DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
TAXATION 1
ASSIGNMENT NO. 1
PREPARED BY:
DOTIMAS, CHRISTOPHER JAN G.
PAGE 1
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
What is taxation?
Taxation is defined in Milwaukee v. Milwaukee and Suburban Transport Corporation as the power by which the
sovereign raises revenue to defray the necessary expenses of government. Taxation is merely a way of
apportioning the cost of government among those who in some measure are *305 privileged to enjoy its
benefits and must bear its burdens. The purpose of taxation on the part of government is to provide funds or
property with which to promote the general welfare and protection of its citizens. Taxation, in its broadest and
most general sense, includes every charge or burden imposed by the sovereign power upon persons, property,
or property rights for the use and support of the government and to enable it to discharge its appropriate
functions, and in that broad definition there is included a proportionate levy upon persons or property and all
the various other methods and devices by which revenue is exacted from persons and property for public
purposes.
CASE DIGESTS
Case No. 1
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY vs. HON. FERDINAND J. MARCOS
G.R. No. 120082
September 11, 1996
FACTS:
1. Mactan Cebu International Airport Authority (MCIAA) was created by virtue of R.A No. 6958 and
enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its
Charter which states that the authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities.
2. Cesa (OIC, Office of the Treasurer) demanded payment for realty taxes on several parcels of land
belonging to MCIAA.
3. MCIAA objected and claimed that under Sec 14 of RA 6958, they were exempted from payment of
realty taxes and that LGUs taxing power does not extend to taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, and local government units.
4. Respondent City insisted that the MCIAA is not an instrumentality of the government but merely 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government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of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
5. Petitioner insisted that it nonetheless stands on the same footing as an agency or instrumentality of the
national government by the very nature of its powers and functions.
ISSUE: Whether or not MCIAA is exempted from realty taxation.
HELD: NO. 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. Nevertheless,
effective limitations thereon may be imposed by the people through their Constitutions.
Tax statutes are construed strictly against the government and liberally in favor of the taxpayer. But since taxes
are paid for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation
and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of exemption from tax payments must be clearly shown and based on
language in the law too plain to be mistaken. Taxation is the rule, exemption therefrom is the exception.
However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of
construction does not apply because the practical effect of the exemption is merely to reduce the amount of
money that has to be handled by the government in the course of its operations. Further, since taxation is the
rule and exemption therefrom the exception, the exemption may be withdrawn at the pleasure of the taxing
authority. The only exception to this rule is where the exemption was granted to private parties based on
material consideration of a mutual nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution.
The last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
real property taxes granted to natural or juridical persons, including government owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A.
No. 6958, has been withdrawn. Therefore, MCIAA has to pay the assessed realty tax of its properties effective
after January 1, 1992 until the present.
Case No. 2
PHILIPPINE HEALTH CARE PROVIDERS, INC vs. CIR
G.R. No. 167330
September 18, 2009
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
FACTS: Petitioner is a domestic corporation and is a Health Maintenance Organization (HMO). The
Respondent sent a formal demand letter and the corresponding assessment notices demanding the payment
of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount
of ₱224,702,641.18 to the petitioner. The petitioner filed a petition for review in the Court of Tax Appeals (CTA)
seeking the cancellation of the deficiency VAT and DST assessments which was partially granted. Petitioner is
ordered to pay the deficiency value-added tax (VAT), and the documentary stamp tax (DST) against the
petitioner was cancelled and set aside.CA, however, granted the petition for review, setting aside the decision
of the CTA. Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency
Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20%
interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, until the same
shall have been fully paid. Petitioner moved for reconsideration but the CA denied it, and the SC affirmed the
decision of the CA, prompting the petitioner to file a motion for reconsideration. One of its arguments is that: it
availed of the tax amnesty benefits under RA 9480 for the taxable year 2005 and all prior years. Therefore, the
questioned assessments on the DST are now rendered moot and academic. The petitioner also claims that the
assessed DST to date which amounts to ₱376 million is way beyond its net worth of ₱259 million.
ISSUES:
1. Whether the documentary stamp tax (DST) imposed is proper
2. Whether the petitioner‘s tax liability was extinguished under the provisions of RA 9480 (Tax Amnesty of
2007)
RULING:
1. No, the imposition of such DST would be highly oppressive. 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 is to pay it. So potent indeed is the power that it was once opined that "the
power to tax involves the power to destroy‖. It is not the purpose of the government to throttle private
business. On the contrary, the government ought to encourage private enterprise. Petitioner, just like
any concern organized for a lawful economic activity, has a right to maintain a legitimate business
The power of taxation is sometimes also called 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."
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses
because of a tax imposition may be an acceptable consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and ultimately subversive of the nation‘s thrust
towards a better economy which will ultimately benefit the majority of our people.
2.
Yes, the tax liability of the petitioner was extinguished under the provisions of RA 9480. The petitioner
availed of the tax amnesty under RA 9480 on December 10, 2007. It paid ₱5,127,149.08 representing 5% of its
net worth as of the year ended December 31, 2005 and complied with all requirements of the tax amnesty.
Under Section 6(a) of RA 9480, it is entitled to immunity from payment of taxes as well as additions thereto,
and the appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from
the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.
In view of petitioner‘s availment of the benefits of RA 9480 and without conceding the merits of this case,
respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This admission,
however, is not meant to preclude a revocation of the amnesty granted in case it is found to have been granted
under circumstances amounting to tax fraud under Section 10 of said amnesty law.
Furthermore, as held in a recent case that DST is one of the taxes covered by the tax amnesty program under
RA 9480. There is no other conclusion to draw than that the petitioner's liability for DST for the taxable years
1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480.
Case No. 3
ANTERO M. SISON, JR. v. RUBEN B. ANCHETA, et. al.
G.R. No. L-59431
July 25, 1984
FACTS: Section 1 of Batas Pambansa Blg. 135 provides for rates of tax on citizens or residents. Petitioner,
Antero M. Sison, as taxpayer, assailed its said validity alleging that by virtue thereof, "he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his
profession than those which are imposed upon fixed income or salaried individual taxpayers." Also, Sison
characterizes the above section as arbitrary amounting to class legislation, oppressive and capricious in
character. He alleges that there is a transgression of both the equal protection and due process clauses of the
Constitution as well as of the rule requiring uniformity in taxation.
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
ISSUE: Whether the imposition of a higher tax rate on taxable net income derived from business or profession
than on compensation is constitutionally infirm.
RULING: No. Petitioner alleges arbitrariness. A mere allegation does not suffice. There must be a factual
foundation of such unconstitutional taint. This is to adhere to the authoritative doctrine that where the due
process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
On equal protection, it suffices then that the laws operate equally and uniformly on all persons under similar
circumstances or that all persons must be treated in the same manner, the conditions not being different, both
in the privileges conferred and the liabilities imposed. 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 single out
of one particular class for taxation, or exemption infringe no constitutional limitation.
Moreover, the rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly
attainable. 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. The power to tax is not a power to destroy while this Court sits. Any
violation of the Constitution will be void. Therefore, petition is without merit, considering the (1) lack of factual
foundation to show the arbitrary character of the assailed provision; (2) the force of controlling doctrines on due
process, equal protection, and uniformity in taxation and (3) the reasonableness of the distinction between
compensation and taxable net income of professionals and businessmen certainly not a suspect classification.
Case No. 4
Valentin Tio vs. Videogram Regulatory Board, et al.
G.R. No. L-75697
June 18, 1987
FACTS: Petitioner (doing business under the name and style of OMI ENTERPRISES) filed a petition, on his
behalf and on behalf of other videogram operators adversely affected, assailing the constitutionality of PD No.
1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise
the videogram industry. A month after the promulgation of the PD No, 1987, PD No. 1994 amended the
National Internal Revenue Code providing that there shall be an annual tax of five pesos collected on each
processed video-tape cassette, ready for playback, regardless of length; Provided, That locally manufactured
or imported blank video tapes shall be subject to lookto sales tax. (Sec. 134)
The following, among others, are the rationale behind the enactment of the DECREE:
1. The proliferation and unregulated circulation of videograms have have caused a sharp decline in
moviehouse and theatrical attendance by at least 40% and a tremendous drop in the collection of sales,
contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at
P450 Million annually in government revenues;
2. Videogram establishments collectively earn around P600 Million per annum from rentals, sales and
disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;
3. Proper taxation of the activities of videogram establishments will not only alleviate the dire financial
condition of the movie industry upon which many families and workers depend for their livelihood, but
also provide an additional source of revenue for the Government, and at the same time rationalize the
uncontrolled distribution of videograms;
Petitioners, meanwhile, attack the constitutionality of the decree based on the following grounds [Taxationrelated only]: (1) Section 10* of PD No. 1987, which imposes a tax of 30% on the gross receipts payable to
the local government is a RIDER and the same is not germane to the subject matter thereof; and (2) The tax
imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process
clause of the Constitution.
*Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to the
contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or
audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and
the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in
Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila
Commission.
ISSUES:
1. Whether Section 10 is germane to the subject matter of PD No. 1987.
2. Whether the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade.
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
RULING:
1. YES. Section 10 of PD No. 1987 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 Videogram Regulatory Board as expressed in its title. The tax provision is not
inconsistent with, nor foreign to that 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 the decree to include taxation of the video industry in order to regulate and
rationalize the uncontrolled distribution of videograms is evident in the preamble which explains the
motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of
the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its
Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in
the title or that the latter be an index to the body of the DECREE.
2.
NO, a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters
the activities taxed. The power to impose taxes is one so unlimited in force and so searching to the
extent that the courts scarcely venture to declare that it is subject to any restrictions whatsoever,
except such as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature
acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation.
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax,
imposed on retailers for every videogram they make available for public viewing. It is similar to the 30%
amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but
which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the
viewing public. It is a tax that is imposed uniformly on all videogram operators. The levy of the 30% tax is for
a public purpose. It was imposed primarily to answer the need for regulating the video industry,
particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and
the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect
the movie industry, the tax remains a valid imposition.
Case No. 5
Tolentino vs. Secretary of Finance
G.R. No. 115455
October 30, 1995
FACTS: The petitioners of this case seek to challenge the constitutionality of R.A. No. 7716, otherwise known
as the Expanded Value-Added Tax Law. One of petitioners, Chamber of Real Estate and Builders
Associations, Inc., (CREBA) argued that the expanded tax law classifies transactions as covered or exempt
without reasonable basis. They pointed out that while Sec 4 of RA No 7716 exempts 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 ―of the less poor‖ which is equally essential. They also stated that R.A. No. 7716 also
violates Art. VI, Sec 28 Constitution which provides that "the rule of taxation shall be uniform and equitable.‖
ISSUE: Whether or not R.A. No. 7716 should be declared as unconstitutional on the grounds stated above
RULING: No, RA No 7716 is not unconstitutional. The Supreme Court stated that the sale of real property for
socialized and low-cost housing is exempted from the tax and that there is a difference between the "homeless
poor" and the "homeless less poor" cited by CREBA. The second group can afford to rent houses in the
meantime that they cannot yet buy their own homes. The two social classes are thus differently situated in life
hence the exemption of the first group.
Moreover, taxation being supreme in character, it is inherent that the State is 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 is not a violation of the limitations set by the Constitution. On the contention
that RA No 7716 is not uniform and equitable, the Supreme Court held that equality and uniformity of taxation
means 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, forms and corporations
placed in similar situations.
Case No. 6
Antonio Roxas, Eduardo Roxas vs. Court of Tax Appeals
G.R. No. L-25043
April 26, 1968
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
FACTS: Brothers Antonio, Eduardo and Jose Roxas inherited from their grandparents, among others,
agricultural lands in Nasugbu, Batangas with a total area of 19,000 hectares. To manage their properties, they
formed a partnership called Roxas y Compania (Roxas Company).
The Roxas brothers agreed to sell 13,500 hectares of the lands to the government for distribution to the
tenants in consonance with the government‘s constitutional mandate to acquire big landed estates and
apportion them among landless tenants-farmers. However, the government did not have funds and so a
special arrangement was made. The Rehabilitation Finance Corporation advanced to Roxas Company 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 Company 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. Roxas Company derived from said installment payments net gain.
Fifty percent of said net gain was reported for income tax purposes as gain on the sale of capital asset
pursuant to Section 34 of the Tax Code.
For the reason that Roxas Company subdivided its Nasugbu farm lands and sold them to the farmers on
installment, the Commissioner of Internal Revenue considered the partnership as engaged in the business of
real estate, hence, 100% of the profits derived were taxed. The Roxas brothers protested the assessment, but
it was denied. They filed an appeal in the Court of Tax Appeals, which sustained the assessment. They then
appealed to the Supreme Court.
ISSUE: Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?
RULING: No. The sale of the Nasugbu farm lands was pursuant to the policy of the 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 Company 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.
Roxas Company shouldered the government‘s burden and went out of its way and sold lands directly to the
farmers under the same terms as would have been the case had the government done it itself.
The power of taxation is sometimes also called 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; otherwise, the tax collector kills the ―hen that lays the golden egg‖. In order to maintain the general
public’s trust and confidence in the government, this power must be used justly and not treacherously.
In the instant case, it appears unjust for the government to persuade the taxpayer to lend it a helping hand and
later on to penalize him for duly answering the urgent call. Pursuant to Section 34 of the Tax Code, the lands
sold to the farmers are capital assets, and the gain derived from the sale is capital gain, taxable only to the
extent of 50%.
Case No. 7
Commissioner Of Internal Revenue v. Algue, Inc., and The Court Of Tax Appeals
G.R. No. L-28896
February 17, 1988
DOCTRINE: Taxes are the lifeblood of the government. Without taxes, the government would be paralyzed for
lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of
one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the
running of the government. It should be collected without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities
and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be
achieved.
FACTS:
 Private respondent is engaged in engineering, construction and other allied services.
 It received a letter from the petitioner regarding its delinquency income taxes (Php 83,183.85 in total).
 They then filed a letter of protest.
 Later on, a warrant of distraint and levy was given to them through its lawyer but he refused to
receive it in view of the pending protest.
 However, the lawyer was informed that the BIR would not be taking any action on the protest. Hence, it
was only then he accepted the said warrant.
 Here, the petitioner contended that the claimed deduction of P75,000.00 was properly disallowed
because it was not an ordinary reasonable or necessary business expense.
 However, the CTA disagreed and countered that the said amount had been legitimately paid by the
private respondent for actual services rendered in the form of promotional fees, which were collected
by the payees for their work rendered.
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
ISSUE: WON the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by
private respondent Algue as legitimate business expenses in its income tax returns.
RULING: No, as the claimed deduction by the private respondent was permitted under the Internal Revenue
Code and should therefore, not have been disallowed by the petitioner
Sec. 30 of the Tax Code: allowed deductions in the net income – Expenses - All the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any trade or business,
including a reasonable allowance for salaries or other compensation for personal services actually
rendered
Here, the private respondent has proved that the payment of the fees was necessary and reasonable in the
light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no
mean feat and should be, as it was, sufficiently recompensed.
Case No. 8
CIR vs. PILIPINAS SHELL PETROLEUM CORPORATION
G.R. No. 197945
July 9, 2018
FACTS: Respondents Pilipinas Shell Petroleum Corporation (Shell) and Petron Corporation (Petron) sold
bunker oil and other fuel products to other BOI-registered entities. These BOI-registered export entities used
Tax Credit Certificates (TCCs) originally issued in their name to pay for these purchases. Department of
Finance approved the assignment of the TCCs to Shell and Petron. DOF then issued Tax Debit Memoranda
(TDM) allowing Shell and Petron to use the TCCs against their own excise tax liabilities from 1992-1997. BIR
accepted the TDMs as respondent‘s payments of respondent‘s excise tax. Thereafter, the BIR issued
Collection Letters (1998 Collection Letter) to respondents pointing out that the latter only partly paid their
excise taxes from 1992-1997. The BIR invalidated the use of the TCCs to pay for their tax liabilities alleging
fraud on the procurement of the TCCs. This prompted Shell and Petron to appeal to the CTA. The CTA ruled
on the validity of the TCCs. CIR appealed before the CA. The CA upheld the CTA decision. Undaunted, CIR
filed the present petition with the Supreme Court docketed as G.R. Nos. 204119-20. Meanwhile, during the
pendency of Shell's CTA Case, the BIR issued a Collection Letter (2002 Collection Letter) to Shell requesting
the latter to pay its purported excise tax liabilities. Shell filed a petition with the CTA arguing that the collection
letter violated its right to due process among others. Hence, CIR now comes to the Supreme Court, case
docketed as G.R. No. 197945
ISSUE: Whether respondent‘s rights to due process were violated by the petitioner for its failure to observe
procedures for the collection of unpaid taxes.
RULING: Yes. Petitioner failed to comply with the prescribed procedure for collection of unpaid taxes thus,
violating respondents' right to due process.
That taxation is an essential attribute of sovereignty and the lifeblood of every nation- are doctrines wellentrenched in our jurisdiction. Taxes are the government's primary means to generate funds needed to fulfill its
mandate of promoting the general welfare and well-being of the people and so should be collected without
unnecessary hindrance. However, the Court has not hesitated to strike down processes when tax authorities
disregard due process. The BIR' s power to collect taxes must yield to the fundamental rule that no person
shall be deprived of his/her property without due process of law. The rule is that taxes must be collected
reasonably and in accordance with the prescribed procedure. The procedure for tax administration and
enforcement is that the BIR must first make an assessment through a Notice of Informal Conference or
Preliminary Assessment Notice before enforcing the collection of the amounts assessed. A valid assessment
informs the taxpayer, in writing, of the legal and factual bases of the assessment, thereby allowing the taxpayer
to effectively protest the assessment and adduce supporting evidence in its behalf. In the instant cases,
petitioner did not issue at all an assessment against respondents prior to his issuance of the 1998 and 2002
Collection Letters. Hence, it is a violation of respondent‘s right to due process. If an invalid assessment bears
no valid fruit, with more reason will no such fruit arise if there was no assessment in the first place.
Case No. 9
Commissioner of Internal Revenue v. Nippon Express Phils.
771 SCRA 27
September 16, 2015
FACTS: Nippon is a domestic corporation which is primarily engaged in the business of freight forwarding and
is a Value-Added Tax (VAT) registered entity. It filed its quarterly VAT returns for the year 2002 on April 25,
2002, July 25, 2002, October 25, 2002, and January 27, 2003, respectively. It maintained that during the said
period it incurred input VAT attributable to its zero-rated sales in the amount of P28,405,167.60, from which
only P3,760,660.74 was applied as tax credit, thus, reflecting refundable excess input VAT in the amount of
P24,644,506.86. Nippon filed an administrative claim for refund of its unutilized input VAT in the amount of
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
P24,644,506.86 for the year 2002 before the Bureau of Internal Revenue (BIR). A day later, or on April 23,
2004, it filed a judicial claim for tax refund, by way of petition for review, before the Court of Tax Appeals
(CTA). Petitioner, Commissioner of Internal Revenue (CIR) asserted that the amounts being claimed by
Nippon as unutilized input VAT were not properly documented, hence, should be denied. On August 10, 2011,
the CTA Division partially granted Nippon's claim for tax refund, and thereby ordered the CIR to issue a tax
credit certificate in the reduced amount of P2,614,296.84. It found that Nippon failed to show that the recipients
of its services - which, in this case, were mostly Philippine Economic Zone Authority registered enterprises were non-residents "doing business outside the Philippines." Accordingly, it concluded that Nippon's purported
sales therefrom could not qualify as zero-rated sales, hence, the reduction in the amount of tax credit
certificate claimed.
Before its receipt of the August 10, 2011 Decision, or on August 12, 2011, Nippon filed a motion to withdraw,
considering that the BIR, acting on its administrative claim, already issued a tax credit certificate in the amount
of P21,675,128.91 on July 27, 2011 (July 27, 2011 Tax Credit Certificate). Separately, the CIR moved for
reconsideration of the August 10, 2011 Decision and filed its comment/opposition to Nippon's motion to
withdraw. Thereafter, Nippon, which maintained that it only had notice of the August 10, 2011 Decision on
August 16, 2011, likewise sought for reconsideration, praying that the CTA Division set aside its August 10,
2011 Decision and render judgment ordering the CIR to issue a tax credit certificate in the full amount of
P24,644,506.86, or in the alternative, grant its motion to withdraw. In a Resolution dated July 31, 2012, the
CTA Division granted Nippon's motion to withdraw and, thus, considered the case closed and terminated. It
found that Nippon correctly availed of the proper remedy notwithstanding the promulgation of the August 10,
2011 Decision. It added that in approving the withdrawal of Nippon's petition for review, it exercised its
discretionary authority under Section 3, Rule 50 of the Rules of Court after due consideration of the reasons
proffered by Nippon, namely: (a) that the parties had already arrived at a reasonable settlement of the issues;
(b) further legal and related costs would be avoided; and (c) the court's time and resources would be saved.
Aggrieved, the CIR elevated its case to the CTA En Banc. In a Decision dated December 18, 2013, the CTA
En Banc affirmed the July 31, 2012 Resolution of the CTA Division granting Nippon's motion to withdraw.
ISSUE: Whether the CTA properly granted Nippon‘s motion to withdraw.
RULING: No. While it is true that the CTA Division has the prerogative to grant a motion to withdraw under the
authority of legal provisions, the attendant circumstances in this case should have incited it to act otherwise.
The primary reason that militates against the granting of the motion to withdraw is the fact that the CTA
Division, in its August 10, 2011 Decision, had already determined that Nippon was only entitled to refund the
reduced amount of P2,614,296.84 since it failed to prove that the recipients of its services were non-residents
"doing business outside the Philippines"; hence, Nippon's purported sales could not qualify as zero-rated
sales. However, the BIR determined that Nippon should receive P21,675,128.91 as per the July 27, 2011 Tax
Credit Certificate, which is P19,060,832.07 larger than the amount found due by the CTA Division. Therefore,
the massive discrepancy alone between the administrative and judicial determinations of the amount to be
refunded to Nippon should have already raised a red flag to the CTA Division. Clearly, the interest of the
government, and, more significantly, the public, will be greatly prejudiced by the erroneous grant of refund - at
a substantial amount at that - in favor of Nippon. Hence, under these circumstances, the CTA Division should
not have granted the motion to withdraw.
In this relation, it deserves mentioning that the CIR is not estopped from assailing the validity of the July 27,
2011 Tax Credit Certificate which was issued by her subordinates in the BIR. In matters of taxation, the
government cannot be estopped by the mistakes, errors or omissions of its agents for upon it depends
the ability of the government to serve the people for whose benefit taxes are collected. The August 10,
2011 Decision of the CTA Division should therefore be reinstated, without prejudice to the right of either party
to appeal the same
Case No. 10
Commissioner of Internal Revenue v. Dash Engineering Philippines, Inc. (DEPI)
G.R. No. 184145
11 December 2013
FACTS:
1. Respondent DEPI filed its monthly and quarterly value-added tax (VAT) returns for the period from
January 1, 2003 to June 30, 2003;
2. On August 9, 2004, it filed a claim for tax credit or refund in the amount of P 2,149,684.88 representing
unutilized input VAT attributable to its zero-rated sales;
3. Petitioner Commissioner of Internal Revenue (CIR) failed to act upon the said claim, respondent was
compelled to file a petition for review with the CTA on May 5, 2005.
4. The second division of CTA partially granted respondent‘s claim for refund in the reduced amount of P
1,147,683.78.
5. Petitioner moved for reconsideration but the same was denied compelling petitioner to elevate the case
to CTA En Banc, still petitioner‘s MR was denied.
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DOTIMAS, CHRISTOPHER JAN G.
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ISSUE: Whether or not DEPI filed its claim within the conditions stated under the NIRC, particularly Sec. 36
―Sec. 112‖ sub. Par. C as amended or the ―Aichi Doctrine‖
Doctrine/s: Aichi Doctrine - established the doctrine of strict observance of the period for filing the judicial
claim by way of petition for review with the CTA, the non-observance of which will make the judicial claim
premature. The 120 + 30 day period is not only mandatory, but also jurisdictional.
RULING: No, DEPI was not able to satisfy the requisite under NICR “Sec. 112 Sub. Par C” which
provides:
―Period within which Refund or Tax Credit of Input Taxes shall be made. – In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.‖
Petitioner is correct in its assertion that compliance with the periods provided is indeed mandatory and
jurisdictional. Therefore, respondents' judicial claim for refund must be denied for having been filed late.
Although the respondent filed an administrative claim before the expiration of the 2-year period as stated in
Sec. 112 (A), it undoubtedly failed to comply with the 120+30-day period. Thus, DEPI had 30 days therefrom,
or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only sought judicial relief
on May 5, 2005 when it belatedly filed its petition to the CTA, despite having had ample time to file the same.
Case No. 11
THE PHILIPPINE GUARANTY CO., INC vs. THE COMMISSIONER OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS
G.R. No. L-22074
April 30, 1965
FACTS: The Philippine Guaranty Co., Inc., a domestic insurance company, entered into reinsurance contracts,
on various dates, with foreign insurance companies not doing business in the Philippines. Philippine Guaranty
Co., Inc., thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has
originally underwritten in the Philippines. Philippine Guaranty Co., Inc. ceded to the foreign reinsurers the
premiums. Said premiums were excluded by Philippine Guaranty Co., Inc. 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 Commissioner of Internal Revenue assessed withholding tax on the ceded reinsurance premiums against
Philippine Guaranty Co., Inc. Philippine Guaranty Co., Inc., protested on the ground that the premiums are not
subjected to tax for these premiums did not constitute income from sources within the Philippines because the
foreign reinsurers did not engage in business in the Philippines and they do not have office in the Philippines.
ISSUE: Whether insurance companies are required to withhold tax on reinsurance premiums ceded to foreign
insurance companies not doing business in the Philippines.
RULING: 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. 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. 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 improvement 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.
Case No. 12
Batangas City v. Pilipinas Shell Petroleum Corporation
G.R. No. 187631
July 8, 2015
Doctrine: The power to tax "is an attribute of sovereignty," and as such, inheres in the State. Such, however,
is not true for provinces, cities, municipalities and barangays as they are not the sovereign; rather, there are
mere "territorial and political subdivisions of the Republic of the Philippines.
FACTS: Respondent Pilipinas Shell Petroleum Corporation owns an oil refinery and depot. Respondent
manufactures and distributes petroleum products nationwide. The refinery was located in Tabagao, Batangas.
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DOTIMAS, CHRISTOPHER JAN G.
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Petitioner City of Batangas, through its City Legal Officer, issued a Notice of Assessment demanding payment
of business taxes amounting to 92, 373, 720.50 and P312,656,253.04 for its manufacture and distribution of
petroleum products. In addition, Petitioner requires the payment of Mayor‘s Permit amounting to
P4,299,851.00. Respondent protested claiming that they are not liable to pay taxes to respondent for
manufacturing and distributing petroleum products. They also claimed that the amount of the Mayor‘s Permit is
exorbitant and unreasonable. Petitioner denied the protest and claimed that under Section 14 of Batangas City
Tax Code, they are empowered to withhold the issuance of the Mayor's Permit in case of failure to pay
Business taxes. Respondent filed a Petition for Review pursuant to Section 195 of the LGC of 1991 before the
Regional Trial Court (RTC) of Batangas City. Respondent stands that petitioners have no authority to impose
the said taxes. They claimed that the levy of business taxes on manufacturing and distribution of petroleum
products is against the national Policy. The RTC of Batangas rendered a decision and sustained the imposition
of business taxes. However, withheld the imposition of Mayor‘s Permit. After the Motion for Partial
Reconsideration was denied, Respondent filed a Petition for Review with Extremely Urgent Application for a
Temporary Restraining Order and/or Writ of Preliminary Injunction with 2nd Division of Court of Tax Appeals.
The CTA approved the petition and modified the decision of the RTC of Batangas. The decision provides that
the Petitioner are not liable for the business tax. And that the Mayor‘s permit is excessive and that the
Petitioner are required to refund the excess as tax credit. When a Motion for Reconsideration filed with the 2nd
Division of CTA was denied, Petitioners filed a Petition for Review praying for the reversal of the amended
decision with the CTA en banc. It was also denied.
ISSUE: Whether the LGU is empowered under the LGC to impose business taxes on persons or entities
engaged in the business of manufacturing and distribution of petroleum products.
RULING: NO. The power to tax is inherent in the State, however the same is not true for LGUs. Although the
mandate to impose taxes granted to LGUs is categorical and established in the 1987 Constitution, the same is
not all encompassing as it is subject to limitations. As explicitly stated in Section 5, Article X of the 1987
Constitution, ―Each local government unit shall have the power to create its own sources of revenues and to
levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy…‖
As held in the case of Pelizloy Realty Corporation v. The Province of Benguet, ―The power to tax "is an
attribute of sovereignty," and as such, inheres in the State. Such, however, is not true for provinces, cities,
municipalities and barangays as they are not the sovereign; rather, there are mere "territorial and political
subdivisions of the Republic of the Philippines." In addition, The rule governing the taxing power of provinces,
cities, municipalities and barangays is summarized in Icard v. City Council of Baguio: ―It is settled that a
municipal corporation unlike a sovereign state is clothed with no inherent power of taxation. The charter or
statute must plainly show an intent to confer that power or the municipality, cannot assume it. Any doubt or
ambiguity arising out of the term used in granting that power must be resolved against the municipality.‖
Case No. 13
Film Development Council of the Philippines vs. Colon Heritage Realty Corporation
G.R. No. 203754
June 16, 2015
Facts: Petitioner alleged that from the time RA 9167 was passed by the Congress on June 7 2002, which
provides for the tax treatment of certain graded films, up to the present, all the cities and municipalities in Metro
Manila, as well as urbanized and independent component cities, with the sole exception of Cebu City, have
complied with the mandate of said law. Petitioner then sent demand letters for unpaid amusement tax reward
to concern cinema proprietors and operators in Cebu City, one of which is Colon Heritage. Persistent refusal to
remit the said amounts as FDCP demanded and Cebu City's assertion of a claim on the amounts, the city filed
before the RTC, Branch 14 a petition for declaratory relief with application for a writ of preliminary injunction.
Cebu City sought the declaration of Secs. 13 and 14 of RA 9167 as invalid and unconstitutional. Similarly,
Colon Heritage filed before the RTC, Branch 5 seeking to declare Sec. 14 of RA 9167 as unconstitutional. Both
trial courts declared Secs. 13 and 14 of RA 9167 unconstitutional, since they are contrary to the basic policy in
local autonomy that all taxes, fees, and charges imposed by the LGUs shall accrue exclusively to them, as
articulated in Article X, Sec. 5 of the 1987 Constitution.
Issue: Whether the power to impose amusement taxes was removed from the covered LGUs.
Ruling: Yes. The power to impose amusement taxes was removed from the covered LGUs.
The power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to
every independent government, and needs no express conferment by the people before it can be exercised. It
is purely legislative and, thus, cannot be delegated to the executive and judicial branches of government
without running afoul to the theory of separation of powers. It, however, can be delegated to municipal
corporations, consistent with the principle that legislative powers may be delegated to local governments in
respect of matters of local concern. The authority of provinces, cities, and municipalities to create their own
sources of revenue and to levy taxes, therefore, is not inherent and may be exercised only to the extent that
such power might be delegated to them either by the basic law or by statute.
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In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the
amusement taxes levied by the covered LGUs did not and will under no circumstance accrue to them, not even
partially, despite being the taxing authority therefor. Congress, therefore, clearly overstepped its plenary
legislative power, the amendment being violative of the fundamental law's guarantee on local autonomy, as
echoed in Sec. 130(d) of the LGC, thus: Section 130. Fundamental Principles. - The following fundamental
principles shall govern the exercise of the taxing and other revenue-raising powers of local government units:
xxxx
(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of, and be
subject to the disposition by, the local government unit levying the tax, fee, charge or other imposition unless
otherwise specifically provided herein x x x.
Case No. 14
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.vs. MUNICIPALITY OF TANAUAN,
LEYTE
G. R. No. L-31156
February 27, 1976
FACTS: The plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint
with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of
Republic Act No. 2264. otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation
of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of
Tanauan, Leyte, null and void. 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." On the other
hand, 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." The tax imposed in both Ordinances Nos. 23 and 27 is denominated as municipal
production tax. The Court of First Instance of Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal
and constitutional.‖ From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of
Appeals, which, in turn, elevated the case to the Supreme Court pursuant to Section 31 of the Judiciary Act of
1948, as amended.
ISSUE: Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive?
DOCTRINE: 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.
RULING: No, There was no undue delegation of taxing power. The power of taxation is an essential and
inherent attribute of sovereignty, belonging as a matter of right to every independent government, without
being expressly conferred by the people. It is a power that is purely legislative and which the central legislative
body cannot delegate either to the executive or judicial department of the government without infringing upon
the theory of separation of powers.
The exception, however, lies in the case of municipal corporations, to which, said theory does not apply.
Legislative powers may be delegated to local governments in respect of matters of local concern. Under the
Constitution, local governments are granted the autonomous authority to create their own sources of revenue
and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its
sources of revenue and to levy taxes, subject to such limitations as may be provided by law." It cannot be said
that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact
and vest in local governments the power of local taxation. 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. The reason is that the State has exclusively reserved the same for its own prerogative.
Moreover, double taxation, in general, is not forbidden by our fundamental law. 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.
Case # 15
PEPSI-COLA vs. CITY OF BUTUAN
G.R. No. L-22814
August 28, 1968
FACTS: Pepsi-Cola Bottling Company of the Philippines seeks to recover the sums paid by it to the City of
Butuan — hereinafter referred to as the City and collected by the latter, pursuant to its Municipal Ordinance
No. 110, as amended by Municipal Ordinance No. 122, both series of 1960, which plaintiff assails as null and
void, and to prevent the enforcement thereof. Sections 6, 7 and 8 of the said ordinance specify the surcharge
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
to be added for failure to pay the taxes within the period prescribed and the penalties imposable for "deliberate
and willful refusal to pay the tax mentioned in Sections 2 and 3" or for failure "to furnish the office of the City
Treasurer a copy of the bill of lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for
sale in the City." Pepsi-Cola maintains that the disputed ordinance is null and void because: (1) it partakes of
the nature of an import tax; (2) it amounts to double taxation; (3) it is excessive, oppressive and confiscatory;
(4) it is highly unjust and discriminatory; and (5) section 2 of Republic Act No. 2264, upon the authority of which
it was enacted, is an unconstitutional delegation of legislative powers.
ISSUES:
1. Whether the City of Butuan has delegated power to impose tax on P0.10 per case of 24 bottles of soft
drinks or carbonated drinks within the city.
2. Whether the Municipal Ordinance No. 110 as amended by Municipal Ordinance No. 122 violates the
uniformity requirement of taxation.
RULING:
1. Yes. The City of Butuan has delegated power to impose tax on his jurisdiction.
It is firmly settled, however, that such power may be validly delegated by the congress to the to local
government units, other public entities and public utilities, although the scope of this delegated
legislative power is necessarily narrower than that of the delegating authority and may only be
exercised in strict compliance with the terms of the delegating law. The general principle against
delegation of legislative powers, in consequence of the theory of separation of powers is subject to one
well-established exception, namely: legislative powers may be delegated to local governments — to
which said theory does not apply — in respect of matters of local concern.
2.
Yes. Pepsi-Cola may recover from the defendant.
The first and the fourth objections are tenable. The tax prescribed in section 3 of Ordinance No. 110
was imposed upon dealers "engaged in selling" soft drinks or carbonated drinks. Thus, it would seem
that the intent was then to levy a tax upon the sale of said merchandise. As amended by Ordinance No.
122, the tax is, however, imposed only upon "any agent and/or consignee of any person, association,
partnership, company or corporation engaged in selling no less than 1,000 cases of hard liquors or soft
drinks every month for resale, either retail or wholesale‖ resulting to merchants to engage in business
outside the City because tax would not be applicable to such agent and/or consignee, if less than 1,000
cases of soft drinks are consigned or shipped to him every month. Since only sales by "agents or
consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded
those made by said agents or consignees of producers or merchants established outside the City of
Butuan, would be exempt from the disputed tax.
The tax imposed in the said ordinance must be uniformed and, to be valid and not discriminatory,
reasonable and such requirement is not deemed satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to present conditions, but, also, to future conditions
substantially identical to those of the present; and (4) the classification applies equally all those who
belong to the same class.
Case No. 16
HON. EXECUTIVE SECRETARY VS. SOUTHWING HEAVY INDUSTRIES, INC
G.R. NO. 164171
FEBRUARY 20, 2006
FACTS: On December 12, 2002, President Gloria Macapagal-Arroyo, through Executive Secretary Alberto G.
Romulo, issued EO 156, entitled "Providing for a comprehensive industrial policy and directions for the motor
vehicle development program and its implementing guidelines." This provision prohibits the importation of all
types of motor vehicles in the country including the Subic Bay Freeport, or the Freeport Zone, subject to few
exceptions. The issuance of EO 156 spawned three separate actions for declaratory relief, all seeking the
declaration of the unconstitutionality of Article 2, Section 3.1 of said executive order. The cases were filed by
herein respondent entities, who or whose members, are classified as Subic Bay Freeport Enterprises and
engaged in the business of, among others, importing and/or trading used motor vehicles.
They prayed that judgment be rendered (1) declaring Article 2, Section 3.1 of EO 156 unconstitutional and
illegal; (2) directing the Secretary of Finance, Commissioner of Customs, Collector of Customs and the
Chairman of the SBMA to allow the importation of used motor vehicles; (2) ordering the Land Transportation
Office and its subordinates inside the Subic Special Economic Zone to process the registration of the imported
used motor vehicles; and (3) in general, to allow the unimpeded entry and importation of used motor vehicles
subject only to the payment of the required customs duties. Upon filing of petitioners' answer/comment,
respondents SOUTHWING and MICROVAN filed a motion for summary judgment which was granted by the
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
trial court. On May 24, 2004, a summary judgment was rendered declaring that Article 2, Section 3.1 of EO 156
constitutes an unlawful usurpation of legislative power vested by the Constitution with Congress. The trial court
further held that the proviso is contrary to the mandate of Republic Act No. 7227 (RA 7227) or the Bases
Conversion and Development Act of 1992 which allows the free flow of goods and capital within the Freeport.
ISSUE: Whether or not the executive order banning the importation of used vehicles through the Free Port
Zone is valid.
RULING: Article 2 Section 3.1 of Executive Order is unconstitutional, on the ground of lack of any statutory
basis for the President to issue the same. It held that the prohibition on the importation of used motor vehicles
is an exercise of police power vested on the legislature and absent any enabling law, the exercise thereof by
the President through an executive issuance is void.
Police power is inherent in a government to enact laws, within constitutional limits, to promote the order, safety,
health, morals, and general welfare of society. It is lodged primarily with the legislature. By virtue of a valid
delegation of legislative power, it may also be exercised by the President and administrative boards, as well as
the lawmaking bodies on all municipal levels, including the barangay. Such delegation confers upon the
President quasi-legislative power which may be defined as the authority delegated by the law-making body to
the administrative body to adopt rules and regulations intended to carry out the provisions of the law and
implement legislative policy. In the instant case, the subject matter of the laws authorizing the President to
regulate or forbid importation of used motor vehicles, is the domestic industry. EO 156, however, exceeded the
scope of its application by extending the prohibition on the importation of used cars to the Freeport, which RA
7227, considers to some extent, a foreign territory. The domestic industry which the EO seeks to protect is
actually the "customs territory" which is defined under the Rules and Regulations Implementing RA 7227, as
follows: "the portion of the Philippines outside the Subic Bay Freeport where the Tariff and Customs Code of
the Philippines and other national tariff and customs laws are in force and effect."
There is no doubt that the issuance of the ban to protect the domestic industry is a reasonable exercise of
police power. The deterioration of the local motor manufacturing firms due to the influx of imported used motor
vehicles is an urgent national concern that needs to be swiftly addressed by the President. In the exercise of
delegated police power, the executive can therefore validly proscribe the importation of these vehicles. The
Court finds no logic in the all-encompassing application of the assailed provision to the Freeport which is
outside the customs territory. As long as the used motor vehicles do not enter the customs territory, the injury
or harm sought to be prevented or remedied will not arise. The application of the law should be consistent with
the purpose of and reason for the law.
Case No. 17
Cervantes v. Auditor General
G.R. No. L-4043
May 26, 1952
FACTS: Cervantes, as general manager of NAFCO (a GOCC) in 1949, was granted quarter allowance on top
of his salary by the NAFCO Board of Directors. However, it was later on disapproved by the Central Committee
of the government enterprise council under EO 93 upon recommendation by NAFCO auditor and concurred in
by the Auditor general on two grounds: a) it violates the charter of NAFCO limiting manager‘s salary to
P15,000/year, and b) NAFCO is in precarious financial condition. Cervantes claims that the Central Committee
had no authority to deny his allowance. The court ruled that by virtue of RA 51 and EO 93, the committee had
the authority as NAFCO was a GOCC and thus under the supervision of the committee. R.A. No. 51 was
created authorizing presidential control, such as reforms and changes, over GOCCs. The President then
promulgated EO 93 creating the Government Enterprises Council, which may exercise control over GOCCs.
ISSUE: Whether or not the authority of the committee granted under EO 93 is valid because it is based on a
law (RA 51) that is unconstitutional as an illegal delegation of legislative power to the President.
RULING: The Central Committee has authority. The rule is that so long as the Legislature lays down a policy
and a standard is established by the statute there is no undue delegation. RA 51 in authorizing the President,
among others, to make reforms and changes in government-controlled corporations, lays down a standard and
policy that the purpose shall be to meet the exigencies attendant upon the establishment of the free and
independent government of the Philippines and to promote simplicity, economy and efficiency in their
operations. The standard was set and the policy fixed. The President had to carry the mandate. This he did by
promulgating the executive order in question which does not constitute an undue delegation of legislative
power.
Case 18.
Maceda vs. Macaraig
G.R. No. 88291
May 31, 1991
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
FACTS: Commonwealth Act No. 120 created the NPC as a public corporation to undertake the development of
hydraulic power and the production of power from other sources. NPC was expressly granted exemptions from
all taxes, whether direct or indirect. P.D. 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs
including NPC, but granted the President and/or the Secretary of Finance by recommendation of the FIRB
(Fiscal Incentives Review Board) the power to restore certain tax exemptions. FIRB restored the tax and duty
exemption privileges of NPC. Upon FIRB‘s restoration, NPC applied with BIR for a refund of specific taxes paid
in petroleum products amounting to Php. 58, 000, 000.00.
ISSUE: Whether or not E.O. 93 is constitutional.
RULING: Executive Order 93 is constitutional. The legislative authority could not or is not expected to state all
the detailed situations wherein the tax exemption privileges of persons or entities would be restored. The task
may be assigned to an administrative body like the FIRB. Moreover, all presumptions are indulged in favor of
the constitutionality and validity of the statute. Such presumption can be overturned if its invalidity is proved
beyond reasonable doubt. Otherwise, a liberal interpretation in favor of constitutionality of legislation should be
adopted. E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB.
The tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-87 of June 1987 includes
exemption from indirect taxes and duties on petroleum products used in its operation.
Case 19
CIR vs. CENTRAL LUZON DRUG CORPORATION
GR No. 159647
April 15, 2005
FACTS: Central Luzon Drug Corporation (CLDC) operating under the name ―Mercury Drug‖ is engaged in
retailing medicines and other pharmaceutical products. From January to December of 1996, it granted 20%
discount to senior citizens pursuant to R.A. 7432. For said period, the amount of discount granted amounted to
Php 904,760.00. When the CLDC filed for its Annual Income Tax Return for the year 1996 it declared that it
incurred net losses from its operations. CLDC then filed with the Commissioner of Internal Revenue (CIR) a
claim for tax refund or tax credit in the amount of Php 904,769.00 on the basis of Section 4(a) of R.A. 7432.
―Section 4(a)- the grant of 20% discount from all establishments relative to utilization of transportation
services, hotels and similar lodging establishment, restaurants and recreation centers and purchase of
medicine anywhere in the country; Provided that private establishments may claim the cost as tax credit.”
Initially, the petition was dismissed by the Court of Tax Appeals, but upon reconsideration and affirmation by
the Court of Tax Appeals and Court of Appeals, CLDC gained a favorable judgment. The Court of Appeals
ordered the CIR to issue a Certificate of Tax Credit in favor of CDLC in the reduced amount of Php
903,038.39. In the instant case, the CIR contends that the Court of Appeals erred in holding that CLDC may
claim the 20% discount as a tax credit instead of as a deduction from gross income or gross sales. In other
words, the CIR argues that the Court of Appeals should treat such discount not as a ―tax credit‖ but a ―tax
deduction‖. The CIR relied on the interpretation given by the Bureau of Internal Revenue in its Revenue
Regulations No. 2-94. Under Sections 2(i) and 4 of the Regulations, the term ―tax credit‖ is synonymous to ―tax
deduction‖ or ―the discount which shall be from the establishment‘s gross income for income tax purposes‖.
ISSUE: Whether or not CLDC, despite incurring a net loss, may still claim the 20% sales discount as a tax
credit.
RULING: Yes, CLDC may claim the 20% discount as tax credit despite net loss. The law is clear that the
granting by private establishments of the 20% discount to senior citizens entitles them to claim the cost as tax
credit. Any interpretation substituting the phrase ―tax credit‖ to ―deduction from gross income tax‖ is
unwarranted. Both terms have different connotations and applications. Hence, the construction given by the
CIR is erroneous. The Supreme Court ruled that to deny the tax credit, despite the plain mandate of the law, is
indefensible. When the law says that the cost of the discount may be claimed as a tax credit, it means that the
amount - when claimed ― shall be treated as a reduction from any tax liability, plain and simple. Basic is the
rule that administrative regulations cannot amend or revoke the law. The law cannot be amended by a
mere regulation because administrative agencies, like the BIR, in issuing these regulations may not enlarge,
alter or restrict the provisions of the law it administers; it cannot engraft additional requirements not
contemplated by the Legislature.
Case No. 20
Secretary of Finance Cesar B. Purisima & CIR v. Rep. Carmelo F. Lazatin
G.R. No. 210588
November 29, 2016
DOCTRINE: As a rule, taxation is non-delegable except, among others, thru administrative
implementation. However, such is not absolute. The State's inherent power to tax, which includes the
power to grant and withdrawal of tax exemptions, is vested exclusively in the Legislature. An executive
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issuance attempting to withdraw the tax incentives accorded by the legislative to FEZ enterprises is a violation
to the doctrine of separation of powers.
FACTS: On February 17, 2012, then Secretary Purisima (petitioner), pursuant to his authority as Secretary of
Finance and recommendation of the CIR, signed Revenue Regulation (RR) 2-2012. This is in response to
reports of smuggling of petroleum and petroleum products and to ensure correct payment and collection of
taxes. The RR, specifically requires payment of Value-Added Tax (VAT) and excise tax on the importation of
all petroleum and petroleum products coming directly from abroad and brought into the Philippines, including
the Freeport and Economic Zones (FEZs). Herein respondent (Lazatin), then filed a petition for prohibition and
injunction against the petitioners to annul and set aside RR 2-2012. He argues that such imposition of VAT and
excise tax on the importation of petroleum products into FEZs, directly contravenes RA 9400 treating the Clark
Special Economic Zone and Clark FEZs a separate customs territory allowing tax and duty-free importation
into the zone. The RTC then declared RR 2-2012 unconstitutional as the RR directly contravenes the express
intent of the legislature under RA 9400. Thus, encroaching the Congress‘ prerogative to enact, amend, or
repeal laws. Hence, this petition.
ISSUE: Whether RR 2-2012 is valid and constitutional.
RULING: No, RR 2-2012 is invalid and unconstitutional.
The Court ruled that RR 2-2012 is invalid and unconstitutional because: 1) it illegally imposes taxes upon FEZ
enterprises, which, by law (RA 9400), enjoy tax-exempt status, and 2) it effectively amends the law (i.e., RA
7227, as amended by RA 9400) and thereby encroaches upon the legislative authority reserved
exclusively by the Constitution for Congress. As for the encroachment upon legislative authority, the Court
emphasized that the power of the petitioners to interpret tax laws is not absolute. Tax exemptions are granted
for specific public interests that the Legislature considers sufficient to offset the monetary loss in the grant of
exemptions. As a rule, the State's inherent power to tax, which includes the power to grant and
withdraw tax exemptions, is vested exclusively in the Legislature. Here, RR 2-2012, an executive
issuance, attempts to withdraw the tax incentives clearly accorded by the legislative to FEZ
enterprises. Thus, a violation to the doctrine of separation of powers. As for the goods within FEZs, the
Court clarifies that the act of bringing the goods into an FEZ is not a taxable importation. So long as it remains
in the FEZ or re-exported to another foreign jurisdiction, they shall continue to be tax-free as granted under RA
9400. The Court then dismissed the petition for lack of merit and affirmed the decision of the RTC.
CASE NO. 21
Abakada Guro Party List (Formerly Aasjas) Officers Samson S. Alcantara and Ed Vincent S. Albano vs.
The Honorable Executive Secretary Eduardo Ermita; Honorable Secretary of the Department Of
Finance Cesar Purisima
G.R. No. 168056, September 01, 2005
FACTS: R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and
Senate Bill No. 1950. The President signed the same on May 24, 2005. Before the effectivity date of R.A. No.
9337, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition. And when said effectivity
date came, the Court issued a temporary restraining order, effective immediately and continuing until further
orders, enjoining respondents from enforcing and implementing the law.
Petitioners question the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107
and 108, respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of
goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes a 10%
VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform proviso
authorizing the President, upon recommendation of the Secretary of Finance, to raise the VAT rate to 12%,
effective January 1, 2006, after any of the following conditions have been satisfied:
1. Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
2. National government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 ½%).
Petitioners further argue that the law is unconstitutional, as it constitutes abandonment by Congress of its
exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
The Office of the Solicitor General (OSG) filed a Comment on behalf of respondents. Preliminarily,
respondents contend that R.A. No. 9337 enjoys the presumption of constitutionality and petitioners failed to
cast doubt on its validity.
ISSUE: Whether there is undue delegation of legislative power.
RULING: No. There is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible.
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The case before the Court is simply a delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The legislature has made the operation of
the 12% rate effective January 1, 2006, contingent upon a specified fact or condition. It leaves the
entire operation or non-operation of the 12% rate upon factual matters outside of the control of the
executive. No discretion would be exercised by the President. Highlighting the absence of discretion is the
fact that the word "shall" is used in the common proviso. The use of the word "shall" connotes a mandatory
order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.
Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no
choice but to see to it that the mandate is obeyed.
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any
of the conditions specified by Congress. This is a duty which cannot be evaded by the President. Inasmuch as
the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It
is a clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking
into effect the 12% VAT rate is based on the happening of a certain specified contingency, or upon the
ascertainment of certain facts or conditions by a person or body other than the legislature itself. As to the
argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative
power to tax is contrary to the principle of republicanism, the same deserves scant consideration. Congress
did not delegate the power to tax but the mere implementation of the law. The intent and will to
increase the VAT rate to 12% came from Congress and the task of the President is to simply execute
the legislative policy. That Congress chose to do so in such a manner is not within the province of the Court
to inquire into, its task being to interpret the law.
Case No. 22
JOSEPH E. ICARD VS. THE CITY COUNCIL OF BAGUIO
G.R. NO. L-1281
31 MAY 1949
Facts: The City Council of Baguio enacted the following ordinances:
1. No. 6-v, providing amusement tax of P0.20 for every person entering a night club licensed to do
business in the city;
2. No. 11-v, providing property tax on motor vehicles kept and operated in the city; and
3. No. 12-v, graduated license fee on every admission ticket sold by enterprises enumerated in
said ordinance among them, cinematographs.
Joseph Icard, the petitioner, is a resident of Baguio who owns a night club called ―El Club Monaco‖ and a
Chevrolet Ford Sedan vehicle kept and operated in the city. As operator of a night club, he pays the National
Government an amusement tax and annual license fee to the City of Baguio. On top of the taxes mentioned
and pursuant to ordinance No. 6-v, he has been required to pay the amusement tax of P0.20 based on the
number of persons entering the night club. Also, as owner of the sedan mentioned above, aside from the
registration fee under the Revised Motor Vehicles Law that he paid, he now has to pay in addition another
property tax for the same vehicle pursuant to Ordinance No. 11-v.
The petitioner d filed a case in court contending that said ordinances are unjust. Judge Conrado Sanchez
declared Ordinance Nos. 11-v and 6-v null and void. In consequence, the City was ordered to refund the
amusement tax paid. The Attorney of Baguio appealed said decision of the lower court.
Issue: Is the City of Baguio empowered to levy a property tax on motor vehicles and amusement tax on night
clubs?
Held: It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of
taxation. The charter or statute must plainly show an intent to confer that power or the municipality, cannot
assume it. Any doubt or ambiguity that power must be resolved against the municipality. Inferences,
implications, deductions all these have no place in the interpretation of the taxing power of a municipal
corporation.
With the above principle in mind let us now inquire into the authority of the City of Baguio to levy taxes. That
part of the charter of this city which deal with the subject of taxation is found in section 2553 (b) of the Revised
Administrative Code which empowers its city council. To provide for the levy and collection of taxes and other
city revenues, as provided by law and apply the same to the payment of the municipal expenses in accordance
with appropriations. As the lower court has correctly interpreted it this provision simply means that the city of
Baguio may impose taxes only in those cases specifically provided in any law. In other words for authority to
levy a tax on specific subjects one must look elsewhere in the statute book. For had the provision been meant
as a blanket authority to levy taxes, there would have been no need for the phrase "as provided by law." The
insertion of that phrase be speaks the legislative intent to have the city exercise the law may provide. There is
of course no question as to the authority of the City of Baguio to collect a license fee on dance halls and night
clubs such authority being specifically given by section 260 of the Internal Revenue Code. As a matter of fact
petitioner has been paying such license fee without objection or protest. But what is objected to is the tax of
P0.20 for every person entering those amusement places as provided for in Ordinance No. 6-V and this tax is
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apart and distinctfrom the license fee, for the ordinance itself says that it shall be in addition to the latter. This
tax is not authorized by any Act of the Legislature. It is therefore beyond the power of the City of Baguio to
levy.
CASE NO. 23
PELIZLOY REALTY CORPORATION vs. THE PROVINCE OF BENGUET
G.R. No. 183137
April 10, 2013
FACTS: Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort which has facilities like swimming
pools, a spa and function halls. It is located at Asin, Angalisan, Municipality of Tuba, Province of Benguet. In
2005, the Province of Benguet enacted the Benguet Revenue Code of 2005. Section 59, the tax ordinance
levied a 10% amusement tax on gross receipts from admissions to "resorts, swimming pools, bath houses, hot
springs and tourist spots. According to Pelizloy Realty, the levy of amusement tax is an ultra vires act of the
Province. Thus, it filed an appeal/petition before the Secretary of Justice. Upon the Secretary‘s failure to decide
on the appeal within sixty days, Pelizloy filed a Petition for Declaratory Relief and Injunction before the RTC.
Pelizloy argued that the imposition was in violation of the limitation on the taxing powers of local government
units under Section 133 (i) of the Local Government Code, which provides that the exercise of the taxing
powers of provinces, cities, municipalities, and barangays shall not extend to the levy of percentage or valueadded tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as
otherwise provided. The Province of Benguet, on the other hand, assailed that the phrase ‗other places of
amusement‘ in Section 140 (a) of the LGC encompasses resorts, swimming pools, bath houses, hot springs,
and tourist spots since Article 131(b) of the LGC defines "amusement" as "pleasurable diversion and
entertainment synonymous to relaxation, avocation, pastime, or fun. The RTC dismissed the Petition for
Declaratory Relief and Injunction for lack of merit. Procedurally, the RTC ruled that Declaratory Relief was a
proper remedy. However, it gave credence to the Province of Benguet's assertion that resorts, swimming
pools, bath houses, hotsprings, and tourist spots are encompassed by the phrase ‗other places of amusement‘
in Section 140 of the LGC.
ISSUE: Whether provinces are authorized to impose amusement taxes on admission fees to resorts,
swimming pools, bath houses, hot springs, and tourist spots for being "amusement places" under the LGC.
RULING: No. Amusement taxes are percentage taxes. However, provinces are not barred from levying
amusement taxes even if amusement taxes are a form of percentage taxes. The levying of percentage taxes is
prohibited "except as otherwise provided" by the LGC. Section 140 provides such exception.
Section 140 expressly allows for the imposition by provinces of amusement taxes on "the proprietors, lessees,
or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement.
However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places
expressly mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination
of whether amusement taxes may be levied on admissions to these places hinges on whether the phrase
‗other places of amusement‘ encompasses resorts, swimming pools, bath houses, hot springs, and tourist
spots. Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of
particular and specific words of the same class or where the latter follow the former, the general word or
phrase is to be construed to include, or to be restricted to persons, things or cases akin to, resembling, or of
the same kind or class as those specifically mentioned. Section 131 (c) of the LGC already provides a clear
definition: "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of
amusement where one seeks admission to entertain oneself by seeing or viewing the show or performances.
As defined in The New Oxford American Dictionary, ‗show‘ means "a spectacle or display of something,
typically an impressive one"; while ‗performance‘ means "an act of staging or presenting a play, a concert, or
other form of entertainment." As such, the ordinary definitions of the words ‗show‘ and ‗performance‘ denote
not only visual engagement (i.e., the seeing or viewing of things) but also active doing (e.g., displaying, staging
or presenting) such that actions are manifested to, and (correspondingly) perceived by an audience.
Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot
be considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the
show or performances". While it is true that they may be venues where people are visually engaged, they are
not primarily venues for their proprietors or operators to actively display, stage or present shows and/or
performances.
Percentage tax - a "tax measured by a certain percentage of the gross selling price or gross value in money of
goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the
sale of services."
Case No. 24
Engracio Francia vs. Intermediate Appellate Court and Ho Fernandez
G.R. No. L-67649
June 28, 1988
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DOTIMAS, CHRISTOPHER JAN G.
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FACTS: Engracio Francia is the registered owner of a 328 square meters residential lot 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. The expropriated lot was not paid. Francia failed to pay his real estate taxes from 1963
up to 1977. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay
City 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. The lower court dismissed the
complaint. Upon appeal, the Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
ISSUE: Whether the petitioner is correct in alleging that his obligation to pay P2,400 for supposed tax
delinquency was set-off by the amount of P4,116 which the government is indebted to him.
RULING: No. The Court has 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 the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), the Court ruled that Internal Revenue Taxes
cannot be the subject of set-off or compensation. The Court stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state or municipality to one who is
liable to the state or municipality for taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The
general rule based on grounds of public policy is well-settled that no set-off admissible against
demands for taxes levied for general or local governmental purposes. The reason on which the
general rule is based, is that taxes are not in the nature of contracts between the party and party
but grow out of duty to, and are the positive acts of the government to the making and enforcing
of which, the personal consent of individual taxpayers is not required. ..."
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where the Court stated that: "...
internal revenue taxes cannot be the subject of compensation: Reason: government and taxpayer are not
mutually creditors and debtors of each other' under Article 1278 of the Civil Code and a "claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off.
Case No. 25
EMILIO Y. HILADO vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS
G.R. No. L-9408
31 October 1956
FACTS: Petitioner filed his income tax return for 1951 on March 31, 1952. He claimed that P 12, 836.65 should
be a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of
Internal Revenue. On August 30, 1952, the Secretary of Finance issued General Circular No. V-139, which
voided the first circular (General Circular No. V – 123), but ruled that losses of property which occurred during
World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are
deductible in the year of the actual loss or destruction of said property. Thus, the P12, 837.67 was disallowed
as a deduction from the gross income of petitioner and respondent demanded from him to pay P3,546 as
deficiency income tax for that year.
ISSUE: Whether the unpaid war damage claim represents a ―business asset‖ within the meaning of the
Philippine War Damage Rehabilitation Act which petitioner is entitled to deduct as a loss in his return for 1951.
HELD: No. The amount is not considered a ―business asset‖ which can be deducted as a loss in contemplation
of law because its collection is not enforceable as a matter of right but is merely upon the generosity of the
U.S. government. Under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage
Commission merely depended upon its discretion to be exercised in the manner it may see fit, but the nonpayment of which cannot give rise to any enforceable right. Since the amount claimed does not represent a
―business asset‖ that may be deducted as a loss in 1951, therefore, the loss of the corresponding asset or
property could only be deducted in the year it was actually sustained.
Case No. 26
PLANTERS PRODUCTS, INC. vs. FERTIPHIL CORPORATION
G.R. No. 166006
March 14, 2008
FACTS: On June 3, 1985, then President Ferdinand Marcos, exercising his legislative powers, issued Letter of
Instruction No. 1465 which provides for the inclusion of a capital contribution component of not less than P10
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DOTIMAS, CHRISTOPHER JAN G.
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per bag in the fertilizer pricing formula of the Fertilizer and Pesticide Authority (FPA). This capital contribution
shall be collected until adequate capital is raised to make PPI viable. Fertiphil Corporation paid P10 for every
bag of fertilizer it sold in the domestic market to the FPA which was remitted to the Far East Bank and Trust
Company, the depositary bank of Planters Products, Inc. (PPI). Fertiphil paid P6,689,144 to FPA from July 8,
1985 to January 24, 1986.
The imposition of the levy stopped after the 1986 EDSA Revolution. Fertiphil demanded from PPI a refund of
the amounts it paid but PPI refused to accede to the demand prompting the former to file a complaint for
collection and damages against FPA and PPI with the RTC in Makati questioning the constitutionality of the
Letter of Instruction. FPA, through the Solicitor General, countered that the issuance of LOI No. 1465 was a
valid exercise of the police power of the State in ensuring the stability of the fertilizer industry in the country
and that Fertiphil did not sustain any damage from the Letter of Instruction because the burden imposed by the
levy fell on the ultimate consumer, not the seller. The Regional Trial Court favored Fertiphil and ordered the
PPI to pay Fertiphil the sum of P6,698,144.00 with interest at 12% from the time of judicial demand; the sum of
P100,000 as attorney‘s fees; and the cost of suit. The Court of Appeals affirmed with modification the decision
of the RTC.
ISSUE: Whether Letter of Instruction No. 1465 constitutes a valid legislation pursuant to the exercise of
taxation for public purposes.
RULING: No, the Letter of Instruction does not constitute a valid legislation pursuant to the exercise of taxation
for public purposes.
Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not for a public
purpose. The levy was imposed to give undue benefit to PPI. The LOI provides that the imposition of the P10
levy was conditional and dependent upon PPI becoming financially "viable." This suggests that the levy was
actually imposed to benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed
financially "viable." Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is made
indefinite. They are required to continuously pay the levy until adequate capital is raised for PPI. Police power
and the power of taxation are inherent powers of the State. These powers are distinct and have different tests
for validity. Police power is the power of the State to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare, while the power of taxation is the power to levy taxes to be
used for public purpose. The main purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The "lawful subjects" and "lawful means" tests are used to determine the
validity of a law enacted under the police power. The power of taxation, on the other hand, is circumscribed by
inherent and constitutional limitations. The Supreme Court agrees with the RTC that the imposition of the levy
was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an
implement of police power, the primary purpose of the levy is revenue generation. 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.
CASE No. 27
BAGATSING vs. RAMIREZ
G.R. No. L-41631
December 17, 1976
PRINCIPLE: The entrusting of the collection of market stall fees to a private firm does not destroy the public
purpose of a tax ordinance.
FACTS: In 1974, the Municipal Board of Manila enacted Ordinance No. 7522, ―An Ordinance Regulating the
Operation of Public Markets and Prescribing Fees for the Rentals of Stalls and Providing Penalties for Violation
thereof and for other Purposes.‖ Bagatsing, Mayor of Manila approved the ordinance. Federation of Manila
Market Vendors, Inc. filed before the CFI of Manila, presided over by Judge Ramirez, seeking the declaration
of nullity of the said Ordinance. Ramirez declared the nullity of the said Ordinance on the primary ground of
non-compliance with the requirement of publication under the Revised City Charter. Aside from the primary
ground, the Federation of Manila Market Vendors, Inc. bewails that the market stall fees are diverted to the
exclusive private use of Asiatic Integrated Corporation since the collection of the fees had been let by the City
of Manila to the corporation in a ‗Management and Operating Contract.
ISSUE: Does the delegation of the collection of taxes to a private entity (Asiatic Integrated Corporation)
invalidate a tax ordinance and defeats its public purpose?
Ruling: NO. The assumption of the Federation is saddled on erroneous premises. The fees collected do not
go directly to the private corporation. Ordinance No. 7522 was not made for the corporation but for the purpose
of raising revenues for the city which is the very object of the ordinance. The entrusting of the collection of the
fees to the Asiatic Integrated Corporation does not destroy the public purpose of the ordinance. So long as the
purpose is public, it does not matter whether the agency through which the money is dispensed is public or
private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is
not dependent on the nature or character of the person or corporation whose intermediate agency is to be
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DOTIMAS, CHRISTOPHER JAN G.
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used in applying it. The people may be taxed for a public purpose, although it may be under the direction of an
individual or private corporation.
Case No. 28
Benjamin P. Gomez vs. Enrico Palomar
24 SCRA 825 / G.R. No. L-23645
October 29, 1968
FACTS: This appeal puts in issue the constitutionality of Republic Act 1635, as amended by Republic Act
2631, 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 semi-postal
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, in implementation of the law, thereafter 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. Petitioner Benjamin P. Gomez brought suit for declaratory relief in the Court of First Instance
of Pampanga, to test the constitutionality of RA 1635, 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. It is said that 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.
ISSUE: Whether or not the RA 1635, as amended, otherwise known as the Anti-TB Stamp Law, is violative of
the equal protection clause of the Constitution.
RULING: No. It is settled that the legislature has the inherent power to select the subjects of taxation and to
grant exemptions. This power has aptly been described as "of wide range and flexibility." Indeed, it is said that
in the field of taxation, more than in other areas, the legislature possesses the greatest freedom in
classification. The reason for this is that traditionally, classification has been a device for fitting tax programs to
local needs and usages in order to achieve an equitable distribution of the tax burden. The small amount of five
centavo does not justify the great expense and inconvenience of collecting through the regular means of
collection. The classification of mail users is based on the ability to pay, the enjoyment of a privilege and on
administrative convenience. Tax exemptions have never been thought of as raising revenues under the equal
protection clause. Therefore, it must be used for public purposes. Tax has been utilized for public purpose if
the welfare of the nation or the greater portion of its population has benefited for use.
Case No. 29
Wenceslao Pascual vs. The Secretary of Public Works and Communications, Et Al.
G.R. No. L-10405
December 29, 1960
FACTS: Governor Wenceslao Pascual of Rizal, instituted an action for declaratory relief, with injunction, upon
the ground that Republic Act No. 920, an Act appropriating funds for public works, providing P85,000 for the
construction, reconstruction, repair, extension and improvement of Pasig feeder road terminals, were nothing
but projected and planned subdivision roads within the private properties of Senator Jose Zulueta. Also,
according to the tracings attached to the petition, the projected feeder roads do not connect any government
property or any important premises to the main highway. Respondent offered to donate the said feeder roads
to the municipality of Pasig while he was a member of the Senate of the Philippines. However, said donation
violated the provision of our fundamental law prohibiting members of Congress from being directly or indirectly
financially interested in any contract with the government. Petitioner prayed, therefore, that Republic Act No.
920 be declared null and void. Respondents moved to dismiss the petition upon the ground that petitioner had
no legal capacity to sue and that there is no law which makes the appropriation of public funds for the
improvements of private property illegal. The lower court ruled in favor of Zulueta. Hence, Pascual appealed.
ISSUE: Whether RA 920 is constitutional
RULING: No. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose. It is the essential character of the direct object of the expenditure which must
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to
which the general advantage of the community, and thus the public welfare, may be ultimately benefited by
their promotion. Incidental to the public or to the state, which results from the promotion of private interest and
the prosperity of private enterprises or business, does not justify their aid by the use public money. The test of
the constitutionality of a statute requiring the use of public funds is whether the statute is designed to
promote the public interest, as opposed to the furtherance of the advantage of individuals, although each
advantage to individuals might incidentally serve the public. Inasmuch as the land on which the projected
feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation
sought a private purpose, and hence, was null and void.
Further, the donation to the Government, over five months after the approval and effectivity of said Act, made,
for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its
aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the
declaration of unconstitutionality of said appropriation.
Case No. 30
LUTZ vs. ARANETA
G.R. No. L-7859
December 22, 1955
FACTS: Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio Jayme
Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the estate as
taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such tax is
unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in
plaintiff's opinion is not a public purpose for which a tax may be constitutionally levied. The basic defect in the
plaintiff's position is his assumption that the tax provided for in Commonwealth Act No. 567 is a pure exercise
of the taxing power. Analysis of the Act, and particularly of section 6 will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the threatened sugar industry. In
other words, the act is primarily an exercise of the police power.
―SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine Treasury, to be
known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the
following purposes or to attain any or all of the following objectives, as may be provided by law.‖
ISSUE: to test the legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the Sugar
Adjustment Act.
HELD: The protection and promotion of the sugar industry is a matter of public concern, it follows that the
Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its
promotion. Here, the legislative discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear
no relation to the objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution
and attainment. Taxation may be made the implement of the state's police power
That the tax to be levied should burden the sugar producers themselves can hardly be a ground of complaint;
indeed, it appears rational that the tax be obtained precisely from those who are to be benefited from the
expenditure of the funds derived from it. At any rate, 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 Sugar Stabilization Act, now in question, 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; that the legislature is not required by the Constitution to adhere to a policy of "all or
none."
Case No. 31
JOSE J. FERRER, JR. VS. CITY MAYOR HERBERT BAUTISTA
G.R. No. 210551
June 30, 2015
FACTS: Quezon City Council enacted an Ordinance No. SP-2095, S-2011, or the Socialized Housing Tax of
Quezon City, Section 3 of which provides:
SECTION 3. IMPOSITION. A special assessment equivalent to one-half percent (0.5%) on the
assessed value of land in excess of One Hundred Thousand Pesos (Php100,000.00) shall be collected
by the City Treasurer which shall accrue to the Socialized Housing Programs of the Quezon City
Government. The special assessment shall accrue to the General Fund under a special account to be
established for the purpose.
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Moreover, Quezon City Council enacted an ordinance No. SP-2235, S-2013 for collecting garbage fees on
residential properties which shall be deposited solely and exclusively in an earmarked special account under
the general fund to be utilized for garbage collections. Jose J. Ferrer, Jr. who owns a land in Quezon City
questions the validity of the two ordinances.
ISSUE:
1. Whether Ordinance No. SP-2095, S-2011, or the Socialized Housing Tax of Quezon City is valid.
2. Whether an ordinance No. SP-2235, S-2013 for collecting garbage fees violates the rule on double
taxation.
HELD:
1. Ordinance No. SP-2095, S-2011, or the Socialized Housing Tax of Quezon City is valid.
The collections made accrue to its socialized housing programs and projects. The tax is not a pure exercise of
taxing power or merely to raise revenue; it is levied with a regulatory purpose. The levy is primarily in the
exercise of the police power for the general welfare of the entire city. It is greatly imbued with public interest.
Removing slum areas in Quezon City is not only beneficial to the underprivileged and homeless constituents
but advantageous to the real property owners as well. The situation will improve the value of their property
investments, fully enjoying the same in view of an orderly, secure, and safe community, and will enhance the
quality of life of the poor, making them law-abiding constituents and better consumers of business products.
2. No. Section 16 of the LGC and in the proper exercise of its corporate powers under Section 22 of the same,
the Sangguniang Panlungsod of Quezon City, like other local legislative bodies, is empowered to enact
ordinances, approve resolutions, and appropriate funds for the general welfare of the city and its inhabitants.
The Ecological Solid Waste Management Act of 2000, affirms this authority as it expresses that the LGUs shall
be primarily responsible for the implementation and enforcement of its provisions. The fee imposed for garbage
collections under Ordinance No. SP-2235 is a charge fixed for the regulation of an activity as provided by the
same. As opposed to the petitioner's opinion, the garbage fee is not a tax. Hence, not being a tax, the
contention that the garbage fee under Ordinance No. SP-2235 violates the rule on double taxation must
necessarily fail.
Case No. 32
Tolentino vs. COMELEC
G.R. No. 148334
January 21, 2004
FACTS: Following the confirmation of Senator Teofisto Guingona as Vice-President of the Philippines, the
Senate passed Resolution No. 84, calling on COMELEC to fill the vacancy in the Senate through a special
election to be held simultaneously with the regular elections on May 14, 2001. Twelve senators, with 6-year
term each, were due to be elected in that election. The resolution further provides that the Senatorial candidate
garnering the 13th highest number of votes shall serve only for the unexpired term of former Senator Teofisto
Guingona. After canvassing the election results, the COMELEC issued a resolution proclaiming 13 candidates
as the elected Senators, with the first 12 Senators to serve the unexpired term of 6 years and the 13th Senator
to serve the full term of 3 years of Senator Guingona. Petitioners, Arturo Tolentino and Arturo Mojica sought to
enjoin COMELEC from proclaiming the winner. They contend that COMELEC issued the resolution without
jurisdiction because it failed to notify the electorate of the position to be filled in (special election) due to this the
people voted without distinction in one election for 13 seats irrespective of term.
ISSUE: Whether petitioners Arturo Tolentino and Arturo Mojica as voters and taxpayers have standing to
litigate.
RULING: "Legal standing" or locus standi refers to a personal and substantial interest in a case such that the
party has sustained or will sustain direct injury because of the challenged governmental act. The requirement
of standing, which necessarily "sharpens the presentation of issues," relates to the constitutional mandate that
this Court settle only actual cases or controversies. Thus, generally, a party will be allowed to litigate only when
(1) he can show that he has personally suffered some actual or threatened injury because of the allegedly
illegal conduct of the government; (2) the injury is fairly traceable to the challenged action; and (3) the injury is
likely to be redressed by a favorable action.
Applied strictly, the doctrine of standing to litigate will indeed bar the instant petition. In questioning, in their
capacity as voters, the validity of the special election, petitioners assert a harm classified as a "generalized
grievance." This generalized grievance is shared in substantially equal measure by a large class of voters, if
not all the voters, who voted in that election. Neither have petitioners alleged, in their capacity as taxpayers,
that the Court should give due course to the petition because in the special election held on 14 May 2001 "tax
money was extracted and spent in violation of specific constitutional protections against abuses of legislative
power or that there was misapplication of such funds by COMELEC or that public money was deflected to any
improper purpose. They failed to establish direct injury they suffered from the said governmental act. However,
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the Court relaxed the requirement on standing and exercised its discretion to give due course to voter‘s suit
involving the right of suffrage.
Case No. 33
SANIDAD V. COMELEC
73 SCRA 333
October 12, 1976
FACTS: On September 2, 1 1976 President Ferdinand E. Marcos issued P.D. No. 991 to call for a national
referendum on October 16, 1976 through the so-called Citizens Assemblies (‗barangays‖). Its primary purpose
is to resolve the issue of martial law as to its existence and length of effectively. On September 22, the
president issued another proclamation, P.D. 1033 to specify the questions that are to be asked during the
referendum on October 16. The first question is whether or not the citizens want martial law to continue, and
the second one asks for the approval on several proposed amendments to the existing Constitution.The
COMELEC was vested with the exclusive supervision and control of the national referendum on October 16.
Father and son Pablo and Pablito Sanidad filed for prohibition with preliminary injunction to enjoin the
COMELEC from holding and conducting the Referendum plebiscite on October 16, and to declare without
force and effect P.D. Nos. 991 and 1033, in so far as they propose amendments to the Constitution. Vicente
Guzman filed for prohibition with preliminary injunction, asserting that the power to propose amendments or
revision of the Constitution during the transition period is expressly conferred to the interim National Assembly
under Section 16, Article XVII of the Constitution.
Raul Gonzales and Alfredo Salapantan on the other hand, sought to restrain the implementation of Presidential
Decrees relative to the forthcoming Referendum-Plebiscite on October 16. They assert that the incumbent
President cannot act as a constituent assembly to propose amendments to the Constitution and referendumplebiscite is untenable under Constitutions of 1935 and 1973. The submission of the proposed amendments in
such a short period of time for deliberation renders the plebiscite a nullity. To lift Martial Law, the President
need not consult the people though a referendum; and allowing 15-year olds to vote would amount to an
amendment of the Constitution, which confines the right of suffrage to those citizens of the Philippines 18 years
of age and above. The Solicitor General contends that petitioners have no standing to sue and that the issue
raised is political in nature – and thus it is beyond the judicial cognizance of the court. The Solicitor General
also asserts that at this state of transition period, only the incumbent President has the authority to exercise
constituent power; the referendum-plebiscite is a step towards normalization.
ISSUES: Is the question of the constitutionality of P.D.991, 1031 and 1033 political or judicial?
HELD: The question of constitutionality of P.D. 991, 1031 and 1033 is a judicial question.
It was ruled that the petitioners Pablo C. Sanidad and Pablito V. Sanidad possess locus standi to challenge the
constitutional premise of Presidential Decree Nos. 991, 1031, and 1033. It is now an ancient rule that the valid
source of a stature Presidential Decrees are of such nature-may be contested by one who will sustain a direct
injuries as a in result of its enforcement. At the instance of taxpayers, laws providing for the disbursement
of public funds may be enjoined, upon the theory that the expenditure of public funds by an officer of
the State for the purpose of executing an unconstitutional act constitutes a misapplication of such
funds. The breadth of P.D. No. 991 carries all appropriation of ₱5,000,000.00 for the effective implementation
of its purposes. P.D. No. 1031 appropriates the sum of ₱8,000,000.00 to carry out its provisions. The interest
of the aforenamed petitioners as taxpayers in the lawful expenditure of these amounts of public money
sufficiently clothes them with that personality to litigate the validity of the Decrees appropriating said funds.
Moreover, as regards taxpayer's suits, the Court enjoys that open discretion to entertain the same or not. For
the present case, the court deemed it sound to exercise that discretion affirmatively so that the authority upon
which the disputed Decrees are predicated may be inquired into.
The Court did not agree with the Solicitor general contention because the 1973 Constitution expressly provided
that the power to propose amendments to the constitution resides in the interim National assembly in the
period of transition. After the transition period and when the regular National assembly is in its active session,
the power to propose amendments becomes ipso facto the prerogative of the regular National assembly. The
normal course has not been followed. Rather than calling the national assembly to constitute itself into a
constituent assembly, the president undertook the proposal of amending through P.D. 1033 and in effect,
through Referendum-Plebiscite on October 16. The irregularity of the amendment procedure raises a
contestable issue.
Case No. 34
Jumamil v. Café
G. R. No. 144570
September 21, 2005
FACTS: Some stalls of the public market of Panabo, Davao del Norte were destroyed in a fire. Mayor Café
entered into contracts with individuals willing to deposit Php 40,000.00 each to aid in the construction of new
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market stalls. Some of these individuals have been friends and relatives of the Mayor and members of the
Sangguniang Bayan of Panabo. Later, the Sangguniang Bayan of Panabo issued Municipal Resolutions No. 7
and 49, and Appropriation Ordinances 111 and 10; which appropriated a total amount of Php 2.2 million for the
construction project of the stalls. After the completion of the project, the stalls were leased through a public
raffle limited to the individuals that Mayor Café contracted with. Citing his capacity as a taxpayer, Jumamil filed
a petition for declaratory relief against the public respondents, questioning the constitutionality of the
ordinances. The RTC and CA declared Jumamil to lack legal standing because he was not a party to the
contract entered into by the Mayor and the individuals and thus have dismissed the petition.
ISSUE: Whether one who has filed a taxpayer‘s suit but who is not a party of the subject contract lacks legal
standing to question the constitutionality of tax laws.
RULING: No. The petitioner filed the suit citing his capacity as a taxpayer and not in his personal capacity.
Therefore, he does not need to be a party to the subject contract in order to question the constitutionality of tax
laws. However, although he has cited his capacity as a taxpayer, in order for the Court to rule on the issue of
constitutionality, he still needs to specifically prove substantial interest in preventing the illegal expenditure of
money collected by taxation. Having failed to have submitted such proof, the petitioner has no legal standing in
the case. Although the petitioner has no legal standing, the Court may rule on the issue of constitutionality in
matters of paramount importance to the public. The Court has considered the question of the constitutionality
of tax laws to be of paramount importance to the public allowing such waiver of procedural rules by using the
following determinants:
1. The character of the assets or funds involved;
2. The presence of a clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government; and
3. The lack of any other party with a more direct and specific interest in raising the questions being raised.
Case No. 35
Pascual v. Secretary of Public Works
G.R. No. L-10405
December 29, 1960
FACTS: Ra 920 (An act appropriating funds for public works) was enacted in June 1953 containing an item for
the construction, reconstruction, repair, extension of Pasig feeder road terminals – currently projected and
planned subdivision roads, which were not yet constructed, within Antonio Subdivision owned by Senator Jose
C. Zulueta which at the time of passage of said law was a private property. Zulueta executed on December 12,
1953, while he was a member of the Senate of the Philippines, an alleged deed of donation of the four (4)
parcels of land constituting said projected feeder roads, in favor of the Government of the Republic of the
Philippines. The provincial governor of Rizal, Pascual, questioned the constitutionality of the item in RA 920, it
being not for a public purpose. The lower court dismissed the petition upon the ground that petitioner may not
contest the legality because the same does not affect him directly.
ISSUE: Does petitioner have legal standing to sue?
RULING: Yes.
It is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in
consequence of its enforcement. Yet, there are as many decisions nullifying, at the instance of taxpayers, laws
providing the disbursement of public funds. Thus, the general rule is that not only persons individually affected,
but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation
and may therefore question the constitutionality of statutes requiring expenditure of public moneys. Thus, the
records are remanded to the lower court for further proceedings. Where the land on which feeder roads were
to be constructed belongs to a private person, an appropriation made by congress for that purpose is null and
void, and a donation to the government made five months after the approval of the Act does not cure the basic
defect of the law.
Case No. 36
LAND BANK OF THE PHILIPPINES v. EDUARDO M. CACAYURAN
G. R. No. 191667
April 17, 2013
FACTS: The Municipality`s Sangguniang Bayan (SB) passed certain resolutions to implement a multi-phased
plan (Redevelopment Plan) to redevelop the Agoo Public Plaza (Agoo Plaza). The SB through these
resolutions, authorized the mayor to obtain a loans from Land Bank to finance the Redevelopment Plan and a
portion of the Agoo Plaza was mortgaged. As an additional security, the SB authorized the assignment of a
portion of the internal revenue allotment (IRA) and the monthly income from the proposed project in favor of
Land Bank. Unlike phase 1 of the Redevelopment Plan, the construction of the commercial center (Agoo‘s
People Center or APC) at the Agoo Plaza was objected by some residents of the Municipality led by
respondent Eduardo Cacayuran. The residents claimed that the conversion of the Agoo Plaza into a
commercial center will result to wanton desecration of the said historical and public park.
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Cacayuran then wrote to Mayor Eriguel, Vice Mayor Eslao and the members of the SB of the people`s
objection to the said conversion. He also requested documents related to the conversion including the loan
agreements. However, he was unable to get any response. This prompted Cacayuran, invoking his right as a
taxpayer, to file a complaint against the Officers and the Land Bank. He assailed the validity of the Subject
Loans on the ground that the Plaza Lot used as collateral is a property of public dominion and therefore,
beyond the commerce of man. The RTC ruled in favor of Cacayuran and declared Subject Loans to be
void. Land Bank appealed but the Court of Appeal affirmed RTC`s ruling.
ISSUE: Whether Cacayuran has a standing to sue.
RULING: Yes, Cacayuran has a standing to sue.
It is hornbook (elementary) principle that a taxpayer is allowed to sue where there is a claim that public funds
are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is
wastage of public funds through the enforcement of an invalid or unconstitutional law. For a tax-payer`s suit to
prosper the two requisites must be complied: 1) public funds derived from taxation are disbursed by a political
subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed, and 2) the
petitioner is directly affected by the alleged act. First requisite, in the given case, petitioner Land Bank
contended that there was no public fund used to construct the APC since what was used was the proceeds of
the loan. However, public fund was actually involved when the SB assigned a portion of its IRA as a security
for the said loans. IRA serves as a local government unit`s just share in the national taxes making it in the
nature of a public fund derived from taxation.
Second requisite, respondent Cacayuran is directly affected by the conversion of the Agoo Plaza. The plaza
being a property for public use, Cacayuran had a direct interest in ensuring that the Agoo Plaza would not be
exploited for commercial purposes through the construction of the APC. Also as held in the case of Mamba v.
Lara, taxpayers need not be a party to the contract to challenge its validity. As long as taxes are involved
people have the right to question contracts entered into by the government. Since the requisites are present,
Cacayuran, therefore, has standing to file the instant suit.
CASE NO. 37
LIGHT RAIL TRANSIT AUTHORITY vs. CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF
ASSESSMENT APPEALS OF MANILA and the CITY ASSESSOR OF MANILA
G.R. No. 127316
12 October 2000
Doctrine: Carriageways and Terminal Stations are properties not for public use, thus, they are subjected to
real property taxes.
FACTS: Light Rail Transit Authority (LRTA) is a government-owned and controlled corporation created and
organized under E.O. No. 603. It provides that LRTA is responsible for the construction, operation,
maintenance and/or lease of light rail transit system in the Philippines. To fulfill its purpose, it acquired real
properties and eventually constructed structural improvements including buildings, carriageways, passenger
terminal stations, and installed various kinds of machinery and equipment and facilities in order to operate. In
1984, the City Assessor of Manila assessed the real properties of LRTA including the improvements it
constructed and installed, as provided in the Real Property Tax Code, commencing with the year 1985. LRTA
paid almost all the real property taxes except the taxes for the carriageways and passenger terminal stations. It
reasoned that those properties are not real properties under the Real Property Tax Code being for public use
or purpose, but the City Assessor denied the claim.
LRTA appealed with the Local Board of Assessment Appeals of Manila (LBAA-Manila) but was also denied by
the latter. LBAA-Manila held that the carriageways and passenger terminal stations are improvements; thus
they are real property under the Real Property Tax Code. The Court of Appeals (CA) also denied the appeal of
LRTA. CA added to the ruling of the LBAA-Manila that the properties in question were not owned by the
government; thus no exemption should be given. The CA also held that LRTA is a taxable entity and it uses the
LRT system for its benefit. Lastly the CA explained that LRTA is a profit-oriented enterprise who only serves
those paying the fare.
ISSUE: Whether petitioner's carriageways and passenger terminal stations are subject to real property taxes.
RULING: The petition has no merit. The Supreme Court held that both the carriageways and the terminal
stations are subject to real property taxes.
Petitoner‘s argument that they should enjoy exemption from real property taxes because the carriageways and
terminals are attached to the public road and thus, for public use, has no merit. Despite that the said
carriageways and terminal stations are attached to the public road, the Supreme Court held that such
attachments will not be considered for public use and is still subjected to real property taxes because of its
physical characteristic of separability from the public road. The Supreme Court also mentioned that the
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attachments are not for public use because only those people who can afford the fare imposed can utilize the
properties of the petitioner. As we all know, public roads can be utilized by all types of vehicles however in this
case, LRT can only be used by those who can afford it, and thus, the LRT is not for public use.
Another justification mentioned by the Supreme Court to affirm the decision of the CA is that the petitioner
failed to show proof that it can claim exemption from real property tax under E.O 603. Executive Order No. 603
does not provide for any real estate tax exemption in its favor. Its exemption is limited to direct and indirect
taxes, duties or fees in connection with the importation of equipment not locally available as the following
provisions show:
ARTICLE 4 TAX AND DUTY EXEMPTIONS
Sec. 8. Equipment, Machineries, Spare Parts and Other Accessories and Materials. - The importation
of equipment, machineries, spare parts, accessories and other materials, including supplies and
services, used directly in the operations of the Light Rails Transit System, not obtainable locally on
favorable terms, out of any funds of the authority including, as stated in Section 7 above, proceeds from
foreign loans credits or indebtedness, shall likewise be exempted from all direct and indirect taxes,
customs duties, fees, imposts, tariff duties, compensating taxes, wharfage fees and other charges and
restrictions, the provisions of existing laws to the contrary notwithstanding.
Even granting that the national government indeed owns the carriageways and terminal stations, the
exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity.
Taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly construed against
the claimant. LRTA has not shown its eligibility for exemption; hence, it is subject to the tax. Thus, given the
points raised above, the LRTA is a taxable entity.
Case No. 38
MCIAA vs. Marcos
G.R. No. 120082
11 September 1996
LAWS: (Additional Information)
Sec. 14. Tax Exemptions —The Authority shall be exempt from realty taxes imposed by the National
Government or any of its political subdivisions, agencies and instrumentalities.
Section 133. Common Limitations on the Taxing Powers of Local Government Units. —Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following: … o) Taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities, and local government units…
Section 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
government-owned or controlled corporations, except local water districts, cooperatives duly registered under
RA No. 6938, non-stock and nonprofit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code.
SEC. 234. Exemptions from Real Property Tax —The following are exempted from payment of the real
property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof had been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes; (c) All machineries and equipment that are actually, directly and
exclusively used by local water districts and government-owned or controlled corporations engaged in the
supply and distribution of water and/or generation and transmission of electric power; (d) All real property
owned by duly registered cooperatives as provided for under R.A. No. 6938; and (e) Machinery and
equipment used for pollution control and environmental protection. 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 all government owned or controlled corporations are hereby withdrawn upon the
effectivity of this Code.
FACTS: Mactan Cebu International Airport Authority (MCIAA) was created by virtue of R.A. No. 6958. Under
its charter, it is exempted from payment of realty taxes. However, in 1994, Mr. Eustaquio B. Cesa OIC of the
Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land
belonging to MCIAA located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, amounting to 2.2M
(2,229,078.79). MCIAA objected citing: a) sec 14 of RA 6958 which exempts it from payment of realty tax; and
b) Sec. 133 of the Local Government Code, which puts limitation to the taxing powers of the local Government
Units (LGUs).
City of Cebu insisted that MCIAA is a government-controlled corporation whose tax exemption privilege has
been withdrawn by virtue of Sec. 193 and 234 of the Local Government Code. City of Cebu was about to issue
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a warrant of levy when MCIAA paid its tax account under protest. MCIAA filed a petition for declaratory relief
with the RTC of Cebu contending that the taxing powers of LGUs do not extent to the levy of taxes or fees of
any kind on an instrumentality of the national government. That, while it is indeed a government-owned
corporation, it still stands on the same footing as an agency or instrumentality of the national government by
the very nature of its powers and functions.
City of Cebu asserted that MCIAA is not an instrumentality of the government, but merely a government-owned
corporation performing governmental functions. As such, all exemptions previously granted to it were deemed
withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code when it
took effect on January 1, 1992. RTC dismissed the petition, contending that RA 7160 repealed RA 6958.
Hence, MCIAA has to pay the assessed realty tax of its properties effective after January 1, 1992 until the
present. MCIAA filed a motion for reconsideration which was denied by the RTC. Hence, MCIAA filed an
appeal under Rule 45 to the SC.
ISSUE: Whether MCIAA is exempt from paying realty taxes?
RULING: No. MCIAA is not exempt from paying realty taxes.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including
government-owned and controlled corporations (GOCC), Section 193 of the Local Government Code (LGC)
provides that they are withdrawn upon its effectivity, except those granted to local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and those
mentioned in sec 234 of the LGC, which enumerates the properties exempt from real property tax. It qualified
the retention of the exemption of real property taxes by limiting the retention only to those enumerated therein;
all others not included in the enumeration lost the privilege of not paying taxes upon the effectivity of the LGC.
Even as to real property owned by the Republic of the Philippines or any of its political subdivisions covered by
sec 234(a); the exemption is withdrawn if the beneficial use of such property has been granted to a taxable
person for consideration or otherwise.
MCIAA cannot claim that it was never a ―taxable person‖ under its Charter. It was only exempted from the
payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the
legislative intent to make it a taxable person subject to all taxes, except real property tax. Since MCIAA is a
taxable person, and it is not among those mentioned in sec 234 of the LGC it follows that its exemption from
payment of tax, granted in Sec. 14 of R.A. No. 6958, has been withdrawn. Also, the MCIAA is not exempted
from taxes because it is neither the Republic of the Philippines or the National Government that operates it. It
is a Government owned or controlled corporation (GOCC) and exemption of taxes are only to government
instrumentalities.
Even if the petitioner was originally not a taxable person for purposes of real property tax, even if it is
to be conceded as an “agency” or “instrumentality” of the Government, a taxable person for such
purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment
of real property taxes, which, as earlier adverted to, applies to the petitioner. Taxation is the rule and
exemption therefrom is the exception; the exemption may thus be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is where the exemption was granted to private parties
based on material consideration of a mutual nature, which then becomes contractual and is thus
covered by the nonimpairment clause of the Constitution.
Case No. 39
Manila International Airport Authority vs City of Paranaque
GR No. 155650
July 20, 2006
FACTS: When the Local Government Code was implemented, the Office of the Government Corporate
Counsel opined that the said law withdrew the real estate tax exemption of the NAIA. When MIAA failed to pay
its tax dues to the respondent, the respondent issued notices of levy on the airport lands and buildings
administered by MIAA. When an auction sale was sought by the respondent on said land and buildings, MIAA
sought to prevent the auction sale and argued that the airport land and buildings are exempt from local taxation
since it is owned by the Republic and doing so would be against public policy. The respondent, on the other
hand, argued that MIAA is a GOCC and that the LGC, under Sec 193, expressly withdrew tax exemptions of
GOCCs.
ISSUE: W/N the airport land and buildings are exempt from taxation.
RULING: The airport land and buildings are exempt from taxation. The court held the following reasons—
1. MIAA is not a GOCC and thus exempt from taxation. It is not organized as a stock or non-stock
corporation but a government instrumentality vested with corporate powers. Under Sec 133(o) of the
LGC, the National Government, its agencies and instrumentalities are exempt from local taxes or
charges of any kind.
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
2. The airport land and buildings managed by the MIAA are owned by the Republic and again exempt
from taxation. The said properties are of public dominion as defined under Art 420 of the Civil Code,
being considered as a port, and all properties of public dominion are owned by the Republic. Also as
properties of public dominion, they are outside from the commerce of men which cannot be levied
upon. Real properties owned by the Republic are not taxable which was expressly stated by Sec 234(a)
of the LGC. As Sec 133(o) and 234(a) of the LGC expressly served as the exemptions, Sec 193 of the
same law does not apply.
CASE #40
MANILA INTERNATIONAL AIRPORT AUTHORITY vs. CITY OF PASAY
G.R. No. 163072
April 2, 2009
Principle: The exception to the exemption in Section 234(a) applies only to taxable entities under the Local
Government Code. Such an exception applies only if the beneficial use of real property owned by the Republic
is given to a taxable entity.
FACTS: MIAA operates and administers NAIA Complex under EO 903, otherwise known as the Revised
Charter of the Manila International Airport Authority. Under Sections 3 and 22 of EO 903, approximately 600
hectares of land, including the runways, the airport tower, and other airport buildings, were transferred to
MIAA. MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay for the taxable
years 1992 to 2001. The City of Pasay, through its City Treasurer, issued notices of levy and warrants of levy
for the NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August 2001. Thereafter,
the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the delinquent real
property taxes remain unpaid.
On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with prayer
for preliminary injunction or temporary restraining order. The petition sought to enjoin the City of Pasay from
imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay properties. The
Court of Appeals dismissed the petition and upheld the power of the City of Pasay to impose and collect realty
taxes on the NAIA Pasay properties. MIAA filed a motion for reconsideration, which the Court of Appeals
denied. The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local
Government Code, which took effect on 1 January 1992, withdrew the exemption from payment of real
property taxes granted to natural or juridical persons, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under Republic Act No. 6938, non-stock and nonprofit hospitals and educational institutions. Since MIAA is a government-owned corporation, it follows that its
tax exemption under Section 21 of EO 903 has been withdrawn upon the effectiveness of the Local
Government Code.
ISSUE: Whether NAIA Pasay properties of MIAA are exempt from real property tax.
RULING: Yes, MIAA are exempt from real property tax.
MIAA is not a government-owned or controlled corporation but a government instrumentality which is exempt
from any kind of tax from the local governments. Indeed, the exercise of the taxing power of local government
units is subject to the limitations enumerated in Section 133 of the Local Government Code. Under Section
133(o) of the Local Government Code, local government units have no power to tax instrumentalities of the
national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for public use,
and as such are exempt from real property tax under Section 234(a) of the Local Government Code. However,
under the same provision, if MIAA leases its real property to a taxable person, the specific property leased
becomes subject to real property tax. In this case, only those portions of the NAIA Pasay properties which are
leased to taxable persons like private parties are subject to real property tax by the City of Pasay.
CASE NO. 41
REPUBLIC OF THE PHILIPPINES, rep. by the PHILIPPINE RECLAMATION AUTHORITY (PRA) vs. CITY
OF PARANAQUE
G.R. No. 191109
July 18, 2012
FACTS: The Public Estates Authority (PEA) is a government corporation created by virtue of Presidential
Decree (P.D.) No. 1084 on February 4, 1977 (Creating the Public Estates Authority, Defining its Powers and
Functions, Providing Funds Therefor and for Other Purposes) to provide a coordinated, economical and
efficient reclamation of lands, and the administration and operation of lands belonging to, managed and/or
operated by, the government with the object of maximizing their utilization and hastening their development
consistent with public interest.
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
E.O. No. 380 issued by Pres. G.M.A. transformed PEA into PRA. PRA reclaimed several portions of the
foreshore and offshore areas of Manila Bay, including those located in Parañaque City, and was issued
Original and Transfer Certificates of Title over the reclaimed lands.
On February 19, 2003, then Parañaque City Treasurer Liberato M. issued Warrants of Levy on PRA‘s
reclaimed properties located in Parañaque based on the assessment for delinquent real property taxes
made by then Parañaque City Assessor Soledad Medina Cue for tax years 2001 and 2002.
The RTC ruled that PRA was not exempt from payment of real property taxes with the reason that it
was a GOCC under Section 3 of P.D. No. 1084. It was organized as a stock corporation because it had an
authorized capital stock divided into no par value shares. The RTC also ruled that the tax exemption claimed
by PRA under E.O. No. 654 had already been expressly repealed by R.A. No. 7160 and that PRA failed to
comply with the procedural requirements in Section 206 thereof.
PRA filed this petition for certiorari assailing the January 8, 2010 RTC Order
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions of the Administrative
Code. Neither is it a GOCC under Section 16, Article XII of the 1987 Constitution because it is not required to
meet the test of economic viability. Instead, PRA is a government instrumentality vested with corporate powers
and performing an essential public service pursuant to Section 2(10) of the Introductory Provisions of the
Administrative Code. Although it has a capital stock divided into shares, it is not authorized to distribute
dividends and allotment of surplus and profits to its stockholders. PRA claims that based on Section 133(o)
of the LGC, local governments cannot tax the national government which delegate to local
governments the power to tax.
On the other hand, the City of Parañaque argues that PRA, since its creation, consistently represented itself to
be a GOCC. PRA‘s very own charter (P.D. No. 1084) declared it to be a GOCC and that it has entered into
several thousands of contracts where it represented itself to be a GOCC. In fact, PRA admitted in its original
and amended petitions and pre-trial brief filed with the RTC of Parañaque City that it was a GOCC.
ISSUE: Whether PRA IS EXEMPT FROM REAL PROPERTY TAX.
HELD: YES. The fundamental provision above authorizes Congress to create GOCCs through special charters
on two conditions: 1) the GOCC must be established for the common good; and 2) the GOCC must meet the
test of economic viability. In this case, PRA may have passed the first condition of common good but failed the
second one — economic viability. Undoubtedly, the purpose behind the creation of PRA was not for economic
or commercial activities. Neither was it created to compete in the market place considering that there were no
other competing reclamation companies being operated by the private sector. As mentioned earlier, PRA was
created essentially to perform a public service considering that it was primarily responsible for a coordinated,
economical and efficient reclamation, administration and operation of lands belonging to the government with
the object of maximizing their utilization and hastening their development consistent with the public interest.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands managed by PRA. On the
other hand, Section 234 (a) of the LGC, in relation to its Section 133 (o), exempts PRA from paying realty
taxes and protects it from the taxing powers of local government units. Sections 234 (a) and 133 (o) of the LGC
provide, as follows:
SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
xxx xxx xxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:
xxx xxx xxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and
local government units.
It is clear from Section 234 that real property owned by the Republic is exempt from real property tax
unless the beneficial use thereof has been granted to a taxable person. In this case, there is no proof
that PRA granted the beneficial use of the subject reclaimed lands to a taxable entity. There is no
showing on record either that PRA leased the subject reclaimed properties to a private taxable entity.
Indeed, the Republic grants the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when the title of the real property is transferred to an agency or instrumentality
even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of
the tax exemption, unless ―the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person.‖
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
Similarly, Article 420 of the Civil Code enumerates properties belonging to the State:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public service or
for the development of the national wealth.
Here, the subject lands are reclaimed lands, specifically portions of the foreshore and offshore areas of Manila
Bay. As such, these lands remain public lands and form part of the public domain. In the case of Chavez v.
Public Estates Authority and AMARI Coastal Development Corporation, the Court held that foreshore and
submerged areas irrefutably belonged to the public domain and were inalienable unless reclaimed, classified
as alienable lands open to disposition and further declared no longer needed for public service. The fact that
alienable lands of the public domain were transferred to the PEA (now PRA) and issued land patents or
certificates of title in PEA‘s name did not automatically make such lands private. This Court also held therein
that reclaimed lands retained their inherent potential as areas for public use or public service.
Case No. 42
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA) vs. CITY OF LAPU-LAPU and ELENA
T. PACALDO
G.R. No. 181756
June 15, 2015
FACTS: Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created under Republic Act No.
6958. Upon its creation, petitioner enjoyed exemption from realty taxes under Section 14 of Republic Act No.
6958. However, upon the effectivity of Republic Act No. 7160, the Court declared that the petitioner was no
longer exempt from real estate taxes. Respondent City issued to petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan International Airport including the airfield, runway and taxiway, and
the lots on which they are situated. Petitioner contends that these lots are utilized solely and exclusively for
public or governmental purposes. Despite DOJ Opinion No. 50, the respondent City Treasurer Elena T.
Pacaldo sent petitioner a Statement of Real Property Tax Balances which again included the lots utilized solely
and exclusively for public purpose such as the airfield, runway, and taxiway and the lots on which these are
built. Respondent Pacaldo then issued Notices of Levy on 18 sets of real properties of petitioner.
Petitioner filed a petition for prohibition with the Regional Trial Court of Lapu-Lapu City with prayer for the
issuance of a temporary restraining order and/or a writ of preliminary injunction. The RTC Lapu-Lapu City
issued a 72-hour TRO. The petition for prohibition sought to enjoin respondent City from issuing a warrant of
levy against petitioner‘s properties and from selling them at public auction for delinquency in realty tax
obligations. The RTC denied the motion for extension of the TRO. Thus, respondent City auctioned 27 of
petitioner‘s properties. The RTC granted petitioner‘s application for a writ of preliminary injunction. However,
upon motion of respondents, the RTC lifted the writ of preliminary injunction. Petitioner filed a petition for
certiorari with the Court of Appeals, with urgent prayer for the issuance of a TRO and/or writ of preliminary
injunction. The Court of Appeals issued a TRO, then a writ of preliminary injunction. The Court of Appeals held
that petitioner is a government-owned or controlled corporation and its properties are subject to realty tax.
Petitioner filed a Motion for Partial Reconsideration for the portion of the decision declaring that petitioner is a
GOCC but it was denied. Hence, this petition.
ISSUE: Whether MCIAA is exempt from paying real property taxes for the airport terminal building, airfield,
runway, taxiway and the lots on which they are situated
RULING: Yes. The petitioner is an instrumentality of the government; thus, its properties actually, solely and
exclusively used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and
the lots on which they are situated, are not subject to real property tax and respondent City is not justified in
collecting taxes from petitioner over said properties.
A government instrumentality falls under Section 133(o) of the Local Government Code, which states that
unless otherwise provided, the exercise of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. While the 1987 Constitution now includes taxation as one of the
powers of local governments, local governments may only exercise such power subject to such guidelines and
limitations as the Congress may provide.
Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion
and thus owned by the State or the Republic of the Philippines. The Airport Lands and Buildings are devoted to
public use because they are used by the public for international and domestic travel and transportation.
Section 234(a) of the Local Government Code exempts from real estate tax any real property owned by the
Republic of the Philippines. However, portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax. This exemption should be read in relation with Section 133(o) of
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
the same Code, which prohibits local governments from imposing taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities.
Petitioner MCIAA, with its many similarities to the MIAA, should be classified as a government instrumentality,
as its properties are being used for public purposes, and should be exempt from real estate taxes. This is not
to derogate in any way the delegated authority of local government units to collect realty taxes, but to uphold
the fundamental doctrines of uniformity in taxation and equal protection of the laws, by applying all the
jurisprudence that have exempted from said taxes similar authorities, agencies, and instrumentalities, whether
covered by the 2006 MIAA ruling or not. Petitioner MCIAA is vested with corporate powers but it is not a stock
or non-stock corporation, which is a necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Like MIAA, petitioner MCIAA has capital under its charter but it is
not divided into shares of stock. It also has no stockholders or voting shares. The airport lands and buildings of
MCIAA are properties of public dominion because they are intended for public use. As properties of public
dominion, they indisputably belong to the State or the Republic of the Philippines, and are outside the
commerce of man. This, unless petitioner leases its real property to a taxable person, the specific property
leased becomes subject to real property tax; in which case, only those portions of petitioner‘s properties which
are leased to taxable persons like private parties are subject to real property tax by the City of Lapu-Lapu.
Case No. 43
COMMISION OF INTERNAL REVENUE V. MARUBENI CORP.
GR NO.137377
FACTS: CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and contractor‘s taxes from Marubeni Corp after finding the latter to
have properly availed of the tax amnesty under EO 41 & 64, as amended.
Marubeni is a Japanese corporation duly registered to engage in General Import and Export Trading,
Financing and Construction in the Philippines. CIR examined the Manila branch‘s books of accounts for fiscal
year ending March 1985 and later found out that the respondent Marubeni had two undeclared income from
contracts with NDC and Philphos for construction of a wharf/port complex and ammonia storage complex
respectively. Marubeni then received a letter from CIR containing the assessment of deficiency income, branch
profit remittance, and contractor‘s and commercial broker's taxes.
Marubeni claimed that the contracts have two parts: the Onshore Portion and the Offshore Portion. All
materials and equipment in the contract under the "Offshore Portion" were manufactured and completed in
Japan, not in the Philippines, and are therefore not subject to Philippine taxes. CIR contends that the projects
were made on a "turn-key" basis. Each contract was for a piece of work and since the projects called for the
construction and installation of facilities in the Philippines, the entire income constituted income from Philippine
sources, hence, subject to internal revenue taxes. Marubeni filed a Petition for Review with the Court of Tax
Appeals. However, after the promulgation of E.O. 41 (August 22, 1986) and E.O. 64 (November 17, 1986),
Marubeni was able to avail Tax Amnesty. CTA then ordered CIR to desist from collecting the deficiency taxes.
This was affirmed by the Court of Appeals.
ISSUE: Whether Marubeni is liable to pay for the deficiency taxes assessed by the CIR.
RULING: No. Even if Marubeni failed to file for Tax Amnesty, they are still not liable for paying the deficient tax.
The income from these projects came from the ―Offshore Portion‖. The materials and equipment were made
and completed in Japan. The payment for the materials and equipment were also made in Japan. Therefore,
they are not subject to Philippine Taxes.
Marubeni was able to sufficiently prove during trial that some of the projects were made and sub-contracted in
Japan. While the construction and installation work were completed within the Philippines, the evidence is clear
that pieces of equipment and supplies were completely designed and engineered in Japan. They were already
finished products when shipped to the Philippines. The other construction supplies listed under the Offshore
Portion, these were not finished products when shipped to the Philippines. They, however, were likewise
fabricated and manufactured by the sub-contractors in Japan. These services were rendered outside the taxing
jurisdiction of the Philippines and are therefore not subject to contractor's tax. Being an excise tax, Contractor‘s
tax can be levied by the taxing authority only when the acts, privileges or business are done or performed
within the jurisdiction of said authority. Like property taxes, it cannot be imposed on an occupation or privilege
outside the taxing district.
Case #44
COMMISSIONER VS BRITISH OVERSEAS AIRWAYS CORPORATION
FACTS: BOAC is 100% British government owned, organized and existing under the laws of the United
Kingdom. It is engaged in the international airline business. During the period of dispute, BOAC admitted that it
had no landing rights and a certificate of public conveyance in the Philippines issued by the Civil Aeronautics
Board. Except for a temporary landing permit for the period of 9 months. However, it did not carry passengers
and/or cargo to or from the Philippines but it maintained a general sales agent in the Philippines; Warmes
Barnes and Qantas Airways.
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
On the year 1968, the CIR assessed BOAC the aggregate amount of P2,498,358.00 for deficiency income
taxes covering 1959-1963. Due to the protest by the BOAC a re-assessment was conducted and the new
assessment amounted to P853,307. BOAC paid the assessment under protest. On October 1970, BOAC filed
a claim for a refund in the above mentioned amount but it was denied. On the year 1971, another assessment
was conducted amounting to P549,327.00. BOAC requested the CIR to set aside the assessment, but it was
denied prompting BOAC to file second case in the Tax Court. The Tax Court ruled in favor of BOAC, it ruled
that the proceeds of the sale of BOAC passage tickets in the Philippines by its sales agents do not constitute
BOAC income from Philippine sources, since there was no service of carriage of passengers was performed
by BOAC and therefore it was not subject to taxation.
ISSUE: Whether the revenue derived by BOAC from the sale of ticket in the Philippines for air transportation,
while having no landing rights constitute income of BOAC from the Philippines and thus taxable?
RULING: YES. The source of an income is the property, activity or service that produced the income. For the
source of income to be considered as coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines. In BOAC‘s case, the sale of ticket in the Philippines is the activity that
produces the income. The tickets exchanged hands here and payments for fares were also made here in
Philippine currency. The site of the source of payment is the Philippines. The flow of wealth proceeded from,
and occurred within the Philippine territory, enjoying the protection accorded by the Philippine Government. In
consideration of such protection the flow of wealth should share in the burden of supporting the government.
Case No. 45
VILLEGAS V. HIU CHIONG TSAI PAO HO
G.R. No. L-29646
November 10, 1978
FACTS: Ordinance No. 6537 was passed by the Municipal Board of Manila and signed by petitioner Mayor
Antonio J. Villegas of Manila on March 27, 1968.
City Ordinance No. 6537 is entitled:
AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN OF THE PHILIPPINES TO
BE EMPLOYED IN ANY PLACE OF EMPLOYMENT OR TO BE ENGAGED IN ANY KIND OF TRADE,
BUSINESS OR OCCUPATION WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING AN
EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER PURPOSES.
Section 1 of said Ordinance No. 6537 prohibits aliens from being employed or to engage or participate in any
position or occupation or business enumerated therein, whether permanent, temporary or casual, without first
securing an employment permit from the Mayor of Manila and paying the permit fee of P50.00 except persons
employed in the diplomatic or consular missions of foreign countries, or in the technical assistance programs of
both the Philippine Government and any foreign government, and those working in their respective
households, and members of religious orders or congregations, sect or denomination, who are not paid
monetarily or in kind.
Private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed a petition with the Court of First
Instance of Manila, Branch I praying for the issuance of the writ of preliminary injunction and restraining order
to stop the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No. 6537
null and void.
Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the ordinance declared null and
void:
1) As a revenue measure imposed on aliens employed in the City of Manila, Ordinance No. 6537 is
discriminatory and violative of the rule of the uniformity in taxation;
2) As a police power measure, it makes no distinction between useful and non-useful occupations,
imposing a fixed P50.00 employment permit, which is out of proportion to the cost of registration and
that it fails to prescribe any standard to guide and/or limit the action of the Mayor, thus, violating the
fundamental principle on illegal delegation of legislative powers:
3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who are thus, deprived of
their rights to life, liberty and property and therefore, violates the due process and equal protection
clauses of the Constitution.
Respondent Judge issued the writ of preliminary injunction and on September 17, 1968 rendered judgment
declaring Ordinance No. 6537 null and void and making permanent the writ of preliminary injunction.
Petitioner Mayor Villegas filed a petition contesting the said decision.
ISSUES:
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
1) Whether Ordinance No. 6537 violated the cardinal rule of uniformity of taxation
2) Whether Ordinance No. 6537 violated the principle against undue designation of legislative power.
3) Whether Ordinance No. 6537 violated the due process and equal protection clauses of the constitution.
RULING:
1) No. because the rule on uniformity of taxation applies only to purely tax or revenue measures. Ordinance No.
6537 is not a tax or revenue measure but is an exercise of the police power of the state, it being principally a
regulatory measure in nature.
While it is true that the first part which requires that the alien shall secure an employment permit from the
Mayor involves the exercise of discretion and judgment in the processing and approval or disapproval of
applications for employment permits and therefore is regulatory in character the second part which requires the
payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic or justification
in exacting P50.00 from aliens who have been cleared for employment. It is obvious that the purpose of the
ordinance is to raise money under the guise of regulation.
2) Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the exercise of his
discretion. It has been held that where an ordinance of a municipality fails to state any policy or to set up any
standard to guide or limit the mayor's action, expresses no purpose to be attained by requiring a permit,
enumerates no conditions for its grant or refusal, and entirely lacks standard, thus conferring upon the Mayor
arbitrary and unrestricted power to grant or deny the issuance of building permits, such ordinance is invalid,
being an undefined and unlimited delegation of power to allow or prevent an activity per se lawful.
3) The ordinance in question violates the due process of law and equal protection rule of the Constitution.
Requiring a person before he can be employed to get a permit from the City Mayor of Manila who may withhold
or refuse it at will is tantamount to denying him the basic right of the people in the Philippines to engage in a
means of livelihood. While it is true that the Philippines as a State is not obliged to admit aliens within its
territory, once an alien is admitted, he cannot be deprived of life without due process of law. This guarantee
includes the means of livelihood. The shelter of protection under the due process and equal protection clause
is given to all persons, both aliens and citizens
Case No 46.
CREBA v. Exec. Sec Romulo
09 March 2010
FACTS: CREBA assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations
and creditable withholding tax (CWT) on sales of real properties classified as ordinary assets. It argues that the
MCIT violates the due process clause because it levies income tax even if there is no realized gain. It also
seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) and
(c)(ii) of RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale of
real properties categorized as ordinary assets. It contends that these revenue regulations are contrary to law
for the reasons that they ignore the different treatment by RA 8424 of ordinary assets and capital assets and
that, Secretary of Finance has no authority to collect CWT, much less, to base the CWT on the gross selling
price or fair market value of the real properties classified as ordinary assets. It also asserts that the
enumerated provisions of the subject revenue regulations violate the due process clause because, like the
MCIT, the government collects income tax even when the net income has not yet been determined. They
contravene the equal protection clause as well because the CWT is being levied upon real estate enterprises
but not on other business enterprises, more particularly those in the manufacturing sector.
ISSUE: Whether imposition of MCIT and CWT violated the due process clause.
HELD: No. The Court held
SC said that certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not
income. In other words, it is income not capital which is subject to income tax. However, the MCIT is not a tax
on capital. The MCIT is imposed on gross income which is arrived by deducting the capital spent by a
corporation in the sale of its good. Clearly, the capital is not being taxed. In sum, the petitioner failed to support
by any factual or legal basis, its allegation that the MCIT is arbitrary and confiscatory. The court cannot strike
down a law as unconstitutional because of its yokes. Taxation is necessarily burdensome because by is
nature, it adversely affects property rights. The party alleging the laws unconstitutionality has the burden to
demonstrate the supposed violations in understandable terms. Furthermore, the MCIT is not an additional tax
imposition. It is imposed in lieu of the normal net income tax, and only if the normal income tax is suspiciously
low. The MCIT merely approximates the amount of net income tax due from a corporation, pegging the rate at
a very much reduced 2% and uses as the base the corporation‘s gross income. SC stressed that the CWT is
creditable against the tax due from the seller of the property, at the end of the taxable year. The seller will be
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
able to claim a tax refund, if its net income is less than the taxes withheld. Nothing is taken that is not due so
there is no confiscation of property, repugnant to the constitutional guarantee of due process. More
importantly, the due process requirement applies to power to tax. The CWT does not impose new taxes nor
does it increase taxes. It relates entirely to the method and time of payment.
Case No. 47
City of Baguio vs Fortunato De Leon
G.R. No. L-24756
October 31, 1968
FACTS: Defendant-appellant Fortunato de Leon assails in his appeal, a lower court decision upholding the
validity of an ordinance of the City of Baguio imposing a license fee on any person, firm, entity or corporation
doing business in the City of Baguio.He was held liable as a real estate dealer with a property therein worth
more than P10,000, but not in excess of P50,000, and therefore obligated to pay under such ordinance the
P50 annual fee. The lower court‘s decision of December 19, 1964, it declared the above ordinance as
amended, valid and subsisting, and held defendant-appellant liable for the fees therein prescribed as a real
estate dealer. Hence, this appeal. Assume the validity of such ordinance, and there would be no question
about the liability of defendant-appellant for the fee, it being shown in the partial stipulation of facts, that he was
"engaged in the rental of his property in Baguio" deriving income therefrom during the period covered by the
first quarter of 1958 to the fourth quarter of 1962. The source of authority for the challenged ordinance is
supplied by Republic Act No. 329, amending the city charter of Baguio empowering it to fix the license fee and
regulate "businesses, trades and occupations as may be established or practiced in the City. Fortunato assails
the validity of the ordinance and alleges that it imposes double taxation, thus, it is repugnant of the due
process.
ISSUE: Whether double taxation is violative of due process
RULING: No, the ordinance is valid since there is more than ample statutory authority for the enactment
thereof and double taxation is not violative of due process. "The objection to the taxation as double may be laid
down on one side. The 14th Amendment [the due process clause] no more forbids double taxation than it does
doubling the amount of a tax, short of confiscation or proceedings unconstitutional on other grounds." This
delivered the coup de grace to the bogey of double taxation as a constitutional bar to the exercise of the taxing
power. Thus, "Where, as here, Congress has clearly expressed its intention, the statute must be sustained
even though double taxation results."
An "argument against double taxation may not be invoked where one tax is imposed by the state and the other
is imposed by the city, it being widely recognized that there is nothing inherently obnoxious in the requirement
that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state
and the political subdivisions thereof."
Case No. 48.
COMMISSIONER OF INTERNAL REVENUE vs. MICHEL J. LHUILLIER PAWNSHOP, INC.
G. R. NO. 150947
JULY 15, 2003
FACTS: On March 11, 1991, CIR Jose U. Ong issued Revenue Memorandum Order (RMO) No. 15-91
imposing a 5% lending investor‘s tax on pawnshops stating that a restudy of P.D. 114 shows that the principal
activity of pawnshops is lending money at interest and incidentally accepting a "pawn" of personal property
delivered by the pawner to the pawnee as security for the loan and this makes pawnshop business akin to
lending investor‘s business activity which is broad enough to encompass the business of lending money at
interest by any person whether natural or juridical. Such being the case, pawnshops shall be subject to the 5%
lending investor‘s tax based on their gross income pursuant to Section 116 of the Tax Code, as amended.
Consequently, Pawnshop owners or operators shall become liable to the lending investor‘s tax on their gross
income beginning January 1, 1991 and so they also become subject to documentary stamp taxes.
On 11 September 1997, the Bureau of Internal Revenue (BIR) issued Assessment Notice No. 81-PT-13-94-979-118 against Lhuillier demanding payment of deficiency percentage tax in the sum of P3,360,335.11 for 1994
inclusive of interest and surcharges. On 3 October 1997, Lhuillier filed an administrative protest with the Office
of the Revenue Regional Director contending that:
(1) neither the Tax Code nor the VAT Law expressly imposes 5% percentage tax on the gross income of
pawnshops;
(2) pawnshops are different from lending investors, which are subject to the 5% percentage tax under the
specific provision of the Tax Code;
(3) RMO No. 15-91 is not implementing any provision of the Internal Revenue laws but is a new and additional
tax measure on pawnshops, which only Congress could enact;
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(4) RMO No. 15-91 impliedly amends the Tax Code and is therefore taxation by implication, which is
proscribed by law; and
(5) RMO No. 15-91 is a "class legislation" because it singles out pawnshops among other lending and financial
operations.
On 12 October 1998, Deputy BIR Commissioner Romeo S. Panganiban issued Warrant of Distraint and/or
Levy against Lhuillier‘s property for the enforcement and payment of the assessed percentage tax. Its protest
having been unacted upon, Lhuillier, elevated the matter to the CIR. Still, the protest was not acted upon by the
CIR. Thus, Lhuillier filed a "Notice and Memorandum on Appeal" with the Court of Tax Appeals. The CTA
declared that: (1) RMO No. 15-91 and RMC No. 43-91 null and void insofar as they classify pawnshops as
lending investors subject to 5% percentage tax; and (2) Assessment Notice No. 81-PT-13-94-97-9-118 as
cancelled, withdrawn, and with no force and effect. Moreover, the Court of Appeals affirmed the CTA decision.
ISSUES:
1.
Whether pawnshops are considered lending investors for the purpose of imposing percentage tax.
2.
Whether publication is necessary for the validity of RMO No. 15-91 and RMC No. 43-91.
RULINGS:
1. No. The term lending investor includes "all persons who make a practice of lending money for themselves
or others at interest." A pawnshop, on the other hand, is defined as "a person or entity engaged in the business
of lending money on personal property delivered as security for loans and shall be synonymous, and may be
used interchangeably, with pawnbroker or pawn brokerage."
Also, while it is true that pawnshops are engaged in the business of lending money, they are not considered
"lending investors" for the purpose of imposing the 5% percentage taxes because:
a.Pawnshops and lending investors were subjected to different tax treatments
b.Congress never intended pawnshops to be treated in the same way as lending investors.
c.Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax dealers in
securities and lending investors only. There is no mention of pawnshops. Under the maxim expressio unius est
exclusio alterius, the mention of one thing implies the exclusion of another thing not mentioned. Thus, if a
statute enumerates the things upon which it is to operate, everything else must necessarily and by implication
be excluded from its operation and effect. This rule, as a guide to probable legislative intent, is based upon the
rules of logic and natural workings of the human mind.
d.The BIR had ruled several times prior to the issuance of RMO No. 15-91 and RMC 43-91 that pawnshops
were not subject to the 5% percentage tax imposed by Section 116 of the NIRC of 1977, as amended by E.O.
No. 273. This was even admitted by the CIR in RMO No. 15-91 itself. Considering that Section 116 of the
NIRC of 1977, as amended, was practically lifted from Section 175 of the NIRC of 1986, as amended, and
there being no change in the law, the interpretation thereof should not have been altered.
If pawnshops were covered within the term lending investor, there would have been no need to introduce such
amendment to include owners of pawnshops. At any rate, such proposed amendment was not adopted.
2.Yes. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than
its bare issuance, for it gives no real consequence more than what the law itself has already prescribed. When,
on the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or
render least cumbersome the implementation of the law but substantially increases the burden of those
governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and
thereafter to be duly informed, before that new issuance is given the force and effect of law.
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing rules or corrective measures
revoking in the process the previous rulings of past Commissioners. Specifically, they would have been
amendatory provisions applicable to pawnshops. Without these disputed CIR issuances, pawnshops would not
be liable to pay the 5% percentage tax, considering that they were not specifically included in Section 116 of
the NIRC of 1977, as amended. In so doing, the CIR did not simply interpret the law. The due observance of
the requirements of notice, hearing, and publication should not have been ignored.
Case No. 49
The Province of Abra vs. Hernando
G.R. No. L-49336
August 31, 1981
FACTS: A tax assessment was made by the Provincial Assessor of Abra on the properties of private
respondent Roman Catholic Bishop of Bangued, Inc. The private respondent filed an action for declaratory
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relief on the ground that it is exempted from payment of real estate taxes, its properties being actually, directly
and exclusively used for religious or charitable purposes. The petitioners filed a motion to dismiss which was
denied and a summary hearing was conducted. Respondent Judge Hernando of the CFI of Abra granted the
exemption without hearing the side of the petitioner.
Thereafter, the Province of Abra filed a certiorari and mandamus petition against the respondent Judge who
allegedly ignored the provisions of the Rules of Court. It violated the rights of petitioner to due process by
giving due course to the petition of private respondent for declaratory relief without allowing petitioner to
answer, and adjudged the case without any hearing. It disregarded the basic laws of procedure and basic
provisions of due process in the Constitution.
ISSUE: Whether respondent judge violated due process in granting the real estate tax exemption.
RULING: YES, the Judge failed to abide by the constitutional command of procedural due process in failing to
accord a hearing to the petitioner and deciding the case immediately in favor of private respondent.
Respondent Judge should have compared the provisions of the 1973 Constitution with that appearing in the
1935 Charter on the tax exemption of "lands, buildings, and improvements."
Under the 1935 Constitution: "xxx all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." The 1973 Constitution required that for
the exemption of "lands, buildings, and improvements," they should not only be "exclusively" but also
"actually and "directly" used for religious or charitable purposes. Reliance on past decisions would have
sufficed were the words "actually" as well as "directly" not added. There must be proof therefore of the
actual and direct use of the lands, buildings, and improvements for religious or charitable purposes to
be exempt from taxation. Moreover, exemption from taxation is not favored and is never presumed, so that if
granted, it must be strictly construed against the taxpayer. The law frowns on exemption from taxation, hence,
an exempting provision should be construed strictissimi juris (according to the strictest interpretation of the
law).
Case No. 50
Francis A. Churchill v. Venancio Concepcion
G.R. No. 11572
September 22, 1916
FACTS: Section 100 of Act No. 2339 as amended by Act No 2432 imposed an annual tax of P2 per square
meter upon electric signs, billboards, and spaces used for posting or displaying temporary signs, and all signs
displayed on premises not occupied by buildings. Francis A. Churchill and Stewart Tait are co-partners and
owners of a sign or billboard containing an area of 52 square meters were taxed thereon P104. They alleged
that they can no longer increase the rate for their advertising services because merchants/clients would not be
able to afford it. Hence, with the current rate and the tax imposed upon them, their business will suffer loss
instead of profit. This is why they argue that Act No. 2339, as amended by Act No. 2432, constitutes
deprivation of property without compensation or due process of law, because it is confiscatory and unjustly
discriminatory.
ISSUE: Whether or not Act No 2339 as amended by Act No 2432 violates Section 1, Article III, 1987
Constitution which pertains to the right of an individual not to be deprived of their property without due process
of law
RULING: No. The tax imposed is not confiscatory because the allegation of the co-partners is merely based on
hypothetical scenarios. They did not make an actual attempt to increase the rate of their advertising service
which should solve the issue of lack of profits. The co-partners only talked about the rate increase to their
clients but never actually imposed it. It is not the case that the tax imposed was confiscatory in nature, it only
appears as such for the co-partners because of their inaction. Moreover, the rest of the agencies engaged in
such industry are paying their dues without protest and continue to earn profit despite the tax imposition. This
shows that an advertising agency is still a profitable business.
Here, since the allegations failed to prove that the taxing power exercised by the Legislature is confiscatory in
nature, the issue of lack of due process will no longer attach. Furthermore, the Philippine Legislature has the
power to impose taxes upon electric signs, billboards, and spaces because the power to impose taxes is one
so unlimited in force and so searching to an extent. It reaches to every trade or occupation; to every object of
industry, use, or enjoyment; to every species of possession. The only time the courts declare that the taxing
power is subject to any restrictions is when there is an extreme abuse of such power that it is obvious to the
judicial mind that it had been exercised for the sole purpose of destroying rights which could not be rightfully
destroyed.
Case No. 51
British American Tobacco v. Camacho
G.R. No. 163583
August 20, 2008
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FACTS: In 1997, Congress passed RA 8424 or The Tax Reform Act of 1997, re-codifying the National Internal
Revenue Code (NIRC). Section 142 was renumbered as Section 145 of the NIRC. Paragraph (c) of Section
145 provides for four tiers of tax rates based on the net retail price per pack of cigarettes. As such, new brands
of cigarettes shall be taxed according to their current net retail price while existing or old brands shall be taxed
based on their net retail price as of October 1, 1996. In June 2001, petitioner British American Tobacco
introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes,
with a suggested retail price of P9.90 per pack. Pursuant to Sec. 145 (c) of the Tax Reform Act, the Lucky
Strike brands were initially assessed the excise tax at P8.96 per pack. Revenue Regulations No. 22-2003 was
issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the
market after January 1, 1997 based on the survey of their current net retail price. The survey revealed that
Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights are sold at the current net retail price
of P22.54, P22.61 and P21.23, per pack, respectively. The Commissioner of the Bureau of Internal Revenue
recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike‘s average net retail price is
above P10.00 per pack.
British American Tobacco then filed before the RTC a petition for injunction with prayer for the issuance of a
temporary restraining order and/or writ of preliminary injunction. The trial court upheld the constitutionality of
Section 145 of the NIRC and Revenue Regulations No. 22-2003. British American Tobacco then filed a petition
for review with the Supreme Court. While the petition was pending, RA 9334 (An Act Increasing The Excise
Tax Rates Imposed on Alcohol and Tobacco Products, Amending for the Purpose Sections 131, 141, 143, 144,
145 and 288 of the NIRC of 1997, As Amended), took effect on January 1, 2005. The statute provided a
legislative freeze on brands of cigarettes introduced between the period January 2, 1997 to December 31,
2003, such that said cigarettes shall remain in the classification under which the BIR has determined them to
belong as of December 31, 2003, until revised by Congress.
ISSUE: Whether or not the classification freeze provision violates the equal protection and uniformity of
taxation clauses of the Constitution
RULING: No. The classification freeze provision could hardly be considered arbitrary, or motivated by a hostile
or oppressive attitude to unduly favor older brands over newer brands.
On the contention that the classification freeze provision unduly favors older brands over newer brands, British
American Tobacco did not clearly demonstrate the exact extent of such impact. It has not been shown that the
net retail prices of other older brands previously classified under this classification system have already pierced
their tax brackets, and, if so, how this has affected the overall competition in the market. Further, it does not
necessarily follow that newer brands cannot compete against older brands because price is not the only factor
in the market as there are other factors like consumer preference, brand loyalty, etc. In other words, even if the
newer brands are priced higher due to the differential tax treatment, it does not mean that they cannot compete
in the market especially since cigarettes contain addictive ingredients so that a consumer may be willing to pay
a higher price for a particular brand solely due to its unique formulation. Where there is a claim of breach of the
due process and equal protection clauses, considering that they are not fixed rules but rather broad standards,
there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a
showing, the presumption of validity must prevail. Whether Congress acted improvidently in derogating, to a
limited extent, the state‘s interest in promoting fair competition among the players in the industry, while
pursuing other state interests regarding the simplification of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of
projection of revenues through the classification freeze provision, and whether the questioned provision is the
best means to achieve these state interests, necessarily go into the wisdom of the assailed law which the High
Court cannot inquire into, much less overrule. For as long as the legislative classification is rationally related to
furthering some legitimate state interest, the rational-basis test is satisfied and the constitutional challenge is
defeated.
Case Digest 52
Commissioner of Customs v. Hypermix Feeds Corporation
GR No. 179579
February 1, 2012
DOCTRINE: The equal protection clause means that no person or class of persons shall be deprived of the
same protection of laws enjoyed by other persons or other classes in the same place in like circumstances.
Thus, the guarantee of the equal protection of laws is not violated if there is a reasonable classification. For a
classification to be reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to
the purpose of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members
of the same class
FACTS:
1. The petitioner issued a memorandum (CMO 27-2003). Under which, for tariff purposes, wheat was
classified as – 1) importer or consignee; 2) country of origin; and 3) port of discharge. Depending on
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these factors, wheat would be classified as food grade with a tariff of 3% and feed grade, with a tariff of
7%.
2. After its issuance, the respondent filed a Petition for Declaratory Relief with the RTC. The respondent
anticipated the implementation of the regulation on its imported and perishable Chinese milling wheat in
transit from China. It then contended among others that the said memorandum summarily adjudged it
to be a feed grade supplier without the benefit of prior assessment and examination; thus, despite
having imported food grade wheat, it would be subjected to the 7% tariff upon the arrival of the
shipment, forcing them to pay 133% more than was proper.
3. The respondent further claimed that the equal protection clause of the Constitution was violated when
the regulation treated non-flour millers differently from flour millers for no reason at all.
ISSUE: WON the memorandum is unconstitutional for being violative of the Equal Protection Clause of the
Constitution
RULING: Yes, the Court held that it is unconstitutional for being violative of the equal protection clause of the
Constitution when they provided for an unreasonable classification in the application of the regulation.
The guarantee of the equal protection of laws is not violated if there is a reasonable classification. For a
classification to be reasonable, it must be shown that (1) it rests on substantial distinctions; (2) it is germane to
the purpose of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all members
of the same class.
In the present case, CMO 27-2003 does not meet these requirements. The Court did not see how the quality of
wheat is affected by who imports it, where it is discharged, or which country it came from. Even if other millers
excluded from CMO 27-2003 have imported food grade wheat, the product would still be declared as feed
grade wheat, a classification subjecting them to 7% tariff. On the other hand, even if the importers listed under
CMO 27-2003 have imported feed grade wheat, they would only be made to pay 3% tariff, thus depriving the
state of the taxes due. The regulation, therefore, does not become disadvantageous to respondent only, but
even to the state. It is also not clear how the regulation intends to "monitor more closely wheat importations
and thus prevent their misclassification." A careful study of CMO 27-2003 shows that it not only fails to achieve
this end; it forecloses the possibility that other corporations that are excluded from the list import food grade
wheat; at the same time, it creates an assumption that those who meet the criteria do not import feed grade
wheat. In the first case, importers are unnecessarily burdened to prove the classification of their wheat imports;
while in the second, the state carries that burden.
Case No. 53
ABAKADA GURO PARTY LIST vs. HON. CESAR V. PURISIMA
G.R. No. 166715
August 14, 2008
FACTS: ABAKADA Guro Party List, invoking their rights as taxpayers, filed a case seeking to prevent the
implementation and enforcement of RA 9335 Attrition Act of 2005. RA 9335 was intended to encourage BIR
and BOC officials and employees to exceed their revenue targets by providing a system of rewards and
sanctions through the creation of a Rewards and Incentives Fund and a Revenue Performance Evaluation
Board. It covers all officials and employees of the BIR and the BOC with at least six months of service,
regardless of employment status. The Fund is sourced from the collection of the BIR and the BOC in excess
of their revenue targets for the year, as determined by the Development Budget and Coordinating Committee
(DBCC). The reward or incentive is to be allocated to the BIR and the BOC in proportion to their contribution in
the excess collection of the targeted amount of tax revenue. The DOF, DBM, NEDA, BIR, BOC and CSC were
tasked to promulgate and issue the implementing rules and regulations of RA 9335, to be approved by a Joint
Congressional Oversight Committee created for such purpose. ABAKADA questioned the constitutionality of
RA 9335 by filing the instant petition.
ISSUES:
1.
Whether the issues raised by the petitioner is premature as there is no actual case or controversy yet.
2.
Whether by establishing a reward system, the law "transform[s] the officials and employees of the BIR
and the BOC into mercenaries and bounty hunters" as they will do their best only in consideration of such
rewards
3.
Whether the implementation of RA 9335 violates the equal protection clause?
4.
Whether RA 9335 unduly delegates the power to fix revenue targets to the President as it lacks a
sufficient standard on that matter.
5.
Whether the creation of a congressional oversight committee is unconstitutional on the ground that it
violates the doctrine of separation of powers.
RULING:
Whether the issues raised by the petitioner is premature as there is no actual case or controversy yet.
Yes.
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An actual case or controversy involves a conflict of legal rights, an assertion of opposite legal claims
susceptible of judicial adjudication. The question must be ripe for adjudication. It is ripe when the governmental
act being challenged has a direct adverse effect on the individual challenging it. In other words, the petitioner
must show a personal stake in the outcome of the case or an injury to himself that can be redressed by a
favorable decision of the Court. In this case, petitioners fail either to assert any specific and concrete legal
claim or to demonstrate any direct adverse effect of the law on them. They are unable to show a personal
stake in the outcome of this case or an injury to themselves. On this account, their petition is procedurally
infirm.
Whether by establishing a reward system, the law "transform[s] the officials and employees of the BIR
and the BOC into mercenaries and bounty hunters" as they will do their best only in consideration of
such rewards
No. Public officers enjoy the presumption of regularity in the performance of their duties.
The presumption is disputable by proof to the contrary. It cannot be overturned by mere speculation or denied
in advance. The claim of the petitioners that the implementation of RA 9335 will turn BIR and BOC officials and
employees into "bounty hunters and mercenaries" is not only without any factual and legal basis; it is also
purely speculative. A law enacted by Congress enjoys the strong presumption of constitutionality. To justify its
nullification, there must be a clear and unequivocal breach of the Constitution, not a doubtful and equivocal
one. Public officers may by law be rewarded for exemplary and exceptional performance. A system of
incentives for exceeding the set expectations of a public office is not anathema to the concept of public
accountability. In fact, it recognizes and reinforces dedication to duty, industry, efficiency and loyalty to public
service of deserving government personnel. Employees of the BIR and the BOC may by law be entitled to a
reward when, as a consequence of their zeal in the enforcement of tax and customs laws, they exceed their
revenue targets.
Whether the implementation of RA 9335 violates the equal protection clause?
No. Equality guaranteed under the equal protection clause is equality under the same conditions and among
persons similarly situated; it is equality among equals, not similarity of treatment of persons who are classified
based on substantial differences in relation to the object to be accomplished. When things or persons are
different in fact or circumstance, they may be treated in law differently. The equal protection clause recognizes
a valid classification, that is, a classification that has a reasonable foundation or rational basis and not
arbitrary. With respect to RA 9335, since the subject of the law is the revenue- generation capability and
collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should logically pertain
to the said agencies. Moreover, the law concerns only the BIR and the BOC because they have the common
distinct primary function of generating revenues for the national government through the collection of taxes,
customs duties, fees and charges. Both the BIR and the BOC are bureaus under the DOF. They principally
perform the special function of being the instrumentalities through which the State exercises one of its great
inherent functions – taxation. Indubitably, such substantial distinction is germane and intimately related to the
purpose of the law. Hence, the classification and treatment accorded to the BIR and the BOC under RA 9335
fully satisfy the demands of equal protection.
Whether RA 9335 unduly delegates the power to fix revenue targets to the President as it lacks a
sufficient standard on that matter.
No. Two tests determine the validity of delegation of legislative power: (1) the completeness test and (2) the
sufficient standard test.
RA 9335 adequately states the policy and standards to guide the President in fixing revenue targets and the
implementing agencies in carrying out the provisions of the law. Section 4 has also provided for the guidelines
for the computation of any rewards and incentive. Further, RA 9335 states that revenue targets are based on
the original estimated revenue collection expected respectively of the BIR and the BOC for a given fiscal year
as approved by the DBCC and stated in the BESF submitted by the President to Congress. Thus, the
determination of revenue targets does not rest solely on the President as it also undergoes the scrutiny of the
DBCC. Section 7 also lays down the powers and functions of the board including the criteria for attrition.
Clearly, RA 9335 has laid down sufficient standards for a valid delegation.
Whether the creation of a congressional oversight committee is unconstitutional on the ground that it
violates the doctrine of separation of powers.
Yes. The Joint Congressional Oversight Committee in RA 9335 was created for the purpose of approving the
IRR formulated by the DOF, DBM, NEDA, BIR, BOC and CSC. On May 22, 2006, it approved the said IRR.
From then on, it became functus officio and ceased to exist. Hence, the issue of its alleged encroachment on
the executive function of implementing and enforcing the law may be considered moot and academic.
This notwithstanding, this might be as good a time as any for the Court to confront the issue of the
constitutionality of the Joint Congressional Oversight Committee created under RA 9335 Congressional
oversight is not unconstitutional per se. It neither necessarily constitutes an encroachment on the executive
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power to implement laws nor undermines the constitutional separation of powers. Rather, it is integral to the
checks and balances inherent in a democratic system of government. It may in fact even enhance the
separation of powers as it prevents the over-accumulation of power in the executive branch. However, to
forestall the danger of congressional encroachment "beyond the legislative sphere," the Constitution imposes
two basic and related constraints on Congress. It may not vest itself, any of its committees or its members with
either executive or judicial power. And, when it exercises its legislative power, it must follow the "single, finely
wrought and exhaustively considered procedures" specified under the Constitution, including the procedure for
enactment of laws and presentment. Thus, any post-enactment congressional measure should be limited to
scrutiny and investigation. Any action or step beyond that will undermine the separation of powers guaranteed
by the Constitution. Legislative vetoes fall in this class. Legislative veto is a statutory provision requiring the
President or an administrative agency to present the proposed implementing rules and regulations of a law to
Congress which, by itself or through a committee formed by it, retains a "right" or "power" to approve or
disapprove such regulations before they take effect. As such, a legislative veto in the form of a congressional
oversight committee is in the form of an inward-turning delegation designed to attach a congressional leash,
other than through scrutiny and investigation, to an agency to which Congress has by law initially delegated
broad powers. It changes the design or structure of the powers of the branches of the government as it
entrusts to Congress a direct role in enforcing, applying or implementing its own laws. Administrative
regulations enacted by administrative agencies to implement and interpret the law which they are entrusted to
enforce have the force of law. They enjoy the presumption of constitutionality and legality until they are set
aside with finality in an appropriate case by a competent court. In exercising discretion to approve or
disapprove the IRR based on a determination of whether or not they conformed with the provisions of RA
9335, Congress appropriated judicial power unto itself, a power exclusively vested in this Court by the
Constitution.
Case No. 54
Kapatiran v. Tan
30 June 1988
FACTS: Four (4) petitions, which have been consolidated because of the similarity of the main issues involved
therein, seek to nullify Executive Order No. 273 (EO 273), issued by the President on 25 July 1987, to take
effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and
adopted the value-added tax (VAT), for being unconstitutional in that its enactment is not allegedly within the
powers of the President and that the VAT is oppressive, discriminatory, regressive, and violates the due
process and equal protection clauses and other provisions of the 1987 Constitution.
ISSUES:
1. Whether the President had the authority to issue EO 273.
2. Whether EO 273 is oppressive, discriminatory, unjust and regressive, in violation of the provisions of Art. VI,
sec. 28(1) of the 1987 Constitution
3. Whether EO 273 was in violation of the equal protection clause in the constitution.
RULINGS:
1. Yes, under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was
vested upon the President. Furthermore, under both the Provisional and the 1987 Constitutions, the President
is vested with legislative powers until a legislature under a new Constitution is convened. The first Congress,
created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO
273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's
constitutional power and authority to legislate.
2. No. Petitioners merely relied upon newspaper articles which are actually hearsay. To justify the nullification
of a law. there must be a clear and unequivocal breach of the Constitution, not a doubtful and argumentative
implication.
Justice Laurel stated that a tax is considered uniform when it operates with the same force and effect in every
place where the subject may be found. "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; To satisfy this requirement then, all that
is needed is that the statute or ordinance in question applies equally to all persons, firms and corporations
placed in similar situation. The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engage in business with an aggregate gross annual sales exceeding P200,000.00. Small
corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are sales of
farm and marine products, spared as they are from the incidence of the VAT, are expected to be relatively
lower and within the reach of the general public.
3. No. The Court found no merit in the contention of the petitioner Integrated Customs Brokers Association of
the Philippines that EO 273, more particularly the new Sec. 103 (r) of the National Internal Revenue Code,
unduly discriminates against customs brokers.
PAGE 40
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
The phrase "except customs brokers" is not meant to discriminate against customs brokers. It was inserted in
Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes the services of customs
brokers subject to the payment of the VAT and to distinguish customs brokers from other professionals who
are subject to the payment of an occupation tax under the Local Tax Code. The distinction of the customs
brokers from the other professionals who are subject to occupation tax under the Local Tax Code is based
upon material differences, in that the activities of customs brokers (like those of stock, real estate and
immigration brokers) partake more of a business, rather than a profession and were thus subjected to the
percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment by EO 273. EO
273 abolished the percentage tax and replaced it with the VAT. If the petitioner Association did not protest the
classification of customs brokers then, the Court sees no reason why it should protest now.
Case no. 55
RUFINO R. TAN, petitioner,
vs.
RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF
INTERNAL REVENUE, respondents.
G.R. No. 109289
October 3, 1994
Doctrines:
1. Article III, Section 1 ―No person shall be deprived of . . . property without due process of law, nor shall
any person be denied the equal protection of the laws.‖
2. Art. VI SECTION 28 ―The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.‖
Facts:
1. Petitioners challenge the constitutionality of RA 7496 or the simplified income taxation scheme (SNIT) under
Arts (28), III(1) of the 1987 constitution;
2. The SNIT contained changes in the tax schedules and different treatment in the professionals which
petitioners assail as unconstitutional for being isolative of the equal protection clause in the constitution.
Issue: Whether or not RA 7496 is unconstitutional for violating the due process?
Ruling: No. The due process clause may correctly be invoked only when there is a clear contravention of
inherent or constitutional limitations in the exercise of the tax power. No such transgression is so evident to us.
Uniformity of taxation, like the hindered concept of equal protection, merely require that all subjects or objects
of taxation similarly situated are to be treated alike both privileges and liabilities. Uniformity, does not offend
classification as long as it rest on substantial distinctions, it is germane to the purpose of the law. It is not
limited to existing only and must apply equally to all members of the same class. The legislative‘s intent is to
increasingly shift the income tax system towards the scheduled approach in taxation of individual taxpayers
and maintain the present global treatment on taxable corporations. This classification is neither arbitrary nor
inappropriate.
Case No. 56
ABAKADA GURO PARTY LIST VS. THE HONORABLE EXECUTIVE
SECRETARY EDUARDO ERMITA
G.R. NO. 168056
SEPTEMBER 1, 2005
FACTS: Petitioners question the constitutionality of the E-VAT LAW also known as RA 9337. This newly
implemented law imposed taxes on commodities that in the past were tax exempt, such as petroleum,
electricity and services to name a few. Aside from this, the law also increased sin taxes, or taxes on alcoholic
beverages and cigarettes. Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against the output tax. It states, in part: "Provided,
that the input tax inclusive of the input VAT carried over from the previous quarter that may be credited in every
quarter shall not exceed seventy percent (70%) of the output VAT. Petitioners believe that this provision
violates the constitutional guarantee of equal protection of the law under Article III, Section 1 of the
Constitution, as the limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or (2)
invests in capital equipment; or (3) has several transactions with the government, is not based on real and
substantial differences to meet a valid classification.
ISSUE: Whether Section 8 of RA 9337 violates the Equal Protection Clause.
PAGE 41
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
RULING: NO. The equal protection clause under the Constitution means that "no person or class of persons
shall be deprived of the same protection of laws which is enjoyed by other persons or other classes in the
same place and in like circumstances."
The power of the State to make reasonable and natural classifications for the purposes of taxation has long
been established. Whether it relates to the subject of taxation, the kind of property, the rates to be levied, or
the amounts to be raised, the methods of assessment, valuation and collection, the State‘s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or
invests in capital equipment, or has several transactions with the government, is not based on real and
substantial differences to meet a valid classification. The argument is pedantic, if not outright baseless. The
law does not make any classification in the subject of taxation, the kind of property, the rates to be levied or the
amounts to be raised, the methods of assessment, valuation and collection. Petitioners‘ alleged distinctions are
based on variables that bear different consequences. While the implementation of the law may yield varying
end results depending on one‘s profit margin and value-added, the Court cannot go beyond what the
legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things
without distinction. This might in fact sometimes result in unequal protection. What the clause requires is
equality among equals as determined according to a valid classification. By classification is meant the grouping
of persons or things similar to each other in certain particulars and different from all others in these same
particulars.
Case No. 57
Punzalan v. Municipal Board of Manila
96 Phil 46
DOCTRINE: The Legislature may, in its discretion, select what occupations shall be taxed, and in the exercise
of that discretion it may tax all, or it may select for taxation certain classes and leave the others untaxed.
FACTS: The Municipal Board of City of Manila approved Ord. No. 3398, which imposes municipal occupation
tax on persons exercising various professions in the city and penalizes non-payment of the tax "by a fine of not
more than 200 pesos or by imprisonment of not more than six months, or by both such fine and imprisonment
in the discretion of the court." Among the professions taxed were those to which plaintiffs belong. The
ordinance was enacted pursuant to paragraph (1) of section 18 of the Revised Charter of the City of Manila (as
amended by Republic Act No. 409), which empowers the Municipal Board of said city to impose a municipal
occupation tax, not to exceed P50 per annum, on persons engaged in the various professions above referred
to. Plaintiffs sought for the annulment of Ordinance No. 3398 of the City of Manila together with the provision of
the Manila charter authorizing it and the refund of taxes collected under the ordinance but paid under protest.
They contended that while the law has authorized the City of Manila to impose the said tax, it has withheld that
authority from other chartered cities, not to mention municipalities. Plaintiffs branded the ordinance unjust and
oppressive because it creates discrimination within a class in that while professionals with offices in Manila
have to pay the tax, outsiders who have no offices in the city but practice their profession therein are not
subject to the tax.
ISSUE: WON the ordinance and the law authorizing it constituting class legislation, are unjust and oppressive
RULING: No, the Legislature may, in its discretion, select what occupations shall be taxed, and in the exercise
of that discretion it may tax all, or it may select for taxation certain classes and leave the others untaxed.
Moreover, Manila, as the seat of the National Government and with a population and volume of trade many
times that of any other Philippine city or municipality, it is of no doubt that it offers a more lucrative field for the
practice of the professions, so that it is but fair that the professionals in Manila be made to pay a higher
occupation tax than their brethren in the provinces. The ordinance imposes the tax upon every person
"exercising" or "pursuing" in the City of Manila naturally any one of the occupations named, but does not say
that such person must have his office in Manila.
Case 58
British American Tobacco v. Camacho
G.R. No. 163583
April 15, 2009
Facts: On August 20, 2008, the Court rendered a Decision partially granting the petition in this case, that
Section 145 of the NIRC, as amended by Republic Act No. 9334, is constitutional. Petitioner then filed a Motion
for Reconsideration, insisting that Section 145 of the NLRC, as amended by RA No. 9334 violate the equal
protection and uniformity of taxation clauses of the Constitution because Annex "D" brands are taxed based on
their 1996 net retail prices while new brands are taxed based on their present day net retail prices. Citing
Ormoc Sugar Co. v. Treasurer of Ormoc City, petitioner asserts that the assailed provisions accord a special or
privileged status to Annex "D" brands while at the same time discriminate against other brands.
PAGE 42
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
Issue: Whether the classification freeze provision violates the equal protection and uniformity provision of the
Constitution.
Ruling: No. The assailed law does not violate the equal protection and uniformity of taxation clauses.
As held in the assailed Decision, the instant case neither involves a suspect classification nor impinges on a
fundamental right. Consequently, the rational basis test was properly applied to gauge the constitutionality of
the assailed law in the face of an equal protection challenge. Under the rational basis test, it is sufficient that
the legislative classification is rationally related to achieving some legitimate State interest. A legislative
classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws.
The classification is considered valid and reasonable provided that:
(1) it rests on substantial distinctions;
(2) it is germane to the purpose of the law;
(3) it applies, all things being equal, to both present and future conditions; and
(4) it applies equally to all those belonging to the same class.
In this case, the first, third and fourth requisites are satisfied. The classification freeze provision was inserted in
the law for reasons of practicality and expediency. That is, since a new brand was not yet in existence at the
time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new
brand. The current net retail price, similar to what was used to classify the brands under Annex "D" as of
October 1, 1996, was thus the logical and practical choice. Further, with the amendments introduced by RA
9334, the freezing of the tax classifications now expressly applies not just to Annex "D" brands but to newer
brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be
introduced in the future. Also an examination of the legislative history of RA 8240 provides that the
classification freeze provision could hardly be considered arbitrary, or motivated by a hostile or oppressive
attitude to unduly favor older brands over newer brands. Since the classification freeze provision was the main
the result of Congress's earnest efforts to improve the efficiency and effectivity of the tax administration over
sin products while trying to balance the same with other State interests. Consequently, there can be no denial
of the equal protection of the laws since the rational-basis test is amply satisfied.
Moreover, such law does not violate the uniformity of taxation clause. In the instant case, there is no question
that the classification freeze provision meets the geographical uniformity requirement because the assailed law
applies to all cigarette brands in the Philippines. And, for reasons already adverted to in our August 20, 2008
Decision, the above four-fold test has been met in the present case, since, uniformity does not forfend
classification. Lastly, petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted
municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any
subsequently established sugar central from its coverage. Thus, the ordinance was found unconstitutional on
equal protection grounds because its terms do not apply to future conditions as well. This is not the case here.
The classification freeze provision uniformly applies to all cigarette brands whether existing or to be introduced
in the market at some future time. It does not purport to exempt any brand from its operation nor single out a
brand for the purpose of imposition of excise taxes.
Case No. 59
CIR v. St. Luke’s Medical Center
GR Nos. 195909 and 195960
26 September 2012
Facts: St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and non-profit
corporation. The Bureau of Internal Revenue (BIR) assessed St. Luke's deficiency taxes amounting to
₱76,063,116.06 for 1998, comprised of deficiency income tax, value-added tax, withholding tax on
compensation and expanded withholding tax. St. Luke's filed an administrative protest with the BIR against the
deficiency tax assessments. The BIR did not act on the protest within the 180-day period under Section 228 of
the NIRC. Thus, St. Luke's appealed to the CTA. The BIR argued before the CTA that Section 27(B) of the
NIRC, which imposes a 10% preferential tax rate on the income of proprietary non-profit hospitals, should be
applicable to St. Luke's. The BIR also claimed that St. Luke's was actually operating for profit in 1998 because
only 13% of its revenues came from charitable purposes. Moreover, the hospital's board of trustees, officers
and employees directly benefit from its profits and assets. St. Luke's contended that the BIR should not
consider its total revenues, because its free services to patients was ₱218,187,498 or 65.20% of its 1998
operating income of ₱334,642,615. St. Luke's also claimed that its income does not inure to the benefit of any
individual. St. Luke's maintained that it is a non-stock and non-profit institution for charitable and social welfare
purposes under Section 30(E) and (G) of the NIRC. It argued that the making of profit per se does not destroy
its income tax exemption. The Court of Tax Appeals held that petitioner shall pay the deficiency income tax
and deficiency expanded withholding tax for the taxable year 1998 in the respective amounts of in the sum of
₱6,275,370.38. The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution covered by
Section 30(E) and (G) of the NIRC. This ruling would exempt all income derived by St. Luke's from services to
its patients, whether paying or non-paying.
Issue: Whether St. Luke's is liable for deficiency income tax in 1998 under Section 27(B) of the NIRC, which
imposes a preferential tax rate of 10% on the income of proprietary non-profit hospitals.
PAGE 43
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
Ruling: Yes, The Court partly grants the petition of the BIR but on a different ground.
The issue involves the effect of the introduction of Section 27(B) in the NIRC of 1997 vis-à-vis Section 30(E)
and (G) on the income tax exemption of charitable and social welfare institutions. The 10% income tax rate
under Section 27(B) specifically pertains to proprietary educational institutions and proprietary non-profit
hospitals. Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit
hospitals under Section 30(E) and (G). Section 27(B) is to subject the taxable income of two specific
institutions, namely, proprietary non-profit educational institutions and proprietary non-profit hospitals, among
the institutions covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary
30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1). There is no dispute
that St. Luke's is organized as a non-stock and non-profit charitable institution. However, this does not
automatically exempt St. Luke's from paying taxes. Even if St. Luke's meets the test of charity, a charitable
institution is not ipso facto tax exempt. In 1998, St. Luke's had total revenues of ₱1,730,367,965 from services
to paying patients. It cannot be disputed that a hospital which receives approximately ₱1.73 billion from paying
patients is not an institution "operated exclusively" for charitable purposes. Indeed, St. Luke's admits that it
derived profits from its paying patients.
The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or social welfare
purposes insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict
interpretation of a provision granting tax exemption, but also on the clear and plain text of Section 30(E) and
(G). Section 30(E) and (G) of the NIRC requires that an institution be "operated exclusively" for
charitable or social welfare purposes to be completely exempt from income tax. An institution under
Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit activities. Such
income from for-profit activities, under the last paragraph of Section 30, is merely subject to income
tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section
27(B).
A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared
from sharing in the expenses of government and yet benefits from them. Tax exemptions for charitable
institutions should therefore be limited to institutions beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to exploit this subsidy to the detriment of the government
and other taxpayers. St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income. However, it remains a proprietary non-profit hospital under Section
27(B) of the NIRC as long as it does not distribute any of its profits to its members and such profits are
reinvested pursuant to its corporate purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to the
preferential tax rate of 10% on its net income from its for-profit activities.
Case #60
Association of Customs Brokers v. City of Manila
G.R. No. L-4376
May 22, 1953
DOCTRINE: The rule of uniformity in taxation applies to property of like kind and character and similarly
situated, and a tax, in order to be uniform, must operate alike on all persons, things, or property, similarly
situated.
FACTS: On March 24, 1950, the City of Manila implemented Municipal Ordinance No. 3379. The Association
of Customs Brokers, Inc., which is composed of all brokers and public service operators of motor vehicles in
the City of Manila, and G. Manlapit, Inc., a member of said association, also a public service operator of the
trucks in said City, challenge the validity of said ordinance on the ground that (1) while it levies a so-called
property tax it is in reality a license tax which is beyond the power of the Municipal Board of the City of Manila;
(2) said ordinance offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.
ISSUE: Whether the said ordinance violates the uniformity of taxation.
RULING: Yes. The Court ruled that the ordinance infringes the rule of the uniformity of taxation ordained
by our Constitution. While the tax in the Ordinance refers to property tax and it is fixed ad valorem, it is
merely levied on all motor vehicles operating within Manila with the main purpose of raising funds to be
expended exclusively for the repair, maintenance and improvement of the streets and bridges in said city. The
ordinance imposes a license fee although under the cloak of an ad valorem tax to circumvent the prohibition in
the Motor Vehicle Law. Further, it does not distinguish between a motor vehicle for hire and one which is purely
for private use. It does not distinguish between a motor vehicle registered in Manila and one registered in
another place but occasionally comes to Manila and uses its streets and public highways. The distinction is
necessary if the ordinance intends to burden with tax only those registered in Manila as may be inferred from
the word ―operating‖ used therein. There is an inequality in the ordinance which renders it offensive to the
Constitution.
Case 61
PAGE 44
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
ABAKADA GURO PARTY LIST vs. ERMITA
G.R. No. 168056
September 1, 2005
FACTS: This is a consolidated case. One of the petitioners in one petition, the Association of Pilipinas Shell
Dealers et. al. assailed the following provisions of RA No. 9337:
1. Section 8 (amending Section 110 (A)(2) of NIRC): requiring that the input tax on depreciable goods
shall be amortized over 60-month period, if the acquisition cost (excluding the VAT component)
exceeds 1million pesos
2. Section 8 (amending Section 110 (B) of NIRC): imposing 70% limit on the amount of input tax to be
credited against the output tax [NOTE: No more 70% limit, this was already repealed by R.A. No.
9361, see Tax Code]
3. Section 12 (amending Section 114(c) of NIRC): authorizing the Government or any of its political
subdivisions etc. to deduct 5% final withholding tax on gross payments of goods and services subject to
VAT
They contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive and
confiscatory. They contested the sections which impose limitations on the amount of input tax that may be
claimed. They argue that the input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law. Furthermore, the input tax credit (like any other
property or property rights) may be transferred or disposed of, and that by limiting the same, the government
gets to tax a profit or value-added even if there is no profit or value-added. The petitioners also believe that
these provisions violate the constitutional guarantee of equal protection of law as the limitation on the
creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has
several transactions with the government, is not based on real and substantial differences to meet a valid
classification. Lastly, they contend that the 70% limit is anything but progressive, violative of Article VI
Section 28(1) of the Constitution – ―The rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.‖
ISSUE: Whether Section 8 is violative of Article VI Sec 28 of the Constitution.
RULING: Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be
taxed at the same rate. In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
12%) on all goods and services. Neither does the law make any distinction as to the type of industry or trade
that will bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of
capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of uniform
taxation does not deprive Congress of the power to classify subjects of taxation, and only demands
uniformity within the particular class. R.A. No. 9337 is also equitable. The law is equipped with a
threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with
gross annual sales or receipts not exceeding P1.5million.
Case No. 62
FRANCIS A. CHURCHILL and STEWART TAIT v. VENANCIO CONCEPCION
G.R. No. 11572
September 22, 1916
FACTS: Plaintiffs were copartners doing business known as Mercantile Advertising Agency, and owners of a
sign or billboard. They were taxed in accordance with section 100 of Act No. 2339, which imposed an annual
tax of P4 per square meter upon "electric signs, billboards, and spaces used for posting or displaying
temporary signs, and all signs displayed on premises not occupied by buildings.‖ This law was later amended
by Act No. 2432, which reduced the tax to P2 per square meter. The tax was paid under protest and the
plaintiffs having exhausted all their administrative remedies instituted an action against the Collector of Internal
Revenue to recover back the amount paid. They contend that the tax imposed constitutes deprivation of
property without compensation or due process of law, because it is confiscatory and unjustly discriminatory
and that the tax is void for lack of uniformity, because it is not graded according to value; the classification on
which it is based is mere arbitrary selection and not based on any reasonable ground; and furthermore,
because it constitutes double taxation.
ISSUE: Whether or not the tax imposed by virtue of Section 100 of Act No. 2339 is valid as the legislature has
exceeded its authority conferred upon it by the Constitution as the tax imposed lacks uniformity.
RULING: The tax imposed is valid. "Uniformity in taxation — says Black on Constitutional Law, page 292 —
means that all taxable articles or kinds of property, of the same class, shall be taxed at the same rate. It does
not mean that lands, chattels, securities, incomes, occupations, franchises, privileges, necessities, and
luxuries, shall all be assessed at the same rate. Different articles may be taxed at different amounts, provided
the rate is uniform on the same class everywhere, with all people, and at all times. A tax is uniform when it
operates with the same force and effect in every place where the subject of it is found. It does not signify an
intrinsic, but simply a geographical, uniformity, and such uniformity is therefore the only uniformity which is
prescribed by the Constitution. "Uniformity," as applied to the constitutional provision that all taxes shall be
PAGE 45
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
uniform, means that all property belonging to the same class shall be taxed alike. The statute under
consideration imposes a tax of P2 per square meter or fraction thereof upon every electric sign, bill-board, etc.,
wherever found in the Philippine Islands. Or in other words, "the rule of taxation" upon such signs is uniform
throughout the Islands. The rule, under the PH Constitution that ‖the rule of taxation shall be uniform and
equitable‖, does not require taxes to be graded according to the value of the subject or subjects upon which
they are imposed, especially those levied as privilege or occupation taxes.
Case No. 63
Casanovas vs. Hord
G.R. No. L-3473
March 22, 1907
DOCTRINE: A government may make a valid contract with an individual in respect to taxation, which contract
can be enforced against it.
FACTS:
1. In 1897, the Spanish Government, in accordance with the provisions of the royal decree of the 14th of
May, 1867, granted Casanovas certain mines in the said Province of Ambos Camarines, of which
mines Casanovas is now the owner.
2. The grant stated the payment of certain taxes annually and expressly declared that no other taxes shall
be imposed upon these mines.
3. The defendant, Collector of Internal Revenue, imposed upon said properties tax mentioned in section
134 of Act No. 1189 (Internal Revenue Act). This section provides the collection of certain taxes on all
valid perfected mining concessions granted prior April 11, 1899.
4. There was no dispute that these mining concessions were valid mining concessions granted prior April
11, 1899. However, Casanovas claims that Section 134 is void because it comes within the provision
of section 5 of the act of Congress of July, 1902, which provides ―that no law impairing the obligations
of contracts shall be enacted.‖
ISSUE: Whether section 134 is valid.
RULING: Section 134 of the Internal Revenue Law of 1904 (Act No. 1189) is void because it impairs the
obligation of the contracts contained in the concessions of mines made by the Spanish Government. The royal
decree of the 14th of May, 1867 constituted a contract between the Spanish Government and the plaintiff, the
obligation of which contract was impaired by the enactment of section 134 of the Internal Revenue Law above
cited, thereby infringing the provisions above quoted from section 5 of the act of Congress of July 1, 1902.
Case No. 64
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI) vs. PROVINCIAL ASSESSOR OF SOUTH
COTABATO
GR No. 144486
April 13, 2005
SECTION 14 OF R.A. 2036 (for reference):
(FIRST SENTENCE) In consideration of the franchise and rights hereby granted and any provision of law to
the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be
required by law, from other individuals, co-partnerships, private, public or quasi-public associations,
corporations or joint stock companies, on real estate, buildings, and other personal property except
radio equipment, machinery and spare parts needed in connection with the business of the grantee,
which shall be exempt from customs duties, tariffs and other taxes, as well as those properties declared
exempt in this section. In consideration of the franchise, a tax equal to one and one-half per centum of all gross
receipts from the business transacted under this franchise by the grantee shall be paid to the Treasurer of the
Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act.
(THIRD SENTENCE) (IN-LIEU OF ALL TAXES CLAUSE) Said tax shall be in lieu of any and all taxes of
any kind, nature or description levied, established or collected by any authority whatsoever, municipal,
provincial or national, from which taxes the grantee is hereby expressly exempted.
FACTS: The Radio Communications of the Philippines, Inc. (RCPI) was granted a fifty-year franchise by the
Government through R.A. 2036. As the municipal treasurer assessed RCPI real property from 1981 to 1985, it
demanded that the RCPO to pay Php 166,810 as real property tax on the following:
1. Radio station building;
2. Machinery shed;
3. Radio relay station tower and accessories; and
PAGE 46
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
4. Two units machinery
RCPI protested the assessment stating that it is exempted from paying real estate tax. To support its claim
RCPI adduced the following:
1. The assessed properties are not real property but are personal property; and
2. Assuming they are real property, RCPI is still tax-exempt because of the ―in-lieu of all taxes‖ clause
under Section 14 of its franchise.
RCPI stressed that any deviation from its franchise would violate the non-impairment of contract clause of the
Constitution.
RULING: The radio station building, machinery shed and radio relay station are real properties and are thus
subject to the real property tax because Section 14 of the franchise only excluded ―radio equipment,
machinery, and spare parts needed in connection with its business. Moreover, the ―in-lieu of all taxes‖ clause in
Section 14 cannot exempt RCPI from real estate tax because the first sentence of Section 14 expressly states
that “the grantee shall pay the same taxes as are now or may hereafter required by law x x x on real
estate x x x.” The clause in the third sentence cannot negate the first sentence of the same section. This
means that the real estate tax is an exception of the ―in-lieu of all taxes‖ clause. Hence, RCPI cannot invoke
the non-impairment clause since no legal right of RCPI was violated.
CASE No. 65
City Government of Quezon City v. Bayan Telecommunications, Inc.
G.R. No.162015
March 6, 2006
DOCTRINE: ―If there is a clash between the inherent taxing power of the legislature, which necessarily
includes the power to exempt, and the local government’s delegated power to tax under the 1987 Constitution,
such must be ruled in favor of the inherent taxing power of the legislature.‖
FACTS: Bayan Telecommunications, Inc. (Bayantel – Respondent) is a legislative franchise holder under
Republic Act (RA) No. 3259 to establish and operate radio stations for domestic telecommunications,
radiophone, broadcasting and telecasting. Section 14 (a) of the RA exempt franchise holder to pay realty tax.
―The grantee shall be liable to pay the same taxes on its real estate, buildings and personal property, exclusive
of the franchise, xxx‖. However, in 1992, R.A. No. 7160, otherwise known as the ―Local Government Code of
1991‖ (LGC) took effect. Section 232 of the Code grants local government units within the Metro Manila Area
the power to levy tax on real properties. Moreover, Section 234 second paragraph of the same Code withdrew
any exemption from realty tax heretofore granted to or enjoyed by all persons, natural or juridical. But then
again, few months later after LGC took effect, Congress enacted R.A. No. 7633, amending Bayantel‘s original
franchise. Section 11 of which reenact Section 14 (a) of RA No. 3259 exempting them to pay realty tax. ―The
grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, xxx―.
In 1993, the government of Quezon City, pursuant to its taxing power as an LGU, enacted an ordinance
otherwise known as the Quezon City Revenue Code withdrawing tax exemption privileges. Section 5 thereof, a
real property tax on all real properties in Quezon City, and, reiterating in its Section 6, the withdrawal of
exemption from real property tax under Section 234 of the LGC. Because of this, Bayantel wrote the office of
the City Assessor seeking the exclusion of its real properties in the city from the roll of taxable real properties.
But it was denied. Thus, Bayantel interposed an appeal with the Local Board of Assessment Appeals (LBAA).
Also, Bayantel did not pay the real property taxes prompting Quezon City Treasurer to sent out notices of
delinquency followed by the issuance of several warrants of levy against Bayantel‘s properties for its sale at a
public auction. Then, Bayantel immediately withdrew its appeal and instead filed with the RTC-QC a petition for
prohibition with an urgent application for a temporary restraining order (TRO) and/or writ of preliminary
injunction. The trial court ruled in favor of Bayantel. Hence this petition.
ISSUES: Whether the real properties of Bayantel in Quezon City are exempt from real property taxes.
RULING: Yes, Bayantel’s real property in Quezon City are exempt from real property taxes under its
franchise.
The Court emphasized that the power to tax is primarily vested in the Congress. As a rule, the grant of
taxing powers to local government units under the Constitution and the LGC does not affect the power of
Congress to grant exemptions to certain persons, pursuant to a declared national policy. Thus, if there is a
clash between the inherent taxing power of the legislature, which necessarily includes the power to exempt,
and the local government’s delegated power to tax under the 1987 Constitution, such must be ruled in favor of
the inherent taxing power of the legislature. The Court also emphasized that since R. A. No. 7633 was
enacted subsequent to the LGC, the Congress is perfectly aware that the LGC has already withdrawn
Bayantel’s former exemption from realty taxes. Thus, the Congress using, Section 11 thereof with
exactly the same defining phrase “exclusive of this franchise” is the basis for Bayantel’s exemption
from realty taxes prior to the LGC. Moreover, the Court views this subsequent piece of legislation as an
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3JD-SP
express and real intention on the part of Congress to once again remove from the LGC‘s delegated taxing
power, all of the franchisee‘s (Bayantel‘s) properties that are actually, directly and exclusively used in the
pursuit of its franchise. Thus, the Court denied the Petition of the City Government of Quezon City.
Case No. 66
Smart Communications v. City of Davao,
G.R. No. 155491
16 September 2008
FACTS: Smart filed a special civil action for declaratory relief under Rule 63 of the Rules of Court, for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao, particularly Section 1,
Article 10. Smart contends that its telecenter in Davao City is exempt from payment of franchise tax to the City,
on the following grounds: (a) the issuance of its franchise under Republic Act (R.A.) No. 72945; (b) Section 137
of R.A. No. 7160 can only apply to exemptions already existing at the time of its effectivity and not to future
exemptions; (c) the power of the City of Davao to impose a franchise tax is subject to statutory limitations such
as the "in lieu of all taxes" clause found in Section 9 of R.A. No. 7294; and (d) the imposition of franchise tax
by the City of Davao would amount to a violation of the constitutional provision against impairment of
contracts.
Respondents filed their Answer in which they contested the tax exemption claimed by Smart. They invoked the
power granted by the Constitution to local government units to create their own sources of revenue. And on
July 19, 2002, the RTC rendered its Decision denying the petition. The trial court noted that the ambiguity of
the "in lieu of all taxes" provision in R.A. No. 7294, on whether it covers both national and local taxes, must be
resolved against the taxpayer. On the issue of violation of the non-impairment clause of the Constitution, the
trial court cited Mactan Cebu International Airport Authority v. Marcos, and declared that the city's power to tax
is based not merely on a valid delegation of legislative power but on the direct authority granted to it by the
fundamental law. Smart filed a motion for reconsideration but was denied by the trial court. Thus, the instant
case.
ISSUE: Whether the imposition of the local franchise tax by the City of Davao would violate the constitutional
prohibition against impairment of contracts.
RULING: No, the imposition of the local franchise tax by the City of Davao would not violate the constitutional
prohibition against impairment of contracts.
The Court held that there is no violation of Article III, Section 10 of the 1987 Philippine Constitution. As
previously discussed, the franchise of Smart does not expressly provide for exemption from local taxes. Absent
the express provision on such exemption under the franchise, the Court is constrained to rule against it. The
"in lieu of all taxes" clause in Section 9 of R.A. No. 7294 leaves much room for interpretation. Due to this
ambiguity in the law, the doubt must be resolved against the grant of tax exemption. Moreover, Smart's
franchise was granted with the express condition that it is subject to amendment, alteration, or repeal.
Case No. 67
QUEZON CITY vs. ABS-CBN BROADCASTING CORPORATION
G.R. No. 166408
October 6, 2008
FACTS: ABS-CBN was granted a franchise which provides that it ―shall pay a 3% franchise tax and the said
percentage tax shall be ―in lieu of all taxes on this franchise or earnings thereof‖. It thus filed a complaint
against the imposition of local franchise tax.
ISSUE: Does the ―in lieu of all taxes‖ provision in ABS-CBN‘s franchise exempt it from payment of the local
franchise tax?
HELD: NO. The right to exemption from local franchise tax must be clearly established beyond reasonable
doubt and cannot be made out of inference or implications.
The uncertainty over whether the ―in lieu of all taxes‖ provision pertains to exemption from local or national
taxes, or both, should be construed against Respondent who has the burden to prove that it is in fact covered
by the exemption claimed. Furthermore, the ―in lieu of all taxes‖ clause in Respondent‘s franchise has become
ineffective with the abolition of the franchise tax on broadcasting companies with yearly gross receipts
exceeding P10 million as they are now subject to the VAT.
Case 68
AMERICAN BIBLE SOCIETY vs. CITY OF MANILA
G.R. No. L-9637
April 30, 1957
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
FACTS: American Bible Society is a foreign, non-stock, non-profit, religious, missionary corporation duly
registered and doing business in the Philippines through its Philippine agency established in Manila in
November 1898. This Bible Society has been engaged in distributing and selling bibles and portions thereof in
English and local dialects. The City Treasurer of Manila informed the former that it was already conducting the
business of general merchandise since November 1945, without the necessary Mayor's permit and municipal
license in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364.
Moreover, he required the American Bible Society to secure the permits and licenses with license fees together
with compromise covering the period from the 4th quarter of 1945 to the 2nd quarter of 1953, in the total sum
of P5,821.45. License fees on the sales of bibles was required in order to conform to the ordinances that those
engaged in general merchandise must pay license fee. The American Bible Society complained about these
requirements. In spite of that, it paid the amount under protest and contended that the Ordinances No. 3000,
as amended, and Ordinances Nos. 2529, 3028 and 3364 illegal and unconstitutional.
ISSUE: May the permit and license fee required by the questioned ordinances be imposed on a religious
association like the American Bible Society?
RULING: No. Article III of the Constitution of the Republic of the Philippines, provides that:
No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof,
and the free exercise and enjoyment of religious profession and worship, without discrimination or
preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political
rights.
"We do not mean to say that religious groups and the press are free from all financial burdens of government.
We have here something quite different, for example, from a tax on the income of one who engages in
religious activities or a tax on property used or employed in connection with activities. It is one thing to impose
a tax on the income or property of a preacher. It is quite another to exact a tax from him for the privilege of
delivering a sermon. The power to tax the exercise of a privilege is the power to control or suppress its
enjoyment. . . . Those who can tax the exercise of this religious practice can make its exercise so costly as to
deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this
form of missionary evangelism can close all its doors to all those who do not have a full purse. Spreading
religious beliefs in this ancient and honorable manner would thus be denied the needy. It is a license tax — a
flat tax imposed on the exercise of a privilege granted by the Bill of Rights. The power to impose a license tax
on the exercise of these freedom is indeed as potent as the power of censorship which this Court has
repeatedly struck down. It is not a nominal fee imposed as a regulatory measure to defray the expenses of
policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a
condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and
religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent
vice and evil of this flat license tax."
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in
the business or occupation of selling said "merchandise" for profit. The questioned ordinances requiring permit
and license fees were not declared by the court as unconstitutional but it did not apply them on the American
Bible Society. The City of Manila is powerless to license or tax the business of plaintiff Society involved herein
because it would impair plaintiff's right to the free exercise and enjoyment of its religious profession and
worship, as well as its rights of dissemination of religious beliefs. Imposition of license tax is a burden that
restricts the exercise of religious freedom. It is as if the exercise and enjoyment of religious freedom is
conditioned upon the compliance of the required license tax.
Case No. 69
Arturo M. Tolentino v. The Secretary of Finance and the Commissioner of the Internal Revenue.
G.R. No. 115455
August 25, 1994
FACTS: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well
as on the sale or exchange of services. It is equivalent to 10% of the gross selling price or gross value in
money of goods or properties sold, bartered or exchanged or of the gross receipts from the sale or exchange
of services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code. Petitioners question the law insofar as it has
withdrawn the exemption previously granted under Section 103 (f) of the NIRC with the result that print media
became subject to the VAT with respect to all aspects of their operations. Section 103 of the NIRC contains a
list of transactions exempted from VAT. Among the transactions previously granted exemption were:
(f) Printing, publication, importation or sale of books and any newspaper, magazine, review, or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is devoted
principally to the publication of advertisements.
Also, petitioners claim that Sec.107 of RA 7716 is a censorship.
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
ISSUE: Whether Republic Act No. 7716 violates the provisions of Section 5 in the Bill of Rights?
RULING: The Court held that an ordinance of the City of Manila, which imposed a license fee on those
engaged in the business of general merchandise, could not be applied to the appellant's sale of bibles and
other religious literature. This Court relied on Murdock v. Pennsylvania, in which it was held that, as a license
fee is fixed in amount and unrelated to the receipts of the taxpayer, the license fee, when applied to a religious
sect, was actually being imposed as a condition for the exercise of the sect's right under the Constitution. For
that reason, it was held, the license fee "restrains in advance those constitutional liberties of press and religion
and inevitably tends to suppress their exercise."
But, in this case, the fee in Section 107, although a fixed amount (P1,000), is not imposed for the exercise of a
privilege but only for the purpose of defraying part of the cost of registration. The registration requirement is a
central feature of the VAT system. It is designed to provide a record of tax credits because any person who is
subject to the payment of the VAT pays an input tax, even as he collects an output tax on sales made or
services rendered. The registration fee is thus a mere administrative fee, one not imposed on the exercise of a
privilege, much less a constitutional right. In Jimmy Swaggart Ministries v. Board of Equalization, U.S.
Supreme Court unanimously held that the Free Exercise of Religion Clause does not prohibit imposing a
generally applicable sales and use tax on the sale of religious materials by a religious organization. Therefore,
the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of
religion, nor deny to any of the parties the right to an education.
Case No.70
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,(CREBA) vs. THE COMMISIONER
OF INTERNAL REVENUE
G.R. No. 115754
August 25, 1994
FACTS: Various suits for certiorari and prohibition were filed challenging the constitutionality of Republic Act
No. 7716, CREBA is among those petitioners included in the consolidated case. Petitioner CREBA filed a
petition challenging that the provisions of Rep. Act No. 7716 imposing a 10% value-added tax on the gross
selling price or gross value in money of every sale, barter or exchange of goods or properties (Section 2) and a
10% value-added tax on gross receipts derived from the sale or exchange of services, including the use or
lease of properties (Section 3), violate the equal protection, due process and non-impairment provisions of the
Constitution as well as the rule that taxation should be uniform, equitable and progressive. CREBA specifically
assails the 10% value-added tax on the gross selling price of real properties, fails to distinguish between a sale
of real properties primarily held for sale to customers or held for lease in the ordinary course of trade or
business and isolated sales by individual real property owners (Sec. 103[s])
ISSUES:
1. Whether R.A. No. 7716 violated the equal protection, due process and non-impairment provisions of
the Constitution
2. Whether the value-added tax is uniform, equitable and progressive
HELD:
A. No. The qualification in the law that the 10% VAT covers only sales of real property primarily held for sale
to customers, i.e. for trade or business thus takes into consideration a taxpayer's capacity to pay. There is no
showing that the consequent distinction in real estate sales is arbitrary and in violation of the equal protection
clause of the Constitution. The inherent power to tax of the State, which is vested in the legislature, includes
the power to determine whom or what to tax, as well as how much to tax. In the absence of a clear showing
that the tax violates the due process and equal protection clauses of the Constitution, this Court, in keeping
with the doctrine of separation of powers, has to defer to the discretion and judgment of Congress on this point.
B. Yes, In Kapatiran v. Tan, the Court held the validity of the original VAT law (Executive Order No. 273,
approved on 25 July 1987), as Justice Laurel stated in Philippine Trust Company v. Yatco (69 Phil. 420), ‗A tax
is considered uniform when it operates with the same force and effect in every place where the subject may be
found.‘
There was no occasion in that case to consider the possible effect on such a constitutional requirement where
there is a classification. The opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862). Thus:
‗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; . . .‘ About two years later, Justice Tuason, speaking for this Court in Manila Race
Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his opinion and
continued; ‗Taking everything into account, the differentiation against which the plaintiffs complain conforms to
the practical dictates of justice and equity and is not discriminatory within the meaning of the Constitution.‘
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
"To satisfy this requirement then, all that is needed as held in another case decided two years later, (Uy Matias
v. City of Cebu, 93 Phil. 300) is that the statute or ordinance in question ‗applies equally to all persons, firms
and corporations placed in similar situation.‘ This Court is on record as accepting the view in a leading
American case (Carmichael v. Southern Coal and Coke Co., 301 US 495) that ‗inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation.‘ (Lutz v.
Araneta, 98 Phil. 148, 153)."
Case No. 71
Hospital de San Juan de Dios v. Pasay City
16 SCRA 226
FACTS: On July 24, 1954 and May 27, 1957, appellant paid, under protest, to the City the amounts of P829.60
and P879.90, respectively, representing electrical inspection fees allegedly due it from appellant under Section
5, Ordinance No. 7, series of 1945, as amended by Ordinance No. 22, series of 1947 and further amended by
Ordinance No. 54, series of 1955. Appellant claimed that it should be exempted from the payment of the
inspection fees since it is a charitable institution. However, it was compelled to pay because of the refusal of
appellees Pablo Cuneta, as Mayor, and R. N. Ascaño, as City Engineer, to issue a building permit to make
additional constructions applied for by appellant. The appellant then filed an action to recover from appellees
the amounts it had paid as electrical inspection fees as well as the sum of P500.00 as attorney's fees and the
costs of suit. The trial court held that it ―is not actually being managed and operated as a charitable institution
but one for profit" and, as such, "is not entitled to the relief sought in the present action."
ISSUE: Whether or not appellant is a charitable institution and, as such exempt from the payment of the
inspection fees.
RULING: The Supreme Court disagreed with the ruling of the trial court that Hospital de San Juan de Dios is
not entitled to the relief sought in the present action because it is not actually being managed and operated as
a charitable institution but one for profit. It not being disputed that appellant was organized as a charitable
institution, the presumption is that it is operating as such, the burden of proof being on appellees to show that it
is operating otherwise. The record does not show that they have satisfactorily discharged this burden. The
making of profit does not destroy the tax exemption of a charitable, benevolent or educational institution. The
question of whether or not appellant and other institutions similarly situated and operated are charitable
institutions has been decided both here and in the United States. The American rule is summarized in 51
American Jurisprudence, p. 607, as follows:
636. Effect of Receipt of Pay from Patients.
The general rule that a charitable institution does not lose its charitable character and its consequent
exemption from taxation merely because recipients of its benefits who are able to pay are required to
do so, where funds derived in this manner are devoted to the charitable purposes of the institution,
applies to hospitals. A hospital owned and conducted by a charitable organization, devoted for the most
part to the gratuitous care of charity patients, is exempt from taxation as a building used for "purposes
purely charitable", notwithstanding it receives and cares for pay patients, where any profit thus derived
is applied to the purposes of the institution. An institution established, maintained, and operated for the
purpose of taking care of the sick, without any profit or view to profit, but at a loss, which is made up by
benevolent contributions, the benefits of which are open to the public generally, is a purely public
charity within the meaning of a statute exempting the property of institutions of purely public charity
from taxation; the fact that patients who are able to pay are charged for services rendered, according to
their ability, being of no importance upon the question of the character of the institution.
Case No. 72
COMMISSIONER v. COURT OF APPEALS
G.R. No. L-124043
October 14, 1998
FACTS: Private Respondent Young Men‘s Christian Association of the Philippines, INC. (YMCA) is a nonstock, non-profit institution, which conducts various programs and activities that are beneficial to the public,
especially the young people, pursuant to its religious, educational and charitable objectives. In 1980, YMCA
earned, among others, an income of P676, 829.80 from leasing out a portion of its premises to small shop
owners and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the Commissioner of
Internal Revenue (CIR) issued an assessment to YMCA of an amount of P415,615.01 including surcharge and
interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. YMCA formally protested the assessment and filed a letter dated October
8, 1985. In reply, CIR denied the claims of YMCA. Contesting the denial of its protest, YMCA filed a petition for
review at the CTA on March 14, 1989. In due course, the CTA issued a ruling in favor of the YMCA.
Dissatisfied with the CTA ruling, the CIR elevated the case to the CA. CA issued 2 Resolutions affirming the
Decision of the CTA allowing YMCA to claim tax exemption on the latter‘s income from the lease of its real
property.
ISSUE: Is the rental Income of the YMCA from its real estate subject to tax?
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DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
RULING: Yes. YMCA rental income from its real estate should be subjected to tax. Since taxes are the
lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax
exemptions. Furthermore, a claim of statutory exemption from taxation should be manifested and unmistakable
from the language of the law on which it is based. Thus, the claimed exemption ―must expressly be granted in
a statute stated in a language too clear to be mistaken.‖ The exemption claimed by the YMCA is expressly
disallowed by the very wording of the last paragraph of then Sec. 27 of the NIRC which mandates that the
income of exempt organization from any of their properties, real or personal, be subject to the tax imposed by
the same Code. Thus the Court is duty-bound to abide strictly by its literal meaning and to refrain from
resorting to any convoluted attempt at construction.
Though YMCA invoked not only the NIRC but also Article VI, Section 28 of par. 3 of the 1987 Constitution
which exempts ―charitable institutions‖ from the payment not only of property taxes but also of income tax from
any source, however, the Court is not persuaded. Accordingly to Justice Hilario Davide, Jr., ―…What is
exempted is not the institution itself…; those exempted from real estate taxes are lands, building and
improvements actually, directly and exclusively used for religious, charitable or education purposes.‖ It
pertained only to property taxes. Thus, the income tax exemption claimed by YMCA finds no basis in the
Article VI, Sec. 28, par. 3 of the Constitution. Also, the bare allegation alone that it is a non-stock, non-profit
educational institution which should be exempted from taxes on its properties and income under Article XIV,
Sec. 4, par. 3 of the 1987 Constitution is insufficient to justify its exemption from the payment of income tax.
Laws allowing tax exemption are construed strictissimi juris. YMCA failed to present a scintilla of substantial
evidence to support that (1) it falls under the classification non-stock, non-profit education institution; and (2)
the income it seeks to be exempted from taxation is used actually, directly and exclusively for education
purposes. The court also ruled that the term ―educational institution‖ or ―institution of learning‖ has acquired a
well-known technical meaning which refers to the hierarchically structured and chronologically graded
learnings organized and provided by the formal school system and for which certification is required in order for
the learner to progress through the grades or move to the higher levels.‖
Case No. 73
Lung Center of the Philippines v. Quezon City
433 SCRA 119
2004
FACTS: The petitioner Lung Center of the Philippines is a non-stock and non-profit entity and is the registered
owner of a parcel of land located at Quezon City. Erected in the middle of the aforesaid lot is a hospital known
as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for
canteen and small store spaces, and to medical or professional practitioners who use the same as their private
clinics for their patients whom they charge for their professional services. Almost one-half of the entire area on
the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the
corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise
known as the Elliptical Orchids and Garden Center. The petitioner accepts paying and non-paying patients. It
also renders medical services to out-patients, both paying and non-paying. And the petitioner receives annual
subsidies from the government. Both the land and the hospital building of the petitioner were assessed for real
property taxes in the amount of ₱4,554,860 by the City Assessor of Quezon City. Accordingly, Tax
Declarations were issued for the land and the hospital building. The petitioner filed a Claim for Exemption from
real property taxes with the City Assessor, predicated on its claim that it is a charitable institution and was
denied. He filed before the Local Board of Assessment Appeals of Quezon City (QC-LBAA, for brevity) for the
reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the
1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its
hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to
serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from
real property taxes. The QC-LBAA dismissed the petition. The QC-LBAA‘s decision was, likewise, affirmed on
appeal by the Central Board of Assessment Appeals of Quezon City (CBAA, for brevity) which ruled that the
petitioner was not a charitable institution and that its real properties were not actually, directly and exclusively
used for charitable purposes; hence, it was not entitled to real property tax exemption under the constitution
and the law. The petitioner sought relief from the CA, which rendered judgment affirming the decision of the
CBAA.
ISSUE/S:
1. Whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and
the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160
2. Whether the real properties of the petitioner are exempt from real property taxes.
RULING/S:
1. Yes, the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To
determine whether an enterprise is a charitable institution/entity or not, the elements which should be
considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the
methods of administration, the nature of the actual work performed, the character of the services rendered, the
PAGE 52
DOTIMAS, CHRISTOPHER JAN G.
3JD-SP
indefiniteness of the beneficiaries, and the use and occupation of the properties. Hence, the Lung Center was
organized for the welfare and benefit of the Filipino people.
Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which, subject to the provisions of
the decree, is to be administered by the Office of the President of the Philippines with the Ministry of Health
and the Ministry of Human Settlements. It was organized for the welfare and benefit of the Filipino people
principally to help combat the high incidence of lung and pulmonary diseases in the Philippines. As a general
principle, a charitable institution does not lose its character as such and its exemption from taxes simply
because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted or used altogether to the charitable
object which it is intended to achieve; and no money inures to the private benefit of the persons managing or
operating the institution.
3. No. Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that
those portions of its real property that are leased to private entities are not exempt from real property
taxes as these are not actually, directly and exclusively used for charitable purposes.
What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and
immediate and actual application of the property itself to the purposes for which the charitable institution is
organized. It is not the use of the income from the real property that is determinative of whether the property is
used for tax-exempt purposes. The petitioner failed to discharge its burden to prove that the entirety of its real
property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are
used for the treatment of patients and the dispensation of medical services to them, whether paying or nonpaying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a
portion of the land is being leased to a private individual for her business enterprise under the business name
"Elliptical Orchids and Garden Center." Indeed, the petitioner‘s evidence shows that it collected ₱1,136,483.45
as rentals in 1991 and ₱1,679,999.28 for 1992 from the said lessees.
Case No. 74
Abra Valley College v. Aquino
G.R. No. L-39086
June 15, 1988
FACTS: Abra Valley College, an educational corporation and institution of higher learning duly incorporated
with the Securities and Exchange Commission in 1948 filed a complaint to annul and declare void the "Notice
of Seizure' and the "Notice of Sale" of its lot and building located at Bangued, Abra, for non-payment of real
estate taxes and penalties. Said ―Notice of Seizure‖ by respondents Municipal Treasurer and Provincial
Treasurer, defendants, was issued for the satisfaction of the said taxes thereon. The "Notice of Sale" was
caused to be served upon the petitioner by the respondent treasurers for the sale at public auction of said
college lot and building. The provincial fiscal opined that based on the evidence, the laws applicable, court
decisions and jurisprudence, the school building and the school lot used for educational purposes of Abra
Valley College are exempted from payment of taxes. Nonetheless, the trial court disagreed because of the use
of the second floor by the Director of the said school for residential purpose. He thus ruled in favour of the
government. Hence, this petition for review on certiorari with prayer for preliminary injunction.
ISSUE: Whether the lot and building are used exclusively for educational purposes
RULING: No. Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable emphasis has always
been made that exemption extends to facilities which are incidental to and reasonably necessary for the
accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the
main building in the case at bar for residential purposes of the Director and his family, may find justification
under the concept of incidental use, which is complimentary to the main or primary purpose—educational, the
lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination
be considered incidental to the purpose of education. The test of exemption from taxation is the use of the
property for purposes mentioned in the Constitution. Under the 1935 Constitution, the trial court correctly
arrived at the conclusion that the school building as well as the lot where it is built, should be taxed, not
because the second floor of the same is being used by the Director and his family for residential purposes, but
because the first floor thereof is being used for commercial purposes. However, since only a portion is used for
purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved.
Case No. 75
ABAKADA Guro Party List v. Hon. Exec. Sec. Ermita
01 September 2005
FACTS: Republic Act No. 9337 (R.A. No. 9337) was enacted to mount budget deficit, revenue generation,
inadequate fiscal allocation for education, increased emoluments for health workers, and wider coverage for
full value-added tax benefits. R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos.
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3555 and 3705, and Senate Bill No. 1950. The petitioners questioned not only the wisdom of the R.A. No.
9337Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties; but
also perceived constitutional infirmities in its passage.
ISSUES:
I. Whether there is a violation of Article VI, Section 24 of the Constitution.
II. Whether there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the Constitution.
RULING:
I. No,Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives but the Senate may
propose or concur with amendments.
It is not the law – but the revenue bill – which is required by the Constitution to "originate exclusively" in the
House of Representatives. A bill originating in the House may undergo such extensive changes in the Senate
that the result may be a rewriting of the whole.
II.No, the general rule barring delegation of legislative powers is subject to the following recognized limitations
or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.
In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid
only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or
implemented by the delegate; and (b) fixes a standard — the limits of which are sufficiently determinate and
determinable — to which the delegate must conform in the performance of his functions.
The principle which permits the legislature to provide that the administrative agent may determine
when the circumstances are such as require the application of a law is defended upon the ground that
at the time this authority is granted, the rule of public policy, which is the essence of the legislative act,
is determined by the legislature. In other words, the legislature, as it is its duty to do, determines that,
under given circumstances, certain executive or administrative action is to be taken, and that, under
other circumstances, different or no action at all is to be taken. What is thus left to the administrative
official is not the legislative determination of what public policy demands, but simply the
ascertainment of what the facts of the case require to be done according to the terms of the law by
which he is governed. The efficiency of an Act as a declaration of legislative will must, of course, come
from Congress, but the ascertainment of the contingency upon which the Act shall take effect may be
left to such agencies as it may designate. The legislature, then, may provide that a law shall take effect
upon the happening of future specified contingencies leaving to some other person or body the power
to determine when the specified contingency has arisen.
Case No. 76
John Hay Peoples Alternative Coalition,et. Al vs. Lim
G.R. No. 119775
October 24, 2003
FACTS: The President was given authority to create through executive proclamation, subject to the
concurrence of the local government units directly affected, other Special Economic Zones (SEZ) in the areas
covered respectively by the Clark military reservation, the Wallace Air Station in San Fernando, La Union, and
Camp John Hay in pursuant to R.A. No. 7227 or ―Bases Conversion and Development Act of 1992‖. R.A. No.
7227 also granted the Subic SEZ free importations, exemption of businesses therein from local and national
taxes, to other hallmarks of a liberalized financial and business climate. President Ramos issued Proclamation
No. 420 which granted a portion of Camp John Hay SEZ. The Respondents assert that Proclamation No. 420
which extend the John Hay SEZ economic incentives is the same with the incentive grant by R.A. No. 7227.
The Proclamation is merely implementing the legislative intent of said law to turn the US military bases into
hubs of business activity or investment.
ISSUE: Whether Proclamation No. 420 is valid when it provide national and local tax exemption and other
economic incentive to John Hay.
RULING: No. There was no provision within the RA 7227 that allows a grant of tax exemption to SEZs. Section
28(4) of Article VI of the 1987 Constitution which provides ― No law granting any tax exemption shall be passed
without the concurrence of a majority of all the members of Congress‖ which violated by the Proclamation No.
420 when it grant tax exemption to John Hay SEZ. Legislature, unless limited by a provision of the state
constitution, which has the full power to exempt any person or corporation or class of property from taxation, its
power to exempt being as broad as its power to tax
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Case No. 77
Philippine Airlines v. Secretary of Finance and Commissioner
G.R. No. 115873
August 25, 1994
FACTS: Republic Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code. PAL attacks the formal validity of Republic
Act No. 7716 and maintains that it violates Art. VI, Section 26[1] of the Constitution which provides that "Every
bill passed by Congress shall embrace only one subject which shall be expressed in the title thereof." PAL
contends that the amendment of its franchise by the withdrawal of its exemption from the VAT is not expressed
in the title of the law. PAL was exempted from the payment of the VAT along with other entities by Section 103
of the National Internal Revenue Code. R.A. No. 7716 seeks to withdraw certain exemptions, including that
granted to PAL, by amending Sec. 103, as follows:
Sec. 103. Exempt transactions. — The following shall be exempt from the value-added tax:
(q) Transactions which are exempt under special laws, except those granted under Presidential Decree
Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of Sec. 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX [VAT] SYSTEM, WIDENING ITS TAXBASE
AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND
REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES.
Philippine Airlines claims that its franchise under P.D. No. 1590 which makes it liable for a franchise tax of only
2% of gross revenues "in lieu of all the other fees and charges of any kind, nature or description, imposed,
levied, established, assessed or collected by any municipal, city, provincial, or national authority or government
agency, now or in the future," cannot be amended by Republic Act No. 7716 as to make it [PAL] liable for a
10% value-added tax on revenues, because Sec. 24 of P.D. No. 1590 provides that PAL's franchise can only
be amended, modified or repealed by a special law specifically for that purpose.
ISSUE: Whether the amendment of Section 103 of the NIRC is fairly embraced in the title of Republic Act No.
7716, although no mention is made therein of P. D. No. 1590.
RULING: The court ruled in the affirmative. The title states that the purpose of the statute is to expand the VAT
system, and one way of doing this is to widen its base by withdrawing some of the exemptions granted before.
To insist that P. D. No. 1590 be mentioned in the title of the law, in addition to Section 103 of the NIRC, in
which it is specifically referred to, would be to insist that the title of a bill should be a complete index of its
content.
The constitutional requirement that every bill passed by Congress shall embrace only one subject which shall
be expressed in its title is intended to prevent surprise upon the members of Congress and to inform the
people of pending legislation so that, if they wish to, they can be heard regarding it. If, in the case at bar,
Petitioner did not know before that its exemption had been withdrawn, it is not because of any defect in the title
but perhaps for the same reason other statutes, although published, pass unnoticed until some event
somehow calls attention to their existence. Republic Act No. 7716 expressly amends PAL's franchise [P. D.
No. 1590] by specifically excepting from the grant of exemptions from the VAT PAL's exemption under P. D.
No. 1590. This is within the power of Congress to do under Art. XII, Section 11 of the Constitution, which
provides that the grant of a franchise for the operation of a public utility is subject to amendment, alteration or
repeal by Congress when the common good so requires.
CASE NO. 78
CIR V. DE LA SALLE UNIVERSITY
NOVEMBER 2016
G.R. 196596
All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively
for educational purposes shall be exempt from taxes and duties[Section 4(3)Article XIV, 1987 Constitution]
FACTS: In 2004, the Bureau of Internal Revenue (BIR) issued a letter authorizing it‘s revenue officers to
examine the book of accounts of and records for the year 2003 De La Salle University (DLSU) and later on
issued a demand letter to demand payment of tax deficiencies for:
1.
Income tax on rental earnings from restaurants/canteens and bookstores operating within the
campus;
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DOTIMAS, CHRISTOPHER JAN G.
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2.
Value-added tax (VAT) on business income; and
3.
Documentary stamp tax (DST) on loans and lease contracts for the years 2001, 2002, and 2003,
amounting to P17,303,001.12.
DLSU protested the assessment that was however not acted upon, and later on filed a petition for review with
the Court of Tax Appeals(CTA). DLSU argues that as a non-stock, non-profit educational institution, it is
exempt from paying taxes according to Article XIV, Section 4 (3) of the Constitution which provides that All
revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes shall be exempt from taxes and duties. The CTA only granted the removal of
assessment on the load transactions. Both CIR and DLSU moved for reconsideration, the motion of the CIR
was denied. The CIR appealed to the CTA en banc arguing that DLSU‘s use of its revenues and assets for
non-educational or commercial purposes removed these items from the exemption, that a tax-exempt
organization like DLSU is exempt only from property tax but not from income tax on the rentals earned from
property. Thus, DLSU‘s income from the leases of its real properties is not exempt from taxation even if the
income would be used for educational purposes. DLSU on the other hand offered supplemental pieces of
documentary evidence to prove that its rental income was used actually, directly and exclusively for
educational purposes and no objection was made by the CIR.
DLSU filed a separate petition for review with the CTA En Banc on the following grounds:
a.
The entire assessment should have been cancelled because it was based on an invalid LOA;
b.
Assuming the LOA was valid, the CTA Division should still have cancelled the entire assessment
because DLSU submitted evidence similar to those submitted by Ateneo De Manila University (Ateneo)
in a separate case where the CTA cancelled Ateneo‘s tax assessment; and
c.
The CTA Division erred in finding that a portion of DLSU‘s rental income was not proved to have
been used actually, directly and exclusively for educational purposes.
That under RMO No.43-90, LOA should cover only 1 year, the LOA issued by CIR is invalid for covering the
years 2001-2003. The CTA en banc ruled that the case of Ateneo is not applicable because it involved different
parties, factual settings, bases of assessments, sets of evidence, and defenses, it however further reduced the
liability of DLSU to P2, 554,825.47 inclusive of surcharge. CIR argued that the rental income is taxable
regardless of how such income is derived, used or disposed of. DLSU‘s operations of canteens and bookstores
within its campus even though exclusively serving the university community do not negate income tax liability.
Article XIV, Section 4 (3) of the Constitution must be harmonized with Section 30 (H) of the Tax Code, which
states among others, that the income of whatever kind and character of a non-stock and non-profit educational
institution from any of its properties, real or personal, or from any of its activities conducted for profit regardless
of the disposition made of such income, shall be subject to tax imposed by this Code. That a tax-exempt
organization like DLSU is exempt only from property tax but not from income tax on the rentals earned from
property. Thus, DLSU‘s income from the leases of its real properties is not exempt from taxation even if the
income would be used for educational purposes. DLSU argued that Article XIV, Section 4 (3) of the
Constitution is clear that all assets and revenues of non-stock, non-profit educational institutions used actually,
directly and exclusively for educational purposes are exempt from taxes and duties. Under the doctrine of
constitutional supremacy, this renders any subsequent law that is contrary to the Constitution void and without
any force and effect. Section 30 (H) of the 1997 Tax Code insofar as it subjects to tax the income of whatever
kind and character of a non-stock and non-profit educational institution from any of its properties, real or
personal, or from any of its activities conducted for profit regardless of the disposition made of such income,
should be declared without force and effect in view of the constitutionally granted tax exemption on ―all
revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for
educational purposes. That it complied with the requirements for the application of Article XIV, Section 4 (3) of
the Constitution.
ISSUES:
1. Whether DLSU is taxable as a non-stock, non-profit educational institution whose income has been used
actually, directly and exclusively for educational purposes?
2. Whether the entire assessment should be void because of the defective LOA?
HELD:
1. A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that the
revenues and income must have also been sourced from educational activities or activities related to the
purposes of an educational institution. The phrase all revenues is unqualified by any reference to the source of
revenues. Thus, so long as the revenues and income are used actually, directly and exclusively for educational
purposes, then said revenues and income shall be exempt from taxes and duties.
Revenues consist of the amounts earned by a person or entity from the conduct of business operations. It may
refer to the sale of goods, rendition of services, or the return of an investment. Revenue is a component of the
tax base in income tax, VAT, and local business tax (LBT). Assets, on the other hand, are the tangible and
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DOTIMAS, CHRISTOPHER JAN G.
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intangible properties owned by a person or entity. It may refer to real estate, cash deposit in a bank,
investment in the stocks of a corporation, inventory of goods, or any property from which the person or entity
may derive income or use to generate the same. In Philippine taxation, the fair market value of real property is
a component of the tax base in real property tax (RPT). Also, the landed cost of imported goods is a
component of the tax base in VAT on importation and tariff duties. Thus, when a non-stock, non-profit
educational institution proves that it uses its revenues actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax, VAT, and LBT. On the other hand, when it also shows that it
uses its assets in the form of real property for educational purposes, it shall be exempted from RPT.
The last paragraph of Section 30 of the Tax Code is without force and effect for being contrary to the
Constitution insofar as it subjects to tax the income and revenues of non-stock, non-profit educational
institutions used actually, directly and exclusively for educational purposes. The declaration is in the exercise
of and consistent with the court‘s duty to uphold the primacy of the Constitution.
2. No. A Letter of Authority LOA should cover a taxable period not exceeding one taxable year. The practice of
issuing LOAs covering audit of unverified prior years is hereby prohibited. If the audit of a taxpayer shall
include more than one taxable period, the other periods or years shall be specifically indicated in the LOA.
The requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of the extent
of the audit and the scope of the revenue officer‘s authority. Without this rule, a revenue officer can unduly
burden the taxpayer by demanding random accounting records from random unverified years, which may
include documents from as far back as ten years in cases of fraud audit.
The assessment for taxable year 2003 is valid because this taxable period is specified in the LOA. DLSU was
fully apprised that it was being audited for taxable year 2003; however, the assessments for taxable years
2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No. 43-90.
Case 79
Manila International Airport Authority v. Court of Appeals
G.R. No. 155650
July 20, 2006
FACTS: MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the
taxable years 1992 to 2001. MIAA‘s real estate tax delinquency was estimated at P624 million. The City of
Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and
Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and
Buildings should MIAA fail to pay the real estate tax delinquency. MIAA filed with the Court of Appeals an
original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining
order. The petition sought to restrain the City of Parañaque from imposing real estate tax on, levying against,
and auctioning for public sale the Airport Lands and Buildings. Paranaque‘s Contention: Section 193 of the
Local Government Code expressly withdrew the tax exemption privileges of ―government-owned andcontrolled corporations‖ upon the effectivity of the Local Government Code. Respondents also argue that a
basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others.
An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code.
Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real
estate tax. MIAA‘s contention: Airport Lands and Buildings are owned by the Republic. The government cannot
tax itself. The reason for tax exemption of public property is that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also the tax creditor.
ISSUE: Whether Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws?
RULING: Yes. The real estate tax assessments issued by the City of Parañaque, and all proceedings taken
pursuant to such assessments, are void.
1. MIAA is Not a Government-Owned or Controlled Corporation
MIAA is not a government-owned or controlled corporation but an instrumentality of the National
Government and thus exempt from local taxation. MIAA is not a stock corporation because it has no
capital stock divided into shares. MIAA has no stockholders or voting shares. MIAA is also not a nonstock corporation because it has no members. A non-stock corporation must have members. MIAA is a
government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested
with corporate powers.
When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority
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DOTIMAS, CHRISTOPHER JAN G.
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and the levying of fees and charges. At the same time, MIAA exercises ―all the powers of a corporation
under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this
Executive Order.‖
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the
State or the Republic of the Philippines. No one can dispute that properties of public dominion
mentioned in Article 420 of the Civil Code, like ―roads, canals, rivers, torrents, ports and bridges
constructed by the State,‖ are owned by the State. The term ―ports‖ includes seaports and airports. The
MIAA Airport Lands and Buildings constitute a ―port‖ constructed by the State. Under Article 420 of the
Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by
the State or the Republic of the Philippines. The Airport Lands and Buildings are devoted to public use
because they are used by the public for international and domestic travel and transportation. The fact
that the MIAA collects terminal fees and other charges from the public does not remove the character of
the Airport Lands and Buildings as properties for public use. The charging of fees to the public does not
determine the character of the property whether it is of public dominion or not. Article 420 of the Civil
Code defines property of public dominion as one ―intended for public use.‖ The terminal fees MIAA
charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of such fees does not change the
character of MIAA as an airport for public use. Such fees are often termed user‘s tax. This means
taxing those among the public who actually use a public facility instead of taxing all the public including
those who never use the particular public facility.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot
be the subject of an auction sale. Properties of public dominion, being for public use, are not subject to
levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for being contrary to public policy. Essential
public services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48,
Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real
properties owned by the Republic. MIAA‘s case, its status as a mere trustee of the Airport Lands and
Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of
the Republic. Only the President of the Republic can sign such deed of conveyance.
d. Transfer to MIAA was Meant to Implement a Reorganization
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not
meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was
merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous
body. The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is
owned solely by the Republic. No party claims any ownership rights over MIAA‘s assets adverse to the
Republic.
e. Real Property Owned by the Republic is Not Taxable
Sec 234 of the LGC provides that real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person following are exempted from payment of the real property tax. However,
portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is
subject to real estate tax.
Case No. 80
MACTAN
CEBU INTERNATIONAL AIRPORT AUTHORITY vs. HON. FERDINAND J. MARCOS
G.R. No. 120082,
September 11, 1996
FACTS: Mactan Cebu Int‘l Airport was created by virtue of RA 6958, mandated to ―principally undertake the
economical, efficient and effective control, management, and supervision of the Mactan International Airport in
the Province of Cebu and the Lahug Airport in Cebu City. Under Section 1 of the said RA, MCIA was given
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DOTIMAS, CHRISTOPHER JAN G.
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exemption from realty taxes imposed by the National Government on any of its political subdivisions, agencies,
and instrumentalities. However, the Office of the Treasurer of Cebu City demanded payment for realty taxes on
parcels of land belonging to the MCIA. MCIA objected invoking its tax exemption. It also asserted that it is an
instrumentality of the government performing governmental functions, citing section 133 of the Local
Government Code which puts limitations on the taxing powers of Local Government Units. The city refused
insisting that MCIA is a GOCC performing proprietary functions whose tax exemption was withdrawn by
Sections 193 and 234 of the Local Government Code. MCIA filed a declaratory relief before the RTC. RTC
dismissed the petition, ruling that the LGC withdrew the tax exemption granted to the GOCCs.
ISSUE: Whether the City of Cebu has the power to impose taxes on the MCIA?
RULING: YES. The Local Government Code expressly repealed the exemption under RA 6958, thereby
withdrawing the exemption on realty tax given to the petitioner. Tax statutes are construed strictly against the
government and liberally in favor of the taxpayer. However, this does not apply if the grantee of the exemption
is a political subdivision or instrumentality because the effect of such exemption is merely to reduce the
amount of money that has to be handled by the government in the course of its operations. Also, since taxation
is the rule and exemption are the exception, exemption may be withdrawn at the pleasure of the taxing
authority. The LGC authorized LGUs to grant tax exemption privileges. Thus, LGUs may also impose real
property tax except on real property owned by the Republic of the Philippines or any of its political
subdivisions. The exception to this is when the beneficial use has been granted to a taxable person. In this
case, the land where the airports managed by the MCIA were erected can also be levied upon by the city of
Cebu for the MCIA‘s nonpayment of taxes. It was proven that in the city charter there was a ―transfer‖ of the
―lands,‖ from the city of Cebu to the petitioner, which amounted to an absolute conveyance of ownership not
only mere beneficial use. Thus the ownership of the land passed from the Republic of the Philippines to the
MCIA. As MCIA owns the said land, it CAN become the subject of levying for the nonpayment of taxes.
PAGE 59