ample justification to adopt the gross system of income
taxation to compensation income, while continuing the
TAXATION HAS THE POWER TO BUILD AND DESTROY
Argabioso
SISON V ANCHETA G.R. NO. L-59431. JULY 25, 1984.
Facts:
Petitioners challenged the constitutionality of Section 1 of
Batas Pambansa Blg. 135. It amended Section 21 of the
National Internal Revenue Code of 1977, which provides
for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c)
royalties, prizes, and other winnings, (d) interest
from bank deposits and yield or any other monetary
benefit from deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share of
individual partner in the net profits of taxable
partnership, (f) adjusted gross income.
Petitioner as taxpayer alleged that "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-a-vis those which are imposed upon fixed
income or salaried individual taxpayers." He characterizes
the above section as arbitrary amounting to class
legislation, oppressive and capricious in character.
For petitioner, therefore, there is a transgression of both
the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in
taxation.
The OSG prayed for dismissal of the petition due to lack
of merit.
Issue:
Whether BP 135 violates the due process and equal
protection clauses, and the rule on uniformity in taxation.
Held:
There is a need for proof of such persuasive character as
would lead to a conclusion that there was a violation of
the due process and equal protection clauses. Absent
such showing, the presumption of validity must prevail.
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.
Where the differentitation conforms to the practical
dictates of justice and equity, similar to the standards of
equal protection, it is not discriminatory within the
meaning of the clause and is therefore uniform. Taxpayers
may be classified into different categories, such as
recipients of compensation income as against
professionals. Recipients of compensation income are not
entitled to make deductions for income tax purposes as
there is no practically no overhead expense, while
professionals and businessmen have no uniform costs or
expenses necessaryh to produce their income. There is
1|First Batch :: Tax-1 Digests
system of net income taxation as regards professional and
business income.
The power to tax moreover, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest
of all the powers of government." 13 It is, of course, to be
admitted that for all its plenitude 'the power to tax is not
unconfined. There are restrictions. The Constitution sets
forth such limits . Adversely affecting as it does properly
rights, both the due process and equal protection clauses
inay properly be invoked, all petitioner does, to invalidate
in appropriate cases a revenue measure. if it were
otherwise, there would -be truth to the 1803 dictum of
Chief Justice Marshall that "THE POWER TO TAX
INVOLVES THE POWER TO DESTROY." 14 In a
separate opinion in Graves v. New York, 15 Justice
Frankfurter, after referring to it as an 1, unfortunate
remark characterized it as "a flourish of rhetoric
[attributable to] the intellectual fashion of the times
following] a free use of absolutes." 16 This is merely to
emphasize that it is riot and there cannot be such a
constitutional mandate. Justice Frankfurter could
rightfully conclude: "The web of unreality spun from
Marshall's famous dictum was brushed away by one
stroke of Mr. Justice Holmess pen: 'The power to tax is
not the power to destroy while this Court sits."
TAXATION GEN. PRINCIPLES - HMO IS NOT DOING
INSURANCE BUSINESS
Belmonte
PHILIPPINE HEALTH CARE PROVIDERS v. CIR
Facts:
Petitioner essentially argues that its health care
agreement is not a contract of insurance but a contract
for the provision on a prepaid basis of medical services,
including medical check-up, that are not based on loss or
damage. Petitioner also insists that it is not engaged... in
the insurance business. It is a health maintenance
organization regulated by the Department of Health, not
an insurance company under the jurisdiction of the
Insurance Commission. For these reasons, petitioner
asserts that the health care agreement is not subject to
DST.
Issue:
Is a health care agreement in the nature of an insurance
contract and therefore subject to the documentary stamp
tax (DST) imposed under Section 185 of Republic Act
8424 (Tax Code of 1997)?
Ruling:
NO. Petitioner is not contemplated to be included in “or
other branch insurance” covered by Section 185 of NIRC
because it is a Health Maintenance Organization and not
an insurance company.
The DST is levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the
execution of specific instruments. The DST under Section
185 of the 1997 Tax Code is imposed on the privilege of
making or renewing any policy of insurance (except life,
marine,... inland and fire insurance), bond or obligation
in the nature of indemnity for loss, damage, or liability.
Petitioner's health care agreement is primarily a contract
of indemnity.
Also, the DST assessment of the petitioner for the years
1996 and 1997 became moot and academic since it
availed tax amnesty under RA 9480 on December 10,
2007. Thus, petitioner is entitled to immunity from
payment of taxes for taxable year 2003 and prior years.
IMPORTANCE OF THE LIFE BLOOD DOCTRINE
Bustinera
Commissioner of Internal Revenue vs Algue Inc., and
Court of Tax Appeals
GR No. L-28896 February 17,
1988
Facts:
The Philippine Sugar Estate Development Company had
earlier appointed Algue Inc., as its agent, authorizing it to
sell its land, factories and oil manufacturing process.As
such,the corporation worked for the formation of the
Vegetable Oil Investment Corporation, until they were
able to purchased the PSEDC properties. For this sale,
Algue Inc., 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 Alberto Guevara,
Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell,
and Pablo Sanchez.
Commissioner of Internal Revenue contends that the
claimed deduction is not allowed because it was not an
ordinary reasonable or necessary business expense. The
Court of Tax Appeals had seen it differently. Agreeing with
Algue Inc., it held that the said amount had been
legitimately paid by the private respondent for actual
services rendered. The payment was in the form of
promotional fees.
Issue:
Whether or not the Collector of Internal Revenue correctly
disallowed the P75, 000.00 deduction claimed by private
respondent Algue Inc., as legitimate business expenses in
its income tax returns.
Ruling:
No, The Supreme Court agrees with the respondent court
that the amount of the promotional fees was not
excessive. The 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
2|First Batch :: Tax-1 Digests
Investment Corporation to the actual purchase by it of the
Sugar Estate properties.
The claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.
Furthermore, The burden is on the taxpayer to prove the
validity of the claimed deduction. Here, the onus has been
discharged satisfactorily. Here, the onus has been
discharged satisfactorily. The promotional fees were
necessary and reasonable in the light of the efforts exerted
by the payees in the inducement of investors to venture
in an experimental enterprise. Thus, the payees should be
sufficiently recompensed.
LIFEBLOOD DOCTRINE - GOCC IS TAXABLE
Cabubungan
NATIONAL POWER CORPORATION, petitioner,
vs.
CITY OF CABANATUAN, respondent.
G.R. No. 149110 April 9, 2003
PUNO, J.:
FACTS:
Petitioner is a government-owned and controlled
corporation created under Commonwealth Act No. 120, as
amended. For many years now, petitioner sells electric
power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992. Pursuant to
section 37 of Ordinance No. 165-92, the respondent
assessed the petitioner a franchise tax amounting to
P808,606.41, representing 75% of 1% of the latter’s gross
receipts for the preceding year. Petitioner refused to pay
the tax assessment arguing that the respondent has no
authority to impose tax on government entities. Petitioner
also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges,
duties or fees in accordance with sec. 13 of Rep. Act No.
6395, as amended.
The respondent filed a collection suit in the RTC,
demanding that petitioner pay the assessed tax due, plus
surcharge. Respondent alleged that petitioner’s
exemption from local taxes has been repealed by section
193 of the LGC, which reads as follows:
“Sec. 193. Withdrawal of Tax Exemption
Privileges.- Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed
by all persons, whether natural or juridical, including
government owned or controlled corporations, except
local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and
educational institutions, are hereby withdrawn upon the
effectivity of this Code.”
The trial court issued an Order dismissing the case. It
ruled that the tax exemption privileges granted to
petitioner subsist despite the passage of Rep. Act No.
7160. On appeal, the Court of Appeals reversed the trial
court's Order on the ground that section 193, in relation
to sections 137 and 151 of the LGC, expressly withdrew
the exemptions granted to the petitioner.
ISSUE:
Whether or not NPC is liable to pay an annual franchise
tax to the City government.
HELD:
YES. Taxes are the lifeblood of the government,
for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty, the exercise
of taxing power derives its source from the very existence
of the state whose social contract with its citizens obliges
it to promote public interest and common good. The
theory behind the exercise of the power to tax emanates
from necessity; without taxes, government cannot fulfill
its mandate of promoting the general welfare and well-
being of the people.
One of the most significant provisions of the LGC is the
removal of the blanket exclusion of instrumentalities and
agencies of the national government from the coverage of
local taxation. Although as a general rule, LGUs cannot
impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule
now admits an exception, i.e., when specific provisions of
the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities.
As commonly used, a franchise tax is "a tax on the
privilege of transacting business in the state and
exercising corporate franchises granted by the state." It is
not levied on the corporation simply for existing as a
corporation, upon its property or its income, but on its
exercise of the rights or privileges granted to it by the
government. Hence, a corporation need not pay franchise
tax from the time it ceased to do business and exercise its
franchise. It is within this context that the phrase "tax on
businesses enjoying a franchise" in section 137 of the LGC
should be interpreted and understood. Verily, to
determine whether the petitioner is covered by the
franchise tax in question, the following requisites should
concur: (1) that petitioner has a "franchise" in the sense
of a secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise
within the territory of the respondent city government.
3|First Batch :: Tax-1 Digests
NPC fulfills both requisites. To stress, a franchise tax is
imposed based not on the ownership but on the exercise
by the corporation of a privilege to do business. The
taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue
of its charter, petitioner was created as a separate and
distinct entity from the National Government. It can sue
and be sued under its own name, and can exercise all the
powers of a corporation under the Corporation Code.
Doubtless, the power to tax is the most effective
instrument to raise needed revenues to finance and
support myriad activities of the local government units for
the delivery of basic services essential to the promotion of
the general welfare and the enhancement of peace,
progress, and prosperity of the people. As this Court
observed in the Mactan case, "the original reasons for the
withdrawal of tax exemption privileges granted to
government-owned or 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." With the
added burden of devolution, it is even more imperative for
government entities to share in the requirements of
development, fiscal or otherwise, by paying taxes or other
charges due from them.
OBJECTIVES OF TAXATION - includes regulation
Camposano
Philippine Airlines Inc. vs Edu and Carbonnel
G.R. No. L- 41383
August 15, 1988
Facts:
The petitioner is a corporation engaged in the air
transportation business. Under the legislative franchise
granted to it, PAL is exempted from the payment of taxes.
In 1971, Commissioner Edu issued a regulation requiring
all tax exempt entities including the petitioner to pay for
motor vehicle registration fees. The petitioner paid under
protest the amount of P19, 529.75. However, after paying
under protest, the petitioner demanded a refund invoking
the ruling in Calalang vs Lorenzo where it was held that
motor vehicle registration fees are in reality taxes from the
payment of which the petitioner is exempt by virtue of its
legislative franchise.
However, the defendant Commissioner denied the request
for refund basing his action on the decision in Republic
vs Philippine Rabbit Bus Lines Inc. where it was held that
motor vehicle registration fees are regulatory exactions
which does not exempt the petitioner under its franchise.
Petitioner filed a complaint against the defendant with the
CFI of Rizal. However, the trial court dismissed the
complaint.
Issue: Whether or not motor vehicle registration fees are
considered as taxes.
Held: Yes. If the primary purpose or one of the real and
substantial purposes is revenue, then the exaction is
properly called a tax. Such is the case of motor vehicle
registration fees.
Motor vehicle registration fees exacted pursuant to the
Land Transportation and Traffic Code are actually taxes
intended for additional revenues of government even if one
fifth or less of the amount collected is set aside for the
operating expenses of the agency administering the
program.
OBJECTIVES OF TAXATION – Includes regulation
Castelltort
G.R. No. L-75697
VALENTIN TIO doing business under the name and
style of OMI ENTERPRISES, petitioner, vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF
FINANCE, METRO MANILA COMMISSION, CITY
MAYOR and CITY TREASURER OF MANILA,
respondents.
FATCS:
A petition was filed assailing the constitutionality of PD
No. 1987 entitled "An Act Creating the Videogram
Regulatory Board" with broad powers to regulate and
supervise the videogram industry. This decree led to the
amendment of NIRC providing:
SEC. 134. Video Tapes. — There shall be collected on each
processed video-tape cassette, ready for playback,
regardless of length, an annual tax of five pesos; Provided,
That locally manufactured or imported blank video tapes
shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters
Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted
by the Court to intervene, upon the allegations that
intervention was necessary for the complete protection of
their rights and that their "survival and very existence is
threatened by the unregulated proliferation of film
piracy."
The rationale behind the enactment of the aforesaid
Decree may be summarized in its eighth whereas clause
stating that grave emergencies corroding the moral values
of the people and betraying the national economic
recovery program necessitate the adoption of bold
measures with dispatch.
The petitioner contended that Section 10 thereof, which
imposes a tax of 30% on the gross receipts payable to the
local government is a RIDER and the same is not germane
to the subject matter thereof; that the tax imposed is
harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of
the Constitution; that There is no factual nor legal basis
4|First Batch :: Tax-1 Digests
for the exercise by the President; that the Decree is an ex-
post facto law; and that there is over regulation of the
video industry as if it were a nuisance, which it is not.
ISSUE:
1. WON the decree was a valid exercise of taxing
power by the state.
2. WON the decree was constitutional.
RULING:
First Issue:
Yes. The Constitutional requirement that "every bill shall
embrace only one subject which shall be expressed in the
title thereof" is sufficiently complied with if the title be
comprehensive enough to include the general purpose
which a statute seeks to achieve. It is not necessary that
the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all
the parts of the statute are related, and are germane to
the subject matter expressed in the title, or as long as they
are not inconsistent with or foreign to the general subject
and title.
The tax provision is not inconsistent with, nor foreign to
that general subject and title. As a tool for regulation 6 it
is simply one of the regulatory and control mechanisms
scattered throughout the DECREE. The express purpose
of the DECREE to include taxation of the video industry
in order to regulate and rationalize the heretofore
uncontrolled distribution of videograms is evident from
Preambles 2 and 5, supra. Those preambles explain the
motives of the lawmaker in presenting the measure. The
title of the DECREE, which is the creation of the
Videogram Regulatory Board, is comprehensive enough to
include the purposes expressed in its Preamble and
reasonably covers all its provisions. It is unnecessary to
express all those objectives in the title or that the latter be
an index to the body of the DECREE.
Second Issue:
Yes. The title of the decree, which calls for the creation of
the VRB is comprehensive enough to include the purposes
expressed in its Preamble and reasonably covered in all
its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the
body of the decree.
The express purpose of PD 1987 to include taxation of the
video industry in order to regulate and rationalize the
heretofore uncontrolled distribution of videos is evident
from Preambles 2 and 5. Those preambles explain the
motives of the lawmaker in presenting the measure.
Conclusions:
The levy of the 30% tax is for a public purpose. It was
imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film
piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes.
And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid
imposition.
The public purpose of a tax may legally exist even if the
motive which impelled the legislature to impose the tax
was to favor one industry over another.
ALLOWABLE DEDECTIONS – TAX DEDUCTION VS. TAX
CREDIT
Claro
Commissioner of Internal Revenue, Petitioner, v.
Central Luzon Drug Corporation, Respondent, G.R.
No. 159647 April 15, 2005.
FACTS.
The Central Luzon Drug Corporation (CLDC) is a
domestic corporation primarily engaged in retailing of
medicines and other pharmaceutical products. In 1997,
CLDC filed its Annual Income Tax Return for taxable year
1996 declaring therein that it incurred net losses from its
operations.
In 1998, CLDC filed with the Commissioner of
Internal Revenue a tax refund in the amount of
₱904,769.00 allegedly arising from the 20% sales
discount it granted to qualified senior citizens in
compliance with R.A.7432. Unable to obtain affirmative
response, CLDC elevated its claim to the Court of Tax
Appeals via a Petition for Review.
At first CTA dismissed the petition ruling that a
tax credit is improper. However upon MR of CLDC, the
CTA reversed this previous ruling and declared that
pursuant to Sec.229 of RA 7342, a tax credit is due to
CLDC. This decision by CTA was mainly based on the case
of Central Luzon Drug Corporation vs. Commissioner of
Internal Revenue CA G.R. SP No. 60057 wherein it was
ruled that a tax credit is proper for taxes erroneously paid
or illegally collected.
The Court of Appeals affirmed the decision of CTA
hence the present recourse by Petitioner CIR.
ISSUE.
Can CLDC, despite incurring a net loss, may still
claim the 20 percent sales discount as a tax credit?
RULING.
Yes.
Section 229 of RA 7342 entitles private
establishment a tax credit to claim the cost of the discount
they granted to senior citizens for their purchases of
medicines. The tax credit therefore is not for erroneously
paid or illegally collected taxes.
Meanwhile, a tax credit should be differentiated
from tax deduction. For a tax credit to operate, a tax
liability on the part of the taxpayer should be first
established. Tax credit is subtracted directly from one’s
total tax liability. A tax deduction is a mechanism "allowed
by law to reduce income prior to the application of the tax
5|First Batch :: Tax-1 Digests
rate to compute the amount of tax which is due”. A tax
deduction takes place before the tax is computed.
As culled from the facts, CLDC filed its Annual
Income tax Return for taxable year 1996 in 1997 and only
later on that it availed itself of the tax credit. Verily, its
availment of the tax credit is not premature.
INHERENT LIMITATIONS – PUBLIC PURPOSE
Clasara
G.R. No. L-7859 December 22, 1955
WALTER LUTZ, as Judicial Administrator of the
Intestate Estate of the deceased Antonio Jayme
Ledesma,plaintiff-appellant,
vs. J. ANTONIO ARANETA, as the Collector of Internal
Revenue, defendant-appellee.
Facts: Commonwealth Act No. 567, otherwise known
as 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-McDuffe 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."
Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948-
1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and
support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax
may be constitutioally levied. The action having been
dismissed by the Court of First Instance, the
plaintifs appealed the case directly to the Supreme Court.
Issue: WoN the CA No. 567 is Unconstitutional
Held: No, it is not.
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 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.
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.
INHERENT LIMITATIONS – PUBLIC PURPOSE
Concepcion
GOMEZ v. PALOMAR
GR No. L-23645, October 29, 1968
25 SCRA 827
FACTS:
Petitioner Benjamin Gomez mailed a letter at the
post office in San Fernando, Pampanga. It did not bear
the special anti-TB stamp required by the RA 1635. It was
returned to the petitioner. Petitioner now assails the
constitutionality of the statute claiming that RA 1635
otherwise known as the Anti-TB Stamp law is violative of
the equal protection clause because it constitutes mail
users into a class for the purpose of the tax while leaving
untaxed the rest of the population and that even among
postal patrons the statute discriminatorily grants
exemptions. The law in question requires an additional 5
centavo stamp for every mail being posted, and no mail
shall be delivered unless bearing the said stamp.
ISSUE:
Whether or not the Anti-TB Stamp Law is
unconstitutional, for being allegedly violative of the equal
protection clause
HELD:
No. It is settled that the legislature has the inherent
power to select the subjects of taxation and to grant
exemptions. This power has aptly been described as "of
wide range and flexibility." Indeed, it is said that in the
field of taxation, more than in other areas, the legislature
possesses the greatest freedom in classification. The
reason for this is that traditionally, classification has been
a device for fitting tax programs to local needs and usages
in order to achieve an equitable distribution of the tax
burden. The classification of mail users is based on the
ability to pay, the enjoyment of a privilege and on
administrative convenience. Tax exemptions have never
been thought of as raising revenues under the equal
protection clause.
6|First Batch :: Tax-1 Digests
INHERENT LIMITATIONS – LEGISLATIVE IN NATURE
Dalafu
Pepsi-Cola Bottling Co. v. City of Butuan
G.R. No. L-22814, August 28, 1968
FACTS:
Pepsi-Cola Bottling Co. of the Philippines (Pepsi-
Cola) has a storage facility in the City of Butuan for its
soft drinks manufactured in Cebu. Products from this
facility are sold to consumers in the said city. The City of
Butuan (Butuan) enacted Ordinance No. 110, which
imposed a tax on dealers engaged in selling soft drinks or
carbonated drinks. Ordinance No. 110 was later amended
by Ordinance No. 122. Consequently, the tax was now
imposed on any agent and/or consignee of any person,
association, partnership, company, or corporation
engaged in selling x x x soft drinks or carbonated drinks.
According to the Court, this obviously pertains to a
situation wherein an outside dealer taps a local agent
and/or consignee to sell his products in said agent’s
and/or consignee’s locality. Since Pepsi-Cola has a
storage facility in the city receiving soft drinks from Cebu,
and since said facility sells the same carbonated
beverages to the people of the city, it was assessed the tax
imposed by Ordinance 110, as amended by Ordinance
122 (Ordinance 110, as amended). Pepsi-Cola paid under
protest. Pepsi-Cola brought the matter of recovering the
amounts paid before the lower court. It dismissed the
complaint, hence this appeal.
ISSUE:
Whether or not the tax imposed by Ordinance 110, as
amended, violates the uniformity requirement.
HELD:
YES, Ordinance 110, as amended, unfairly singles out
agents and/or consignees of outside dealers.
The Constitution (what is being referred to here is the
1935 Constitution) provides: “The rule of taxation shall be
uniform and equitable. 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.
For classification to be valid, the following must concur:
(1) it is based upon substantial distinctions; (2) these are
germane to the purpose of the legislation or ordinance; (3)
the classification applies to present conditions and future
ones substantially identical to those of the present; and
(4) the classification applies equally to those belonging to
the same class. The ordinance exempts local dealers not
acting for or in behalf of outside merchants from paying
the tax it imposes. It only applies to local dealers acting
for or in behalf of outside merchants. Butuan did not offer
any explanation as to why a distinction between the two
was made. If the purpose of the tax measure was merely
to create a new revenue source by levying tax upon the
sale of soft drinks, there is no reason for favoring one over
the other.
WHEREFORE, the decision appealed from is hereby
reversed, and another one shall be entered annulling
Ordinance No. 110, as amended by Ordinance No. 122.
TAX EXEMPTION OF THE GOVERNMENT
Del Rosario
G.R. No. 127316. October 12, 2000.
LIGHT RAIL TRANSIT AUTHORITY, petitioner, vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD
OF ASSESSMENT APPEALS OF MANILA and the CITY
ASSESSOR OF MANILA, respondents.
FACTS:
The LRTA, a government-owned and controlled
corporation, acquired real properties constructed
structural improvements, such as buildings,
carriageways, passenger terminal stations for the purpose
of its operations. It also entered into a Contract of
Management with the Meralco Transit Organization
(METRO) in which it undertook to maintain the Light Rail
Transit System owned by the LRTA subject to the specific
stipulations contained in said agreement, including
payments of a management fee and real property taxes.
Respondent-Appellee City Assessor of Manila assessed
the real properties of petitioner, which he considered real
property under the Real Property Tax Code. Petitioner
paid its real property taxes on all its real property
holdings, except the carriageways and passenger terminal
stations including the land where it is constructed on the
ground that the same are not real properties under the
Real Property Tax Code, and if the same are real property,
these are for public use/purpose, therefore, exempt from
realty taxation, which claim was denied by the
Respondent-Appellee City Assessor of Manila.
Petitioner, aggrieved by the action of the Respondent-
Appellee City Assessor, filed an appeal with the Local
Board of Assessment Appeals of Manila. Appellee, herein,
denied petitioner’s appeal, and declared that carriageways
and passenger terminal stations are improvements,
therefore, are real property under the Code, and not
exempt from the payment of real property tax.
The CA affirmed the above resolution. Hence, this
petition.
ISSUE:
Whether or not LRTA, a government-owned and controlled
corporation, is exempted from paying tax.
RULING:
7|First Batch :: Tax-1 Digests
No. Though the creation of the LRTA was impelled by
public service—to provide mass transportation to alleviate
the traffic and transportation, situation in Metro Manila—
its operation undeniably partakes of ordinary business.
Petitioner is clothed with corporate status and corporate
powers in the furtherance of its proprietary objectives.
Indeed, it operates much like any private corporation
engaged in the mass transport industry. Given that it is
engaged in a service-oriented commercial endeavor, its
carriageways and terminal stations are patrimonial
property subject to tax, notwithstanding its claim of being
a government-owned or controlled corporation.
Unlike public roads which are open for use by everyone,
the LRT is accessible only to those who pay the required
fare. It is thus apparent that petitioner does not exist
solely for public service, and that the LRT carriageways
and terminal stations are not exclusively for public use.
Although petitioner is a public utility, it is nonetheless
profit-earning. It actually uses those carriageways and
terminal stations in its public utility business and earns
money therefrom.
Taxation is the rule and exemption is the exception. Any
claim for tax exemption is strictly construed against the
claimant. LRTA has not shown its eligibility for exemption;
hence, it is subject to the tax.
TAX EXEMPTION OF THE GOVERNMENT – MCIAA IS
LIABLE FOR RPT
Hipolito
MACTAN CEBU INTERNATIONAL AIRPORT
AUTHORITY V. FERDINAND J. MARCOS, G.R NO.
120082 1996-09-11
FACTS:
Mactan Cebu International Airport Authority (MCIAA) was
created by virtue of Republic Act 6958, mandated to
principally undertake the economical, efficient, and
effective control, management, and supervision of the
Mactan International Airport and Lahug Airport, and
such other airports as may be established in Cebu. Since
the time of its creation, MCIAA enjoyed the privilege of
exemption from payment of realty taxes in accordance
with Section 14 of its Charter. However, on October 11,
1994, Mr. Eustaquio B. Cesa, Officer in Charge, Office of
the Treasurer of the City of Cebu, demanded payment
from realty taxes in the total amount of P2229078.79.
Petitioner objected to such demand for payment as
baseless and unjustified claiming in its favor the afore
cited Section 14 of R.A. 6958. It was also asserted that it
is an instrumentality of the government performing
governmental functions, citing Section 133 of the Local
Government Code of 1991, which puts limitations on the
taxing powers of local government units.
Section 133. Common limitations on the Taxing Powers of
Local Government Units.
The exercise of the taxing powers of the provinces, cities,
barangays, municipalities shall not extend to the levi of
the following:
xxx Taxes, fees or charges of any kind in the National
Government, its agencies and instrumentalities, and
LGU’s. xxx
The Respondent City refused to cancel and set aside
petitioner’s realty tax account, insisting that the MCIAA is
a government controlled corporation whose tax exemption
privilege has been withdrawn by virtue of Sections 193
and 234 of the Local Government Code (LGC), and not an
instrumentality of the government but merely a
government owned corporation performing proprietary
functions. MCIAA paid its tax account “under protest”
when City is about to issue a warrant of levy against the
MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC
contending that the taxing power of local government
units do not extend to the levy of taxes or fees on an
instrumentality of the national government. It contends
that by the nature of its powers and functions, it has the
footing of an agency or instrumentality of the national
government; which claim the City rejects. The trial court
dismissed the petition, citing that close reading of the LGC
provides the express cancellation and withdrawal of tax
exemptions of Government Owned and Controlled
Corporations.
ISSUE: Whether the MCIAA is exempted from realty taxes.
RULING:
Tax statutes are construed strictly against the
government and liberally in favor of the taxpayer. But
since taxes are paid for civilized society, or are the
lifeblood of the nation, the law frowns against exemptions
from taxation and statutes granting tax exemptions are
thus construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.
A claim of exemption from tax payments must be clearly
shown and based on language in the law too plain to be
mistaken. Taxation is the rule, exemption therefrom is the
exception. However, if the grantee of the exemption is a
political subdivision or instrumentality, the rigid rule of
construction does not apply because the practical effect
of the exemption is merely to reduce the amount of money
that has to be handled by the government in the course of
its operations.
Further, since taxation is the rule and exemption
therefrom the exception, the exemption may be withdrawn
at the pleasure of the taxing authority. The only exception
to this rule is where the exemption was granted to private
parties based on material consideration of a mutual
nature, which then becomes contractual and is thus
covered by the non-impairment clause of the
Constitution.
8|First Batch :: Tax-1 Digests
MCIAA is a “taxable person” under its Charter (RA 6958),
and was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax
is conclusive proof of the legislative intent to make it a
taxable person subject to all taxes, except real property
tax.
Since Republic Act 7160 or the Local Government Code
(LGC) expressly provides that “All general and special
laws, acts, city charters, decrees [sic], executive orders,
proclamations and administrative regulations, or part of
parts thereof which are inconsistent with any of the
provisions of this Code are hereby repealed or modified
accordingly.”
With that repealing clause in the LGC, the tax exemption
provided for in RA 6958 had been expressly repealed by
the provisions of the LGC. Therefore, MCIAA has to pay
the assessed realty tax of its properties effective after
January 1, 1992 until the present.
MIAA IS NOT A GOCC, HENCE, EXEMPT FROM
TAXATION INCLUDING PAYMENT OF RPT
Igpuara
MANILA INTERNATIONAL AIRPORT
AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY
MAYOR OF PARAÑAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF
PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents
G.R. No. 155650 July 20, 2006
FACTS: Petitioner Manila International Airport Authority
(MIAA) operates the Ninoy Aquino International Airport
(NAIA) Complex in Parañaque City under Executive Order
No. 903, otherwise known as the Revised Charter of the
Manila International Airport Authority ("MIAA Charter").
On 21 March 1997, 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 paid some of the taxes due but not all. On 17 July
2001, the City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport
Lands and Buildings and further threatened to sell at
public auction.
On 29 March 2005, the Court heard the parties in oral
arguments. 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. Since the Airport Lands and Buildings
are devoted to public use and public service, the
ownership of these properties remains with the State,
thus inalienable and are not subject to real estate tax by
local governments.
Issue: Whether or not the Airport Lands and Buildings
of MIAA are exempt from real estate tax under existing
laws.
Ruling: We rule that MIAA's Airport Lands and Buildings
are exempt from real estate tax imposed by local
governments.
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:
xxx
(o) Taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities xxx
This section recognizes the basic principle that local
governments cannot tax the national government, which
historically merely delegated to local governments the
power to tax. The only exception is when the legislature
clearly intended to tax government instrumentalities for the
delivery of essential public services for sound and
compelling policy considerations.
The Airport Lands and Buildings of MIAA are property
of public dominion and therefore owned by the State or the
Republic of the Philippines. The Civil Code provides:
ARTICLE 420. The following things are property of public
dominion:
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the
State xxx
The term "ports" includes seaports and airports. The MIAA
Airport Lands and Buildings constitute a "port"
constructed by the State and these “ports” are properties
of public dominion and thus owned by the State or the
Republic of the Philippines.
Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts
from real estate tax any "[r]eal property owned by the
Republic of the Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The
following are exempted from payment of the real property
tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
except when the beneficial use thereof has
been granted, for consideration or otherwise,
to a taxable person xxx
9|First Batch :: Tax-1 Digests
By express mandate of the Local Government Code, local
governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local
governments are devoid of power to tax the national
government, its agencies and instrumentalities. The
taxing powers of local governments do not extend to the
national government, its agencies and instrumentalities.
To summarize, MIAA is a government instrumentality
vested with corporate powers and performing essential
public services pursuant to Section 2(10) of the
Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any
kind of tax by local governments under Section 133(o) of
the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local
Government Code.
Finally, the Airport Lands and Buildings of MIAA are
properties devoted to public use and thus are properties
of public dominion. Properties of public dominion are
owned by the State or the Republic and exempted from
real estate tax.
WHEREFORE, we GRANT the petition. We SET
ASIDE the assailed Resolutions of the Court of Appeals of
5 October 2001 and 27 September 2002 in CA-G.R. SP
No. 66878. We DECLARE the Airport Lands and
Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by
the City of Parañaque.
INHERENT LIMITATIONS – DUE PROCESS CLAUSE
Jaranilla
CREBA vs. Secretary of Agrarian Reform
G.R. No. 183409 (June 18, 2010)
621 SCRA 295
Perez, J.
Facts:
Petitioner Chamber of Real Estate and Builders
Associations, Inc. (CREBA), a private non-stock, non-
profit corporation duly organized and existing under the
laws of the Republic of the Philippines, is the umbrella
organization of some 3,500 private corporations,
partnerships, single proprietorships and individuals
directly or indirectly involved in land and housing
development, building and infrastructure construction,
materials production and supply, and services in the
various related fields of engineering, architecture,
community planning and development financing.
The Secretary of Agrarian Reform issued, on 29
October 1997, DAR AO No. 07-97,3 entitled “Omnibus
Rules and Procedures Governing Conversion of
Agricultural Lands to Non-Agricultural Uses,” which
consolidated all existing implementing guidelines related
to land use conversion. The aforesaid rules embraced all
private agricultural lands regardless of tenurial
arrangement and commodity produced, and all untitled
agricultural lands and agricultural lands reclassified by
Local Government Units (LGUs) into non-agricultural
uses after 15 June 1988.
Secretary of Agrarian Reform issued DAR AO No. 01-99,4
entitled “Revised Rules and Regulations on the
Conversion of Agricultural Lands to Non-agricultural
Uses,” amending and updating the previous rules on land
use conversion. Its coverage includes the following
agricultural lands, to wit: (1) those to be converted to
residential, commercial, industrial, institutional and
other non-agricultural purposes; (2) those to be devoted
to another type of agricultural activity such as livestock,
poultry, and fishpond—the effect of which is to exempt the
land from the Comprehensive Agrarian Reform Program
(CARP) coverage; (3) those to be converted to non-
agricultural use other than that previously authorized;
and (4) those reclassified to residential, commercial,
industrial, or other non-agricultural uses on or after the
effectivity of Republic Act No. 66575 on 15 June 1988
pursuant to Section 206 of Republic Act No. 71607 and
other pertinent laws and regulations, and are to be
converted to such uses.
The Secretary of Agrarian Reform issued another
Administrative Order, i.e., DAR AO No. 01-02, entitled
“2002 Comprehensive Rules on Land Use Conversion,”
which further amended DAR AO No. 07-97 and DAR AO
No. 01-99, and repealed all issuances inconsistent
therewith. The aforesaid DAR AO No. 01-02 covers all
applications for conversion from agricultural to non-
agricultural uses or to another agricultural use.
Thereafter, the Secretary of Agrarian Reform amended
certain provisions of DAR AO No. 01-02 by formulating
DAR AO No. 05-07, particularly addressing land
conversion in time of exigencies and calamities.
To address the unabated conversion of prime agricultural
lands for real estate development, the Secretary of
Agrarian Reform further issued Memorandum No. 88 on
15 April 2008, which temporarily suspended the
processing and approval of all land use conversion
applications.
By reason thereof, petitioner claims that there is an actual
slow down of housing projects, which, in turn, aggravated
the housing shortage, unemployment and illegal
squatting problems to the substantial prejudice not only
of the petitioner and its members but more so of the whole
nation.
Hence, this petition.
Issue:
Whether or not due process and equal protection
clauses of the constitution was violated by the Secretary
of Agrarian reform.
10 | F i r s t Batch :: Tax-1 Digests
Ruling:
DAR AO No. 01-02, as amended, violate the due
process clause, as well as the equal protection clause of
the Constitution. In providing administrative and criminal
penalties in the said administrative order, the Secretary
of Agrarian Reform simply implements the provisions of
Sections 73 and 74 of Republic Act No. 6657.
Contrary to petitioner’s assertions, the administrative and
criminal penalties provided for under DAR AO No. 01-02,
as amended, are imposed upon the illegal or premature
conversion of lands within DAR’s jurisdiction, i.e., “lands
not reclassified as residential, commercial, industrial or
for other non-agricultural uses before 15 June 1998.”
The petitioner’s argument that DAR Memorandum No. 88
is unconstitutional, as it suspends the land use
conversion without any basis, stands on hollow ground.
It bears emphasis that said Memorandum No. 88 was
issued upon the instruction of the President in order to
address the unabated conversion of prime agricultural
lands for real estate development because of the
worsening rice shortage in the country at that time. Such
measure was made in order to ensure that there are
enough agricultural lands in which rice cultivation and
production may be carried into. The issuance of said
Memorandum No. 88 was made pursuant to the general
welfare of the public, thus, it cannot be argued that it was
made without any basis.
CONSTITUTIONAL LIMIATIONS – DUE PROCESS
CLAUSE
Leonor
COCA COLA VS CA
FACTS:
Respondent paid the local business tax only as a
manufacturers as it was expressly exempted from the
business tax under a different section and which applied
to businesses subject to excise, VAT or percentage tax
under the Tax Code. The City of Manila subsequently
amended the ordinance by deleting the provision
exempting businesses under the latter section if they have
already paid taxes under a different section in the
ordinance. This amending ordinance was later declared
by the Supreme Court null and void. Respondent then
filed a protest on the ground of double taxation. RTC
decided in favor of Respondent and the decision was
received by Petitioner on April 20, 2007. On May 4, 2007,
Petitioner filed with the CTA a Motion for Extension of
Time to File Petition for Review asking for a 15-day
extension or until May 20, 2007 within which to file its
Petition. A second Motion for Extension was filed on May
18, 2007, this time asking for a 10-day extension to file
the Petition. Petitioner finally filed the Petition on May 30,
2007 even if the CTA had earlier issued a resolution
dismissing the case for failure to timely file the Petition.
ISSUES:
Does the enforcement of the latter section of the tax
ordinance constitute double taxation?
HELD:
YES. There is indeed double taxation if respondent is
subjected to the taxes under both Sections 14 and 21 of
the tax ordinance since these are being imposed: (1) on
the same subject matter — the privilege of doing business
in the City of Manila; (2) for the same purpose — to make
persons conducting business within the City of Manila
contribute to city revenues; (3) by the same taxing
authority — petitioner City of Manila; (4) within the same
taxing jurisdiction — within the territorial jurisdiction of
the City of Manila; (5) for the same taxing periods — per
calendar year; and (6) of the same kind or character — a
local business tax imposed on gross sales or receipts of
the business.
CONSTITUTIONAL LIMITATIONS – DUE PROCESS
CLAUSE
Lopez
G.R. No. L-29646 November 10, 1978
VILLEGAS, vs. HIU CHIONG TSAI PAO HO
FERNANDEZ, J.:
FACTS:
Hiu Chiong Tsai Pao filed a petition with the Court of First
Instance of Manila, Branch I, praying for the issuance of
the writ of preliminary injunction and restraining order to
stop the enforcement of Ordinance No. 6537 as well as for
a judgment declaring said Ordinance No. 6537 null and
void.
Hiu Chiong Tsai Pao Ho alleged that Ordinance No. 6537
was discriminatory and violative of the rule of the
uniformity in taxation, being a revenue measure imposed
on aliens employed in the City of Manila. He also
contended that it was arbitrary, oppressive and
unreasonable, being applied only to aliens who are thus,
deprived of their rights to life, liberty and property and
therefore, violates the due process and equal protection
clauses of the Constitution.
Section 1 of said Ordinance No. 6537 prohibited aliens
from being employed or to engage or participate in any
position or occupation or business enumerated therein,
whether permanent, temporary or casual, without first
securing an employment permit from the Mayor of Manila
and paying the permit fee of P50.00 with the exception of
persons employed in the diplomatic or consular missions
of foreign countries, or in the technical assistance
programs of both the Philippine Government and any
foreign government, and those working in their respective
households, and members of religious orders or
congregations, sect or denomination, who are not paid
monetarily or in kind.
11 | F i r s t Batch :: Tax-1 Digests
The respondent Judge Arca rendered judgment declaring
Ordinance No. 6537 null and void.
ISSUE:
Whether or not Ordinance No. 6537 is a valid exercise of
the power of taxation.
Ruling:
No, the Supreme Court ruled that while it is true that the
first part which requires that the alien shall secure an
employment permit from the Mayor involves the exercise
of discretion and judgment in the processing and approval
or disapproval of applications for employment permits
and therefore is regulatory in character the second part
which requires the payment of P50.00 as employee's fee
is not regulatory but a revenue measure.
The amount was unreasonable and excessive because it
fails to consider difference in situation among aliens
required to pay it, whether he is casual or permanent, part
time or full time or whether he is a lowly employee or a
highly paid executive.
The Court further ruled that requiring a person before he
can be employed to get a permit from the City Mayor of
Manila who may withhold or refuse it at will is tantamount
to denying him the basic right of the people in the
Philippines to engage in a means of livelihood. 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 without due process of law.
CONSTITUTIONAL LIMITATIONS – DUE PROCESS
CLAUSE
Magbual
CITY OF BAGUIO v. FORTUNATO DE LEON
G.R. NO. L-24756 OCTOBER 31,1968
FACTS:
City of Baguio passed an ordinance imposing a license fee
on any person, firm, entity or corporation doing business
in the City of Baguio. The said ordinance was supplied by
R.A No. 329, amending the Baguio City Charter
empowering it to fix the license fee and regulate
“businesses, trades, and occupations as may be
eatablished or practiced in the City.”
Private defendant Fortunato de Leon, was held liable as a
real estate dealer with a property therein worth more than
P10,000 but not more than P50,000 and obligated to pay
under such ordinance the P50 annual fee. He failed to pay
the amount of P300 as license fee from the 1st quarter of
1958 up to 4th quarter of 1962, inspite of repeated
demands.
However, the defendant contended that the validity of the
said ordinance is that it is ultra vires ultra vires for there
is no statury authority which expressly grants the City of
Baguio to levy such tax, and that there it imposed double
taxation, and violates the requirement of uniformity.
ISSUE: Are the contentions of the defendant-appellant
tenable?
HELD:
NO. The Court ruled that, first, R.A No. 329 was enacted
amending Section 2553 of the Revised Administrative
Code empowering the City Council not only to impose a
license fee but to levy a tax for purposes of revenue, thus
the ordinance cannot be considered ultra vires for there
is more than ample statury authority for the enactment
thereof.
Second, an argument against double taxation may not be
invoked where one tax is imposed by the state and the
other is imposed by the city, so that where, as here,
Congress has clearly expressed its intention, the statute
must be sustained even though double taxation results.
Lastly, violation of uniformity is out of place it being
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.
CONSTITUTIONAL LIMITATIONS – DUE PROCESS
CLAUSE
Maghuyop
CIR vs CA and Fortune Tobacco Corporation
G.R. No. 119761, August 29, 1996
VITUG, J.
FACTS:
Fortune Tobacco manufactures cigarette brands
“Champion,” “Hope,” and “More”. Such brands were
classified as locally manufactured cigarettes not bearing
foreign brand. Later on, RA 7654 was enacted imposing
55% tax on currently classified locally manufactured
cigarettes; and 45% on other locally manufactured
cigarettes. BIR then issued RMC 37-93 classifying HOPE,'
‘MORE' and ‘CHAMPION' as locally manufactured
cigarettes bearing foreign brands, and imposing 55% ad
valorem tax thereon. Fortune Tobacco requested for a
review, reconsideration and recall of RMC 37–93 but was
denied. CTA, on the other hand, upheld the position of
Fortune Tobacco, and held defective, invalid and
unenforceable RMC 37-93 since when R.A. No. 7654 took
effect, the brands in question were not currently classified
and taxed at 55% and were therefore, still classified as
other locally manufactured cigarettes taxed at 45% or
20%, as the case may be. The CIR forthwith filed a petition
for review with the Court of Appeals.
ISSUE:
WON RM 37-93 is valid
RULING:
NO. RMC 37–93 has been made in order to place “Hope
Luxury,” “Premium More” and “Champion” within the
12 | F i r s t Batch :: Tax-1 Digests
classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA
7654. Specifically, the new law would have its amendatory
provisions applied to locally manufactured cigarettes
which at the time of its effectivity were not so classified as
bearing foreign brands. Prior to the issuance of the
questioned circular, “Hope Luxury,” “Premium More,” and
“Champion” cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand
subject to 45% ad valorem tax. Hence, without RMC 37–
93, the enactment of RA 7654, would have had no new
tax rate consequence on private respondent’s products.
CONSTITUTIONAL LIMITATIONS – DUE PROCESS
CLAUSE
Mallari
COMMISSIONER OF INTERNAL REVENUE v. MICHEL
J. LHUILLIER PAWNSHOP, INC.
July 15, 2003
Davide, Jr., C.J.
FACTS:
 On March 11, 1991, CIR Jose Ong issued
Revenue Memorandum Order (RMO) 15-91 which
imposed a 5% lending investors tax on
pawnshops. It ratiocinated that pawnshop
businesses are akin to lending investors, and
shall be subject to 5% lending investors tax based
on their gross income under Sec. 116 of the Tax
Code, as amended. The RMO was clarified by
Revenue Memorandum Circular (RMC) 43-91.
 Pursuant to these issuances, the BIR issued an
Assessment Notice against Lhuillier demanding a
deficiency percentage tax of P 3,360,335.11 for
1994.
 BIR issued a warrant of distraint or levy against
Lhuillier’s property for the enforcement and
payment of the assessed percentage tax.
 Lhuillier filed an administrative protest with the
Office of the Revenue Regional Director,
contending that pawnshops are different from
lending investors, and that it shall not be subject
to the 5% percentage tax.
o The protest being unacted upon, Lhuillier
elevated the matter to the CIR, then o the
Court of Tax Appeals.
o The CIR filed a Motion to Dismiss the
petition on the ground that it did not
state a cause of action.
o Lhuillier moved for the issuance of a WPI
to enjoin BIR from enforcing the warrant
of distraint and levy.
  The CTA denied the CIR’s motion to dismiss and
granted Lhuillier’s motion. It rendered a decision
declaring the RMO and the RMC null and void.
o CIR appealed to the CA; CA affirmed the
CTA decision.
 CIR now invokes Sec. 116 of the Tax Code, which
imposed a 5% percentage tax on lending
investors, and argues that such is broad enough
to include pawnshop operators. They contend
that the issuances are mere rules and regulations
implementing such provision.
o SEC. 116. Percentage tax on dealers in
securities; lending investors. - Dealers in
securities and lending investors shall pay
a tax equivalent to six (6) per centum of
their gross income. Lending investors
shall pay a tax equivalent to five (5%)
percent of their gross income.
ISSUE: Whether or not pawnshops may be considered as
lending investors for the purpose of imposing the 5%
percentage taxes.
HELD: NO.
 Under Section 157(u) of the NIRC of 1986, as
amended, the term lending investor includes all
persons who make a practice of lending money for
themselves or others at interest. A pawnshop, on
the other hand, is defined under Section 3 of P.D.
No. 114 as a person or entity engaged in the
business of lending money on personal property
delivered as security for loans and shall be
synonymous, and may be used interchangeably,
with pawnbroker or pawn brokerage.
 While it is true that pawnshops are engaged in
the business of lending money, they are not
considered lending investors for the purpose
of imposing the 5% percentage taxes.
 Under the NIRC of 1977, before it was amended
by EO 273, and in Sec. 161 of the NIRC of 1986,
pawnshops and lending investors were subjected
to different tax treatments.
o (dd) Lending investors
1. In chartered cities and first class municipalities, one
thousand pesos;
2. In second and third class municipalities, five hundred
pesos;
3. In ourth and fifth class municipalities and municipal
districts, two hundred fifty pesos: Provided, That lending
investors who do business as such in more than one
province shall pay a tax of one thousand pesos.
o (ff) Pawnshops, one thousand pesos
13 | F i r s t Batch :: Tax-1 Digests
 Congress never intended pawnshops to be treated
in the same way as lending investors.
o SC. 116 of the NIRC of 1977, as amended
by EO 273, subjects to percentage tax
dealers in securities and lending
investors only. There is no mention of
pawnshops. Under the maxim expressio
unius est exclusio alterius, the mention
of one thing implies the exclusion of
another thing not mentioned. Thus, if a
statute enumerates the things upon
which it is to operate, everything else
must necessarily and by implication be
excluded from its operation and effect.
 Adding to the invalidity of the issuances is the
absence of publication. While the rule-making
authority of the CIR is not doubted, like any other
government agency, the CIR may not disregard
legal requirements or applicable principles in the
exercise of quasi-legislative powers.
CONSTITUTIONAL LIMITATIONS – EQUAL
PROTECTION CLAUSE
Martinez
ABAKADA GURO PARTY LIST VS EXECUTIVE
SECRETARY
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO
ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and
HONORABLE COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR., Respondent.
Facts:
Petitioners ABAKADA GURO Party List challenged the
constitutionality of R.A. No. 9337 particularly Sections 4,
5 and 6, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code
(NIRC). These questioned provisions contain a
uniform proviso authorizing the President, upon
recommendation of the Secretary of Finance, to raise the
VAT rate to 12%, effective January 1, 2006, after any of
the following conditions have been satisfied, to wit:
. . . That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two
and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of
the previous year exceeds one and one-half percent (1
½%).
Petitioners argue that the law is unconstitutional, as it
constitutes abandonment by Congress of its exclusive
authority to fix the rate of taxes under Article VI, Section
28(2) of the 1987 Philippine Constitution. They further
argue that VAT is a tax levied on the sale or exchange of
goods and services and cannot be included within the
purview of tariffs under the exemption delegation since
this refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on
imported/exported goods. They also said that the
President has powers to cause, influence or create the
conditions provided by law to bring about the conditions
precedent. Moreover, they allege that no guiding
standards are made by law as to how the Secretary of
Finance will make the recommendation. They claim,
nonetheless, that any recommendation of the Secretary of
Finance can easily be brushed aside by the President
since the former is a mere alter ego of the latter, such that,
ultimately, it is the President who decides whether to
impose the increased tax rate or not.
Issues:
1. Whether or not R.A. No. 9337 has violated the
provisions in Article VI, Section 24, and Article VI,
Section 26 (2) of the Constitution.
2. Whether or not there was an undue delegation of
legislative power in violation of Article VI Sec 28
Par 1 and 2 of the Constitution.
3. Whether or not there was a violation of the due
process and equal protection under Article III Sec.
1 of the Constitution.
Discussions:
1. Basing from the ruling of Tolentino case, it is not
the law, but the revenue bill which is required by
the Constitution to “originate exclusively” in the
House of Representatives, but Senate has the
power not only to propose amendments, but also
to propose its own version even with respect to
bills which are required by the Constitution to
originate in the House. the Constitution simply
means is that the initiative for filing revenue,
tariff or tax bills, bills authorizing an increase of
the public debt, private bills and bills of local
application must come from the House of
Representatives on the theory that, elected as
they are from the districts, the members of the
House can be expected to be more sensitive to the
local needs and problems. On the other hand, the
senators, who are elected at large, are expected to
approach the same problems from the national
perspective. Both views are thereby made to bear
on the enactment of such laws.
14 | F i r s t Batch :: Tax-1 Digests
2. In testing whether a statute constitutes an undue
delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all
its terms and provisions when it left the hands of
the legislature so that nothing was left to the
judgment of any other appointee or delegate of the
legislature.
3. The equal protection clause under the
Constitution means that “no person or class of
persons shall be deprived of the same protection
of laws which is enjoyed by other persons or other
classes in the same place and in like
circumstances.”
Rulings:
1. R.A. No. 9337 has not violated the provisions. The
revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to
the House bill when it included provisions in
Senate Bill No. 1950 amending corporate income
taxes, percentage, excise and franchise taxes.
Verily, Article VI, Section 24 of the Constitution
does not contain any prohibition or limitation on
the extent of the amendments that may be
introduced by the Senate to the House revenue
bill.
2. There is no undue delegation of legislative power
but only of the discretion as to the execution of a
law. This is constitutionally permissible.
Congress does not abdicate its functions or
unduly delegate power when it describes what job
must be done, who must do it, and what is the
scope of his authority; in our complex economy
that is frequently the only way in which the
legislative process can go forward.
3. Supreme Court held no decision on this matter.
The power of the State to make reasonable and
natural classifications for the purposes of
taxation has long been established. Whether it
relates to the subject of taxation, the kind of
property, the rates to be levied, or the amounts to
be raised, the methods of assessment, valuation
and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary
will not interfere with such power absent a clear
showing of unreasonableness, discrimination, or
arbitrariness.
CONSTITUTIONAL LIMITATIONS – EQUAL
PROTECTION CLAUSE
Matildo
G.R. No. L-4376 May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G.
MANLAPIT, INC., petitioners-appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER,
THE CITY ASSESSOR and THE CITY MAYOR, all of the
City of Manila, respondents-appellees.
FACTS:
The Municipal Board of Manila enact an ordinance which
according to them is based on the authority conferred by
Section 18 (p) of Republic Act No. 409 – to tax motor and
other vehicles operating within the City of Manila.
Nonetheless, the Motor Vehicle Law which has a bearing
on the power granted to the municipal corporation to
impose tax provided some limitations that it should only
be limited to the exaction of property taxes.
The Ordinance title refers to it as “An Ordin
ance Levying a Property Tax on All Motor Vehicles
Operating within the City of Manila”, however, the
character of the tax must be determined by its incidents,
and if it is levied upon persons on account of their
business, it will be construed as a license or occupation
tax. Also, the ordinance exacts the tax upon all motor
vehicles operating within the City of Manila. It does not
distinguish between a motor vehicle for hire and one
which is purely for private us
ISSUE: Whether or not the Ordinance offends against the
rule of uniformity of taxation.
HELD:
Yes. The ordinance infringes the rule of the uniformity of
taxation ordained by our Constitution. The distinction is
important if we note that the ordinance intends to burden
with the tax only those registered in the City of Manila as
may be inferred from the word "operating" used therein.
The word "operating" denotes a connotation which is akin
to a registration, for under the Motor Vehicle Law no
motor vehicle can be operated without previous payment
of the registration fees. There is no pretense that the
ordinance equally applies to motor vehicles who come to
Manila for a temporary stay or for short errands, and it
cannot be denied that they contribute in no small degree
to the deterioration of the streets and public highway. The
fact that they are benefited by their use they should also
be made to share the corresponding burden. And yet such
is not the case. This is an inequality which we find in the
ordinance, and which renders it offensive to the
Constitution.
CONSTITUTIONAL LIMITATIONS – EQUAL
PROTECTION CLAUSE
Montalbo
G.R. No. L-6093 February 24, 1954
THE SHELL CO. OF P.I., LTD., plaintiff-appellant,
vs.
E. E. VAÑO, as Municipal Treasurer of the
Municipality of Cordova, Province of Cebu, defendant-
appellee.
Facts:
15 | F i r s t Batch :: Tax-1 Digests
The Municipal Council of Cordova, Cebu adopted
Ordinance 10 which imposes an annual tax onoccupation
or the exercise of the privilege of installation manager and
Ordinance 11 imposing an annualtax on tin can factories
having a maximum output capacity of 30,000 tin
cans. Shell, a foreign
corporation, disputed the ordinances and contended that:
first, “installation manager” is a designation
made by the
company and such designation cannot be deemed to be a
“calling” as defined in Sec 178 of
NIRC and that the installation manager employed by Shell
is a salaried employee which may not be taxed by the
municipal council under the provisions of NIRC;
second, the ordinance is discriminatory and hostile
because there is no other person in the locality who
exercises such designation or calling; and third, the
imposition of tax on tin can factories having a 30,000
maximum output capacity is unlawful because it is a
percentage tax and falls under the exceptions provided in
the Tax Code
Issue:
WON an installation manager, although a salaried
employee, is liable for occupation tax
Ruling:Yes. Even if the installation manager is a salaried
employee of the corporation, still it is an occupation.
Further, 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. The occupation tax must be paid by each individual
engaged in a calling subject to it
CONSTITUTIONAL LIMITATIONS – DUE PROCESS
CLAUSE
Ombajin
KAPATIRAN NG MGA NAGLILINGKOD SA
PAMAHALAAN NG PILIPINAS, INC., HERMINIGILDO C.
DUMLAO, GERONIMO Q. QUADRA, and MARIO C.
VILLANUEVA v. HON. BIENVENIDO TAN G.R. No.
81311. June 30, 1988
FACTS:
The four consolidated cases questions the validity of the
VAT (Executive Order 273) for being unconstitutional in
that its enactment is not allegedly within the powers of
the President; that the VAT is oppressive, discriminatory,
regressive, and violates the due process and equal
protection clauses and other provisions of the 1987
Constitution.
The Solicitor General prays for the dismissal of the
petitions on the ground that the petitioners have failed to
show justification for the exercise of its judicial powers.
He also questions the legal standing of the petitioners
who, he contends, are merely asking for an advisory
opinion from the Court, there being no justiciable
controversy for resolution.
ISSUE: Whether VAT is unconstitutional.
RULING:
No. First, the Court held that the President had authority
to issue EO 273 as it was provided in the Provisional
constitution that the President shall have legislative
powers.
Second, petitioners have failed to show that EO 273 was
issued capriciously and whimsically or in an arbitrary or
despotic manner by reason of passion or personal
hostility. It appears that a comprehensive study of the
VAT had been extensively discussed by this framers and
other government agencies involved in its
implementation, even under the past administration.
Lastly, petitioners also failed to prove that EO 273 is
oppressive, discriminatory, unjust and regressive, in
violation of the equal protection clause. Petitioners merely
rely upon newspaper articles which are actually hearsay
and have evidentiary value. To justify the nullification of
a law. there must be a clear and unequivocal breach of
the Constitution, not a doubtful and argumentative
implication. As the Court sees it, EO 273 satisfies all the
requirements of a valid tax.
In any event, if petitioners seriously believe that the
adoption and continued application of the VAT are
prejudicial to the general welfare or the interests of the
majority of the people, they should seek recourse and
relief from the political branches of the government. The
Court, following the time-honored doctrine of separation
of powers, cannot substitute its judgment for that of the
President as to the wisdom, justice and advisability of the
adoption of the VAT. The Court can only look into and
determine whether or not EO 273 was enacted and made
effective as law, in the manner required by, and consistent
with, the Constitution, and to make sure that it was not
issued in grave abuse of discretion amounting to lack or
excess of jurisdiction; and, in this regard, the Court finds
no reason to impede its application or continued
implementation.
CONSTITUTIONAL LIMITATIONS – DUE PROCESS
CLAUSE
Panes
TAN VS DEL ROSARIO
237 SCRA 324
FACTS
The facts of the case states that, two consolidated special
civil actions for prohibition challenge, in G.R. No. 109289,
the constitutionality of Republic Act No. 7496, also
commonly known as the Simplified Net Income Taxation
Scheme ("SNIT"), amending certain provisions of the
National Internal Revenue Code and, in G.R. No. 109446,
the validity of Section 6, Revenue Regulations No. 2-93,
promulgated by public respondents pursuant to said law.
16 | F i r s t Batch :: Tax-1 Digests
Petitioners claim to be taxpayers adversely affected by the
continued implementation of the amendatory legislation
and it is asserted that the enactment of Republic Act
No. 7496 violates some provisions of the Constitution.
CONTENTION
Petitioner contends that the title of House Bill No. 34314,
progenitor of Republic Act No. 7496, is a misnomer or, at
least, deficient for being merely entitled, "Simplified Net
Income Taxation Scheme for the Self-Employed
and Professionals Engaged in the Practice of their
Profession" (Petition in G.R. No. 109289).
ISSUE
Whether or not, the law was unconstitutional for
violating due process.
HELD
The court ruled in negative stating that there is a violation
of due process only when there is the inherent or
constitutional limitations in the exercise of the power to
tax is transgressed. Petitioner intimates that Republic Act
No. 7496 desecrates the constitutional requirement that
taxation "shall be uniform and equitable" in that the law
would now attempt to tax single proprietorships and
professionals differently from the manner it imposes the
tax on corporations and partnerships. The contention
clearly forgets, however, that such a system of income
taxation has long been the prevailing rule even prior to
Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of equal
protection, merely requires that all subjects or objects of
taxation, similarly situated, are to be treated alike both in
privileges and liabilities (Juan Luna Subdivision vs.
Sarmiento, 91 Phil. 371). Uniformity does not forfend
classification as long as: (1) the standards that are used
therefor are substantial and not arbitrary, (2) the
categorization is germane to achieve the legislative
purpose, (3) the law applies, all things being equal, to both
present and future conditions, and (4) the classification
applies equally well to all those belonging to the same
class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs.
PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent from the
amendatory law is the legislative intent to increasingly
shift the income tax system towards the schedular
approach in the income taxation of individual taxpayers
and to maintain, by and large, the present global
treatment on taxable corporations. We certainly do not
view this classification to be arbitrary and inappropriate.
There is no evident intention of the law, either before or
after the amendatory legislation, to place in an unequal
footing or in significant variance the income tax treatment
of professionals who practice their respective professions
individually and of those who do it through a general
professional partnership.
WHEREFORE, the petitions are DISMISSED. No special
pronouncement on costs.
CONSTITUTIONAL LIMITATIONS – EQUAL
PROTECTION CLAUSE
Parba
Ormoc Sugar vs Treasurer of Ormoc City (1968)
Facts:
In 1964, the Municipal Board of Ormoc City passed
Ordinance 4, imposing on any and all productions of
CENTRIFUGA SUGAR MILLED AT THE ORMOC SUGAR
CO. INC. IN ormoc City a municipal tax equivalent to 1%
per export sale to the United States and other foreign
countries. The company paid the said tax under protest.
It subsequently filed a case seeking to invalidate the
ordinance for being unconstitutional.
Issue: Whether the ordinance violates the equal
protection clause.
Held:
The Ordinance taxes only CENTRIFUGAL SUGAR
produced and exported by the Ormoc Sugar Co. Inc. and
none other. At the time of the taxing ordinance’s enacted,
the company was the only sugar central in Ormoc City.
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 same class as the present company, from the coverage
of the tax. As it is now, even if later a similar company is
set up, it cannot be subject to the tax because the
ordinance expressly points only to the company as the
entity to be levied upon.
CONSTITUTIONAL LIMITATIONS – EQUAL
PROTECTION CLAUSE
Reales
PHILIPPINE RURAL ELECTRIC COOPERATIVES
ASSOCIATION, VS. THE SECRETARY, DEPARTMENT
OF INTERIOR AND LOCAL GOVERNMENT
Facts:
On May 23, 2000, a class suit was filed by petitioners in
their own behalf and in behalf of other electric
cooperatives organized and existing under P.D. No. 269
who are members of petitioner Philippine Rural Electric
Cooperatives Association, Inc. (PHILRECA).
Section 39 of P.D. No. 269 provides for the following tax
incentives to electric cooperatives:
SECTION 39. Assistance to Cooperatives; Exemption
from Taxes, Imposts, Duties, Fees; Assistance from the
National Power Corporation. Pursuant to the national
policy declared in Section 2, the Congress hereby finds
and declares that the following assistance to cooperative
is necessary and appropriate:
(a) Provided that it operates in conformity with the
purposes and provisions of this Decree, cooperatives (1)
17 | F i r s t Batch :: Tax-1 Digests
shall be permanently exempt from paying income
taxes, and (2) for a period ending on December 31 of the
thirtieth full calendar year after the date of a cooperative's
organization or conversion hereunder, or until it shall
become completely free of indebtedness incurred by
borrowing, whichever event first occurs, shall be exempt
from the payment (a) of all National Government, local
government and municipal taxes and fees, including
franchise, filing, recordation, license or permit fees or
taxes and any fees, charges, or costs involved in any
court or administrative proceeding in which it may be
a party, and (b) of all duties or imposts on foreign
goods acquired for its operations…
With the passage of the Local Government Code, however,
they allege that their tax exemptions have been invalidly
withdrawn. In particular, petitioners assail Sections 193
and 234 of the Local Government Code on the ground that
the said provisions discriminate against them, in violation
of the equal protection clause. Further, they submit that
the said provisions are unconstitutional because they
impair the obligation of contracts between the Philippine
Government and the United States Government.
First they allege that said provisions unduly discriminate
against petitioners who are duly registered cooperatives.
They stress that cooperatives registered under R.A. No.
6938 are singled out for tax exemption privileges under
the Local Government Code. They maintain that electric
cooperatives registered with the NEA under P.D. No. 269,
as amended, and electric cooperatives registered with the
Cooperative Development Authority (CDA) under R.A. No.
6938 are similarly situated . Thus, petitioners contend
that to grant tax exemptions from local government taxes
to only registered cooperatives under R.A. No. 6938 is a
violation of the equal protection clause.
Second, petitioners contend that the withdrawal by the
Local Government Code of the tax exemptions of
cooperatives under P.D. No. 269, as amended, is an
impairment of the tax exemptions provided under the loan
agreements. Petitioners argue that as beneficiaries of the
loan proceeds, pursuant to the above provision, "all the
assets of petitioners, such as lands, buildings,
distribution lines acquired through the proceeds of the
Loan Agreements ... are tax exempt.
ISSUE:
WON certain sections of the Local Government Code
violated the constitutional rights of the petitioners.
HELD:
There is No Violation of the Equal Protection Clause
The equal protection clause under the Constitution
means that "no person or class of persons shall be
deprived of the same protection of laws which is enjoyed
by other persons or other classes in the same place and
in like circumstances." Thus, the guaranty of the equal
protection of the laws is not violated by a law based on
reasonable classification.
The classification of tax-exempt entities in the Local
Government Code is germane to the purpose of the law.
The Constitutional mandate that every local government
unit shall enjoy local autonomy, does not mean that the
exercise of power by local governments is beyond
regulation by Congress. Thus, while each government
unit is granted the power to create its own sources of
revenue, Congress, in light of its broad power to tax, has
the discretion to determine the extent of the taxing
powers of local government units consistent with the
policy of local autonomy.
In Mactan Cebu International Airport Authority v.
Marcos, this Court held that the limited and restrictive
nature of the tax exemption privileges under the Local
Government Code is consistent with the State policy to
ensure autonomy of local governments and the objective
of the Local Government Code to grant genuine and
meaningful autonomy to enable local government units to
attain their fullest development as self-reliant
communities and make them effective partners in the
attainment of national goals. The obvious intention of the
law is to broaden the tax base of local government units
to assure them of substantial sources of revenue.
There is No Violation of the Non-Impairment Clause
It is ingrained in jurisprudence that the constitutional
prohibition on the impairment of the obligation of
contracts does not prohibit every change in existing
laws. To fall within the prohibition, the change must not
only impair the obligation of the existing contract, but the
impairment must be substantial.
Moreover, to constitute impairment, the law must affect a
change in the rights of the parties with reference to each
other and not with respect to non-parties.
A plain reading of the provision shows that it does not
grant any tax exemption in favor of the borrower or the
beneficiary either on the proceeds of the loan itself or the
properties acquired through the said loan. It simply states
that the loan proceeds and the principal and interest of
the loan, upon repayment by the borrower, shall
be without deduction of any tax or fee that may be
payable under Philippine law as such tax or fee will be
absorbed by the borrower with funds other than the
loan p
roceeds. Further, the provision states that with respect
to any payment made by the borrower to (1) any
contractor or any personnel of such contractor or any
property transaction and (2) any commodity transaction
using the proceeds of the loan, the tax to be paid, if any,
on such transactions shall be absorbed by the
borrower and/or beneficiary through funds other than
the loan proceeds.
Beyond doubt, the import of the tax provision in the loan
agreements cited by petitioners is twofold: (1) the
borrower is entitled to receive from and is obliged to pay
the lender the principal amount of the loan and the
interest thereon in full, without any deduction of the
tax component thereof imposed under applicable
18 | F i r s t Batch :: Tax-1 Digests
Philippine law and any tax imposed shall be paid by
the borrower with funds other than the loan
proceeds and (2) with respect to payments made to any
contractor, its personnel or any property or commodity
transaction entered into pursuant to the loan agreement
and with the use of the proceeds thereof, taxes payable
under the said transactions shall be paid by the
borrower and/or beneficiary with the use of funds
other than the loan proceeds.
The quoted provision does not purport to grant any tax
exemption in favor of any party to the contract, including
the beneficiaries thereof. The provisions simply shift
the tax burden, if any, on the transactions under the
loan agreements to the borrower and/or beneficiary of
the loan. Thus, the withdrawal by the Local Government
Code under Sections 193 and 234 of the tax exemptions
previously enjoyed by petitioners does not impair the
obligation of the borrower, the lender or the beneficiary
under the loan agreements as in fact, no tax exemption
is granted therein.
CONSTITUTIONAL LIMITATIONS – EQUAL
PROTECTION CLAUSE
Realizan
Santos v People
Facts:
On April 15, 2003, Santos was charged of violating
Section 248 (B) of the NIRC or substantial
underdeclaration of income. After an exchange of
pleadings Prosecution through Tore villas issued a
resolution finding probable cause and recommended the
filing of criminal complaint.
On January 20, 2006, Santos filed a motion to quash but
was denied by the CTA First Division. A motion for
reconsideration was then filed but was denied. Santos
then filed a motion for extension of time to file a petition
for review at the CTA en Banc. The CTA en Banc stated
that a resolution denying a motion to quash is not a
proper subject of an appeal.
Issue:
WON a resolution of a CTA Division denying a motion to
quash is a proper subject of an appeal to the CTA en Banc.
Ruling:
No. The CTA merely adopts the procedure for petitions for
review and appeals long established and practiced in
other Philippine courts.
General rule: The denial of a motion to quash is an
interlocutory order which is not the... proper subject of an
appeal or a petition for certiorari.
According to Section 1, Rule 41 of the Revised Rules of
Court, governing appeals from the Regional Trial Courts
(RTCs) to the Court of Appeals, an appeal may be taken
only from a judgment or final order that completely
disposes of the case or of a matter therein when declared
by the Rules to be appealable. Said provision, thus,
explicitly states that no appeal may be taken from an
interlocutory order.
In other words, after a final order or judgment, the court
should have nothing more to do in respect of the relative
rights of the parties to the case. Conversely, an order that
does not finally dispose of the case and does not end the
Court's task of adjudicating the parties' contentions in
determining their rights and liabilities as regards each
other, but obviously indicates that other things remain to
be done by the Court, is interlocutory.
CONSTITUTIONAL LIMITATIONS – FREEDOM OF
RELIGION (FREE EXERCISE CLAUSE)
Reyes
G.R. No. L-9637 April 30, 1957
AMERICAN BIBLE SOCIETY, plaintiff-appellant,
vs.
CITY OF MANILA, defendant-appellee.
FACTS:
Plaintiff-appellant is a foreign, non-stock, non-profit,
religious, missionary corporation duly registered and
doing business in the Philippines through its Philippine
agency established in Manila. The defendant appellee is a
municipal corporation.
Plaintiff's Philippine agency has been distributing and
selling bibles and/or gospel portions thereof (except
during the Japanese occupation) throughout the
Philippines and translating the same into several
Philippine dialects. Later on, the acting City Treasurer of
the City of Manila informed plaintiff that it was
conducting the business of general merchandise without
providing itself with the necessary Mayor's permit and
municipal license, in violation of Ordinance No. 3000 and
required plaintiff to secure the corresponding permit fee,
and license fee based on gross sales and receipts,,
together with compromise.
Plaintiff protested but to avoid the closing of its business
as well as the fines and penalties, plaintiff paid the license
and permit fees while informing the defendant that a suit
would be taken in court. Plaintiff filed a complaint praying
that said Ordinance No. 3000 and No. 2592 as amended
be declared illegal and unconstitutional.
Plaintiff avers that they do not make profit in selling the
from the sales of its bibles but the defendant retorts
differently.
The Court dismissed the case for lack of merit.
Plaintiff elevated the case to CA.
19 | F i r s t Batch :: Tax-1 Digests
Predicated on Section 1, subsection (7) of Article III of the
Constitution of the Republic of the Philippines, plaintiff-
appellant contends that Ordinances Nos. 2529 and 3000,
as respectively amended, are unconstitutional and illegal
in so far as its society is concerned, because they provide
for religious censorship and restrain the free exercise and
enjoyment of its religious profession, to wit: the
distribution and sale of bibles and other religious
literature to the people of the Philippines.
ISSUE:
W/N the ordinances of CIty of Manila, Nos. 3000 and
2592 as amended are constitutional and valid
HELD:
YES. The Ordinance No. 3000 is constitutional, valid and
of general application and not particularly directed
against institutions like the plaintiff, and it does not
contain any provisions whatever prescribing religious
censorship nor restraining the free exercise and
enjoyment of any religious profession. The Court also held
that with respect to Ordinance No. 3000, as amended,
which requires the obtention the Mayor's permit before
any person can engage in any of the businesses, trades or
occupations enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a right granted
by the Constitution, nor tax the exercise of religious
practices.
Ordinance No. 2529, as amended by Ordinances Nos.
2779, 2821 and 3028 is also constitutional but is
inapplicable.
It may be true that in the case at bar the price asked for
the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the
same but this cannot mean that appellant was engaged in
the business or occupation of selling said "merchandise"
for profit. For this reason We believe that the provisions
of City of Manila Ordinance No. 2529, as amended, cannot
be applied to appellant, for in doing so it would impair its
free exercise and enjoyment of its religious profession and
worship as well as its rights of dissemination of religious
beliefs.
The power to impose a license tax on the exercise of these
freedom is indeed as potent as the power of censorship
which this Court has repeatedly struck down.
CONSTITUTIONAL LIMITATIONS – FREEDOM OF
RELIGION
Sales
Tolentino v. Secretary of Finance
Arturo Tolentino v. Secretary of Finance and
Commissioner of Internal Revenue
G.R. No. 115455; October 30, 1995
Mendoza, J.:
FACTS:
The present case involves motions seeking
reconsideration of the Court’s decision dismissing the
petitions for the declaration of unconstitutionality of R.A.
No. 7716, otherwise known as the Expanded Value-Added
Tax Law. The motions, of which there are 10 in all, have
been filed by the several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by
removing the exemption of the press from the VAT while
maintaining those granted to others, the law
discriminates against the press. At any rate, it is averred,
“even nondiscriminatory taxation of constitutionally
guaranteed freedom is unconstitutional”, citing in
support of the case of Murdock v. Pennsylvania.
Chamber of Real Estate and Builders Associations, Invc.,
(CREBA), on the other hand, 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”.
Further, the Cooperative Union of the Philippines (CUP),
argues that legislature 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.
ISSUE:
Whether or not, based on the aforementioned grounds of
the petitioners, the Expanded Value-Added Tax Law
should be declared unconstitutional (violation of religious
and press freedom)
RULING:
No. With respect to the first contention, it would suffice to
say that since the law granted the press a privilege, the
law could take back the privilege anytime without offense
to the Constitution. The reason is simple: by granting
exemptions, the State does not forever waive the exercise
of its sovereign prerogative. Indeed, in withdrawing the
exemption, the law merely subjects the press to the same
tax burden to which other businesses have long ago been
subject. The PPI asserts that it does not really matter that
the law does not discriminate against the press because
“even nondiscriminatory taxation on constitutionally
guaranteed freedom is unconstitutional.” The Court was
speaking in that case (Murdock v. Pennsylvania) of a
license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional
because it lays a prior restraint on the exercise of its right.
The VAT is, however, different. It is not a license tax. It is
not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease
20 | F i r s t Batch :: Tax-1 Digests
or exchange of goods or properties or the sale or exchange
of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the
press pay income tax or subject it to general regulation is
not to violate its freedom under the Constitution.
Anent the first contention of CREBA, it has been held in
an early case that even though such taxation may affect
particular contracts, as it may increase the debt of one
person and lessen the security of another, or may impose
additional burdens upon one class and release the
burdens of another, still the tax must be paid unless
prohibited by the Constitution, nor can it be said that it
impairs the obligation of any existing contract in its true
legal sense. It is next pointed out that while Section 4 of
R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical
and veterinary services, it grants no exemption on the sale
of real property which is equally essential. The sale of food
items, petroleum, medical and veterinary services, etc.,
which are essential goods and services was already
exempt under Section 103, pars. (b) (d) (1) of the NIRC
before the enactment of R.A. No. 7716. Petitioner is in
error in claiming that R.A. No. 7716 granted exemption to
these transactions while subjecting those of petitioner to
the payment of the VAT. Finally, it is contended that R.A.
No. 7716 also violates Art. VI, Section 28(1) which
provides that “The rule of taxation shall be uniform and
equitable. The Congress shall evolve a progressive system
of taxation”. Nevertheless, equality and uniformity of
taxation mean 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, firms, and corporations
placed in similar situation. Furthermore, 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.” The mandate to Congress is not to
prescribe, but to evolve, a progressive tax system.
As regards the contention of CUP, it is worth noting that
its 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).
With all the foregoing ratiocinations, it is clear that the
subject law bears no constitutional infirmities and is thus
upheld.
NO OFFSETTING OF TAX LIABILITY/ TAX REFUND
Tobias
PHILEX MINING CORP. v. CIR
GR No. 125704, August 28, 1998
294 SCRA 687
FACTS. – Petitioner Philex Mining Corp. assails
the decision of the Court of Appeals affirming the Court of
Tax Appeals decision ordering it to pay the amount of
P110.7 M as excise tax liability for the period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20%
annual interest from 1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. Philex
protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input
credit/refund for the taxes it paid for the years 1989 to
1991 in the amount of P120 M plus interest. Therefore
these claims for tax credit/refund should be applied
against the tax liabilities.
ISSUE. – Can there be an off-setting between the
tax liabilities vis-a-vis claims of tax refund of the
petitioner?
HELD. – No. Philex's claim is an outright
disregard of the basic principle in tax law that taxes are
the lifeblood of the government and so should be collected
without unnecessary hindrance. Evidently, to
countenance Philex's whimsical reason would render
ineffective our tax collection system. Too simplistic, it
finds no support in law or in jurisprudence.
Taxes cannot be subject to compensation for the
simple reason that the government and the taxpayer are
not creditors and debtors of each other. There is a
material distinction between a tax and debt. Debts are
due to the Government in its corporate capacity, while
taxes are due to the Government in its sovereign capacity.
There can be no off-setting 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 amount equal
to or greater than the tax being collected. The collection of
a tax cannot await the results of a lawsuit against the
government.
It must be noted that a distinguishing feature of
a tax is that it is compulsory rather than a matter of
bargain. Hence, a tax does not depend upon the consent
of the taxpayer.
CONSTITUTIONAL LIMITATIONS – TAX EXEMPTIONS
Tejido
G.R. No. 167260 February 27, 2009
21 | F i r s t Batch :: Tax-1 Digests
THE CITY OF ILOILO, Mr. ROMEO V. MANIKAN, in his
capacity as the Treasurer of Iloilo City, petitioner,
vs.
SMART COMMUNICATIONS, INC. (SMART),
respondent.
BRION, J.:
FACTS:
The facts of the case are not in dispute. SMART
received a letter of assessment from petitioner requiring it
to pay deficiency local franchise and business taxes (in
the amount of P764,545.29, plus interests and
surcharges) which it incurred for the years 1997 to 2001.
SMART protested the assessment in a letter to the City
Treasurer. It claimed exemption from payment of local
franchise and business taxes based on Section 9 of its
legislative franchise under Republic Act (R.A.) No. 7294
(SMARTs franchise). Under SMARTs franchise, it was
required to pay a franchise tax equivalent to 3% of all
gross receipts, which amount shall be in lieu of all taxes.
SMART contends that the in lieu of all taxes clause covers
local franchise and business taxes.
SMART similarly invoked R.A. No. 7925 or the
Public Telecommunications Policy Act (Public Telecoms
Act) whose Section 23 declares that any existing privilege,
incentive, advantage, or exemption granted under existing
franchises shall ipso facto become part of previously
granted-telecommunications franchise. SMART contends
that by virtue of Section 23, tax exemptions granted by
the legislature to other holders of telecommunications
franchise may be extended to and availed of by SMART.
Petitioner denied SMART’s protest. SMART
objected to the petitioner’s denial of its protest by
instituting a case against petitioner before the RTC of
Iloilo City. The trial court ruled in favour of SMART, and
from this judgment petitioner files this petition for review
on certiorari.
ISSUE:
WoN SMART is indeed exempt from the payment
of local franchise and business taxes.
RULING:
NO. In one case, the SC has ruled that a tax
exemption cannot arise from vague inference. Tax
exemptions must be clear and unequivocal. A taxpayer
claiming a tax exemption must point to a specific
provision of law conferring on the taxpayer, in clear and
plain terms, exemption from a common burden. Any
doubt whether a tax exemption exists is resolved against
the taxpayer.
CLAIM FOR EXEMPTION UNDER SECTION 9 OF
SMART’S FRANCHISE
Section 9 of SMARTs franchise states, in part:
Section 9. Tax provisions. The grantee, its successors or
assigns shall be liable to pay the same taxes on their real
estate buildings and personal property, exclusive of' this
franchise, as other persons or corporations which are now
or hereafter may be required by law to pay. In addition
thereto, the grantee, its successors or assigns shall pay a
franchise tax equivalent to three percent (3%) of all gross
receipts of the business transacted under this franchise
by the grantee, its successors or assigns and the said
percentage shall be in lieu of all taxes on this franchise or
earnings thereof:
The in lieu of all taxes clause basically exempts
SMART from paying all other kinds of taxes for as long as
it pays the 3% franchise tax; it is the franchise tax that
shall be in lieu of all taxes, and not any other form of tax.
Franchise taxes on telecommunications companies,
however, have been abolished by R.A. No. 7716 or the
Expanded Value-Added Tax Law (E-VAT Law), which was
enacted by Congress on January 1, 1996. To replace the
franchise tax, the E-VAT Law imposed a 10% value-added
tax on telecommunications companies under Section 108
of the National Internal Revenue Code. The in lieu of all
taxes clause in the legislative franchise of SMART has
thus become functus officio, made inoperative for lack of
a franchise tax.
SMART’s claim for exemption from local business
and franchise taxes based on Section 9 of its franchise is
therefore unfounded.
CLAIM FOR EXEMPTION UNDER THE PUBLIC
TELECOMS ACT
Section 23 of the Public Telecommunications Act
provides, in part:
Section 23. Equality of Treatment in the
Telecommunications Industry. Any advantage, favor,
privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto
become part of previously granted telecommunications
franchise and shall be accorded immediately and
unconditionally to the grantees of such franchises:
Whether Section 23 of the cited law extends tax
exemptions granted by Congress to new franchise holders
to existing ones has been answered in the negative in the
case of PLDT v. City of Davao. The term exemption in
Section 23 of the Public Telecoms Act does not mean tax
exemption; rather, it refers to exemption from certain
regulatory or reporting requirements imposed by
government agencies such as the National
Telecommunications Commission. The thrust of the
Public Telecoms Act is to promote the gradual
deregulation of entry, pricing, and operations of all public
telecommunications entities, and thus to level the playing
field in the telecommunications industry. The language of
Section 23 and the proceedings of both Houses of
Congress are bereft of anything that would signify the
grant of tax exemptions to all telecommunications
entities. Intent to grant tax exemption cannot therefore be
discerned from the law; the term exemption is too general
to include tax exemption and runs counter to the
requirement that the grant of tax exemption should be
22 | F i r s t Batch :: Tax-1 Digests
stated in clear and unequivocal language too plain to be
beyond doubt or mistake.
The decision of the RTC is reversed.
CONSTITUTIONAL LIMITATIONS – TAX EXEMPTIONS
Acosta
DIGITAL TELECOMMUNICATIONS, INC. vs. CITY
GOVERNMENT OF BATANGAS- Real Property Tax
FACTS:
Petitioner was granted a 25-year franchise to install
telecommunications systems under a law which states
that “The grantee shall be liable to pay the same taxes on
its real estate, buildings, and personal property exclusive
of this franchise. As they were not being issued a Mayor’s
permit, Petitioner paid the Real Property Tax under
protest arguing that the phrase “exclusive of this
franchise” means that only the real properties not used in
furtherance of its franchise are subject to Real Property
Tax while those real properties which are used in its
telecommunications business are exempt from Real
Property Tax.
ISSUE:
Are Petitioner’s real properties used in its
telecommunications business exempt from Real Property
Tax?
HELD:
NO. Petitioner’s real properties, whether or not used in its
telecommunications business, are subject to Real
Property Tax. The phrase “exclusive of this franchise”
qualifies the term “personal property.” This means that
Petitioner’s legislative franchise, which is an intangible
personal property, shall not be subject to taxes. This is to
put franchise grantees in parity with non-franchisees as
the latter obviously do not have franchises which may
potentially be subject to realty tax. There is nothing in the
first sentence of Section 5 which expressly or even
impliedly exempts Petitioner from Real Property Tax.
Petitioner’s reliance on the BLGF’s opinion stating that
real properties owned by telecommunications companies
are exempt from Real Property Tax is without basis as the
BLGF has no authority to rule on claims for exemption
from Real Property Tax.
23 | F i r s t Batch :: Tax-1 Digests