TAXATION 1 CASE DIGEST
PEPSI-COLA vs MUNICIPALITY OF TANAUAN
G.R. No. L-31156 February 27, 1976
FACTS: The municipality of Tanauan, Leyte enacted two ordinances in 1962:
The first one, Municipal Ordinance No. 23 levies and collects "from soft drinks producers and manufacturers a
tax of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." For the purpose of computing the
taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal
Treasurer a monthly report, of the total number of bottles produced and corked during the month.
Municipal Ordinance No. 27 levies and collects "on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume
capacity." For the purpose of computing the taxes due, the person, firm, company, partnership, corporation or
plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of
gallons produced or manufactured during the month.
Pepsi-Cola commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for
that court to declare Section 2 of the Local Autonomy Act unconstitutional as an undue delegation of taxing
authority as well as to declare Ordinances Nos. 23 and 27 null and void. Section 2 of the Local Autonomy Act of
1959 provides: “xxx, all chartered cities, municipalities and municipal district shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts xxxx.” Pepsi said both Ordinances Nos. 23 and 27 embrace
or cover the same subject matter and the production tax rates imposed therein are practically the same, and
second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed
to the Manager of the Pepsi-Cola Bottling Plant in said municipality, sought to enforce compliance by the latter
of the provisions of said Ordinance No. 27 series of 1962.
ISSUES: 1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive and
invalid as double taxation? 2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes? 3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
HELD: 1. As to undue delegation: The rule is that the power of taxation is purely legislative and cannot be
delegated. The exception, however, lies in the case of municipal corporations. Legislative powers may be
delegated to local governments in respect of matters of local concern. By necessary implication, the legislative
power to create political corporations for purposes of local self-government carries with it the power to confer
on such local governmental agencies the power to tax. Moreover, under the New Constitution, local
governments are granted the autonomous authority to create their own sources of revenue and to levy taxes.
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive.
As to the ordinances being confiscatory and oppressive: The taking of property without due process of law may
not be passed over under the guise of taxing power. This is not to say though that the constitutional injunction
against deprivation of property without due process of law may be passed over under the guise of the taxing
power, except when the taking of the property is in the lawful exercise of the taxing power, as when (1) the tax
is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed
is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain
kinds of taxes notice and opportunity for hearing are provided. Due process does not require that the property
subject to the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and
hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary
to due process of law.
As to the municipal ordinance being invalid on the ground of double taxation resulting for delegation by the
National Government: There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies
the limitations and enumerates the taxes over which local taxation may not be exercised. Double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity or
by the same jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and
the other by the city or municipality.
2. There is no double taxation here. Ordinance No. 23, the first tax, levies or collects from soft drinks producers
or manufacturers a tax of one-sixteen (1/16) of a centavo for every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or manufacturer could increase the
volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance
No. 27 imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No.
23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon
(128 fluid ounces, U.S.) of volume capacity.
The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as
a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to
that effect. Moreover, the municipality mentioned in its letter that it was only seeking to enforce Ordinance No.
27, series of 1962.
[As to the remaining Ordinance No. 27 imposes a percentage or a specific tax? Undoubtedly, the taxing authority
conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost
"everything, accepting those which are mentioned therein." As long as the tax levied under the authority of a
city or municipal ordinance is not within the exceptions and limitations in the law, the same comes within the
ambit of the general rule. The limitation applies, particularly, to the prohibition against municipalities and
municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on
articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For
purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount
of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the
power of the municipality to enact.
The imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on
all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a
percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether
sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered
solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume
of sales and the amount of the tax.
Nor can the tax levied on softdrinks be treated as a specific tax. Specific taxes are those imposed on specified
articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes,
matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic
films, playing cards, saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified.]
3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced
or manufactured, or an equivalent of 1-½ centavos per case is not unjust and unfair. Municipal corporations are
allowed much discretion in determining the rates of imposable taxes. This is in line with the constitutional policy
of according the widest possible autonomy to local governments in matters of local taxation. Unless the amount
is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable.
CALTEX PHILIPPINES, INC. vs. COA
GR. No. 92585 May 8, 1992
Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non-revenue / special / regulatory
DOCTRINE:
A taxpayer may not offset taxes due from the claims that he may have against the government.
QUICK FACTS: Caltex Philippines questions the decisions of COA for disallowing the offsetting of its claims for
reimbursement with its due OPSF remittance
FACTS:
The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as amended by EO 137 for the purpose
of minimizing frequent price changes brought about by exchange rate adjustments. It will be used to reimburse
the oil companies for cost increase and possible cost underrecovery incurred due to reduction of domestic
prices.
COA sent a letter to Caltex directing the latter to remit to the OPSF its collection. Caltex requested COA for an
early release of its reimbursement certificates which the latter denied.
COA disallowed recover of financing charges, inventory losses and sales to marcopper and atlas but allowed the
recovery of product sale or those arising from export sales.
Petitioner’s Contention:
Department of Finance issued Circular No. 4-88 allowing reimbursement. Denial of claim for reimbursement
would be inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the Revised Administrative Code
(Retention of Money for Satisfaction of Indebtedness to Government) allows offsetting.
Amounts due do not arise as a result of taxation since PD 1956 did not create a source of taxation, it instead
established a special fund. This lack of public purpose behind OPSF exactions distinguishes it from tax.
Respondent’s Contention:
Based on Francia v. IAC, there’s no offsetting of taxes against the the claims that a taxpayer may have against
the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed
by law.
ISSUE: WON Caltex is entitled to offsetting
HELD:
NO. COA Affirmed
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It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. Taxes cannot be 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.
Technically, the oil companies merely act as agents for the Government in the latter’s collection since
the taxes are, in reality, passed unto the end-users – the consuming public. Their primary obligation is
to account for and remit the taxes collection to the administrator of the OPSF.
There is not merit in Caltex’s contention that the OPSF contributions are not for a public purpose because
they go to a special fund of the government. 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.
The oil industry is greatly imbued with public interest as it vitally affects the general welfare.
PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is taxation.
TIO Vs Videogram Regulatory Board
151 SCRA 208, G.R. No. L-75697, June 18, 1987
Facts:
Tio is a videogram operator who assailed the constitutionality of PD 1987 entitled “An Act Creating the
Videogram Regulatory Board” with broad powers to regulate and supervise the videogram industry. The
Presidential Decree was also reinforced by Presidential Decree 1994 which amended the National Internal
Revenue Code.
The amendment provides that “there shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, that locally manufactured or imported
blank video tapes shall be subject to sales tax.”
The said law was brought about by the need to regulate the sale of videograms as it has adverse effects to the
movie industry. The proliferation of videograms has significantly lessened the revenue being acquired from the
movie industry, and that such loss may be recovered if videograms are to be taxed. Sec 10 of the PD imposes a
30% tax on the gross receipts payable to the LGUs.
Tio countered, among others, that the tax imposition provision is a rider and is not germane to the subject
matter of the PD.PD 1994 issued a month thereafter reinforced PD 1987 and in effect amended the National
Internal Revenue Code (NIRC).
Petitioner's attack on the constitutionality of the DECREE on the ground that there is undue delegation of power
and authority.
Issue:
Whether or not the PD 1987 is unconstitutional due to the tax provision included.
Held:
No. The title of the decree, which calls for the creation of the VRB is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covered in all its provisions. It is unnecessary to express all
those objectives in the title or that the latter be an index to the body of the decree. The foregoing provision is
allied and germane to, and is reasonably necessary for the accomplishment of the general object of the decree,
which is the regulation of the video industry through the VRB as expressed in its title. The tax provision is not
inconsistent with nor foreign to the general subject and title. As a tool for regulation it is simply one of the
regulatory and control mechanisms scattered throughout the decree.
The express purpose of PD 1987 to include taxation of the video industry in order to regulate and rationalize
the heretofore uncontrolled distribution of videos is evident from Preambles 2 and 5. Those preambles explain
the motives of the lawmaker in presenting the measure. Neither can it be successfully argued that the DECREE
contains an undue delegation of legislative power.
The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies
and units of the government and deputize, for a fixed and limited period, the heads or personnel of such
agencies and units to perform enforcement functions for the Board" is not a delegation of the power to legislate
but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. "The
true distinction is between the delegation of power to make the law, which necessarily involves a discretion as
to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in
pursuance of the law. The first cannot be done; to the latter, no valid objection can be made."
THE PHILIPPINE GUARANTY CO., INC. v CIR
G.R. No. L-22074. April 30, 1965
lifeblood doctrine
FACTS:
Petitioner entered into reinsurance contracts with foreign insurance companies not doing business in the
Philippines. Said reinsurance contracts were signed by Philippine Guaranty Co., Inc. in Manila except the
contract with Swiss Reinsurance Company, which was signed by both parties in Switzerland. Pursuant to the
aforesaid reinsurance contracts Philippine Guaranty Co., Inc. ceded to the foreign reinsurers premiums and
excluded such premiums from its gross income when it filed its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them Consequently, the CIR assessed against petitioner
withholding tax on the ceded reinsurance premiums. Petitioner protested the assessment on the ground that
reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to
withholding tax. It also contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount
to its foreign insurers in 1953 and 1954, no withholding tax was due.
ISSUE:
WON reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to
withholding tax.
HELD:
YES. Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the
income. 1 The reinsurance premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc. against liability for loss under original insurances. Such
undertaking, as explained above, took place in the Philippines. These insurance premiums therefore came from
sources within the Philippines and, hence, are subject to corporate income tax.
The foreign insurers place of business should not be confused with their place of activity. Business implies
continuity and progression of transactions 2 while activity may consist of only a single transaction. An activity
may occur outside the place of business. Section 24 of the Tax Code does not require a foreign corporation to
engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the
income is performed or done in the Philippines. What is controlling, therefore, is not the place of business but
the place of activity that created an income.
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden
to preserve the State’s sovereignty and a means to give the citizenry an army to resist an aggression, a navy to
defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the
enjoyment of the citizenry and those which come within the State’s territory, and facilities and protection which
a government is supposed to provide. Considering that the reinsurance premiums in question were afforded
protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed
by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.
Reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to
withholding tax under Sections 53 and 54 of the Tax Code. The mentioned provisions allow no deduction from
the income therein enumerated in determining the amount to be withheld. Accordingly, in computing the
withholding tax due on the reinsurance premiums in question, no deduction shall be recognized.
Commissioner of Internal Revenue vs Algue Inc., and Court of Tax Appeals
GR No. L-28896, February 17, 1988
Facts:
The Philippine Sugar Estate Development Company had earlier appointed Algue Inc., as its agent, authorizing it
to sell its land, factories and oil manufacturing process. As such, the corporation worked for the formation of
the Vegetable Oil Investment Corporation, until they were able to purchase the PSEDC properties. For this sale,
Algue Inc., received as agent a commission of P126, 000.00, and it was from this commission that the P75, 000.00
promotional fees were paid to Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo
Sanchez.
Commissioner of Internal Revenue contends that the claimed deduction is not allowed because it was not an
ordinary reasonable or necessary business expense. The Court of Tax Appeals had seen it differently. Agreeing
with Algue Inc., it held that the said amount had been legitimately paid by the private respondent for actual
services rendered. The payment was in the form of promotional fees.
Issue:
Whether or not the Collector of Internal Revenue correctly disallowed the P75, 000.00 deduction claimed by
private respondent Algue Inc., as legitimate business expenses in its income tax returns.
Ruling:
No, The Supreme Court agrees with the respondent court that the amount of the promotional fees was not
excessive. The P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that
it was the payees who did practically everything, from the formation of the Vegetable Oil Investment
Corporation to the actual purchase by it of the Sugar Estate properties.
The claimed deduction by the private respondent was permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.
THE PHILIPPINE GUARANTY CO., INC. v CIR
G.R. No. L-22074. April 30, 1965
FACTS:
Petitioner entered into reinsurance contracts with foreign insurance companies not doing business in the
Philippines. Said reinsurance contracts were signed by Philippine Guaranty Co., Inc. in Manila except the
contract with Swiss Reinsurance Company, which was signed by both parties in Switzerland. Pursuant to the
aforesaid reinsurance contracts Philippine Guaranty Co., Inc. ceded to the foreign reinsurers premiums and
excluded such premiums from its gross income when it filed its income tax returns for 1953 and 1954.
Furthermore, it did not withhold or pay tax on them Consequently, the CIR assessed against petitioner
withholding tax on the ceded reinsurance premiums. Petitioner protested the assessment on the ground that
reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to
withholding tax. It also contends that the withholding tax should be computed from the amount actually
remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount
to its foreign insurers in 1953 and 1954, no withholding tax was due.
ISSUE:
WON reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to
withholding tax.
HELD:
YES. Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the
Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the
income. 1 The reinsurance premiums were income created from the undertaking of the foreign reinsurance
companies to reinsure Philippine Guaranty Co., Inc. against liability for loss under original insurances. Such
undertaking, as explained above, took place in the Philippines. These insurance premiums therefore came from
sources within the Philippines and, hence, are subject to corporate income tax.
The foreign insurers place of business should not be confused with their place of activity. Business implies
continuity and progression of transactions 2 while activity may consist of only a single transaction. An activity
may occur outside the place of business. Section 24 of the Tax Code does not require a foreign corporation to
engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the
income is performed or done in the Philippines. What is controlling, therefore, is not the place of business but
the place of activity that created an income.
The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden
to preserve the State’s sovereignty and a means to give the citizenry an army to resist an aggression, a navy to
defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the
enjoyment of the citizenry and those which come within the State’s territory, and facilities and protection which
a government is supposed to provide. Considering that the reinsurance premiums in question were afforded
protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed
by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state.
Reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to
withholding tax under Sections 53 and 54 of the Tax Code. The mentioned provisions allow no deduction from
the income therein enumerated in determining the amount to be withheld. Accordingly, in computing the
withholding tax due on the reinsurance premiums in question, no deduction shall be recognized.
FRANCIA VS. IAC Case Digest ENGRACIO FRANCIA VS. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ
G.R. No. L-67649 June 28, 1988 162 SCRA 753
FACTS: Engracio Francia is the registered owner of a residential lot, 328 square meters, and a two-story house
built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15,
1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for
the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid
portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977,
his property was sold at public auction pursuant to Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for
the property. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his
complaint on January 24, 1980. The petitioner seeks to set aside the auction sale of his property which took
place on December 5, 1977, and to allow him to recover a 203 square meter lot which was sold at public auction
to Ho Fernandez and ordered titled in the latter's name. He further averred that his tax delinquency of P2,400.00
has been extinguished by legal compensation since the government owed him P4, 116.00 when a portion of his
land was expropriated. The lower court rendered a decision in favor Fernandez which was affirmed by the
Intermediate Appellate Court . Hence, this petition for review.
ISSUE: Whether or not the tax delinquency of Francia has been extinguished by legal compensation.
RULING: There is no legal basis for the contention. By legal compensation, obligations of persons, who in their
own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of
the obligors be bound principally and that he be at the same time a principal creditor of the other; (2) that the
two debts be due. The Court had consistently ruled that 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. In addition, a taxpayer cannot refuse to pay his tax when
called upon by the collector because he has a claim against the governmental body not included in the tax levy.
There are also other factors which compelled the Court to rule against the petitioner. The tax was due to the
city government while the expropriation was effected by the national government. Moreover, the amount of
P4,116.00 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. Notice of the deposit
dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in
his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would
have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus
aborting the sale at public auction. The petition for review was dismissed.
PHILEX MINING vs CIR & CA G.R. No. 125704. August 28, 1998
FACTS: On August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and
4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821,982.52.
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 P119,977,037.02 plus interest.
Therefore, these claims for tax credit/refund should be applied against the tax liabilities, citing our ruling in
Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. BIR rejected the claim for set off and said since
these pending claims have not yet been established or determined with certainty, it follows that no legal
compensation can take place. Hence, BIR reiterated its demand that Philex settle the amount plus interest
within 30 days from the receipt of the letter.
Philex thus raised the issue to the Court of Tax Appeals. In the course of the proceedings, the BIR issued a Tax
Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex
of P123,821,982.52 effectively lowered the latters tax obligation of P110,677,688.52. Despite the reduction of
its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest
because for legal compensation to take place, both obligations must be liquidated and demandable. CTA said
liquidated debts are those where the exact amount has already been determined. Since the claims of the
Petitioner for VAT refund is still pending litigation, and still has to be determined, the liquidated debt of the
Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which Petitioner
conceived to exist in its favour. Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off
on compensation since claim for taxes is not a debt or contract.
Philex brought the case to the COURT OF APPEALS who affirmed the CTA ruling. An MR filed by Philex was also
denied. But prior to that, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989
to 1991 but also for 1992 and 1994.
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, offset its excise tax liabilities since both had already become due and demandable, as well as fully
liquidated; hence, legal compensation can properly take place. Also, Philex asserts that the imposition of
surcharge and interest for the non-payment of the excise taxes within the time prescribed was
unjustified. Philex posits the theory that it had no obligation to pay the excise liabilities within the prescribed
period since, after all, it still has pending claims for VAT input credit/refund with BIR. Finally, Philex asserts
that the BIR violated Section 106(e)[30] of the National Internal Revenue Code of 1977, which requires the
refund of input taxes within 60 days,[31] when it took five years for the latter to grant its tax claim for VAT
input credit/refund.
ISSUES: Can the VAT input credit/refund be set-off against the tax liabilities of petitioner? Can the petitioner be
charged for surcharge and interest for the non-payment of the excise taxes while its claim for refund is pending?
Is the BIR liable for not granting the tax claim for VAT input credit/refund within 60 days and if so, should the
petitioner’s liability be extinguished by reason thereof?
HELD:
1. No. 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.
In Francia v. Intermediate Appellate Court, we categorically held that taxes cannot be subject to set-off or
compensation:
We have consistently ruled that 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 tax cannot await the results of a
lawsuit against the government.
Philex’s reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc., wherein we
ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet
been approved by the Commissioner, is no longer without any support in statutory law. When the National
Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement
was based was omitted.
2. No. It is a basic principle in tax law that taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance. Evidently, to countenance Philexs whimsical reason would render ineffective
our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, we cannot
allow Philex 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.
A distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. Hence, a tax does not
depend upon the consent of the taxpayer. If any payer can defer the payment of taxes by raising the defense
that it still has a pending claim for refund or credit, this would adversely affect the government revenue
system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against
the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government.
Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give
rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit
and offset their tax liabilities. Corollarily, the fact that Philex has pending claims for VAT input claim/refund with
the government is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249
of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority
to waive the collection thereof.[28] The same cannot be condoned for flimsy reasons,[29] similar to the one
advanced by Philex in justifying its non-payment of its tax liabilities.
3. No. Once a claimant has submitted all the required documents, it is the function of the BIR to assess these
documents with purposeful dispatch. After all, since taxpayers owe honesty to government it is but just that
government render fair service to the taxpayers.
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously
paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it
could have granted the refund earlier.
Simple justice requires the speedy refund of wrongly-held taxes. Fair dealing and nothing less, is expected by
the taxpayer from the BIR in the latter's discharge of its function. The power of taxation is sometimes called
also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the 'hen that
lays the golden egg.' And, in the order to maintain the general public's trust and confidence in the Government
this power must be used justly and not treacherously.
But it is a settled rule that in the performance of governmental function, the State is not bound by the neglect
of its agents and officers. Nowhere is this more true than in the field of taxation. Again, while we understand
Philex's predicament, it must be stressed that the same is not valid reason for the non- payment of its tax
liabilities.
This, however, does not mean that the taxpayer is devoid of remedy against public servants or employees
especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR
takes time in acting upon the taxpayer's claims for refund, the latter can seek judicial remedy before the Court
of Tax Appeals in the manner prescribed by law. Second, if the inaction can be characterized as wilful neglect of
duty, then recourse under the Civil Code and the Tax Code can also be availed of.
Article 27 of the Civil Code provides:"Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for
damages and other relief against the latter, without p rejudice to any disciplinary action that may be taken."
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:"xxx xxx (c) wilfully
neglecting to give receipts, as by law required for any sum collected in the performance of duty or wilfully
neglecting to perform, any other duties enjoined by law."
ROXAS V. CTA, 23 SCRA 276 (1968)
Facts:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary
succession several properties. To manage the above-mentioned properties, said children, namely, Antonio
Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. At the conclusion of the
WW2, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to
purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in
consonance with the constitutional mandate to acquire big landed estates and apportion them among landless
tenant-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the
farmers in the early part of 1948 and finally the Roxas brothers agree to sell 13,500 hectares to the Government
for distribution to actual occupants for a price of P2,079,048.47 plus P300,000 for survey and distribution
expenses. It turned out however that the Government did not have funds to cover the purchase price, and so
a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the
amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers.
Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment,
and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly
amortizations paid by the farmers.
The CIR demanded from Roxas y Cia. the payment of deficiency income taxes resulting from the inclusion as
income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale of the
Nasugbu farmlands to the tenants, and the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y CIa.
subdivided its Nasugbu farmlands and sold them to the farmers on installment, the Commissioner considered
the partnership as engaged in the business of real estate, hence, 100% of the profits derived there from was
taxed. The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted
an appeal in the CTA which sustained the assessment. Hence, this appeal.
Issue:
I.
Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable? And
is
Roxas y Cia liable for the payment of deficiency income for the sale of Nasugbu farmlands?
II.
Are the deductions for business expenses and contributions deductible?
Ruling:
I.
NO. The proposition of the CIR cannot be favorably accepted in this isolated transaction with its peculiar
circumstances inspite of the fact that there were hundreds of vendees. Although they paid for their respective
holdings in installment for the period of 10 years, it would nevertheless make the vendor Roxas y Cia. a real
estate dealer during the 10-year amortization period. It should be borne in mind that the sale of the Nasugbu
farmlands to the very farmers who tilled them for generations was not only in consonance with, but more in
obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was
the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to
sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices.
However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered
the Government’s burden, went out of its way and sold lands directly to the farmers in the same way and under
the same terms as would have been the case had the Government done it itself. For this magnanimous act, the
municipal council of Nasugbu passed a resolution expressing the people’s gratitude.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to section
34 of the Tax Code, the land sold to the farmers are capital assets, and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.
II.
DISALLOWED DEDUCTIONS
Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of
Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed
as representation expenses. Representation expenses are deductible from gross income as expenditures
incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves
that they are reasonable in amount, ordinary and necessary, and incurred in connection with his business. In
the case at bar, the evidence does not show such link between the expenses and the business of Roxas y Cia.
The findings of the Court of Tax Appeals must therefore be sustained (disallowed deduction).
The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio
City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families
and Our Lady of Fatima chapel at Far Eastern University.
The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police
are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas
gifts to the families of the members of said entities. Under Section 39(h), a contribution to a government entity
is deductible when used exclusively for public purposes. For this reason, the disallowance must be sustained.
On the other hand, the contribution to the Manila Police trust fund is an allowable deduction for said trust fund
belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the
ground that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the
Tax Code. It should be noted however that the contributions were not made to the Philippines Herald but to a
group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no
question that the members of this group of citizens do not receive profits, for all the funds they raised were for
Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively for
charitable purposes mentioned in Section 30(h) of the Tax Code.
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the
Far Eastern University on the ground that the said university gives dividends to its stockholders (it should be
non-profit institution. Located within the premises of the university, the chapel in question has not been shown
to belong to the Catholic Church or any religious organization. On the other hand, the lower court found that it
belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax
Code for the reason that the net income of said university injures to the benefit of its stockholders. The
disallowance should be sustained.
Doctrines:
I.
Sale of property by landowners to tenants under government policy to allocate lands to the landless
subject not subject to real estate dealer’s tax.
II.
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the “hen that lays the golden egg”.
TIU et al vs.CA (G.R. No. 127410, January 20,1999)
Fact: The petitioners challenged before this Court the constitutionality of EO 97-A for allegedly being violative
of their right to equal protection of the laws. Petitioners petition for review under Rule 45 of the Rules of Court,
seeking the reversal of the Court of Appeals. The challenged Decision upheld the constitutionality and validity
of Executive Order No. 97-A (EO 97-A), according to which the grant and enjoyment of the tax and duty
incentives authorized under Republic Act No. 7227 (RA 7227) were limited to the business enterprises and
residents within the fenced-in area of the Subic Special Economic Zone (SSEZ).
Issue: Whether the EO 97-A violates the equal protection clause of the Constitution in confining the application
of R.A. 7227 within the secured area.
Held: No, said Order is not violative of the equal protection clause; neither is it discriminatory. Rather, than we
find real and substantive distinctions between the circumstances obtaining inside and those outside the Subic
Naval Base, thereby justifying a valid and reasonable classification. The fundamental right of equal protection
of the laws is not absolute, but is subject to reasonable classification. If the groupings are characterized by
substantial distinctions that make real differences, one class may be treated and regulated differently from
another. The classification must also be germane to the purpose of the law and must apply to all those
belonging to the same class. The equal protection of the law clause is against undue favor and individual or class
privilege, as well as hostile discrimination or the oppression of inequality. It is not intended to prohibit legislation
which is limited either by the object to which it is directed or by the territory within which it is to operate. It
does not demand absolute equality among residents; it merely requires that all persons shall be treated alike,
under like circumstances and conditions both as to privileges conferred and liabilities enforced. The equal
protection clause is not infringed by legislation which applies only to those persons falling within a specified
class, if it applies alike to all persons within such class, and reasonable. grounds exist for making a distinction
between those who fall within such class and those who do not.
Classification, to be valid, must:
1.
2.
3.
4.
rest on substantial distinctions,
be germane to the purpose of the law,
not be limited to existing conditions only, and
apply equally to all members of the same class.
It is well-settled that the equal-protection guarantee does not require territorial uniformity of laws. As long as
there are actual and material differences between territories, there is no violation of the constitutional clause.
And of course, anyone, including the petitioners, possessing the requisite investment capital can always avail of
the same benefits by channeling his or her resources or business operations into the fenced-off free port zone.
That the classification set forth by the executive issuance does not apply merely to existing conditions. As laid
down in RA 7227, the objective is to establish a “self-sustaining, industrial, commercial, financial and investment
center” in the area. There will, therefore, be a long-term difference between such investment center and the
areas outside it.
Lastly, the classification applies equally to all the resident individuals and businesses within the “secured area.”
The residents, being in like circumstances or contributing directly to the achievement of the end purpose of the
law, are not categorized further. Instead, they are all similarly treated, both in privileges granted and in
obligations required. The Court holds that no undue favor or privilege was extended. The classification
occasioned by EO 97-A was not unreasonable, capricious or unfounded. To repeat, it was based, rather, on fair
and substantive considerations that were germane to the legislative purpose.
PLDT vs. CITY OF DAVAO and ADELAIDA B. BARCELONA, in her capacity as City Treasurer of Davao
TAX EXEMPTIONS vs. TAX EXCLUSION; “IN LIEU OF ALL TAXES” PROVISION
Facts:
PLDT paid a franchise tax equal to three percent (3%) of its gross receipts. The franchise tax was paid “in lieu of
all taxes on this franchise or earnings thereof” pursuant to RA 7082. The exemption from “all taxes on this
franchise or earnings thereof” was subsequently withdrawn by RA 7160 (LGC), which at the same time gave
local government units the power to tax businesses enjoying a franchise on the basis of income received or
earned by them within their territorial jurisdiction. The LGC took effect on January 1, 1992.
The City of Davao enacted Ordinance No. 519, Series of 1992, which in pertinent part provides: Notwithstanding
any exemption granted by law or other special laws, there is hereby imposed a tax on businesses enjoying a
franchise, a rate of seventy-five percent (75%) of one percent (1%) of the gross annual receipts for the preceding
calendar year based on the income receipts realized within the territorial jurisdiction of Davao City.
Subsequently, Congress granted in favor of Globe Mackay Cable and Radio Corporation (Globe) and Smart
Information Technologies, Inc. (Smart) franchises which contained “in leiu of all taxes” provisos.
In 1995, it enacted RA 7925, or the Public Telecommunication Policy of the Philippines, Sec. 23 of which provides
that any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may
hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and
shall be accorded immediately and unconditionally to the grantees of such franchises. The law took effect on
March 16, 1995.
In January 1999, when PLDT applied for a mayor’s permit to operate its Davao Metro exchange, it was required
to pay the local franchise tax which then had amounted to P3,681,985.72. PLDT challenged the power of the
city government to collect the local franchise tax and demanded a refund of what had been paid as a local
franchise tax for the year 1997 and for the first to the third quarters of 1998.
Issue:
Whether or not by virtue of RA 7925, Sec. 23, PLDT is again entitled to the exemption from payment of the local
franchise tax in view of the grant of tax exemption to Globe and Smart.
Held:
Petitioner contends that because their existing franchises contain “in lieu of all taxes” clauses, the same grant
of tax exemption must be deemed to have become ipso facto part of its previously granted telecommunications
franchise. But the rule is that tax exemptions should be granted only by a clear and unequivocal provision of law
“expressed in a language too plain to be mistaken” and assuming for the nonce that the charters of Globe and
of Smart grant tax exemptions, then this runabout way of granting tax exemption to PLDT is not a direct, “clear
and unequivocal” way of communicating the legislative intent.
Nor does the term “exemption” in Sec. 23 of RA 7925 mean tax exemption. The term refers to exemption from
regulations and requirements imposed by the National Telecommunications Commission (NTC). For instance,
RA 7925, Sec. 17 provides: The Commission shall exempt any specific telecommunications service from its rate
or tariff regulations if the service has sufficient competition to ensure fair and reasonable rates of tariffs.
Another exemption granted by the law in line with its policy of deregulation is the exemption from the
requirement of securing permits from the NTC every time a telecommunications company imports equipment.
Tax exemptions should be granted only by clear and unequivocal provision of law on the basis of language too
plain to be mistaken.
Arturo Tolentino v. Secretary of Finance and Commissioner of Internal Revenue
G.R. No. 115455; October 30, 1995
FACTS:
The present case involves motions seeking reconsideration of the Court’s decision dismissing the petitions for
the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law.
The motions, of which there are 10 in all, have been filed by the several petitioners.
The Philippine Press Institute, Inc. (PPI) contends that by removing the exemption of the press from the VAT
while maintaining those granted to others, the law discriminates against the press. At any rate, it is averred,
“even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional”, citing in support
of
the
case
of Murdock
v.
Pennsylvania.
Chamber of Real Estate and Builders Associations, Invc., (CREBA), on the other hand, asserts that R.A. No. 7716
(1) impairs the obligations of contracts, (2) classifies transactions as covered or exempt without reasonable basis
and (3) violates the rule that taxes should be uniform and equitable and that Congress shall “evolve a progressive
system
of
taxation”.
Further, the Cooperative Union of the Philippines (CUP), argues that legislature was to adopt a definite policy of
granting tax exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would, therefore, be to infringe a constitutional policy.
ISSUE:
Whether or not, based on the aforementioned grounds of the petitioners, the Expanded Value-Added Tax Law
should be declared unconstitutional.
RULING:
No. With respect to the first contention, it would suffice to say that since the law granted the press a privilege,
the law could take back the privilege anytime without offense to the Constitution. The reason is simple: by
granting exemptions, the State does not forever waive the exercise of its sovereign prerogative. Indeed, in
withdrawing the exemption, the law merely subjects the press to the same tax burden to which other businesses
have long ago been subject. The PPI asserts that it does not really matter that the law does not discriminate
against the press because “even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional.” The Court was speaking in that case (Murdock v. Pennsylvania) of a license tax, which, unlike
an ordinary tax, is mainly for regulation. Its imposition on the press is unconstitutional because it lays a prior
restraint on the exercise of its right. The VAT is, however, different. It is not a license tax. It is not a tax on the
exercise of a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of
goods or properties or the sale or exchange of services and the lease of properties purely for revenue purposes.
To subject the press to its payment is not to burden the exercise of its right any more than to make the press
pay income tax or subject it to general regulation is not to violate its freedom under the Constitution.
Anent the first contention of CREBA, it has been held in an early case that even though such taxation may affect
particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose
additional burdens upon one class and release the burdens of another, still the tax must be paid unless
prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true
legal sense. It is next pointed out that while Section 4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no exemption on
the sale of real property which is equally essential. The sale of food items, petroleum, medical and veterinary
services, etc., which are essential goods and services was already exempt under Section 103, pars. (b) (d) (1) of
the NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted
exemption to these transactions while subjecting those of petitioner to the payment of the VAT. Finally, it is
contended that R.A. No. 7716 also violates Art. VI, Section 28(1) which provides that “The rule of taxation shall
be uniform and equitable. The Congress shall evolve a progressive system of taxation”. Nevertheless, equality
and uniformity of taxation mean that all taxable articles or kinds of property of the same class be taxed at the
same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation. To satisfy this requirement it is enough that the statute or ordinance applies equally to all persons,
firms, and corporations placed in similar situation. Furthermore, the Constitution does not really prohibit the
imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress shall
“evolve a progressive system of taxation.” The constitutional provision has been interpreted to mean simply
that “direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should be minimized.” The
mandate to Congress is not to prescribe, but to evolve, a progressive tax system.
As regards the contention of CUP, it is worth noting that its theory amounts to saying that under the Constitution
cooperatives are exempt from taxation. Such theory is contrary to the Constitution under which only the
following are exempt from taxation: charitable institutions, churches, and parsonages, by reason of Art. VI, §28
(3), and non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).
With all the foregoing ratiocinations, it is clear that the subject law bears no constitutional infirmities and is thus
upheld.
Mactan Cebu International Airport Authority vs Marcos
G.R. 120082 September 11, 1996
Topic: Inherent powers of the State: Power of taxation
Facts
Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958.
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes
in accordance with Section 14 of its Charter. On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-inCharge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of
land belonging to the petitioner.
Petitioner objected and cited Section 14 of its charter. It was also asserted that it is an instrumentality
of the government performing governmental functions, citing section 133 of the Local Government Code of
1991 which puts limitations on the taxing powers of local government units - to exclude agencies and
instrumentalities of the national government.
Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA
is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections
193 and 234 of the Local Governmental Code that took effect on January 1, 1992.
City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was
compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the
Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the taxing
powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentality of
the national government. RTC dismissed the petition because LGC's repealing clause affected RA6958, so that
petitioner has to pay the realty tax of its properties effective after January 1, 1992 until the present.
Issue
Is the petitioner obliged to pay real property taxes?
Rule
Local Governmental Code jan 1, 1992
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons whether natural or juridical, including governmentowned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938,
non-stock, and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of
this Code. (Emphasis supplied)
Sec. 234. Exemptions from Real Property taxes. —
(c) . . .
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations
are hereby withdrawn upon the effectivity of this Code.
Sec. 133. Common Limitations on the Taxing Power of Local Government Units. — Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to
the levy of the following:
(o) taxes, fees, or charges of any kind on the national government, its agencies and instrumentalities, and local
government units.
Real property tax code
Sec 40. Exemption from Real Property Tax. — The exemption shall be as follows:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any
government-owned or controlled corporations so exempt by is charter: Provided, however, that this exemption
shall not apply to real property of the above mentioned entities the beneficial use of which has been granted,
for consideration or otherwise, to a taxable person.
Application
 As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency who are to pay it.
 Limitations:
o the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system
of taxation.
o tax statutes must be construed strictly against the government and liberally in favor of the
taxpayer.
o Power to tax is Vested only in the congress, but exercised by local legislative bodies
 the power to tax involves the power to destroy -- interferes with the personal and property for the
support of the government
 since taxes are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes
granting tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor
of the taxing authority.
 A claim of exemption from tax payment must be clearly shown in the law. taxation is the rule, exemption
therefrom is the exception. However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the practical effect of the
exemption is merely to reduce the amount of money that has to be handled by the government in the
course of its operations.
 The terms "Republic of the Philippines" and "National Government" are not interchangeable.

RP - is the corporate governmental entity through which the functions of the government are exercised
in the Philippines, including, the autonomous regions, the provincial, city, municipal or barangay
subdivision or other forms of local government." 27 These autonomous regions, provincial, city, municipal
or barangay subdivisions" are the political subdivision.
 National Government" refers "to the entire machinery of the central government, as distinguished from
the different forms of local Governments." - composed of the three great departments the executive, the
legislative and the judicial.
 Agency - any of the various units of the Government, including a department, bureau, office
instrumentality, or government-owned or controlled corporation, or a local government or a distinct
unit therein
 Instrumentality - any agency of the National Government, not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy; usually through a charter. This
term includes regulatory agencies, chartered institutions and government-owned and controlled
corporations
 The petitioner is the owner of the land in question and the exception in Section 234(c) of the LGC is
inapplicable.
 Reliance on Basco vs. Philippine Amusement and Gaming Corporation 39 is unavailing since it was decided
before the effectivity of the LGC (1992).
 Exemptions (§234) are only for religious, charitable, educational, water and electricity distribution,
pollution control and environmental protection
Conclusion
Yes. Petition is denied. RTC Cebu decision affirmed.
- The provision in the MCIAA charter pertaining to tax exemption was repealed by the local government code,
and the LGC did not include MCIAA as an exemption.
VILLANUEVA V CITY OF ILOILO
(26 SCRA 578)
FACTS:
Relying on the passage of RA 2264 or the Local Autonomy Act, Iloilo enacted Ordinance 11 Series of 1960,
imposing a municipal license tax on tenement houses in accordance with the schedule of payment provided by
therein. Villanueva and the other appellees are apartment owners from whom the city collected license taxes
by virtue of Ordinance 11. Appellees aver that the said ordinance is unconstitutional for RA 2264 does not
empower cities to impose apartment taxes; that the same is oppressive and unreasonable for it penalizes those
who fail to pay the apartment taxes; that it constitutes not only double taxation but treble taxation; and, that it
violates uniformity of taxation.
Issues:
1. Does the ordinance impose double taxation?
2. Is Iloilo city empowered by RA 2264 to impose tenement taxes?
Held:
While it is true that appellees are taxable under the NIRC as real estate dealers, and taxable under
Ordinance 11, double taxation may not be invoked. This is because the same tax may be imposed by the national
government as well as by the local government. The contention that appellees are doubly taxed because they
are paying real estate taxes and the tenement tax is also devoid of merit. A license tax may be levied upon a
business or occupation although the land or property used in connection therewith is subject to property tax.
In order to constitute double taxation, both taxes must be the same kind or character. Real estate taxes and
tenement taxes are not of the same character.
RA 2264 confers local governments broad taxing powers. The imposition of the tenement taxes does not
fall within the exceptions mentioned by the same law. It is argued however that the said taxes are real estate
taxes and thus, the imposition of more the 1 per centum real estate tax which is the limit provided by CA 158,
makes the said ordinance ultra vires. The court ruled that the tax in question is not a real estate tax. It does not
have the attributes of a real estate tax. By the title and the terms of the ordinance, the tax is a municipal tax
which means an imposition or exaction on the right to use or dispose of property, to pursue a business,
occupation or calling, or to exercise a privilege. Tenement houses being offered for rent or lease constitute a
distinct form of business or calling and as such, the imposition of municipal tax finds support in Section 2 of RA
2264.
LUTZ VS ARANETA, 98 PHIL 148
Facts: Commonwealth Act No. 567, otherwise known as Sugar Adjustment Act was promulgated in 1940 “to
stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in the
United States market and the imposition of export taxes.” Plaintiff, Walter Lutz, in his capacity as Judicial
Administrator of the Intestate Estate of Antonio Jayme Ledesma, seeks to recover from the Collector of Internal
Revenue the sum of P14,666.40 paid by the estate as taxes, under Sec.3 of the Act, alleging that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in
plaintiff’s opinion is not a public purpose for which a tax may be constitutionally levied. The action has been
dismissed by the Court of First Instance.
Issue: Whether or not the tax imposed is constitutional.
Held: Yes. The act is primarily an exercise of the police power. It is shown in the Act that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry.
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly
held that “inequalities which result from a singling out of one particular class for taxation or exemption infringe
no constitutional limitation.”
The funds raised under the Act should be exclusively spent in aid of the sugar industry, since it is that very
enterprise that is being protected. It may be that other industries are also in need of similar protection; but the
legislature is not required by the Constitution to adhere to a policy of “all or none.”
BENJAMIN P. GOMEZ vs ENRICO PALOMAR
G.R. No. L-23645
October 29, 1968
FACTS:
2631,2
-This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by Republic Act
which provides as follows:
To help raise funds for the Philippine Tuberculosis Society, the Director of Posts shall order for
the period from August nineteen to September thirty every year the printing and issue of semipostal stamps of different denominations with face value showing the regular postage charge
plus the additional amount of five centavos for the said purpose, and during the said period, no
mail matter shall be accepted in the mails unless it bears such semi-postal stamps: Provided, That
no such additional charge of five centavos shall be imposed on newspapers. The additional
proceeds realized from the sale of the semi-postal stamps shall constitute a special fund and be
deposited with the National Treasury to be expended by the Philippine Tuberculosis Society in
carrying out its noble work to prevent and eradicate tuberculosis.
- The respondent Postmaster General Enrico Palomar, in implementation of the law, issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July 15,
1960). All these administrative orders were issued with the approval of the respondent Secretary of Public
Works and Communications.
-On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to the
petitioner.
- In view of this development, the petitioner brought suit for declaratory relief in the Court of First
Instance of Pampanga, to test the constitutionality of the statute, as well as the implementing administrative
orders issued, contending that it violates the equal protection clause of the Constitution as well as the rule of
uniformity and equality of taxation.
-The lower court declared the statute and the orders unconstitutional; hence this appeal by the
respondent postal authorities.
ISSUES:
WON the statute is violative of the equal protection clause of the Constitution. More specifically the claim is
made that it constitutes mail users into a class for the purpose of the tax while leaving untaxed the rest of the
population and that even among postal patrons the statute discriminatorily grants exemption to newspapers
while Administrative Order 9 of the respondent Postmaster General grants a similar exemption to offices
performing governmental functions.
HELD:
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid
upon the exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled against
it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of taxation
and to grant exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is
said that in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification. The reason for this is that traditionally, classification has been a device for fitting tax programs to
local needs and usages in order to achieve an equitable distribution of the tax burden.
It is not accurate to say that the statute constituted mail users into a class. Mail users were already a
class by themselves even before the enactment of the statue and all that the legislature did was merely to select
their class. Legislation is essentially empiric and Republic Act 1635, as amended, no more than reflects a
distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact is living
law; to disregard [them] and concentrate on some abstract identities is lifeless logic."
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity
from taxation. The State cannot be taxed without its consent and such consent, being in derogation of its
sovereignty, is to be strictly construed.12 Administrative Order 9 of the respondent Postmaster General, which
lists the various offices and instrumentalities of the Government exempt from the payment of the anti-TB stamp,
is but a restatement of this well-known principle of constitutional law.
It is never a requirement of equal protection that all evils of the same genus be eradicated or none at
all. As this Court has had occasion to say, "if the law presumably hits the evil where it is most felt, it is not to be
overthrown because there are other instances to which it might have been applied."
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without pronouncement as to
costs.