TAX SYLLABUS With NOTES

Part I.
General Principles of Taxation
Reference: Chavez, Josephrally L., Income Taxation Law Illustrated and Simplified, Volume I. Manila: Rex
Bookstore, Inc., 2019 Edition.
I. Taxation
1. Definition of Taxation
a. 71 Am Jur 2nd 342
b. Pambansang Koalisyon ng mga Samahang Magsasaka v. Executive Secretary, G.R. Nos. 147036-37,
10 April 2012
FACTS: These are consolidated petitions to declare unconstitutional certain presidential decrees and executive
orders of the martial law era and under the incumbency of Pres. Estrada relating to the raising and use of
coco-levy funds, particularly: Section 2 of P.D. 755, (b)Article III, Section 5 of P.D.s 961 and 1468, (c) E.O. 312,
and (d) E.O. 313.
On June 19, 1971 Congress enacted R.A. 6260 that established a Coconut Investment Fund (CI Fund) for the
development of the coconut industry through capital financing. Coconut farmers were to capitalize and
administer the Fund through the Coconut Investment Company (CIC) whose objective was, among others, to
advance the coconut farmers interests.For this purpose, the law imposed a levy ofP0.55on the coconut
farmers first domestic sale of every 100 kilograms of copra, or its equivalent, for which levy he was to get a
receipt convertible into CIC shares of stock.
In 1975 President Marcos enacted P.D. 755 which approved the acquisition of a commercial bank for the
benefit of the coconut farmersto enable such bank to promptly and efficiently realize the industry's credit
policy.Thus, the PCA bought 72.2% of the shares of stock of First United Bank, headed by Pedro
Cojuangco.Dueto changes in its corporate identity and purpose, the banks articles of incorporation were
amended in July 1975, resulting in a change in the banks name from First United Bank United Coconut Planters
Bank (UCPB).
In November 2000 then President Joseph Estrada issued Executive Order (E.O.) 312, establishing a Sagip
Niyugan Program which sought to provide immediate income supplement to coconut farmers and encourage
the creation of a sustainable local market demand for coconut oil and other coconut products.The Executive
Order sought to establish aP1-billion fund by disposing of assets acquired using coco-levy funds or assets of
entities supported by those funds.A committee was created to manage the fund under this program.A
majority vote of its members could engage the services of a reputable auditing firm to conduct periodic audits.
At about the same time, President Estrada issued E.O. 313, which created an irrevocable trust fund known as
the Coconut Trust Fund (the Trust Fund).This aimed to provide financial assistance to coconut farmers, to the
coconut industry, and to other agri-related programs.The shares of stock of SMC were to serve as the Trust
Funds initial capital.These shares were acquired with CII Funds and constituted approximately 27% of the
outstanding capital stock of SMC.E.O. 313 designated UCPB, through its Trust Department, as the Trust Funds
trustee bank.The Trust Fund Committee would administer, manage, and supervise the operations of the Trust
Fund. The Committee would designate an external auditor to do an annual audit or as often as needed but it
may also request the Commission on Audit (COA) to intervene.
To implement its mandate, E.O. 313 directed the Presidential Commission on Good Government, the Office of
the Solicitor General, and other government agencies to exclude the 27% CIIF SMC shares from Civil Case
0033, entitled Republic of the Philippines v. Eduardo Cojuangco, Jr., et al.,which was then pending before the
Sandiganbayan and to lift the sequestration over those shares.
On January 26, 2001, however, former President Gloria Macapagal-Arroyo ordered the suspension of E.O.s
312 and 313. This notwithstanding, on March 1, 2001 petitioner organizations and individuals brought the
present action in G.R. 147036-37 to declare E.O.s 312 and 313 as well as Article III, Section 5 of P.D. 1468
unconstitutional.On April 24, 2001 the other sets of petitioner organizations and individuals instituted G.R.
147811 to nullify Section 2 of P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 also for being
unconstitutional.
ISSUE: Are the coco-levy funds public funds?

Are (a) Section 2 of P.D. 755, (b)Article III, Section 5 of P.D.s 961 and 1468, (c) E.O. 312, and (d) E.O. 313
unconstitutional?
Have petitioners legal standing to bring the same to court?
HELD: Coco-levy funds are public funds. The Court was satisfied that the coco-levy funds were raised pursuant
to law to support a proper governmental purpose.They were raised with the use of the police and taxing
powers of the State for the benefit of the coconut industry and its farmers in general. The COA reviewed the
use of the funds.The BIR treated them as public funds and the very laws governing coconut levies recognize
their public character.
The Court has also recently declared that the coco-levy funds are in the nature of taxes and can only be used
for public purpose.Taxes are enforced proportional contributions from persons and property, levied by the
State by virtue of its sovereignty for the support of the government and for all itspublic needs. Here, the
coco-levy funds were imposed pursuant to law, namely, R.A. 6260 and P.D. 276.The funds were collected and
managed by the PCA,an independent government corporation directly under the President.And, as the
respondent public officials pointed out, thepertinent laws used the termlevy, which meansto tax, in describing
the exaction.
R.A. 6260 and P.D. 276 did not raise money to boost the governments general funds butto provide means for
the rehabilitation and stabilization of a threatened industry, the coconut industry, which is so affected with
public interest as to be within the police power of the State. The funds sought to support the coconut
industry,one of the main economic backbones of the country, and to secure economic benefits for the
coconut farmers and farm workers.
Lastly, the coco-levy funds are evidently special funds. Its character as such fund was made clear by the fact
that they were deposited in the PNB (then a wholly owned government bank) and not in the Philippine
Treasury.
***
The Court has already passed upon this question in Philippine Coconut Producers Federation, Inc. (COCOFED)
v. Republic of the Philippines. It held as unconstitutional Section 2 of P.D. 755 for effectively authorizing the
PCA to utilize portions of theCCS Fundto pay the financial commitment of the farmers to acquire UCPB and to
deposit portions of the CCS Fund levies with UCPB interest free. And as there also provided, the CCS Fund, CID
Fund and like levies that PCA is authorized to collect shall be considered as non-special or fiduciary funds to be
transferred to the general fund of the Government, meaning they shall be deemed private funds.
In any event, such declaration is void.There is ownership when a thing pertaining to a person is completely
subjected to his will in everything that is not prohibited by law or the concurrence with the rights of another.
An owner is free to exercise all attributes ofownership: the right, among others, to possess, use and enjoy,
abuse or consume, and dispose or alienate the thing owned. The owner is free to waive all or some of these
rights in favor of others.But in the case of the coconut farmers, they could not, individually or collectively,
waive what have not been and could not be legally imparted to them.
Section 2 of P.D. 755, Article III,Section 5of P.D. 961, and Article III, Section 5 of P.D. 1468 completely ignore
the fact that coco-levy funds are public funds raised through taxation.And since taxes could be exacted only
for a public purpose, they cannot be declared private properties of individuals although such individuals fall
within a distinct group of persons.
These assailed provisions,which removed the coco-levy funds from the general funds of the government and
declared them private properties of coconut farmers,do not appear to have a color of social justice for their
purpose.The levy on copra that farmers produce appears, in the first place, to be a business tax judging by its
tax base.The concept of farmers-businessmen is incompatible with the idea that coconut farmers are victims
of social injustice and so should be beneficiaries of the taxes raised from their earnings.
On another point, in stating that the coco-levy fund shall not be construed or interpreted, under any law or
regulation, as special and/or fiduciary funds, or as part of the general funds of the national government,P.D.s
961 and 1468 seek to remove such fund from COA scrutiny.
This is also the fault of President Estradas E.O. 312 which deals with P1 billion to be generated out of the sale
of coco-fund acquired assets.E.O. 313 has a substantially identical provision governing the management and
disposition of the Coconut Trust Fund capitalized with the substantial SMC shares of stock that the coco-fund
acquired.
But, since coco-levy funds are taxes, the provisions of P.D.s755,961 and 1468 as well as those of E.O.s 312 and
313 that remove such funds and the assets acquired through them from the jurisdiction of the COA violate
Article IX-D, Section 2(1) of the 1987 Constitution.Section 2(1) vests in the COA the power and authority to
examine uses of government money and property.The cited P.D.s and E.O.s also contravene Section 2 of P.D.
898 (Providing for the Restructuring of the Commission on Audit), which has the force of a statute.And there is
no legitimate reason why such funds should be shielded from COA review and audit.The PCA, which
implements the coco-levy laws and collects the coco-levy funds, is a government-owned and controlled
corporation subject to COA review and audit.
E.O. 313 suffers from an additional infirmity.Apparently, it intends to create a trust fund out of the coco-levy
funds to provide economic assistance to the coconut farmers and, ultimately, benefit the coconut industry.But
on closer look, E.O. 313 strays from the special purpose for which the law raises coco-levy funds in that it
permits the use of coco-levy funds for improving productivity in other food areas.
Clearly, E.O.313 above runs counter to the constitutional provision which directs thatall money collected on
any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose
only.Assisting other agriculturally-related programs is way off the coco-funds objective of promoting the
general interests of the coconut industry and its farmers.
A final point,the E.O.s also transgress P.D. 1445,Section 84(2),the first part by the previously mentioned
sections of E.O. 313 and the second part by Section 4 of E.O. 312 and Sections 6 and 7 of E.O. 313.E.O. 313
vests the power to administer, manage, and supervise the operations and disbursements of the Trust Fund it
established (capitalized with SMC shares bought out of coco-levy funds) in a Coconut Trust Fund Committee.
Section 4 ofE.O. 312 does essentially the same thing.It vests the management and disposition of the assistance
fund generated from the sale of coco-levy fund-acquired assets into a Committee of five members.
In effect, the provision transfers the power to allocate, use, and disburse coco-levy funds that P.D. 232 vested
in the PCA and transferred the same, without legislative authorization and in violation of P.D. 232, to the
Committees mentioned above.An executive order cannot repeal a presidential decree which has the same
standing as a statute enacted by Congress.
***
The Court has to uphold petitioners right to institute these petitions.The petitioner organizations in these
cases represent coconut farmers on whom the burden of the coco-levies attaches.It is also primarily for their
benefit that the levies were imposed.
The individual petitioners, on the other hand, join the petitions as taxpayers.The Court recognizes their right
to restrain officials from wasting public funds through the enforcement of an unconstitutional statute.This
so-called taxpayers suit is based on the theory that expenditure of public funds for the purpose of executing
an unconstitutional act is a misapplication of such funds.
The petition in G.R.147036-37 is granted; The petition in G.R. 147811 is partially granted; the following are
declared void: a) E.O. 312; and b)E.O. 313.
Section 2 of P.D. 755 and Article III, Section 5 of P.D.s 961 and 1468 have been previously unconstitutional.
Share
c. CIR v. Fortune Tobacco Corporation, 559 SCRA 161 (2008))
Topic: Definition of Taxation
Title: CIR v. Fortune Tobacco Corporation, 559 SCRA 161 (2008)

G.R. No. 167274-75
Date: July 21, 2008
Ponente: Tinga, J
Relevant Facts/Law Passed:
Fortune Tobacco Corporation is a domestic corporation who is manufacturer/producer of, among others, the
cigarette brands, Champion, Salem, Camel, and Winston.
However, on January 1, 1997, R.A. No. 8240 took effect whereby a shift from the ad valorem tax (AVT)
system to the specific tax system was made and subjecting the aforesaid cigarette brands to specific tax
under Section 142 thereof, now renumbered as Sec. 145 of the Tax Code of 1997, pertinent provisions of
which are quoted thus:
Section 145. Cigars and Cigarettes-
(A) Cigars. – There shall be levied, assessed and collected on cigars a tax of One peso (P1.00) per cigar.
(B) Cigarettes packed by hand. – There shall be levied, assessed and collected on cigarettes packed by hand a
tax of Forty centavos (P0.40) per pack.
(C) Cigarettes packed by machine. – There shall be levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below:
(1) If the net retail price is above Ten pesos (P10.00) per pack, the tax shall be Twelve (P12.00) per pack;
(2) If the net retail price exceeds Six pesos and Fifty centavos (P6.50) but does not exceed Ten pesos
(P10.00) per pack, the tax shall be Eight Pesos (P8.00) per pack.
(3) If the net retail price is Five pesos (P5.00) but does not exceed Six Pesos and fifty centavos (P6.50) per
pack, the tax shall be Five pesos (P5.00) per pack;
(4) If the net retail price is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00) per pack;
xxx
The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No.
8240 shall not be lower than the tax, which is due from each brand on October 1, 1996 Xxx
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be increased
by twelve percent (12%) on January 1, 2000.
Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, “(t)hat the new
specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and
fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000.”
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands manufactured
and removed in the total amounts of P585,705,250.00.
On February 7, 2000, the Fortune Tobacco filed a claim of refund before the appellate division of the
commission of internal revenue but the latter did not take any action hence the former filed a review directly
to the SC.
Another case before the CTA contains the same similar facts with the case at hand. The CTA first reduce the
claim but granted the refund. However. It later on reverse its decision, then to deny the refund but lastly
settled to order the refund to the respondent fortune tobacco.
CA - Both denied the appeal and the MR.
Issue:
1. Whether or not Fortune Tobacco (respondent) is granted a tax refund.
2. Whether or not a tax refund partakes the nature of a tax exemption.
3. Whether or not the Government is exempt from the application of solutio indebiti.
Ruling / Sino nanalo: Fortune Tobacco was granted a P680,387,025.00 tax refund.
1. Yes. Section 145 states that during the transition period, i.e., within the next three (3) years from the
effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due
from each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12%
increase which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1
January 2000. Clearly and unmistakably, Section 145 mandates a new rate of excise tax for cigarettes packed
by machine due to the 12% increase effective on 1 January 2000 without regard to whether the revenue
collection starting from this period may turn out to be lower than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower
than the tax actually paid prior to 1 January 2000, Revenue Regulation No. 17-99 effectively imposes a tax
which is the higher amount between the ad valorem tax being paid at the end of the three (3)-year transition
period and the specific tax under paragraph C, sub-paragraph (1)-(4), as increased by 12%—a situation not
supported by the plain wording of Section 145 of the Tax Code.
As we have previously declared, rule-making power must be confined to details for regulating the mode or
proceedings in order to carry into effect the law as it has been enacted, and it cannot be extended to amend
or expand the statutory requirements or to embrace matters not covered by the statute. Administrative
regulations must always be in harmony with the provisions of the law because any resulting discrepancy
between the two will always be resolved in favor of the basic law.
The foregoing leads us to conclude that Revenue Regulation No. 17-99 is indeed indefensibly flawed. The
Commissioner cannot seek refuge in his claim that the purpose behind the passage of the Tax Code is to
generate additional revenues for the government. Revenue generation has undoubtedly been a major
consideration in the passage of the Tax Code. However, as borne by the legislative record, the shift from the
ad valorem system to the specific tax system is likewise meant to promote fair competition among the
players in the industries concerned, to ensure an equitable distribution of the tax burden and to simplify tax
administration by classifying cigarettes, among others, into high, medium and low-priced based on their net
retail price and accordingly graduating tax rates.
At any rate, this advertence to the legislative record is merely gratuitous because, as we have held, the
meaning of the law is clear on its face and free from the ambiguities that the Commissioner imputes. We
simply cannot disregard the letter of the law on the pretext of pursuing its spirit.
2. No. A tax refund does not partake the nature of a tax exemption. There is parity between tax refund and tax
exemption only when the former is based either on a tax exemption statute or a tax refund
statute. Obviously, that is not the situation here. Quite the contrary, Fortune Tobacco’s claim for refund is
premised on its erroneous payment of the tax, or better still the government’s exaction in the absence of a
law.
Tax exemption is a result of legislative grace. And he who claims an exemption from the burden of taxation
must justify his claim by showing that the legislature intended to exempt him by words too plain to be
mistaken. The rule is that tax exemptions must be strictly construed such that the exemption will not be held
to be conferred unless the terms under which it is granted clearly and distinctly show that such was the
intention.
Tax refunds (or tax credits), on the other hand, are not founded principally on legislative grace but on the legal
principle which underlies all quasi-contracts abhorring a person’s unjust enrichment at the expense of
another. The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio indebiti,
which covers not only mistake in fact but also mistake in law.
3. No. The Government is not exempt from the application of solutio indebiti. Indeed, the taxpayer expects fair
dealing from the Government, and the latter has the duty to refund without any unreasonable delay what it
has erroneously collected. If the State expects its taxpayers to observe fairness and honesty in paying their
taxes, it must hold itself against the same standard in refunding excess (or erroneous) payments of such
taxes. It should not unjustly enrich itself at the expense of taxpayers. And so, given its essence, a claim for tax
refund necessitates only preponderance of evidence for its approbation like in any other ordinary civil case.
Doctrine:
Additional Notes:
Taxation
· Taxation is the inherent power of the sovereign, exercised through the legislature,
to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues
to carry out the legitimate objects of government.
· It is also defined as the act of levying a tax, i.e. the process or means by which the
sovereign, through its law-making body, raises income to defray the necessary expenses of
government. It is a method of apportioning the cost of government among those who, in some
measure, are privileged to enjoy its benefits and must therefore bear its burdens.
Taxes
· Taxes are the enforced proportional contributions from persons and property
levied by the law-making body of the State by virtue of its sovereignty for the support of the
government and all public needs.
ad valorem tax (AVT) system - a tax based on the assessed value of an item, such as real estate or personal
property.
specific tax system - A levy assessed by an authority that is based on a certain product amount, but not on
its price. A specific tax is typically incurred by a business in a set amount that is determined by the number
or weight of products or taxable items.
2. Definition of Taxes
a. 71 Am Jur 2nd 343-346
b. Republic v. Philippine Rabbit Bus Lines, Inc., G.R. No. L-26862, 30 March 1970
3. Taxes distinguished from
a. Toll Fees
i. 71 Am Jur 2nd 351
ii. Section 155 of the Local Government Code (LGC)
iii. Diaz v. Sec. of Finance, G.R. No. 193007, 19 July 2011
G.R. No. L-26862 March 30, 1970
Fernando, J.
Doctrine:
As distinguished from other pecuniary burdens, the differentiating factor is that the purpose to be subserved
is the raising of revenue. A tax then is neither a penalty that must be satisfied nor a liability arising from
contract. Much less can it be confused or identified with a license or a fee as a manifestation of an exercise of
the police power.
"The Government is never estopped by mistake or error on the part of its agents. It follows that, in so far as
this record shows, the petitioners have not made it appear that the additional tax claimed by the Collector is
not in fact due and collectible. The assessment of the tax by the Collector creates, it must be remembered, a
charge that is at least prima facie valid." That principle has since been subsequently followed. While the
question here is one of the collection of a regulatory fee under the police power, reliance on the above course
of decisions is not inappropriate.
Facts:
Plaintiff -appellant Republic of the Philippines filed a complaint against defendant-appellee Philippine Rabbit
Bus Lines, Inc. on January 17, 1963 alleging that the latter, as the registered owner of motor vehicles, paid to
the Motor Vehicles Office in Baguio the amount of P78,636.17, for the second installment of registration fees
for 1959, not in cash but in the form of negotiable backpay certificates of indebtedness Thus, it sought the
payment of such amount with surcharges plus the legal rate of interest from the filing thereof and a
declaration of the nullity of the use of such negotiable certificate of indebtedness to satisfy its obligation. The
defendant-appellee, countered that what it did was in accordance with the Backpay Law, both the Treasurer
of the Philippines and the General Auditing Office having signified their conformity to such a mode of
payment. It then sought the dismissal of the complaint.
The lower court rendered judgment in favor of defendant-appellee upheld the validity and efficacy of such
payment made and dismissed the complaint holding that the National Treasurer upon whom devolves the
function of administering the Back Pay Law (Republic Act 304 as amended by Republic Act Nos. 800 and 897),
in his letter to the Chief of the Motor Vehicles Office, had approved the acceptance of negotiable certificates
of indebtedness in payment of registration fees of motor vehicles with the view that such certificates 'should
be accorded with the same confidence by other governmental instrumentalities as other evidences of public
debt, such as bonds and treasury certificates'. Significantly, the Auditor General concurred in the said view of
the National Treasurer.
The Republic of the Philippines appealed. While originally the matter was elevated to the Court of Appeals, it
was certified to the Supreme Court, the decisive issue being one of law.
Issues:
1. Is the registration fee a tax, and as such, its payment by backpay certificates valid?
2. Whether or not estoppel lies against the government for the mistaken interpretation arrived at by the
national treasurer and the auditor general.
Held:
1. The Supreme Court ruled in the negative. A tax refers to a financial obligation imposed by a state on
persons, whether natural or juridical, within its jurisdiction, for property owned, income earned, business or
profession engaged in, or any such activity analogous in character for raising the necessary revenues to take
care of the responsibilities of government.
As distinguished from other pecuniary burdens, the differentiating factor is that the purpose to be subserved
is the raising of revenue. A tax then is neither a penalty that must be satisfied nor a liability arising from
contract. Much less can it be confused or identified with a license or a fee as a manifestation of an exercise of
the police power. It has been settled law in this jurisdiction as far back as Cu Unjieng v. Potstone, decided in
1962, that this broad and all-encompassing governmental competence to restrict rights of liberty and property
carries with it the undeniable power to collect a regulatory fee. Unlike a tax, it has not for its object the raising
of revenue but looks rather to the enactment of specific measures that govern the relations not only as
between individuals but also as between private parties and the political society. To quote from Cooley anew:
"Legislation for these purposes it would seem proper to look upon as being made in the exercise of that
authority ... spoken of as the police power."
The registration fee which defendant-appellee had to pay was imposed by Section 8 of the Revised Motor
Vehicle Law. Its heading speaks of "registration fees." The term is repeated four times in the body thereof.
Equally so, mention is made of the "fee for registration." A subsection starts with a categorical statement "No
fees shall be charged." The conclusion is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power. Hence the inapplicability of the section
relied upon by defendant-appellee under the Back Pay Law. It is not held liable for a tax but for a registration
fee. It therefore cannot make use of a backpay certificate to meet such an obligation.
2. Insofar as the taxing power is concerned, Pineda v. Court of First Instance, a 1929 decision, speaks
categorically: "The Government is never estopped by mistake or error on the part of its agents. It follows that,
in so far as this record shows, the petitioners have not made it appear that the additional tax claimed by the
Collector is not in fact due and collectible. The assessment of the tax by the Collector creates, it must be
remembered, a charge that is at least prima facie valid." That principle has since been subsequently followed.
While the question here is one of the collection of a regulatory fee under the police power, reliance on the
above course of decisions is not inappropriate. There is nothing to stand in the way, therefore, of the
collection of the registration fees from defendant-appellee.
WHEREFORE, the decision of November 24, 1965 is reversed and defendant-
appellee ordered to pay the sum of P78,636.17.
iv. City of Ozamiz v. Lumapas, G.R. No. L-30727, 16 July 1975
CITY OF OZAMIS VS LUMAPAS

G.R. No. L-30727, 65 SCRA 33, July 15, 1975
FACTS:
This case is about a bus company, Romar Line, transporting passengers and cargo with Ozamis City and
Pagadian City as terminal points. Said bus company is operated by the respondent SERAPIO LUMAPAS.
Then, the Municipal Board of Ozamis City enacted Ordinance No. 466 imposing parking fees for every motor
vehicle parked on any parking space in Ozamis City.
Since Romar Line is affected of said ordinance, Lumapas paid said fee under protest for 2 years and 4 months.
After 4 years, Lumapas filed a complained against City of Ozamis, with CFI-Misamis Occidental, for recovery of
parking fees, alleging that the said ordinance is ULTRA VIRES.
CFI ruled in favor of Lumapas and held that the parking area where buses of Romar Lines are parked is part of
the municipal street and the parking fee is in the nature of a toll fee for the use of a public road. As such, the
enactment of said ordinance is in violation of Sec. 59 (b) of RA No. 4136 (Land Transportation and Traffic Code)
for it has no prior approval by the president of the Philippines with recommendation of Secretary of Public
Works and Communications, and is NULL & VOID.
Hence, this appeal by certiorari.
ISSUE (1) WON the Ordinance No. 466, which imposes parking fees in Ozamis, is valid.
HELD:
City of Ozamis has been clothed with full power to CONTROL and REGULATE its street to promote public
health, safety and welfare.
The SC held that power to tax can only be exercised by the Congress, unless delegated or conferred to others
as provided for by law. Included in said delegation is the express grant of powers, among others. And such
delegation of power to tax are to be construed against the Municipality. In this case, RA 321 (Ozamis City
Chapter) delegates to the Municipal Board the power to regulate the use of the streets, among other public
places.
Said republic act delegates the police power to the municipal corporation to be exercised as a governmental
functions for municipal purposes.
ISSUE (2) WON the fee charged is a parking fee and not a toll fee.
HELD:
The SC ruled that the word TOLL is defined as a DUTY imposed on goods and passengers travelling public
roads, and not for use, as a parking place for vehicles.
In this case, the contested ordinance defined parking as the STOPPAGE of a motor vehicle on an existing
parking areas to unload and load passengers or cargoes. Considering the use of the land, the fee paid is that of
a PARKING FEE and not a toll fee, and which is imposed to cover the expenses for supervision, inspection and
control, to ensure smooth flow of traffic in the environs of the public market, and for safety and convenience
of the public.
SC reversed decision of CFI and declared Ordinance No. 466 VALID.
b. Debts
i. 71 Am Jur 2nd 345-346
ii. Caltex v. COA, 208 SCRA 726
10
Topic: Tax distinguished from Debts
Title: Caltex v. COA, 208 SCRA 726

G.R. No. 92585
Date: May 8, 1992
Ponente: Davide, Jr.

COA directed petitioner Caltex Philippines, Inc. (CPI) to remit to the OPSF (Oil Price Stabilization Fund) its
collection, excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products
authorized under Section 8 of P.D. No. 1956 which, as of 9 March 1989, amounted to P1,287,668,820.00 and
informed it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be held in
abeyance and to desist from further offsetting the taxes collected against outstanding claims in 1989 and
subsequent periods. Petitioner requested the COA for an early release of its reimbursement certificates from
the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March 1989, invoking in
support thereof COA Circular No. 89-299 but the COA denied petitioner's request. Petitioner submitted to the
COA a proposal for the payment of the collections and the recovery of claims, since the outright payment of
the sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will
cause a very serious impairment of its cash position. COA approved the proposal but prohibited Caltex from
further offsetting remittances and reimbursements for the current and ensuing years. Caltex filed an
Omnibus Request for the Reconsideration of the decision.
Petitioner’s Contention:
Respondent’s Contention:
LC/ RTC/ CA:
Issue:
Whether the amounts due from Caltex to the OPSF may be offset against Caltex’ outstanding claims from said
funds
Ruling / Sino nanalo:

No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the
government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and
stabilization of a threatened industry which is affected with public interest as to be within the police power of
the state. There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects
the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and
cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others,
demands for wage increases and upward spiraling of the cost of basic commodities. The stabilization then of
oil prices is of prime concern which the state, via its police power, may properly address. It is settled that a
taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be
the subject of compensation because the government and taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.
Doctrine:
Civil Law; Taxation; LOI 1416 has no binding force or effect as it was never published in the Official Gazette
after its issuance or at anytime after the decision in the above-mentioned cases.-
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after its
issuance or at any time after the decision in the above mentioned cases.
Civil Law; Taxation; Tax exemptions as a general rule are construed strictly against the grantee and liberally in
favor of the taxing authority.-
Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner’s claim must still fail. Tax
exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing
authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by
the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the
exempting law or at least be within its purview by clear legislative intent.
Civil Law; Taxation; Though LOI 1416 may suspend the payment of taxes by copper mining companies it does
not give petitioner the same privilege with respect to the payment of OPSF dues.-
In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and
MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the
payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to
the payment of OPSF dues.
Civil Law; Taxation; It is settled that a taxpayer may not affect taxes due from the claims that he may have
against the government.-
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.
Additional Notes:
iii. Francia v. IAC, 162 SCRA 753
FACTS:
Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property
was
expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate
taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City.
Francia filed a complaint to annual the auction sale. The lower court dismissed the complaint and the
Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for review.
Francia contends that his tax delinquency of P 2,400 has been extinguished by legal compensation. He claims
that the government owed him P 4,116 when a portion of his land was expropriated on October 15, 1977.
ISSUE:
May the expropriation payment compensate for the real estate taxes due?
RULING:
No. There can be no offsetting of taxes against the claims that the taxpayer may have against the government.
A person
cannot refuse to pay a tax on the ground that the government owes him an 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.
Internal revenue taxes cannot be the subject of compensation. The Government and the taxpayer are not
mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off.
Moreover, the amount of P4,116 paid by the national government for the 125 square meter portion of his lot
was deposited with the Philippine National Bank long before the sale at public auction of his remaining
property. It would have been an easy matter to withdraw P 2,400 from the deposit so that he could pay the
tax obligation thus aborting the sale at public auction. Thus, the petition for review is dismissed. The taxes
assessed are the obligations of the taxpayer arising from law, while the money judgment against the
government is an obligation arising from contract, whether express or implied.
iv. Philex Mining Corp. v. CIR, CA, and CTA, G.R. No. 125704, 28 Aug 1998
No off-setting in tax collection
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?
RULING: 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. Philex cannot be allowed to
refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit
against the government which has not yet been granted. 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.
c. License Fees
i. 71 Am Jur 2nd 352-353
ii. Progressive Dev. Corp. v. QC, 172 SCRA 629
FACTS:
Respondent Pambansang Kilusan ng Paggawa (KILUSAN) -TUCP filed with the Department of Labor and
Employment (DOLE) a petition for certification election among the rank-and-file employees of the petitioner
alleging that it is a legitimate labor federation and its local chapter, Progressive Development Employees
Union, was issued charter certificate No. 90-6-1-153.
Respondent Pambansang Kilusan ng Paggawa (KILUSAN) -TUCP claimed that there was no existing collective
bargaining agreement and that no other legitimate labor organization existed in the bargaining unit.
3. Petitioner PDC filed its motion to dismiss contending that the local union failed to comply with Rule II
Section 3, Book V of the Rules Implementing the Labor Code, as amended, which requires the submission of:
(a) the constitution and by-laws; (b) names, addresses and list of officers and/or members; and (c) books of
accounts.
4. Respondent KILUSAN-TUCP submitted a rejoinder to PDC's motion to dismiss claiming that it had
submitted the necessary documentary requirements for registration, such as the constitution and by-laws of
the local union, and the list of officers/members with their addresses. Kilusan further averred that no books of
accounts could be submitted as the local union was only recently organized.
5. Petitioner PDC insisted that upon verification with the Bureau of Labor Relations (BLR), it found that
the alleged minutes of the organizational meeting was unauthenticated, the list of members did not bear the
corresponding signatures of the purported members, and the constitution and by-laws did not bear the
signature of the members and was not duly subscribed. It argued that the private respondent KILUSAN-TUCP
therefore failed to substantially comply with the registration requirements provided by the rules.
MED-ARBITER Dela Cruz: held that there was substantial compliance with the requirements for the
formation of the chapter. He further stated that mere issuance of the charter certificate by the federation was
sufficient compliance with the rules. Considering that the establishment was unorganized, he maintained that
a certification election should be conducted to resolve the question of representation.
Petitioner filed an MR to the Office of the Secretary.
SECRETARY Laguesma: denied the MR.
Hence, this petition for certiorari.
ISSUE:
WON the supervision fee is income tax
Ruling: NO
Although license fee is a legal concept distinguishable from tax; the former is imposed in the exercise of police
power primarily for the purposes of regulation, while the latter is imposed ubder tge taxin gpower primarily
for the purpose of raising revenue.
The SC held that the 5% tax imposed on O.N 9236 constitutes not a tax on income, not a city tax income within
the meaning of sec. 2(g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of the
business in which the petitioner is engaged.
iii. PAL v. Edu, 164 SCRA 320
PHILIPPINE AIRLINES, INC. v. EDU

G.R. No. L- 41383, August 15, 1988
FACTS:
The Philippine Airlines (PAL) is a corporation engaged in the air transportation business under a legislative
franchise, Act No. 42739. Under its franchise, PAL is exempt from the payment of taxes.
Sometime in 1971, however, Land Transportation Commissioner Romeo F. Elevate (Elevate) issued a
regulation pursuant to Section 8, Republic Act 4136, otherwise known as the Land and Transportation and
Traffic Code, requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.
Despite PAL's protestations, Elevate refused to register PAL's motor vehicles unless the amounts imposed
under Republic Act 4136 were paid. PAL thus paid, under protest, registration fees of its motor vehicles. After
paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Land Transportation
Commissioner Romeo Edu (Edu) demanding a refund of the amounts paid. Edu denied the request for refund.
Hence, PAL filed a complaint against Edu and National Treasurer Ubaldo Carbonell (Carbonell).
The trial court dismissed PAL's complaint. PAL appealed to the Court of Appeals which in turn certified the
case to the Supreme Court.
ISSUE:
Whether or not motor vehicle registration fees are considered as taxes.
RULING:
Yes. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes,
then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. The motor vehicle
registration fees are actually taxes intended for additional revenues of the government even if one fifth or less
of the amount collected is set aside for the operating expenses of the agency administering the program.
ISSUE:
Are motor vehicle registration fees taxes or regulatory taxes?
RULING:
They are taxes. Tax are for revenue, whereas fees are exactions for purposes of regulation and inspection, and
are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that
connection.
It is the object of the charge, and not the name, that determines whether a charge is a tax or a fee. The money
collected under the Motor Vehicle Law is not intended for the expenditures of the Motor Vehicle Law is not
intended for the expenditures of the Motor Vehicles Office but accrues to the funds for the construction and
maintenance of public roads, streets and bridges.
As the fees are not collected for regulatory purposes as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, but to provide revenue with which the
Government is to construct and maintain public highways for everyone’s use, they are veritable taxes, not
merely fees.
PAL is, thus, exempt from paying such fees, except for the period between June 27, 1968 to April 9, 1979,
where its tax exception in the franchise was repealed.
iv. ESSO v. CIR, 175 SCRA 149
FACTS: The case is an appeal on the decision of the Court of Tax Appeals denying petitioner’s claims for refund
of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA Cases No. 1251 and 1558
respectively.
ISSUE: Whether or not the margin fees paid by the petitioner be considered necessary and ordinary business
expenses and therefore still deductible from its gross income.
RULING: The court ruled in the negative. In the case of Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue, 4 the Court laid down the rules on the deductibility of
business expenses. To be deductible as a business expense, three conditions are imposed mainly. (1) The
expense must be ordinary and necessary, (2) it must be paid or incurred within the taxable year, and (3) it
must be paid or incurred in carrying on a trade or business. In addition, not only must the taxpayer meet the
business test, he must substantially prove by evidence or records the deductions claimed under the law,
otherwise, the same will be disallowed.
ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its
own trade or business. The petitioner merely presumed that all corporate expenses are necessary and
appropriate in the absence of a showing that they are illegal or ultra vires. This is error. The public respondent
is correct when it asserts that "the paramount rule is that claims for deductions are a matter of legislative
grace and do not turn on mere equitable considerations… The taxpayer in every instance has the burden of
justifying the allowance of any deduction claimed."
It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot now claim this
as an ordinary and necessary expense paid or incurred in carrying on its own trade or business.
Osmena v. Orbos, 220 SCRA 703
17
Topic: Tax distinguished from License Fee
Title: Osmena v. Orbos, 220 SCRA 703

G.R. No. 99886
Date: March 31, 1993
Ponente:

Petitioner Osmena challenges the constitutionality of the PD 1956, which created a special account in the
general fund for the Oil Price Stabilization Fund (OSPF) as buffer mechanism to protect the domestic oil
industry from frequent fluctuations of crude oil prices in the world market. PD 1529 created a “trust account”
in the books of the Ministry of Energy. He alleges that the law is unconstitutional because:
1. The monies collected are supposed to treated as a special fund, not a trust fund considering that it is a
“special tax collected for a specific purpose”
2. PD 1529 unduly delegates legislative power by conferring the Energy Regulatory Board the authority to
impose additional amounts on petroleum products without a sufficient standard by which such authority may
be exercised.
LC/ RTC/ CA:
Issue:
1) Was the Oil Price Stabilization Fund (OSPF) a tax?
2) What are the requisites for a valid delegation of the taxation power? Was there undue delegation of such
power?
1) No. Petitioner assumed that PD 1956 was enacted to collect taxes for a fund for a special purpose. The
purpose for the fund, however, is not to generate revenue. The OPSF was designed to reimburse oil
companies for cost increases in crude oil and imported petroleum products resulting from exchange rate
adjustments and from increases in the world market prices of crude oil.[1] As such, establishment and
maintenance of the OPSF is well within that pervasive and non-waivable power and responsibility of the
government to secure the physical and economic survival and well-being of the community, that
comprehensive sovereign authority we designate as the police power of the State, because its purpose is to
regulate the oil industry pursuant to public policy.
That a portion of the fund is taken from collections of ad valorem taxes and the increases thereon does not
change its primary purpose. Hence, if the primary purpose of the law is to regulate but has incidental taxing
effects, then it is legislated by virtue of the police power. If the primary purpose of the law is to generate
revenue but has incident regulatory effects, then it is legislated by virtue of the power to tax. The OSPF law
falls under the first type.
2) The power to tax is reposed in the legislative, but the latter may delegate it to the executive provided that
the law delegating the power:
i. is complete in itself, that is, it must set forth the policy to be executed by the delegate
ii. fixes a standard, the limits of which are sufficiently determinate or determinable to which the
delegate must conform.
There was no undue delegation in this case because a standard was fixed, albeit impliedly, as when the law
intended to permit the additional impositions as long as there exists a need to protect the general public and
the petroleum industry from price fluctuations.
Doctrine:
Additional Notes:
The OPSF acts as a buffer mechanism into which a portion of the purchase price of oil and petroleum products
paid by consumers as well as some tax revenues are inputted and from which amounts are drawn from time
to time to reimburse oil companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation.
v. Compania General de Tabacos v. City of Manila, 8 SCRA 367
Compañ ia General de Tabacos de Filipinas vs. City of Manila

Tax v. License fee
Summary: Petitioner Tabacalera filed an action before CFI Manila to recover the sum of P15, 280 allegedly
overpaid by it as taxes on the wholesale and retail sales of liquor for the period from the 3rd quarter of 1954
to the 2nd quarter of 1957 pursuant to Ordinances Nos. 3634, 3301 and 3816
Tabacalera is a wholesale and retail liquor dealer and is paying the license fees prescribed by Ordinance 3358
from 1954-1957 and also a wholesale and retail dealer of general merchandise and is paying sales taxes
required by Ordinance 3634, 3301 and 3816
Tabacalera included its liquor sales in its sworn statements of wholesale, retail and grocery sales of general
merchandise.
In 1954, the City Treasurer addressed a letter to an accounting firm, expressing the view that liquor dealers
who pays the annual license fees under Ordinance 3358 is exempted from wholesale and retailers taxes
under City Ordinances 3634, 3301, and 3816.
The Tabacalera, upon learning of such stopped including quarterly sworn declarations required by the latter
ordinances, and in 1957, demanded refund of the alleged overpayment.
Petitioner argued: in connection with its liquor sales it should pay the license fees but not the municipal sales
taxes and since it already paid the license fees, the sales taxes paid by it amounting to P15,208 under the 3
ordinances in an overpayment by mistake and should be refundable
City of Manila argued: Tabacalera should pay the license fees prescribed by Ordinance 3358 as well as the
sales taxes imposed by the 3 other ordinances. And assuming it should not pay the sales taxes with regard its
liquor sales, it is not entitled to refund because, it voluntarily paid the amount, overpayment was mistake of
law due to negligence and the government for public improvements and services already used the amount
ISSUE: Is petitioner entitled to refund? NO.
HELD:
The term "tax" applies—generally speaking—to all kinds of exaction which become public funds. The term is
often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license fees are
commonly called taxes.
Legally speaking, license fee is a legal concept quite distinct from tax
License fee is imposed in the exercise of police power for purposes of regulation
Tax is imposed under the taxing power for the purpose of raising revenues
The Ordinance 3358 prescribes municipal license fees for the privilege of engaging in business of selling
liquor and was enacted by Municipal Board of Manila pursuant to its charger power to fix license fees and
regulate the sales of intoxicating liquor (imported/local)
The license fees imposed is justified and is for its regulation because such fee is a license for the privilege of
engaging in such business because not anyone or anybody may freely engage in such and that the liquor is
potentially harmful to public health and morals, and must be subject to supervision or regulation by the state
and by cities and municipalities
As for the sales taxes on general merchandise they are revenue measures by respondents by virtue of its
power to tax dealers for the sale of such merchandise
Both a license fee and tax may be imposed on the same business or occupation or for selling same article
without violating rule on double taxation
Note:
Merchandise - all subjects of commerce and traffic; whatever sold and bought in trade or market’ goods
bought and sold for gain; commodities to trade; commercial commodities in general
Regarding the letter by the treasurer that a liquor dealer who pays the annual license fee is exempted from
sales taxes is without merit, because the government is not bound by the errors by its officers.
d. Special Levies under the Local Government Code
i. Section 240 of the LGC
ii. Apostolic Prefect v. Treasurer of Baguio, 71 Phil 547
FACTS:
The Apostolic Prefect is a corporation sole, of religious character, organized under the Philippine laws, and
with residence
in Baguio. The City imposed a special assessment against properties within its territorial jurisdiction, including
those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The Apostolic Prefect
contends that its properties should be free from tax.
ISSUE:
Is the Apostolic Prefect exempt from paying?
RULING:
No, it is liable.
In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there is a
recognized distinction between them in that assessment is confined to local impositions upon property for the
payment of the cost of public improvements in its immediate vicinity and levied with reference to special
benefits to the property assessed.
A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution exempt the
Apostolic Prefect from payment of said special assessment.
Furthermore, arguendo that exemption may encompass such assessment, the Apostolic Prefect cannot claim
exemption as it has not proven the property in question is used exclusively for religious purposes; but that it
appears that the same is being used to other non-religious purposes.
Thus, the Apostolic Prefect is required to pay the special assessment.
iii. Republic v. Bacolod Murcia, 17 SCRA 632
FACTS:
RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute acquired the
Insular Sugar Refinery for P3.07 million payable in installments from the proceeds of the Sugar tax to be
collected under RA 632. The operation of the refinery for 1954 to 1957 was disastrous as the Institute suffered
tremendous losses. Contending that the purchase of refinery with money from the Institute’s fund was not
authorized under RA 632, and that the continued operation of the refinery is inimical to their interest,
Bacolod-Murcia Milling Co., Ma-ao Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao
refused to continue with their contribution to said fund. The trial court found them liable under RA 632.
Hence, this petition.
ISSUE:
Are the milling companies liable?
RULING:
Yes. The special assessment or levy for the Philippine Sugar Institute Fund is not so much an exercise of the
power of
taxation, nor the imposition of a special assessment, but the exercise of police power for the general welfare
of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully
resist.
Section 2a of the charter authorizes Philsugin to acquire the refinery in question. The financial loss resulting
from the operation thereof is no means an index that the industry did profit therefrom, as other gains of a
different nature (such as experience) may have been realized.
e. Penalties
i. NDC v. CIR, 151 SCRA 472
The NDC entered into contract in Tokyo with several Japanese shipbuilding companies for the construction of
its 12 ocean-going vessels. The purchase price was to come from the proceeds of bonds issued by the
Central Bank. Initial payments were made in cash and through irrevocable letter of credit. Fourteen (14)
promissory notes were signed for the balance by the NDC guaranteed by Republic of the Philippines.
Pursuant thereto, the remaining payments and the interest thereon were remitted in due time by the NDC to
Tokyo. The NDC remitted to the ship builders in Tokyo the total amount of US$4,066,580 as interest on the
balance of the purchase price. No tax was withheld.
The Commissioner then held the NDC liable on such tax in the total sum of PhP5,115,234.74. The BIR
thereupon served on the NDC a warrant of distraint and levy to enforcce collection of the claimed amount.
Petitioner argues that the Japanese ship builders were not subject to tax under the sec. 37 of the Tax Code
because all the related activities- the signing of the contract, the construction of the vessels, the payment of
the stipulated price, and their delivery to the NDC - were done in Tokyo.
ISSUE: WON the Tokyo shipbuilders are subject to tax?
HELD:
The law specifies: interest derived from sources within the Philippines, and interest on bonds, notes, or
other interest-bearing obligation of resident, corporate or otherwise. Nothing there speak of the 'acts or
activity' of non-residential corporation in the Philippines, or place where the contract is signed.
The residence of the obligor who pays the interest rather than the physical location of the securities, bonds or
notes or the place of payment, is the determining factor of the source of interest income. Accordingly, if the
obligor is a resident of the Philippines the interest payment paid by him can have no other source than within
the Philippines. The interest is paid not by the bond note or other interest-bearing obligations, but by the
obligor.
f. Custom duties
4. Classification of Taxes
a. Burden (direct, indirect)
ii. Maceda v. Macaraig, 223 SCRA 217
GR No 88291, May 31, 1991
FACTS:
Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of hydraulic
power and the production of power from other sources. RA 358 granted NAPOCOR tax and duty exemption
privileges. RA 6395 revised the charter of the NAPOCOR, tasking it to carry out the policy of the national
electrification and provided in detail NAPOCOR’s tax exceptions. PD 380 specified that NAPOCOR’s exemption
includes all taxes, etc. imposed “directly or indirectly.” PD 938 dated May 27, 1976 further amended the
aforesaid provision by integrating the tax exemption in general terms under one paragraph.
ISSUE:
Whether or not NPC has ceased to enjoy indirect tax and duty exemption with the enactment of PD 938 on
May 27, 1976 which amended PD 380 issued on January 11, 1974
RULING:
No, it is still exempt.
NAPOCOR is a non-profit public corporation created for the general good and welfare, and wholly owned by
the government of the Republic of the Philippines. From the very beginning of the corporation’s existence,
NAPOCOR enjoyed preferential tax treatment “to enable the corporation to pay the indebtedness and
obligation” and effective implementation of the policy enunciated in Section 1 of RA 6395.
From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be interpreted
liberally so as to enhance the tax exempt status of NAPOCOR.
It is recognized that the rule on strict interpretation does not apply in the case of exemptions in favor of
government political subdivision or instrumentality. In the case of property owned by the state or a city or
other public corporations, the express exception should not be construed with the same degree of strictness
that applies to exemptions contrary to the policy of the state, since as to such property “exception is the rule
and taxation the exception.”
iii. CIR v. PLDT, G.R. No. 140230, 15 Dec 2005
24
Topic: Classification of Taxes: Burden (Direct / indirect)
Title: CIR v. PLDT,

G.R. No. 140230
Date: December 15 2005
Ponente:

PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install,operate and maintain a
telecommunications system throughout the Philippines. For equipment, machineries and spare parts it
imported for its business on different dates from October 1, 1992 to May 31, 1994, PLDT paid the BIR the
amount of P164,510,953.00, broken down as follows: (a) compensating tax of P126,713,037.00; advance sales
tax of P12,460,219.00 and other internal revenue taxes of P25,337,697.00. For similar importations made
between March 1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax (VAT).
On March 15, 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax exemption
privilege under Section 12 of R.A. 7082. Sec. 12. xxx and the said percentage shall be in lieu of all taxes on this
franchise or earnings thereof : xxx
Then the BIR issued Ruling No. UN-140-94 PLDT shall be subject only to the following taxes, to wit: xxx The 3%
franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings thereof. xxx The “in
lieu of all taxes” provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including the 10%
value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment,
machineries and spare parts necessary in the conduct of its business covered by the franchise, except the
aforementioned enumerated taxes for which PLDT is expressly made liable.
Thus PLDT filed on December 2, 1994 a claim for tax credit/refund of the VAT, compensating taxes, advance
sales taxes and other taxes it had been paying “ in connection with its importation of various equipment,
machineries and spare parts needed for its operations” . With its claim not having been acted upon by the BIR,
and obviously to forestall the running of the prescriptive period therefore, PLDT filed with the CTA a petition
for review. CTA rendered a decision in favor of PLDT. BIR moved for a reconsideration but to no avail. Hence
this petition.
LC/ RTC/ CA:
Issue:
Whether or not PLDT, given the tax component of its franchise, is exempt from paying VAT, compensating
taxes, advance sales taxes and internal revenue taxes on its importations.

Time and again, the Court has stated that taxation is the rule, exemption is the exception. Accordingly,
statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. To him, therefore, who claims a refund or exemption from tax payments rests
the burden of justifying the exemption by words too plain to be mistaken and too categorical to be
misinterpreted.
As may be noted, the clause “in lieu of all taxes” in Section 12 of RA 7082 is immediately followed by the
limiting or qualifying clause “on this franchise or earnings thereof” , suggesting that the exemption is limited to
taxes imposed directly on PLDT since taxes pertaining to PLDT’s franchise or earnings are its direct liability.
Accordingly, indirect taxes, not being taxes on PLDT’s franchise or earnings, are outside the purview of the “in
lieu ” provision.
If we were to adhere to the appellate court’s interpreta tion of the law that the “in lieu of all taxes” clause
encompasses the totality of all taxes collectible under the Revenue Code, then, the immediately following
limiting clause “ on this franchise and its earnings” would be nothing more than a pure jargon bereft of effect
and meaning whatsoever. Needless to stress, this kind of interpretation cannot be accorded a governing sway
following the familiar legal maxim redendo singula singulis meaning, take the words distributively and apply
the reference. Under this principle, each word or phrase must be given its proper connection in order to give it
proper force and effect, rendering none of them useless or superfluous.
Doctrine:
Additional Notes:
iv. Silkair v. CIR, G.R. No. 184398, 25 Feb 2010
FACTS:
Petitioner Silkair (Singapore) Pte. Ltd., a foreign corp. which has a Philippine representative office, is an
outline international air carrier
Dec 19, 2001: Silkair filed with the BIR a written application for the refund of excise tax it paid on its purchases
or jet fuels from Petron Corp. from Jan - June 2000
Dec 26, 2001: not having been acted upon by the BIR, it filed a petition for review before the CTA
CTA: denied its petition on the ground that the excise tax is imposed on Petron are manufacturer
When the burden is shifted to Silkair, it is no longer a tax but added cost of goods purchased
After changing counsel to Atty. Pastrana CTA En Banc dismissed it for being filed out of time.
Petitioner filed a Petition for Review with the SC
ISSUE: W/N Silkair can claim a refund for indirect excise tax
HELD: Petition is denied.

NO
Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed
and the excise tax paid by the manufacturer or producer before removal of domestic products from place of
production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund
based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and
Singapore.
Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for
jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser
Unlike in Maceda v. Macaraig Jr. where it expressly includes indirect taxes. Rule that tax exemptions are
construed in strictissimi juris against taxpayer applies
b. Amount (specific, ad valorem)
ii. Section 129, NIRC
c. Rates (progressive, regressive, proportionate, mixed)
d. Object (personal/capitation or poll taxes, property taxes, excise or license taxes)
i. 71 Am Jur 2nd 357-361
ii. Association of Customs Brokers v. Municipal Board, 93 Phil 106
e. Purpose (general or specific)
i. 71 Am Jur 2nd 355-356
f. Scope (national, local)

5. Scope of Taxation
a. Section 28, Article VI of the Philippine Constitution
b. 71 Am Jur 2nd 394-395, 397-398
c. Sison v. Ancheta, 130 SCRA 654
31
Topic: Scope of Taxation
Title: Sison v. Ancheta, 130 SCRA 654

G.R. No. L-59431
Date: July 25, 1984
Ponente: Fernando, J

Batas Pambansa 135 was enacted. Sison, as taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher rates upon his income as a professional, that it amounts
to class legislation, and that it transgresses against the equal protection and due process clauses of the
Constitution as well as the rule requiring uniformity in taxation.
LC/ RTC/ CA:
Issue:
Whether BP 135 violates the due process and equal protection clauses, and the rule on uniformity in taxation.

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 differentiation 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 ample
justification to adopt the gross system of income taxation to compensation income, while continuing the
system of net income taxation as regards professional and business income.
Doctrine:
Additional Notes:
d. Reyes v. Almanzor, 196 SCRA 322
e. Sarasola v. Trinidad, 40 Phil 259
f. Plenary and Unlimited - Chamber of Real Estate and Builder’s Associations, Inc. v. Romulo, G.R. No.
160756, 09 March 2010
g. Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 (1996)
6. Nature of Power of Taxation
a. Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corporation, 434 SCRA 65
(2004)
7. Principles of Sound Tax System

a. Fiscal Adequacy
i. Chavez v. Ongpin, 186 SCRA 331
b. Administrative Feasibility
i. Diaz v. Sec. of Finance, G.R. No. 193007, 19 July 2011
38
Topic: Principle of Sound Tax System ( Administrative Feasibility)
Title: Diaz vs. Sec. of FInanace

G.R. No. 193007
Date: July 19, 2011
Ponente:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief
assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue
(BIR) on the collections of tollway operators. Court treated the case as one of prohibition. Petitioners hold the
view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of "sale of
services" that are subject to VAT; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on
toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for
computing toll fees, its imposition would violate the non-impairment clause of the constitution. The
government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway
operations; that the Court should seek the meaning and intent of the law from the words used in the statute;
and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR
rulings and circulars. The government also argues that petitioners have no right to invoke the non-impairment
of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs)
between the government and tollway operators. At any rate, the non-impairment clause cannot limit the
State's sovereign taxing power which is generally read into contracts.
LC/ RTC/ CA:
Issue:
May toll fees collected by tollway operators be subjected to VAT (Are tollway operations a franchise and/or a
service that is subject to VAT)?
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latter's use of the tollway
facilities over which the operator enjoys private proprietary rights that its contract and the law recognize. In
this sense, the tollway operator is no different from the service providers under Section108 who allow others
to use their properties or facilities for a fee. Tollway operators are franchise grantees and they do not belong
to exceptions that Section 119 spares from the payment of VAT. The word "franchise" broadly covers
government grants of a special right to do an act or series of acts of public concern. Tollway operators are,
owing to the nature and object of their business, "franchise grantees." The construction, operation, and
maintenance of toll facilities on public improvements are activities of public consequence that necessarily
require a special grant of authority from the state. A tax is imposed under the taxing power of the government
principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of
income. Although toll fees are charged for the use of public facilities, therefore, they are not government
exactions that can be properly treated as a tax. Taxes may be imposed only by the government under its
sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as
an attribute of ownership.
Doctrine:
Additional Notes:
VAT -
c. Uniformity and Equality in Taxation
i. CIR v. Lingayen Gulf Electric Power Co., Inc., G.R. No. L-23771, 04 Aug 1988
ii. CIR v. Fortune Tobacco Corporation, G.R. No. 180006, 28 Sept 2011
iii. Juan Luna Subdivision v. Sarmiento, 91 Phil 371
iv. Pepsi Cola v. City of Butuan, 24 SCRA 3
The Petition is dismissed. 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 771).
v. Basco v. PAGCOR, 197 SCRA 52
The Petition is dismissed. 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 771).
8. Taxation as an Implement of Eminent Domain and Police Power
a. 71 Am Jur 2nd 395-397
b. CIR v. Central Luzon Drug Corporation, G.R. No. 159647, 15 April 2005
45
Topic: Taxation as an Implement of Eminent Domain and Police Power
Title: CIR v. Central Luzon Drug Corporation,

G.R. No. 159647
Date: April 15, 2005
Ponente:

Respondents operated six drugstores under the business name Mercury Drug. From January to December
1996 respondent granted 20% sales discount to qualified senior citizens on their purchases of medicines
pursuant to RA 7432 for a total of ₱ 904,769.
On April 15, 1997, respondent filed its annual Income Tax Return for taxable year 1996 declaring therein net
losses. On Jan. 16, 1998 respondent filed with petitioner a claim for tax refund/credit of ₱ 904,769.00
allegedly arising from the 20% sales discount. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals. The court dismissed the same but upon
reconsideration, the latter reversed its earlier ruling and ordered petitioner to issue a Tax Credit Certificate in
favor of respondent citing CA GR SP No. 60057 (May 31, 2001, Central Luzon Drug Corp. vs. CIR) citing that Sec.
229 of RA 7432 deals exclusively with illegally collected or erroneously paid taxes but that there are other
situations which may warrant a tax credit/refund.
CA affirmed Court of Tax Appeal's decision reasoning that RA 7432 required neither a tax liability nor a
payment of taxes by private establishments prior to the availment of a tax credit. Moreover, such credit is not
tantamount to an unintended benefit from the law, but rather a just compensation for the taking of private
property for public use.
LC/ RTC/ CA:
Issue:
Whether or not respondent, despite incurring a net loss, may still claim the 20% sales discount as a tax credit.
Yes, it is clear that Sec. 4a of RA 7432 grants to senior citizens the privilege of obtaining a 20% discount on
their purchase of medicine from any private establishment in the country. The latter may then claim the cost
of the discount as a tax credit. Such credit can be claimed even if the establishment operates at a loss.
A tax credit generally refers to an amount that is “subtracted directly from one’s total tax liability.” It is an
“allowance against the tax itself” or “a deduction from what is owed” by a taxpayer to the government.
A tax credit should be understood in relation to other tax concepts. One of these is tax deduction – which is
subtraction “from income for tax purposes,” or an amount that is “allowed by law to reduce income prior to
the application of the tax rate to compute the amount of tax which is due.” In other words, whereas a tax
credit reduces the tax due, tax deduction reduces the income subject to tax in order to arrive at the taxable
income.
A tax credit is used to reduce directly the tax that is due, there ought to be a tax liability before the tax credit
can be applied. Without that liability, any tax credit application will be useless. There will be no reason for
deducting the latter when there is, to begin with, no existing obligation to the government. However, as will
be presented shortly, the existence of a tax credit or its grant by law is not the same as the availment or use of
such credit. While the grant is mandatory, the availment or use is not. If a net loss is reported by, and no other
taxes are currently due from, a business establishment, there will obviously be no tax liability against which
any tax credit can be applied. For the establishment to choose the immediate availment of a tax credit will be
premature and impracticable.
Doctrine:
Additional Notes:
c. Gerochi v. Bautista, G.R. No. 159796, 17 July 2007
Gerochi vs DOE
GR 159796, 17 July 2007
Regulatory exactions are not taxes
FACTS: RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001 (EPIRA), which sought to
impose a universal charge on all end-users of electricity for the purpose of funding NAPOCOR’s projects, was
enacted and took effect in 2001.
Petitioners contest the constitutionality of the EPIRA, stating that the imposition of the universal charge on all
end-users is oppressive and confiscatory and amounts to taxation without representation for not giving the
consumers a chance to be heard and be represented.
ISSUE: Whether or not the universal charge is a tax.
RULING: NO. The assailed universal charge is not a tax, but an exaction in the exercise of the State’s police
power. That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which enumerates the
policies of the State regarding electrification. Moreover, the Special Trust Fund feature of the universal charge
reasonably serves and assures the attainment and perpetuity of the purposes for which the universal charge is
imposed (e.g. to ensure the viability of the country’s electric power industry), further boosting the position
that the same is an exaction primarily in pursuit of the State’s police objectives
If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but
if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a
tax.
The taxing power may be used as an implement of police power. 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.
d. Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, G.R.
No.158540, 30 Aug 2005
Southern Cross vs CMAP

GR 158540, 3 August 2005
Jurisdiction of Court on Tax Appeals; Delegability of tariff power to President
FACTS: Philcemcor, an association of at least eighteen (18) domestic cement manufacturers filed with the
Department of Trade and Industry (DTI) a petition seeking the imposition of safeguard measures on gray
Portland cement, in accordance with the Safeguard Measures Act (SMA). After the (DTI) issued a provisional
safeguard measure, the application was referred to the Tariff Commission for a formal investigation pursuant
to Section 9 of the SMA and its Implementing Rules and Regulations, in order to determine whether or not to
impose a definitive safeguard measure on imports of gray Portland cement. The Tariff Commission held public
hearing and conducted its own investigation and issued its Formal Investigation Report that “no definitive
general safeguard measure be imposed on the importation of gray Portland cement.” The DTI Secretary then
promulgated a decision expressing its disagreement with the conclusions of the Tariff Commission but at the
same time denying Philcemcor’s application for safeguard measures in light of the Tariff Commission’s
negative findings. Philcemcor challenged this decision of the DTI Secretary by filing with the Court of Appeals a
petition for certiorari, Prohibition and Mandamus seeking to set aside the DTI Decision as sell as the Tariff
Commission’s Report. The appellate court partially granted the petition and ruled that it had jurisdiction over
the petition for certiorari since it alleged grave abuse of discretion and also held that DTI Secretary was not
bound by the factual findings of the Tariff Commission. The Southern Cross then filed the present petition,
arguing that the Court of Appeals has no jurisdiction over Philcemcor’s petition. Despite the fact the Court of
Appeal’s Decision had not yet became final, its binding force was cited by the DTI Secretary when he issued a
new Decision, wherein he imposed a definitive safeguard measure on the importation of gray Portland
cement, in the form of a definitive safeguard duty in the amount of P20.60/40 kg. bag for three years on
imported gray Portland Cement.
Southern Cross filed a Temporary Restraining Order and/or A Writ of Preliminary Injunction with the Court,
seeking to enjoin the DTI Secretary from enforcing his new issued Decision. Philcemcor then filed its
opposition stating that it is not the CA but the Court of Tax Appeals (CTA) that has jurisdiction over the
application under the law.
Southern Cross then filed with the CTA a Petition for Review against the Decision which imposed the definite
safeguard measure but did not promptly inform CA about the filing. Philcemcor argued with the CTA that
Southern Cross resorted to forum shopping. The Court in its decision granted Southern Cross’s Petition which
nullified the Decision of the DTI secretary and declared the Decision of the Court of Appeals null and void, and
also concluded that the same had not committed forum shopping for there was no malicious intent to subvert
procedural rules.
Philcemcor and the DTI Secretary then promptly filed their respective motions for reconsideration. The Court
En Banc then resolve the two central issues pertaining to the jurisdictional aspect and to the substantive
aspect of whether the DTI Secretary may impose a general safeguard measure despite a negative
determination by the Tariff Commission and whether the Tariff Commission could validly exercise
quasi-judicial powers in the exercise of its mandate under the SMA. In its resolution, the Court directed the
parties to maintain the status quo and until further orders from this Court.
ISSUES: I. Jurisdiction to Review the Secretary’s Decisions
II. Reviewability of the Tariff Commission’s Report
RULING:
I. On the Issue of jurisdiction, the DTI secretary’s decisions - whether imposing safeguard measures or not –
are subject to review by the Court of Tax Appeals pursuant to Section 29 of RA 8800. Under section 29, there
are three requisites to enable the CTA to acquire jurisdiction over the petition for review contemplated
therein (1) there must be a ruling by the DTI Secretary (2) the petition must be filed by an interested party
adversely affected by the ruling and (3) such ruling must be in “in connection with the imposition of a
safeguard measure.” Obviously, there are differences between “a ruling for the imposition of a safeguard
measure,” and one issued “in connection with imposition of a safeguard measure.” The first adverts to a
singular type of ruling, namely one that imposes a safeguard measure. The second does not contemplate only
one kind of ruling, but a myriad of rulings issued “in connection with the imposition of a safeguard measure.
II. The DTI Secretary is not bound by the Tariff Commission’s recommendations. The Power to impose Tariffs is
essentially legislative; it is delegable only to the president. The application of safeguard measures, while
primarily intended to protect domestic industries, is essentially in the nature of a tariff imposition. Pursuant to
the Constitution, the imposition of tariffs and taxes is a highly prized legislative prerogative. Pursuant also to
the Constitution, such power to fix tariffs may as an exception, be delegated by Congress to the President.
Section 28 of Article VI of the Constitution provides for that exception.
*The motivation behind many taxation measures is the implementation of police power goals. Progressive
income taxes alleviate the margin between the rich and the poor. Taxation is distinguishable from police
power as to the means employed to implement these public good goals. Those doctrines that are unique to
taxation arose from peculiar considerations such as those especially punitive effects of taxation, and the belief
that taxes are the lifeblood of the state. These considerations necessitated the evolution of taxation as a
distinct legal concept from police power. Yet at the same time, it has been recognized that taxation may be
made the implement of the state’s police power.*
e. Matalin Coconut Co., Inc. v. Mun. Council of Malabang, 143 SCRA 404
f. Lutz v. Araneta, 98 Phil 48
g. NTC v. CA, 311 SCRA 508 (1999)

9. Taxation as the Strongest Power of the State
a. CIR v. Prime Holdings, Inc., G.R. No.183505, 26 Feb 2010, 613 SCRA 775
b. Reyes v. Almanzor, 196 SCRA 323 (1991)
51
Topic: Taxation as the strongest power of the state
Title: Reyes v. Almanzor, 196 SCRA 323 (1991)

G.R. No. 49839-46
Date: April 26, 1991
Ponente: Paras, J

JBL, Edmundo and Milagros Reyes are owners of parcels of land in Manila which are leased and occupied as
dwelling sites by tenants. In 1971, RA 6359 was passed prohibiting an increase of monthly rentals of dwelling
units or of land on which another dwelling is located for one year after effectivity for rentals not exceeding
P300 but allowing an increase of rent thereafter by not more than 10%. The Act also suspended the operation
of Article 1673 of the Civil Code (ejectment of lessess). PD 20 amended RA 6359 by absolutely prohibiting the
increase and indefinitely suspending Article 1673. The Reyeses, thus, were precluded from raising the rentals
and from ejecting the tenants. In 1973, the City Assessor of Manila reclassified and reassessed the value of the
properties based on the schedule of market values duly reviewed by the Secretary of Finance. As it entailed an
increase of the corresponding tax rates, the Reyeses filed a memorandum of disagreement with the Board of
Tax Assessment Appeals and averring therein that the reassessments were excessive, unwarranted,
unequitable, confiscatory and unconstitutional inasmuch as the taxes imposed exceeded the annual income
derived from their properties; and that the income approach should have been used in determining land
values instead of the comparative sales approach which the assessor adopted.
LC/ RTC/ CA:

Issue:
Whether the reassessment is unequitable.

Taxation is equitable when its burden falls on those better able to pay. Taxation is progressive when its rate
goes up depenfing on the resources of the person affected. Taxes are uniform when all taxable articles or
kinds of property of the same class are taxed at the same rate. The taxing power has the authority to make
reasonable and natural classification for purposes of taxation. Laws should operate equally and uniformly,
however, on all persons under similar circumstances or that all persons mus t be treated in the same manner,
the conditiions not being different both in the privileges conferred and liabilities imposed. Finally, under the
Real Property Tax Code (PD 464), property must be appraised at its cuurent and fair market value. The market
value of the properties covered by PD 20, thus cannot be equated with the market value of properties not so
covered. Shcu property covered by PD 20 has naturally a much lesser market value in view of the rental
restrictions. Although taxes are the lifeblood of the government and should be collected without unnecessary
hindrance, such collection should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. As teh Reyeses are burdened by the Rent Freeze Laws (RA 6359 and PD 20), they
should not be penalized by the same government by the imposition of excessive taxes they cancan ill afford
and would eventually result in the forfeiture of their properties, under the principle of social justice.
Doctrine:
Additional Notes:
c. Sison, Jr. v. Ancheta, 130 SCRA 655 (1984)
d. Obillos, Jr. v. CIR, 139 SCRA 439 (1985)
e. CIR v. Algue, Inc., et al., 158 SCRA 9 (1988)
CIR vs. Algue

Facts: Algue, engaged in an engineering corporation, claims tax deductions in the amount of P75,000.00
alleging that such amount are promotional fees, thus, in accord with the provisions of the Tax Code as being
ordinary and necessary expenses. The CIR disallowed the deductions.
Issue: WON the CIR was correct in disallowing the tax deductions.
Held: Negative.
The claimed deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the CIR.
It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed
for lack of the motive power to activate and operate it. The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the people and enhance their
moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic
regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the
taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law
has not been observed.
10. Characteristics of Taxation
a. Enforced Contribution
b. Progressive - Article VI, Section 28(a) of the Constitution
c. Generally payable in money - Borja v. Gella, 8 SCRA 602
d. Legislative - CIR v. Fortune, 559 SCRA 161 (2008)
e. For public purpose - PPI v. Fertiphil Corp., 564 SCRA 385 (2008)
11. Basis of Taxation
a. Lifeblood Theory
i. Philippine Bank of Communications v. CIR, 302 SCRA 241 (1991)

58
Topic: Basis of Taxation : Lifeblood Theory
Title: Philippine Bank of Communications v. CIR, 302 SCRA 241 (1991)

G.R. No.
Date: January 28, 1999
Ponente:

Petitioner, Philippine Bank of Communications (PBCom), a commercial banking
corporation duly organized under Philippine laws, filed its quarterly income tax returns for
the first and second quarters of 1985, reported profits, and paid the total income tax of
P5,016,954.00 by applying PBCom's tax credit memos for P3,401,701.00 and
P1,615,253.00, respectively. Subsequently, however, PBCom suffered net loss of
P25,317,228.00, thereby showing no income tax liability in its Annual Income Tax Returns
for the year-ended December 31, 1985. For the succeeding year, ending December 31,
1986, the petitioner likewise reported a net loss of P14,129,602.00, and thus declared no
tax payable for the year.
But during these two years, PBCom earned rental income from leased properties. The
lessees withheld and remitted to the BIR withholding creditable taxes of P282,795.50 in
1985 and P234,077.69 in 1986. On August 7, 1987, petitioner requested the
Commissioner of Internal Revenue, among others, for a tax credit of P5,016,954.00
representing the overpayment of taxes in the first and second quarters of 1985.
Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes
withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for
P234,077.69.
Pending the investigation of the respondent Commissioner of Internal Revenue, petitioner

instituted a Petition for Review on November 18, 1988 before the Court of Tax Appeals
(CTA). The petition was docketed as CTA Case No. 4309 entitled: "Philippine Bank of
Communications vs. Commissioner of Internal Revenue."
The CTA decided in favor of the BIR on the ground that the Petition was filed out of time
as the same was filed beyond the two-year reglementary period. A motion for
Reconsideration was denied and the appeal to Court of Appeals was likewise denied.
Thus, this appeal to Supreme Court.
LC/ RTC/ CA:
Issue:
a) Whether or not Revenue Regulations No. 7-85 which alters the reglementary period
from two (2) years to ten (10) years is valid.
b) Whether or not the petition for tax refund had already prescribed.
a) RR 7-85 altering the 2-year prescriptive period imposed by law to 10-year prescriptive
period is invalid.
Administrative issuances are merely interpretations and not expansions of the provisions
of law, thus, in case of inconsistency, the law prevails over them. Administrative agencies
have no legislative power.
“When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess quarterly
income tax payments, such circular created a clear inconsistency with the provision of Sec.
230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated
guidelines contrary to the statute passed by Congress.”
“It bears repeating that Revenue memorandum-circulars are considered administrative

rulings (in the sense of more specific and less general interpretations of tax laws) which
are issued from time to time by the Commissioner of Internal Revenue. It is widely
accepted that the interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous.
Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to apply and implement.”
“Further, fundamental is the rule that the State cannot be put in estoppel by the mistakes
or errors of its officials or agents. As pointed out by the respondent courts, the
nullification of RMC No. 7-85 issued by the Acting Commissioner of Internal Revenue is an
administrative interpretation which is not in harmony with Sec. 230 of 1977 NIRC, for
being contrary to the express provision of a statute. Hence, his interpretation could not be
given weight for to do so would, in effect, amend the statute.”
b) By implication of the above, claim for refund had already prescribed.
Since the petition had been filed beyond the prescriptive period, the same has already
prescribed. The fact that the final adjusted return show an excess tax credit does not
automatically entitle taxpayer claim for refund without any express intent.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals
appealed from is AFFIRMED, with COSTS against the petitioner.
Doctrine:
Additional Notes:
Illustrations of lifeblood theory

1. Collection of taxes cannot be enjoined by injunction.
2. Taxes could not be the subject of compensation or set off.
3. A valid tax may result in destruction of the taxpayer’s property.
4. Taxation is an unlimited and plenary power.
ii. Valera v. Office of the Ombudsman, 547 SCRA 43 (2008)
iii. Marcos II v. CA, 273 SCRA 47
iv. National Power Corporation v. City of Cabanatuan, 401 SCRA 259 (2003)
b. Necessity Theory
i. National Power Corporation v. City of Cabanatuan, supra
c. Symbiotic relationship
i. CIR v. Algue, supra
12. Purposes of Taxation
a. Revenue-raising
i. Fels Energy v. The Province of Batangas, G.R. No. 168557, 16 Feb 2007
b. Non-revenue/special or regulatory
i. 71 Am Jur 2nd 371-372
ii. Planters Products, Inc. v. Fertiphil Corporation, 564 SCRA 385 (2008)
iii. Bagatsing v. Ramirez, 74 SCRA 307 (1976)
iv. Caltex v. COA, 208 SCRA 755
13. Aspects of Taxation
a. Levy
i. Mactan Cebu International Airport Authority v. Marcos, supra
b. Assessment and Collection
i. Powers and Duties of the BIR
1. CIR v. CTA, G.R. No. 207843, 15 July 2015
2. Genato v. Silapan, A.C. No. 4078 dated 14 July 2003
c. Payment
d. Refund

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Part I.

General Principles of Taxation

Bookstore, Inc., 2019 Edition.

a. 71 Am Jur 2nd 342

ISSUE: Are the coco-levy funds public funds?

c. CIR v. Fortune Tobacco Corporation, 559 SCRA 161 (2008))

Topic: Definition of Taxation

Title: CIR v. Fortune Tobacco Corporation, 559 SCRA 161 (2008)

CA - Both denied the appeal and the MR.

3. Taxes distinguished from

i. 71 Am Jur 2nd 351

ii. Section 155 of the Local Government Code (LGC)

iii. Diaz v. Sec. of Finance, G.R. No. 193007, 19 July 2011

G.R. No. L-26862 March 30, 1970

WHEREFORE, the decision of November 24, 1965 is reversed and defendant-

appellee ordered to pay the sum of P78,636.17.

iv. City of Ozamiz v. Lumapas, G.R. No. L-30727, 16 July 1975

CITY OF OZAMIS VS LUMAPAS

i. 71 Am Jur 2nd 345-346

ii. Caltex v. COA, 208 SCRA 726

Topic: Tax distinguished from Debts

Title: Caltex v. COA, 208 SCRA 726

Relevant Facts/Law Passed:

LC/ RTC/ CA:

Ruling / Sino nanalo:

iii. Francia v. IAC, 162 SCRA 753

No off-setting in tax collection

i. 71 Am Jur 2nd 352-353

ii. Progressive Dev. Corp. v. QC, 172 SCRA 629

iii. PAL v. Edu, 164 SCRA 320

PHILIPPINE AIRLINES, INC. v. EDU

iv. ESSO v. CIR, 175 SCRA 149

Osmena v. Orbos, 220 SCRA 703

Topic: Tax distinguished from License Fee

Title: Osmena v. Orbos, 220 SCRA 703

Relevant Facts/Law Passed:

LC/ RTC/ CA:

1) Was the Oil Price Stabilization Fund (OSPF) a tax?

v. Compania General de Tabacos v. City of Manila, 8 SCRA 367

Compañ ia General de Tabacos de Filipinas vs. City of Manila

ISSUE: Is petitioner entitled to refund? NO.

d. Special Levies under the Local Government Code

i. Section 240 of the LGC

ii. Apostolic Prefect v. Treasurer of Baguio, 71 Phil 547

Thus, the Apostolic Prefect is required to pay the special assessment.

iii. Republic v. Bacolod Murcia, 17 SCRA 632

i. NDC v. CIR, 151 SCRA 472

ISSUE: WON the Tokyo shipbuilders are subject to tax?

a. Burden (direct, indirect)

i. 71 Am Jur 2nd 354

ii. Maceda v. Macaraig, 223 SCRA 217

GR No 88291, May 31, 1991

iii. CIR v. PLDT, G.R. No. 140230, 15 Dec 2005

Topic: Classification of Taxes: Burden (Direct / indirect)

Title: CIR v. PLDT,

Relevant Facts/Law Passed:

LC/ RTC/ CA:

Ruling / Sino nanalo:

iv. Silkair v. CIR, G.R. No. 184398, 25 Feb 2010

HELD: Petition is denied.

b. Amount (specific, ad valorem)

i. 71 Am Jur 2nd 355

ii. Section 129, NIRC