost to use the tollways.

The assertion that the VAT imposed is not administratively feasible given the manner by which
the BIR intends to implement the VAT (i.e., rounding off the toll rates and putting any excess
collection in an escrow account) is not enough to invalidate the law. Non-observance of the
canon of administrative feasibility will not render a tax imposition invalid “except to the extent
that specific constitutional or statutory limitations are impaired”.

In indirect taxation, a distinction is made between the liability for the tax and burden of the tax:
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller’s liability
but merely the burden of the VAT. Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable of being effectively administered
and enforced with the least inconvenience to the taxpayer. Non-observance of the canon,
however, will not render a tax imposition invalid “except to the extent that specific constitutional
or statutory limitations are impaired. Thus, even if the imposition of value-added tax on tollway
operations may seem burdensome to implement, it is not necessarily invalid unless some aspect
of it is shown to violate any law or the Constitution.