I. GENERAL PRINCIPLES
A. CONCEPT AND PURPOSE OF TAXATION
1. Definition
As a process, it is a means by which the sovereign, through its law-making body, raises revenue to defray the
necessary expenses of the government. It is merely a way of apportioning the costs of government among those who
in some measures are privileged to enjoy its benefits and must bear its burdens.
As a power, taxation refers to the inherent power of the state to demand enforced contributions for public purpose
or purposes.
CIR vs. Algue G.R No. L-28896, February 17, 1988 (tax deduction)
FACTS: Algue Inc., a domestic corporation engaged in engineering, construction and other allied activities, received
a letter from the BIR (Commissioner of Internal Revenue) assessing it with delinquency income taxes totalling
P83,183.85 as for the years 1958 and 1959. Algue, then, sought to claim a P75,000 deduction, but was denied by the
CIR. The CTA, however, ruled in favor of Algue and allowed the deduction, stating that the said amount had been
legitimately paid by Algue, Inc. as promotional fees for the work in the formation of Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate
Development Corporation.
ISSUE: Whether the CTA was correct in allowing the P75,000 deduction claimed by Algue Inc
HELD: Yes. The Supreme Court upheld the ruling of the Court of Tax Appeals and allowed the deduction claimed
by Algue Inc.
SC agreed with the CTA that the amount of the promotional fees was not excessive. The total commission paid by
the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00. After deducting the said
fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was
60% of the total commission. This was a reasonable proportion, considering that it was the payees who did
practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it
of the Sugar Estate properties.
As correctly stated by the Solicitor General, the taxpayer has the burden to prove the validity of the claimed
deduction. And in the present case, the onus has been discharged satisfactorily. Algue 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.
Doctrine: Taxes are the lifeblood of the government and so 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.
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. However, 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
1
CIR vs. BASF Coating Inks. Phils, G.R. No. 198677, November 26, 2014 (Change of address from Las Pinas to
Calamba)
Facts: Respondent was a corporation which was duly organized under and by virtue of the laws of the Republic of
the Philippines on August 1, 1990 with a term of existence of fifty (50) years. Its BIR-registered address was at 101
Marcos Alvarez Avenue, Barrio Talon, Las Piñas City. Subsequently, respondent moved out of its address in Las
Piñas City and transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna.
Respondent submitted two letters to the BIR. The first letter was a notice of respondent's dissolution, in compliance
with the requirements of Section 52(c) of the National Internal Revenue Code. On the other hand, the second letter
was a manifestation indicating the submission of various documents supporting respondent's dissolution, among
which was BIR Form No. 1905, which refers to an update of information contained in its tax registration.
Thereafter, a Formal Assessment Notice (FAN), was sent by registered mail to respondent's former address in Las
Piñas City. The FAN indicated an amount of 18 million pesos representing income tax, VAT, WTC, EWT and DST
for the taxable year of 1999.
Chief of the Collection Section of BIR issued a First Notice Before Issuance of Warrant of Distraint and Levy,
which was sent to the residence of one of respondent's directors. On March 19, 2004, respondent filed a protest
letter citing lack of due process and prescription as grounds.
Issue: WON the running of the 3-year prescriptive period to assess was suspended when BC failed to notify the CIR
of its change of address
Held: No. Despite the absence of a formal written notice of Bc's change of address, the fact remains that petitioner
became aware of respondent's new address as shown by documents replete in its records. As a consequence, the
running of the three-year period to assess respondent was not suspended and has already prescribed.
Doctrine: It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the 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 taxing authorities, every person who is able to must contribute his
share in the running of the government. The government for its part is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This
symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary
method of exaction by those in the seat of power.
2. Nature
a. Taxation as inherent power of the state
Abakada Guro Party List vs. Ermita, G.R. No. 168056, September 1, 2005
Facts: Before R.A. No. 9337 took effect (July 1, 2005, petitioners ABAKADA GURO Party List, et al., filed a
petition for prohibition. Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress
of its exclusive authority to fix the rate of taxes under Article VI, Section 28(2) of the 1987 Philippine Constitution.
They further contend that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively,
of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain
condition is met, constitutes undue delegation of the legislative power to tax.
Issue: Whether or not the act of the President constitutes undue delegation of the legislative power to tax.
Held: There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who
must do it, and what is the scope of his authority. It is simply a delegation of ascertainment of facts upon which
enforcement and administration of the increase rate under the law is contingent. A (permissible delegation) 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. In this case, the legislature has made the
2
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. 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.
Doctrine: One of the most basic and inherent power of the legislature is the power to formulate rules for its
proceedings and the discipline of its members. Congress is the best judge of how it should conduct its own business
expeditiously and in the most orderly manner. It is also the sole concern of Congress to instill discipline among the
members of its conference committee if it believes that said members violated any of its rules of proceedings. Even
the expanded jurisdiction of this Court cannot apply to questions regarding only the internal operation of Congress,
thus, the Court is wont to deny a review of the internal proceedings of a co-equal branch of government.
b. Taxation as a general term, as a legal term
Compania General De Tabacos De Filipinas vs. City of Manila, G.R. No. L-16619, June 29, 1963
DOCTRINE: The term "tax" applies — generally speaking — to all kinds of exactions which become public funds.
The term is often loosely used to include levies for revenue as well as levies for regulatory purposes. Thus license
fees are commonly called taxes. Legally speaking, however, license fee is a legal concept quite distinct from tax; the
former is imposed in the exercise of police power for purposes of regulation, while the latter is imposed under the
taxing power for the purpose of raising revenues
c. Tax vs. License and Regulatory Fee
Osmena vs Orbos, GR No. 99886 , March 31, 1993 PAL vs. Edu, G.R. No. L-14383, August 15, 1988
FACTS:
President Marcos created a special account in the General Fund designated as the Oil Price Stabilization Fund
(OPSF). The OPSF was designated to reimburse oil companies for cost increases in crude oil. Subsequently, EO 137
expanded the grounds for reimbursement to oil companies for cost underrecovery. Now, the petition avers that the
creation of the trust fund violates the Constitution that if a special tax is collected for a specific purpose, the revenue
generated as a special fund to be used only for the purpose indicated.
ISSUE: Is the OPSF constitutional?
RULING: Yes. The tax collected is not in pure exercise of the taxing power. It is levied with a regulatory purpose,
to provide a means for the stabilization of the petroleum products industry. The levy is primarily in the exercise of
the police power of the State.
PAL VS. EDU, 164 SCRA 320 (1988)
FACTS: The disputed registration fees were imposed by the commissioner Elevate pursuant to Section 8, RA 4136,
the Land Transportation and Traffic Code. PAL as a corporation is engaged in the air transportation business under
the legislative franchise. Underits franchise, PAL is exempt from the payment of taxes. In 1971 however, appellee
Commissioner elevate issued a regulation requiring all tax exempt entities, among them PAL to pay motor vehicle
registration fees. Despite PAL s protest, appellee refused to register the appellant s motor vehicles unless the
amounts imposed were paid. PAL thus paid, under protest, P19,529.75 as registration fees of its motor vehicles.
After paying under protest, PAL wrote to Commissioner Edu demanding a refund of the amounts paid, invoking
Calalang vs. Lorenzo where it was held that motor vehicle registration fees are in reality taxes from the payment of
which PAL is exempt by virtue of its legislative franchise .Edu denied request for refund based on Republic v. Phil.
Rabbit Bus, that motor vehicle registration fees are regulatory and not revenue measures and, therefore, do not come
3
within the exemption granted to PAL under its franchise. PAL filed the complaint against LTC Commissioner EDu
and National Treasurer Carbonell.
ISSUE: What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
HELD: RULING ON TAX VS. LICENSE AND REGULATORY FEE SC ruled that motor vehicles registration
fees are TAXES. Fees may be regarded as taxes even though they also serve as instruments of regulation because
taxation may be made as an implementation of the State’s police power. But 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.
RULING ON PURPOSES OF TAX, OBJECTIVE OF TAXATION: GENERAL, FISCAL REVENUE The
Legislative intent and purpose behind the law requiring owners of vehicles, to pay for the irregistration is mainly to
raise funds for the construction and maintenance of highways and, to a much lesser degree, pay for the operating
expenses of the administering agency. It is possible for an exaction to be both a tax and a regulation. License fees
are charges, looked to as a source of revenue as well as a means of regulation. The fees may be properly regarded as
taxes even though they also serve as an instrument of regulation. 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. RULING ON NONDELEGABILITY OF THE POWER TO TAX It is clear from the provisions of section 73 of Commonwealth Act
123 and section 61 of the Land Transportation and Traffic Code that the legislative intent and purpose behind the
law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and
maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency.
There is a valid delegation to the Land Transportation Office. Simply put, if the exaction under RA 4136were
merely a regulatory fee, the imposition on RA 5448 need not be an additional tax. RA4136 also speaks of other fees
such as the special permit fees for certain types of motor vehicles (sec.10) and additional fees for change of
registration (sec.11). These are not to be understood as taxes because such fees are very minimal to be revenueraising. Thus they are not mentioned by Sec. 59 (b) of the Code as taxes like the motor vehicle registration fee and
chauffers license fee. Such fees are to go into the expenditures of the Land Transportation Commission as provided
for in the last proviso of Sec. 61. Motor vehicle registration fees are at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended for additional revenues of government even if one-fifth
or less of the amount collected is set aside for the operating expenses of the agency administering the program.
d. Tax vs. Special Assessment
4
Section 240, RA 7160
SECTION 240. Special Levy by Local Government Units. – A province, city or municipality may impose a special
levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or
improvements funded by the local government unit concerned: Provided, however, That the special levy shall not
exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring
land and such other real property in connection therewith: Provided, further, That the special levy shall not apply to
lands exempt from basic real property tax and the remainder of the land portions of which have been donated to the
local government unit concerned for the construction of such projects or improvements.
Republic vs. Bacolod-Murcia Milling Co., GR No. L-19824- 26, July 9, 1966
FACTS: RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951, the Institute acquired the
Insular Sugar Refinery for P3.07 million payable in installments from the proceeds of the Sugar tax to be collected
under RA 632. The operation of the refinery for 1954 to 1957 was disastrous as the Institute suffered tremendous
losses. Contending that the purchase of refinery with money from the Institute’s fund was not authorized under RA
632, and that the continued operation of the refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-ao
Sugar Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refused to continue with their
contribution to said fund. The trial court found them liable under RA 632. Hence, this petition.
ISSUE: Are the milling companies liable?
RULING: Yes. The special assessment or levy for the Philippine Sugar Institute Fund is not so much an exercise of
the power of taxation, nor the imposition of a special assessment, but the exercise of police power for the general
welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully
resist.
Section 2a of the charter authorizes Philsugin to acquire the refinery in question. The financial loss resulting from
the operation thereof is no means an index that the industry did profit therefrom, as other gains of a different nature
(such as experience) may have been realized.
e. Tax vs. Toll
5
Section 153, RA 7160 - Service Fees and Charges. - Local government units may impose and collect such
reasonable fees and charges for services rendered.
f. Tax vs. Penalty
g. Tax vs. Tariff and Customs Duties
CASE: Congressman Garcia vs. The Executive Secretary, G.R. No 101273, July 3, 1992
FACTS: The Tariff and Customs Code (TCC) states that in the interest of national economy, general welfare and/or
national security, the President, subject to limitations therein provided, may increase xxx existing protective rates of
import duty xxx when necessary. Pursuant to the TCC, the President issued EO 475 and 478 imposing an additional
duty of 9% ad valorem to imported crude oil and other oil products, and a special duty of P0.95 per liter of imported
crude oil and P1.00 per liter of imported oil products. Rep. Garcia contests the validity of the foregoing EOs
averring that they are violative of Sec 24, Art VI of the Constitution which provides: All xxx revenue or tariff bills
shall originate in the House of Representatives xxx. He also argues that said EOs contravene the TCC because the
latter authorizes the President to, according to him, impose additional duties only when necessary to protect local
industries.
ISSUE: Are said EOs unconstitutional?
RULING: No. There is explicit Constitutional permission to Congress to authorize the President to, “subject to such
limitations and restrictions as [Congress] may impose”, fix “within specific limits tariff rates xxx and other duties or
imposts xxx.”¹ Moreover, Garcia’s argument that the “protection of local industries” is the only permissible
objective that can be secured by the exercise of the delegated authority—that which was provided in the TCC to be
exercised by the President in “the interest of national economy, general welfare and/or national security”—is a
stiflingly narrow one. We believe, for instance, that the protection of consumers is at the very least as important a
dimension of the “the interest of national economy, general welfare and national security” as the protection of local
industries.
h. Obligation to Pay Tax vs. Obligation to pay debt
6
Art. 1278, 1279, 1290, Civil Code
Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each
other. (1195)
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated
in due time to the debtor. (1196)
Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation
of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of
the compensation.
Republic vs. Mabulao Lumber, GR No. L-17725, February 28. 1962)
FACTS: Defendant-appellant company paid P9,127.50 to plaintiff-appellee as reforestation charges from 1947 to
1956. It seeks to set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from
appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the
reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation of
said sum of P4,802.37 due from it as forest charges. Appellant maintains that the principle of a compensation in
Article 1278 of the new Civil Code2 is applicable, such that the sum of P9,127.50 paid by it as reforestation charges
may compensate its indebtedness to appellee in the sum of P4,802.37 as forest charges.
ISSUE: Whether or not set off or compensation is admissible against demand for taxes levied. But in the view we
take of this case, appellant and appellee are not mutually creditors and debtors of each other.
HELD. NO. Consequently, the law on compensation is inapplicable. On this point, the trial court correctly
observed: . Under Article 1278, NCC, compensation should take place when two persons in their own right are
creditors and debtors of each other. With respect to the forest charges which the defendant Mambulao Lumber
Company has paid to the government, they are in the coffers of the government as taxes collected, and the
government does not owe anything, crystal clear that the Republic of the Philippines and the Mambulao Lumber
Company are not creditors and debtors of each other, because compensation refers to mutual debts.
The general rule, based on grounds of public policy is well-settled that no set-off is 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 a 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. ... If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a
claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and
necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and
abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great
confusion. (47 Am. Jur. 766-767.)
Philex Mining vs. CIR, GR. No. 125704, August 28, 1998
7
FACTS: BIR demanded Philex to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st
and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as follows: Philex protested the demand
for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid
for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax
credit/refund should be applied against the tax liabilities, citing Commissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc. BIR found no merit in Philex's position. Since these pending claims have not yet been established or
determined with certainty, it follows that no legal compensation can take place. Hence, the BIR reiterated its
demand that Philex settle the amount plus interest within 30 days from the receipt of the letter. Philex raised the
issue to the Court of Tax Appeals. CTA: ordered Philex to pay its tax liabilities, ruling that "taxes cannot be subject
to set-off on compensation since claim for taxes is not a debt or contract." CA: affirmed CTA. Philex filed a motion
for reconsideration which denied. However, a few days after the denial of its motion for reconsideration, Philex was
able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994.
ISSUE: Whether or not the granted VAT input credit/refund should, ipso jure, off-set its excise tax liabilities since
both had already become "due and demandable, as well as fully liquidated" In short, whether or not legal
compensation can properly take place.
HELD: No. RATIO: In several instances prior to the instant case, SC has already made the pronouncement that
taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors
and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in
its corporate capacity, while taxes are due to the Government in its sovereign capacity In Francia v. Intermediate
Appellate Court, it was held that taxes cannot be subject to set-off or compensation, thus: We have consistently
ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government.
A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than
the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. The
ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit, which
reiterated that: . . . a taxpayer may not offset taxes due from the claims that he may have against the government.
Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be setoff. Further, Philex's reliance on Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein it was
ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been
approved by the Commissioner, is no longer with any support in statutory law. The premise of that ruling was
anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue
Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was
omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex. DISPOSITIVE:
Petition is DISMISSED. CA is AFFIRMED. Digest by Agee Romero
Caltex Phils vs. COA, GR No. 92585. May 8, 1992
FACTS: The Commission on Audit (COA) ordered Caltex Philippines to remit to the OPSF its collection of
additional tax on petroleum products as authorized under P.D. 1956. Pending such remittance, all CPI’s claims for
reimbursement would be held in abeyance, too, and Caltex should desist from further offsetting the taxes it collected
against its own outstanding claims for reimbursement.
Caltex argued that it should be allowed to offset its claims from the OPSF against its contributions to the fund as this
had been allowed in the past. But COA insisted that there can be no offsetting of taxes against the claims that a
taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the
taxpayer, but are imposed by law.
ISSUE: Is COA correct?
RULING: The Supreme Court ruled in favor of COA.
8
A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the
subject of compensation because the government and taxpayer are not mutual creditors and debtors of each other,
and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set off. Too, Caltex's
position that the OPSF contributions are not for public purpose is untenable.
Francia vs. Intermediate Applellate Court, GR. No. L- 67649, June 28, 1988
FACTS: 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. From 1963 to 1977, Francia failed to pay his real estate taxes. Thus, his
property was sold at public auction in order to satisfy a tax delinquency of P2,400.00. Private respondent Ho was the
highest bidder for the property. Francia filed a complaint to annul the auction sale. Francia contends that his tax
delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the government owed him
P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation had been setoff by operation of law as of October 15, 1977.
ISSUE: WON his tax obligation is automatically set-off by the compensation from its expropriated property.
HELD: NO. 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. This is because the 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.
Domingo vs. Garlitos, GR No. L-18994, June 29, 1963
FACTS: In the 1960 case of Domingo v Moscoso, the Supreme Court declared as final and executory the order for
the payment by the estate of the late Walter Scott Price of estate and inheritance taxes, charges and penalties,
amounting to P40,058.55 issued by the Court of First Instance – Leyte. The fiscal then presented a petition for the
execution of the judgment before the Court of First Instance – Leyte.
The petition was denied as the execution is not justifiable as the government is indebted to the estate under
administration in the amount of P 262,200. Hence, the present petition for certiorari and mandamus.
ISSUE: Is execution proper?
RULING: No. The tax and the debt are compensated. The court having jurisdiction of the estate had found that the
claim of the estate against the government has been recognized and an amount of P262,200 has already been
appropriated by a corresponding law (RA 2700). Under the circumstances, both the claim of the Government for the
inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable
as well as fully liquidated.
Compensation, therefore, takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil
Code, and both debts are extinguished to their concurrent amounts. If the obligation to pay taxes and the taxpayer’s
claim against the government are both overdue, demandable, as well as fully liquidated, compensation takes place
by operation of law and both obligations are extinguished to their concurrent amounts.
3. Requisites of a Valid Tax
[1] The tax must be for a public purpose;
9
[2] The rule of taxation should be uniform;
[3] The person or property taxed is within the jurisdiction of the taxing authority;
[4] The assessment and collection should be in harmony with the due process clause; and
[5] The tax must not infringe on the inherent and constitutional limitations of the power of taxation.
Caltex Phils vs. COA, GR No. 92585. May 8, 1992
We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go
to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the
police power of the state. There can be no doubt that the oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the
people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others,
demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil
prices is of prime concern which the state, via its police power, may properly address.
4. Purpose
a. General, fiscal revenue
CIR vs Algue, supra.
FACTS: Private respondent, Algue, Inc. Is a domestic corporation engaged in engineering, construction and other
allied activities. It was assessed by the Commissioner of Internal Revenue (CIR) of delinquency income taxes for
the years 1958 and 1959 amounting to PhP75,000.00. The CIR eventually issued of a warrant of distraint and levy
against Algue. Algue filed a petition for review of the decision of the CIR with the Court of Tax Appeals (CTA)
which favoured Algue and held that the amount assessed had been legitimately paid by the private respondent for
actual services rendered. The payment was in the form of promotional fees collected by the payees. The petitioner,
then filed a petition before the Supreme Court, contending that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business expense.
ISSUE: Whether or not 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.
HELD: No. The Court found that Algue had indeed, legitimately paid the amount assessed and the petitioner’s
suspicions were adequately met by the private respondent. Admittedly, the way it was paid seemed to be informal
but this arrangement was understandable, however, in view of the fact that Algue is a family corporation and there is
a close relationship among the persons in the said entity. The Court also agreed with the respondent court that the
amount of the promotional fees was not excessive. Taxes are the lifeblood of the government and so should be
10
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. The burden is on the taxpayer to prove the validity of the claimed
deduction. In the present case, however, the Court found that the onus has been discharged satisfactorily. 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. It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it. 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. The government for its part, is expected to respond in the
form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it
is an arbitrary method of exaction by those in the seat of power. But even if the inevitability and indispensability of
taxation is conceded, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to
his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate, as it has here, that the law has not been observed. The Court found that the claimed deduction by the
private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed
by the petitioner. It affirmed in toto the appealed decision of the Court of Tax Appeals.
Tolentino vs Secretary of Finance, GR No. 115455, August 25, 1994
Facts: There are various suits challenging the constitutionality of RA 7716 on various grounds. The valueadded tax
(VAT) is levied on the sale, barter or exchange of good sand 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. Among the Petitioners was the Philippine Press Institute which claim that R.A.7716 violates their
press freedom and religious liberty, having removed them from the exemption to pay Value Added Tax. It is
contended by the PPI that by removing the exemption of the press from the VAT while maintaining those granted to
others, the law discriminates against the press. At any rate, it is averred, "even non-discriminatory taxation of
constitutionally guaranteed freedom is unconstitutional." PPI argued that the VAT is in the nature of a license tax.
Issue: 1. Whether or not the purpose of the VAT is the same as that of a license tax.
2. WON the enactment of R.A. 7716 is unconstitutional considering that the House of representatives passed H. NO.
11197 and sent to the senate however the senate passed S. NO. 1630 and with their own version on it. Thus, as
alleged by petitioner a clear violation of Art. VI, sec. 24 of the constitution.
Ruling: 1. A license tax, which, unlike an ordinary tax, is mainly for regulation. Its imposition on the press is
unconstitutional because it lays a prior restraint on the exercise of its right. Hence, although its application to others,
such those selling goods, is valid, its application to the press or to religious groups, such as the Jehovah’s Witnesses,
in connection with the latter’s sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court
put it, ―it is one thing to impose a tax on income or property of a preacher. It is quite another thing to exact a tax on
him for delivering a sermon.‖ The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of
a privilege, much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue purposes. To subject the
press to its payment is not to burden the exercise of its right any more than to make the press pay income tax or
subject it to general regulation is not to violate its freedom under the Constitution.
11
2. The contention has no merit. The enactment of S. No. 1630 is not the only instance in which the Senate proposed
an amendment to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in consolidation with House
bills earlier passed, became the enrolled bills. Thus, the enactment of S. No. 1630 is not the only instance in which
the Senate, in the exercise of its power to propose amendments to bills required to originate in the House, passed its
own version of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.
xxx Art. VI, §24 of our Constitution reads: 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. The addition of the word "exclusively" in the Philippine
Constitution and the decision to drop the phrase "as on other Bills" in the American version, according to
petitioners, shows the intention of the framers of our Constitution to restrict the Senate's power to propose
amendments to revenue bills. The history of this provision does not support this contention. The supposed indicia of
constitutional intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate.
Considering the defeat of the proposal, the power of the Senate to propose amendments must be understood to be
full, plenary and complete "as on other Bills." Thus, because revenue bills are required to originate exclusively in
the House of Representatives, the Senate cannot enact revenue measures of its own without such bills. After a
revenue bill is passed and sent over to it by the House, however, the Senate certainly can pass its own version on the
same subject matter. This follows from the coequality of the two chambers of Congress.
b. Non-revenue, special or regulatory
Ferrer, Jr. vs Bautista, GR No. 210551, June 30, 2015 G.R. No. 210551
FACTS: The LGU of QC enacted two ordinances. One imposes socialized housing tax (SHT) based on the assessed
value of realty, to be paid by landowners. The other imposes a garbage fee (GF) to be paid by landowners based on
the floor area or land area of their property. Ferrer, a landowner in QC, want to question the validity of these two (2)
ordinances.
ISSUE: Is the SHT tantamount to penalty on realty owners?
HELD: No, it does not. Property ownership bears a social function. Also, the SHT will improve the status of
property owners by increasing investment, raising land value, etc., after the relocation of informal settlers. The
foundation is police power.
ISSUE: Does the SHT violate equal protection, considering that those who occupy land illegally or informally do
not pay while legitimate owners of land are made to pay?
HELD: No, equal protection admits of exception. As long as there is real and substantial distinction, which is
germane to the purpose of the law, it does not violate. The difference between informal settlers and property owners
is very clear and unmistakable. Again, the foundation is police power, that power which allows the State to regulate
life, liberty and property in order to promote the welfare of the people.
ISSUE: Does the LGC allow the imposition of SHT, considering there is already property tax?
HELD: Yes, the LGC allows this. The LGC, under the general welfare clause, provides local governments the power
to enact measure that will benefit the people. Moreover, SHT has another basis in law: RA 7279 or the Urban
Development and Housing Act. Again, the foundation is police power.
ISSUE: Is GF a tax or a fee?
12
HELD: It is a fee, not a tax. The main purpose is to regulate, not to raise revenue. The power of LGUs to collect fees
in order to manage wastes is recognized and conferred by RA 9003. How can LGUs do something without the
means to do it?
ISSUE: Is GF valid, considering that it imposes a fee based on land or floor area?
HELD: No, GF in not valid. Substantive due process requires reasonable means and reasonable purpose. Although
the purpose of the GF is reasonable and admirable, the means employed is unreasonable and oppressive. Rather than
basis on actual waste output or estimate garbage use, the ordinance uses as a yardstick the people’s land or floor area
which has nothing to do with how much waste they produce.
Tio vs. Videogram Regulatory Board, G.R No. L-75697, June18, 1987
Facts: PD No. 1994 amended the National Internal Revenue Code providing, inter alia: SEC. 134. There shall be
collected on each processed video-tape cassette, ready for playback, regardless of length, an annual tax of five
pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax.
The rationale relates to: 1) the proliferation and unregulated circulation of videograms that have greatly prejudiced
the operations of movie houses and theaters, and have caused a sharp decline in 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 more than 75,000 families and 500,00 workers depend for their
livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize the
heretofore distribution of videograms; 4) the rampant and unregulated showing of obscene videogram features
constitutes a clear andpresent danger to the moral and spiritual well-being of the youth, and impairs the mandate of
the Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral
character and promote their physical, intellectual, and social being; etc.
Tio claimed that Section 10 was unconstitutional because the tax imposed is harsh, confiscatory, oppressive and/or
in unlawful restraint of trade in violationof the due process clause of the Constitution, etc.
Issue: Whether or not the power of taxation was validly exercised.
Ruling: Yes. It is beyond serious question that 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 in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever,
except such as rest in the discretion of the authority which exercises it.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. The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over another.”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 “inequities which result
from a singling out of one particular class for taxation or exemption infringe no constitutional limitation’.”Taxation
13
has been made the implement of the state’s police power.At bottom, the rate of tax is a matter better addressed to the
taxing legislature.
Lutz vs. Araneta, G.R No. L-7589, December 22, 1955
FACTS: Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate of the
deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the Internal Revenue the total sum of
fourteen thousand six hundred sixty six and forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of
Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for the crop years 1948-1949 and 19491950. Commonwealth Act. 567 Section 2 provides for an increase of the existing tax on the manufacture of sugar on
a graduated basis, on each picul of sugar manufacturer; while section 3 levies on the owners or persons in control of
the land devoted tot he cultivation of sugarcane and ceded to others for consideration, on lease or otherwise - "a tax
equivalent to the difference between the money value of the rental or consideration collected and the amount
representing 12 per centum of the assessed value of such land. It was alleged that such tax is unconstitutional and
void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a
public purpose for which a tax may be constitutionally levied. The action was dismissed by the CFI thus the plaintiff
appealed directly to the Supreme Court.
ISSUE: Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.
RULING: Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry of our
nation, sugar occupying a leading position among its export products; that it gives employment to thousands of
laborers in the fields and factories; that it is a great source of the state's wealth, is one of the important source of
foreign exchange needed by our government and is thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry be
stabilized in turn; and in the wide field of its police power, the law-making body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in
taxes that it had to sustain.
The subject 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 a valid exercise of police power.
5. Classification of Taxes
a. As to scope of the tax
National vs local taxes
National Tax – is imposed by the national government examples: revenue taxes under NIRC and
custom duties.
Local Tax – is levied and collected by the local government. Examples are real estate tax and
business permit.
Benguet Corporation vs. CBAA, G.R. No. 100959, June 29, 1992
BENGUET CORPORATION, petitioner, Vs. CENTRAL BOARD OF ASSESSMENT APPEALS, LOCAL
BOARD OF ASSESSMENT APPEALS OF THE PROVINCE OF BENGUET, and MUNCIPAL ASSESSOR OF
ITOGON, BENGUET, respondents.
•
BENGUET CORPORATION seeks to annul and set aside the Decision of the Central Board of Assessment
Appeals declaring as valid the tax assessments made by the Municipal Assessor of Itogon, Benguet, on the
bunkhouses of petitioner occupied as dwelli by its rank and file employees.
14
•
•
•
•
•
•
•
The Provincial Assessor of Benguet, through the Municipal Assessor of Itogon, assessed real property tax
on theng bunkhouses of petitioner Benguet Corporation occupied for residential purposes by its rank and
file employees.
According to the Provincial Assessor, the tax exemption of bunkhouses under Sec. 3 (a), P.D. 745
(Liberalizing the Financing and Credit Terms for Low Cost Housing Projects of Domestic Corporations
and Partnerships),was withdrawn by P.D. 1955 (Withdrawing, Subject to Certain Conditions, the Duty and
Tax Privileges Granted to Private Business Enterprises and/or Persons Engaged in Any Economic Activity,
and Other Purposes).
Petitioner appealed the assessment on Tax Declarations to the Local Board of Assessment Appeals (LBAA)
of the Province of Benguet.
The parties agreed to suspend hearings in LBAA Cases Nos. 42 and 43 to await the outcome of another
case, LBAA Case No. 41. The appeal was decided by the Central Board of Assessment Appeals (CBAA
holding that the buildings of petitioner used as dwellings by its rank and file employees were exempt from
real property tax pursuant to P.D. 745.
Thereafter, the proceedings in LBAA Cases Nos. 42 and 43 proceeded after which a decision was rendered
affirming the taxability of subject property of petitioner.
On appeal, CBAA sustained the decision holding that the realty tax exemption under P.D. 745 was
withdrawn by P.D. 1955 and E.O. 93, so that petitioner should have applied for restoration of the
exemption with the Fiscal Incentives Review Board (FIRB). The decision of CBAA clarified that Case No.
41 was different because it was effective prior to 1985, hence, was not covered by P.D. 1955 nor by E.O.
93.
Petitioner moved for reconsideration but was denied with CBAA holding that petitioner's "classification" of
P.D. 745 is unavailing because P.D. 1955 and E.O. 93 do not discriminate against the so-called "social
statutes". Hence, this petition.
Issues:
(1) whether respondent Assessors may validly assess real property tax on the properties of petitioner considering the
proscription in The Local Tax Code (P.D. 231) and the Mineral Resources Development Degree of 1974 (P.D. 463)
against imposition of taxes on mines by local governments; and,
(2) whether the real tax exemption granted under P.D. 745 (promulgated July 15, 1975) was withdrawn by P.D.
1955 (took effect October 15, 1984) and E.O. 93.
•
Presidential Decree No. 745, particularly Sec. 3 thereof, provides:
Sec. 3. Pursuant to the above incentive, such domestic corporations and partnerships shall enjoy tax
exemption on: (a) real estate taxes on the improvements which will be used exclusively for housing their
employees and workers . . .
•
Presidential Decree No. 1955, Sec. 1, provides:
Sec. 1. The provisions of any special or general law to the contrary notwithstanding, all exemptions from or
any preferential treatment in the payment of duties, taxes, fees, imposts and other charges heretofore
granted to private business enterprises and/or persons engaged in any economic activity are hereby
withdrawn. except those enjoyed by the following: . . . (e) Those that will be approved by the President of
the Philippines upon the recommendation of the Minister of Finance, should be read in connection with
Ministry Order No. 39-84, Sec. 1 (d), of the then Ministry of Finance, which took effect October 15, 1984,
states:
Sec. 1. The withdrawal of exemptions from, or any preferential treatment in, the payment of duties, taxes,
fees, imposts and other charges as provided for under Presidential Decree No. 1955, does not apply to
exemptions or preferential treatment embodied in the following laws: . . . (d) The Real Property Tax
Code . . .
15
•
Executive Order No. 93, promulgated December 17, 1986, is also to the same effect. Both P.D. 1955 and
E.O. 93 operate as wholesale withdrawal of tax incentives granted to private entities so that the government
may re-examine existing tax exemptions and restore through the "review mechanism" of the Fiscal
Incentives Review Board only those that are consistent with declared economic policy. Thuswise, the chief
revenue source of the government will not be greatly, if not unnecessarily, eroded since tax exemptions that
were granted on piecemeal basis, and which have lost relevance to existing programs, are eliminated.
HELD:
(1) No, realty taxes are not local taxes.
While local government units are charged with fixing the rate of real property taxes, it does not necessarily follow
from that authority the determination of whether or not to impose the tax. In fact, local governments have no
alternative but to collect taxes as mandated in Sec. 38 of the Real Property Tax Code, which states:
"Sec. 38. Incidence of Real Property Tax. — There shall be levied, assessed and collected in all provinces, cities and
municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other
improvements affixed or attached to real property not hereinafter specifically exempted."
It is thus clear from the foregoing that it is the national government, expressing itself through the legislative branch,
that levies the real property tax. Consequently, when local governments are required to fix the rates, they are merely
constituted as agents of the national government in the enforcement of the Real Property Tax Code. The delegation
of taxing power is not even involved here because the national government has already imposed realty tax in
Sec. 38 above-quoted, leaving only the enforcement to be done by local governments. "The realty tax is enforced
throughout the Philippines and not merely in a particular municipality or city but the proceeds of the tax accrue to
the province, city, municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a
local tax is imposed by the municipal or city council by virtue of the Local Tax Code, Presidential Decree No. 231,
which took effect on July 1, 1973.
Consequently, the provisions of Sec. 52 of the Mineral Resources Development Decree of 1974 (P.D. 463), and
Secs. 5 (m), 17 (d) and 22 (c) of The Local Tax Code (P.D. 231) cited by petitioner are mere limitations on the
taxing power of local government units, they are not pertinent to the issue before the Court and, therefore, cannot
and should not affect the imposition of real property tax by the national government.
(2) Yes, both P.D. 1955 and E.O. 93 operate as wholesale withdrawal of tax incentives granted to private entities so
that the government may re-examine existing tax exemptions and restore through the "review mechanism" of the
Fiscal Incentives Review Board only those that are consistent with declared economic policy. Presidential Decree
No. 1955, Sec. 1, provides: "Section 1. The provisions of any special or general law to the contrary notwithstanding,
all exemptions from or any preferential treatment in the payment of duties, taxes, fees, imposts and other charges
heretofore granted to private business enterprises and/or persons engaged in any economic activity are hereby
withdrawn, except those enjoyed by the following: . . . (e) Those that will be approved by the President of the
Philippines upon the recommendation of the Minister of Finance," Ministry Order No. 39-84, Sec. 1 (d), of the then
Ministry of Finance, which took effect October 15, 1984, states: "Section 1. The withdrawal of exemptions from, or
any preferential treatment in, the payment of duties, taxes, fees, imposts and other charges as provided for under
Presidential Decree No. 1955, does not apply to exemptions or preferential treatment embodied in the following
laws: . . . (d) The Real Property Tax Code . . ."
The Court gave value to the express provision of P.D. No. 1955 and rule in favor of the withdrawal of the real
property tax exemption provided under P.D. No. 745.
b. As to who shoulders the burden of tax
Direct vs indirect taxes
16
Direct Taxes – is a tax by which the taxpayer is directly liable on the transaction or business that it
engaged in. Example: custom duties paid by the oil companies to the Bureau of customs fir their
importation of crude oil.
Indirect Taxes – is a tax primarily paid by persons who can shift the burden to someone else. Example:
VAT, excise tax that oil companies pay to BIR upon removal of petroleum products from its refinery can
be shifted to its buyer by adding to the cash and/or selling price.
ARTURO M. TOLENTINO, petitioner, vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, respondents. G.R. No. 115455 October 30, 1995
FACTS: the petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax Law.
PPI contends that by removing the exemption of the press from the VAT while maintaining those granted to others,
the law discriminates against the press. CREBA asserts that R.A. No. 7716 impairs the obligations of contracts, and
violates the rule that taxes should be uniform and equitable and that Congress shall “evolve a progressive system of
taxation”.
CUP argues that legislature was to adopt a definite policy of granting tax exemption to cooperatives that the present
Constitution embodies provisions on cooperatives. To subject cooperatives to the VAT would, therefore, be to
infringe a constitutional policy.
ISSUE: Whether or not RA 7716 is unconstitutional.
RULING: No. In withdrawing the exemption, the law merely subjects the press to the same tax burden to which
other businesses have long ago been subject. The VAT is not a license tax. It is imposed purely for revenue
purposes.
Equality and uniformity of taxation mean that all taxable articles or kinds of property of the same class be taxed at
the same rate. It is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed
in similar situation.
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What
it simply provides is that Congress shall "evolve a progressive system of taxation." The constitutional provision has
been interpreted to mean simply that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)).
Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes,
which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
§17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to
avoid them by imposing such taxes according to the taxpayers' ability to pay. In the case of the VAT, the law
minimizes the regressive effects of this imposition by providing for zero rating of certain transactions (R.A. No.
7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other transactions.
ERNESTO M. MACEDA vs. HON. CATALINO MACARAIG, JR G.R. No. 88291, May 31, 1991
Facts:
17
•
•
•
•
•
•
•
On November 3, 1986, 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.
On June 4, 1949, Republic Act No. 358 granted NPC tax and duty exemption privileges - exempt from all
taxes, duties, fees, imposts, charges and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities.
On January 22, 1974, Presidential Decree No. 380 amended it - the exemption of NPC from such taxes,
duties, fees, imposts and other charges imposed "directly or indirectly," on all petroleum products used by
NPC in its operation.
On June 11, 1984, Presidential Decree No. 1931 withdrew all tax exemption privileges granted in favor of
government-owned or controlled corporations including their subsidiaries. However, said law empowered
the President and/or the then Minister of Finance, upon recommendation of the FIRB to restore, partially or
totally, the exemption withdrawn, or otherwise revise the scope and coverage of any applicable tax and
duty.
On January 7, 1986, the FIRB issued resolution No. 1-86 indefinitely restoring the NPC tax and duty
exemption privileges effective July 1, 1985.
However, effective March 10, 1987, Executive Order No. 93 once again withdrew all tax and duty
incentives granted to government and private entities which had been restored under Presidential Decree
Nos. 1931 and 1955 but it gave the authority to FIRB to restore, revise the scope and prescribe the date of
effectivity of such tax and/or duty exemptions.
On June 24, 1987 the FIRB issued Resolution No. 17-87 restoring NPC's tax and duty exemption privileges
effective March 10, 1987.
Issues: Whether or not the respondent NPC has ceased to enjoy indirect tax and duty exemption with the enactment
of P.D. No. 938 on May 27, 1976 which amended P.D. No. 380, issued on January 11, 1974.
Ruling:
Difference between Direct tax and an Indirect Tax:
A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in.
Examples are the custom duties and ad valorem taxes paid by the oil companies to the Bureau of Customs
for their importation of crude oil, and the specific and ad valorem taxes they pay to the Bureau of Internal
Revenue after converting the crude oil into petroleum products.
On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon
someone else ." For example, the excise and ad valorem taxes that oil companies pay to the Bureau of
Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the
NPC, by adding them to the "cash" and/or "selling price."
It is noted that in the earlier law, R.A. No. 358 the exemption was worded in general terms, as to cover "all taxes,
duties, fees, imposts, charges, etc. . . ." However, the amendment under Republic Act No. 6395 enumerated the
details covered by the exemption. Subsequently, P.D. No. 380, made even more specific the details of the exemption
of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation.
Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly
exempts NPC from "all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or administrative proceedings."
The use of the phrase "all forms" of taxes demonstrate the intention of the law to give NPC all the tax exemptions it
has been enjoying before. The rationale for this exemption is that being non-profit the NPC "shall devote all its
returns from its capital investment as well as excess revenues from its operation, for expansion.
18
Petitioner cannot invoke the rule on strictissimi juris with respect to the interpretation of statutes granting tax
exemptions to NPC.
Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in
favor of a government political subdivision or instrumentality.
c. As to the object or subject matter of the tax
Association of Customs Brokers vs. Municipal Board, G.R. No. L-4376, May 22, 1953
ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT, INC., petitioners-appellants, vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY ASSESSOR and THE CITY MAYOR, all
of the City of Manila, respondents-appellees. G.R. No. L-4376
May 22, 1953
FACTS: 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 socalled 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.
The respondents, represented by the city fiscal, contend on their part that the challenged ordinance imposes a
property tax which is within the power of the City of Manila to impose under its Revised Charter [Section 18 (p) of
Republic Act No. 409], and that the tax in question does not violate the rule of uniformity of taxation, nor does it
constitute double taxation.
The issues having been joined, the Court of First Instance of Manila sustained the validity of the ordinance and
dismissed the petition. Hence this appeal.
ISSUE: Whether or not Ordinance No. 3379 passed by the Municipal Board of the City of Manila is valid.
HELD: The ordinance infringes the rule of the uniformity of taxation ordained by our Constitution. Note that the
ordinance exacts the tax upon all motor vehicles operating within the City of Manila. It does not distinguish between
a motor vehicle for hire and one which is purely for private use. Neither does it distinguish between a motor vehicle
registered in the City of Manila and one registered in another place but occasionally comes to Manila and uses its
streets and public highways. This is an inequality which we find in the ordinance, and which renders it offensive to
the Constitution.
d. As to the manner of computing the tax
Ad valorem, Specific
TYPES OF EXCISE TAX:
Specific Tax – refers to the excise tax imposed which is based on weight or volume capacity or any other
physical unit of measurement
Ad Valorem Tax – refers to the excise tax which is based on selling price or other specified value of the
goods/articles
MANNER OF COMPUTATION:
Specific Tax = No. of Units/other measurements x Specific Tax Rate
19
Ad Valorem Tax = No. of Units/other measurements x Selling Price of any specific value per unit x Ad
Valorem Tax Rate
e. As to graduation or rate
Proportional, flat rate - all taxpayers are required to pay the same percentage of their income in taxes.
Progressive, degressive rate (Section 24 (A)) – is one whereby the rate increases as the tax base amount increases.
Examples: income tax, estate and donors tax under NIRC
Regressive – is one whereby tax decreases as the tax base increases
6. Aspects of Taxation
1. Levy or imposition by the legislative body - This is legislative in character. This is the role of Congress in
determining and enacting a tax law. It is Congress which determines the rate and the kind of tax and the facility or
mode of collecting the tax. Once you have a complete law, it is the executive branch which implements that tax law.
2. Collection or administration - Tax Administration. Implementation of the tax law by the executive department
through the administrative agencies.
3. Methods of collections (withholding system, voluntary assessment and payment, assessment and payment). This
is the act of compliance by the tax payer, including such options, schemes, or remedies as may be available to him.
7. Tax systems
a. Section 28 (1), Art. VI, 1987 Constitution
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of the Government.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of
the Congress.
b. Progressive system, regressive system
Progressive system - This is different from a progressive tax rate. In the case of progressive or graduated tax rate,
this is where the rate increases as the tax base increases. In the case of income, the more income you have, the
higher will be the tax rate. Progressive System of Taxation means that the state has more direct taxes than indirect
taxes.
Regressive system - The regressive rate is different from the regressive system of taxation. Regressive System of
Taxation means that there are more indirect taxes than direct taxes. Example: VAT – regardless of your economic
status as a taxpayer, the purchase of an item or commodity, regardless of who the buyer is, they are made to pay the
same tax. Whether you are rich or poor and you buy the same item, you pay the same tax.
20
B. DISTINGUISH: POWER OF TAXATION, POLICE POWER, AND EMINENT DOMAIN
INHERENT POWERS OF THE STATE
Three inherent powers of a state:
1. Police Power – it refers to the inherent power of a sovereign state to enact laws to promote public health, public
safety, public morals and the common good.
2. Power of Eminent Domain – it refers to the inherent power of a sovereign state to take private property for public
use upon payment of a just compensation.
3. Power of Taxation – inherent power of a sovereign state acting through its legislature to impose a proportionate
burden upon persons, property, rights or transaction to raise revenue to support government expenditure and as a
tool for general and economic welfare (PUBLIC PURPOSE)
SIMILARITIES:
1. They are indispensable to government existence.
2. They can exist independent of the constitution.
3. They are means by which the state interferes with private rights and properties.
4. They are generally exercised by the legislature.
5. They contemplate an equivalent compensation or benefit
C. THEORY AND BASIS OF TAXATION
1. Lifeblood theory – Without the revenue raised from taxation, the government will not survive, resulting in
detriment to society. Without taxes the government would be paralyzed for lack of motive, power to activate and
operate it.
21
2. Necessity theory – The exercise of the power to tax emanates from necessity, because without taxes, the
government would fail to fulfill its mandate of promoting general welfare and well-being of the people.
3. Benefits-received theory / Doctrine of Symbiotic Relationship – Taxpayers receive benefits from the taxes
through the protection of the state affords to them. For the protection they get arises their obligation to support the
government through payment of taxes.
Pablo Lorenzo vs. Juan Posadas Jr. GR No. 43082, June 18, 1937
FACTS:
Thomas Hanley died, leaving a will and considerable amount of real and personal properties. The will bequeathed
Matthew Hanley, Thomas' nephew, the money and the real estate. Also stipulated was that the property will only be
given ten years after Thomas' death.
The CFI appointed PJM Moore as considered trustee to administer the real properties. Moore acted as trustee until
he resigned and Pablo Lorenzo was appointed in his stead.
Juan Posadas, the CIR, assessed inheritance tax against the estate amounting to P2,057.74. Lorenzo paid the tax after
he was ordered by the CFI due to the CIR's motion. Lorenzo claimed that the inheritance tax should have been
assessed after 10 years and asked for a refund.
The CIR denied the protest and reassessed Lorenzo of P1,191.27 which represents interest due on the tax and which
was not included in the original assessment. However, the CFI dismissed this counterclaim and also denied
Lorenzo’s claim for refund against the CIR, thus the case.
ISSUES : Whether the inheritance tax be computed from its value ten years later.
RULING: NO. The Court held that a transmission by inheritance is taxable at the time of the predecessor's death,
notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax
measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.
The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the
government but upon the necessity of money for the support of the state. For this reason, no one is allowed to object
to or resist the payment of taxes solely because no personal benefit to him can be pointed out. While courts will not
enlarge, by construction, the government's power of taxation they also will not place upon tax laws so loose a
construction as to permit evasions on merely fanciful and insubstantial distinctions.
Digital Telecommunications Philippines, Inc. vs. Cantos, GR No. 180200, November 25, 2013
FACTS: Petitioner was granted a 25-year franchise to install telecommunications systems under a law which states
that “The grantee shall be liable to pay the same taxes on its real estate, buildings, and personal property exclusive
of this franchise x x x.” As they were not being issued a Mayor’s permit, Petitioner paid the Real Property Tax under
protest arguing that the phrase “exclusive of this franchise” means that only the real properties not used in
furtherance of its franchise are subject to Real Property Tax while those real properties which are used in its
telecommunications business are exempt from Real Property Tax.
ISSUE: Are Petitioner’s real properties used in its telecommunications business exempt from Real Property Tax?
HELD: NO. Petitioner’s real properties, whether or not used in its telecommunications business, are subject to Real
Property Tax. The phrase “exclusive of this franchise” qualifies the term “personal property.” This means that
Petitioner’s legislative franchise, which is an intangible personal property, shall not be subject to taxes. This is to put
franchise grantees in parity with non-franchisees as the latter obviously do not have franchises which may
22
potentially be subject to realty tax. There is nothing in the first sentence of Section 5 which expressly or even
impliedly exempts Petitioner from Real Property Tax. Petitioner’s reliance on the BLGF’s opinion stating that real
properties owned by telecommunications companies are exempt from Real Property Tax is without basis as the
BLGF has no authority to rule on claims for exemption from Real Property Tax.
Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific
provision of law conferring on the taxpayer in clear and plain terms, exemption from a common burden. Any doubt
whether a tax exemption exists is resolved against the taxpayer
It is of the utmost importance x x x that the modes adopted to enforce the taxes levied should be interfered with as
little as possible. Any delay in the proceedings of the officers, upon whom the duty is devolved of collecting the
taxes, may derange the operations of government, and thereby cause serious detriment to the public.
D. JURISDICTION OVER SUBJECT AND OBJECTS
E. PRINCIPLES OF A SOUND TAX SYSTEM
1. Fiscal adequacy - requires that sources of revenues must be adequate to meet government expenditures and their
variations. This is in consonance with the doctrine that taxes are the lifeblood of the government,
2. Theoretical justice – the sound tax system must take into consideration the taxpayer’s ability to pay. Our laws
mandate that taxes must be reasonable, just, fair, and conscionable. The Constitution rule that taxation must be
uniform and equitable. The state must evolve a progressive system of taxation.
3. Administrative feasibility – the tax law must be capable of effective and efficient enforcement. They must not
obstruct business growth and economic development.
Chavez vs. Ongpin, GR. No. 76788, June 6, 1990
FACTS: Section 21 of Presidential Decree No. 464 provides that every five years starting calendar year 1978, there
shall be a provincial or city general revision of real property assessments. The revised assessment shall be the basis
for the computation of real property taxes for the five succeeding years.
On the strength of the aforementioned law, the general revision of assessments was completed in 1984. However,
Executive Order No. 1019 was issued, which deferred the collection of real property taxes based on the 1984 values
to January 1, 1988 instead of January 1, 1985.
On November 25, 1986, President Corazon Aquino issued Executive order No. 73. It states that beginning January
1, 1987, the 1984 assessments shall be the basis of the real property collection. Thus, it effectively repealed
Executive Order No. 1019.
Francisco Chavez, a taxpayer and a land-owner, questioned the constitutionality of Executive Order No. 73. He
alleges that it will bring unreasonable increase in real property taxes. In fact, according to him, the application of
the assailed order will cause an excessive increase in real property taxes by 100% to 400% on improvements and up
to 100% on land.
ISSUE: Whether or not Executive Order no. 73 imposes unreasonable increase in real property taxes, thus, should be
declared unconstitutional.
RULING: The attack on Executive Order No. 73 has no legal basis as the general revision of assessments is a
continuing process mandated by Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No.
464 which should be challenged as constitutionally infirm. However, Chavez failed to raise any objection against
said decree.
23
Without Executive Order No. 73, the basis for collection of real property taxes will still be the 1978 revision of
property values. Certainly, to continue collecting real property taxes based on valuations arrived at several years
ago, in disregard of the increases in the value of real properties that have occurred since then, is not in consonance
with a sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax system, requires that
sources of revenues must be adequate to meet government expenditures and their variations.
F. NATURE OF THE POWER OF TAXATION
1. Inherent in sovereignty
Tanada vs Angara, GR no. 118295, May 2, 1997
Facts: Petitioners prayed for the nullification, on constitutional grounds, of the concurrence of the Philippine Senate
in the ratification by the President of the Philippines of the Agreement Establishing the World Trade Organization
(WTO Agreement, for brevity) and for the prohibition of its implementation and enforcement through the release
and utilization of public funds, the assignment of public officials and employees, as well as the use of government
properties and resources by respondent-heads of various executive offices concerned therewith.
They contended that WTO agreement violates the mandate of the 1987 Constitution to
“develop a self-reliant and independent national economy effectively controlled by Filipinos x x x (to) give
preference to qualified Filipinos (and to) promote the preferential use of Filipino labor, domestic materials and
locally produced goods” as (1) the WTO requires the Philippines
“to place nationals and products of member-countries on the same footing as Filipinos and local products”
and (2) that the WTO “intrudes, limits and/or impairs” the constitutional powers of both Congress and the Supreme
Court.
Issue: Whether provisions of the Agreement Establishing the World Trade Organization unduly limit, restrict and
impair Philippine sovereignty specifically the legislative power which, under Sec. 2, Article VI, 1987 Philippine
Constitution is ‘vested in the Congress of the Philippines.
Ruling: No, the WTO agreement does not unduly limit, restrict, and impair the Philippine sovereignty, particularly
the legislative power granted by the Philippine Constitution. The Senate was acting in the proper manner when it
concurred with the President’s ratification of the agreement.
While sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however
subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member
of the family of nations. Unquestionably, the Constitution did not envision a hermit-type isolation of the country
from the rest of the world. In its Declaration of Principles and State Policies, the Constitution “adopts the generally
accepted principles of international law as part of the law of the land, and adheres to the policy of peace, equality,
justice, freedom, cooperation and amity, with all nations.” By the doctrine of incorporation, the country is bound by
generally accepted principles of international law, which are considered to be automatically part of our own laws.
One of the oldest and most fundamental rules in international law is pacta sunt servanda — international agreements
must be performed in good faith. “A treaty engagement is not a mere moral obligation but creates a legally binding
obligation on the parties x x x. A state which has contracted valid international obligations is bound to make in its
legislations such modifications as may be necessary to ensure the fulfillment of the obligations undertaken.”
By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act,
nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from
a convention or pact. After all, states, like individuals, live with coequals, and in pursuit of mutually covenanted
objectives and benefits, they also commonly agree to limit the exercise of their otherwise absolute rights. Thus,
treaties have been used to record agreements between States concerning such widely diverse matters as, for
example, the lease of naval bases, the sale or cession of territory, the termination of war, the regulation of conduct of
24
hostilities, the formation of alliances, the regulation of commercial relations, the settling of claims, the laying down
of rules governing conduct in peace and the establishment of international organizations. The sovereignty of a state
therefore cannot in fact and in reality be considered absolute. Certain restrictions enter into the picture: (1)
limitations imposed by the very nature of membership in the family of nations and (2) limitations imposed by treaty
stipulations. As aptly put by John F. Kennedy, “Today, no nation can build its destiny alone. The age of selfsufficient nationalism is over. The age of interdependence is here.”
The WTO reliance on “most favored nation,” “national treatment,” and “trade without discrimination” cannot be
struck down as unconstitutional as in fact they are rules of equality and reciprocity that apply to all WTO members.
Aside from envisioning a trade policy based on “equality and reciprocity,” the fundamental law encourages
industries that are “competitive in both domestic and foreign markets,” thereby demonstrating a clear policy against
a sheltered domestic trade environment, but one in favor of the gradual development of robust industries that can
compete with the best in the foreign markets. Indeed, Filipino managers and Filipino enterprises have shown
capability and tenacity to compete internationally. And given a free trade environment, Filipino entrepreneurs and
managers in Hongkong have demonstrated the Filipino capacity to grow and to prosper against the best offered
under a policy of laissez faire.
WHEREFORE, the petition is DISMISSED for lack of merit.
2. Exclusively Legislative in nature
a. Extent of the legislative power to tax
Tan vs. Del Rosario Jr. G.R. No. 109289, 109446, October 3, 1994
Facts: This is a consolidated case involving the constitutionality of RA 7496 or the Simplified Net Income Taxation
(SNIT) scheme.
Petitioners claim to be taxpayers adversely affected by the continued implementation of the SNIT. In the 1st case,
they contend that the House Bill which eventually became RA 7496 is a misnomer or deficient because it was
named as “Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the
Practice of their Profession” while the actual title contains the said words with the additional phrase, “…Amending
Section 21 and 29 of the National Internal Revenue Code”.
In the 2nd case, they argue that respondents have exceeded their rule-making authority in applying SNIT to general
professional partnerships by issuing Revenue Regulation 2-93 to carry out the RA.
Issue: Whether or not general professional partnerships may be taxed under SNIT
Held: No. A general professional partnership is not itself an income taxpayer. Income tax is imposed not on the
partnership (which is tax exempt), but on the partners themselves in their individual capacity computed on their
distributive shares of partnership profits. There is no distinction in income tax liability between a person who
practices his profession alone and one who does it through partnership with others in the exercise of a common
profession.
In the case, SNIT is not envisioned by the Congress to cover corporations or partnerships which are independently
subject to the payment of income tax.
***
Notes:
*2 KINDS OF PARTNERSHIPS UNDER TAX CODE
1. Taxable Partnerships – no matter how it was created or organized, they are subject to income tax by law.
25
2. Exempt Partnerships – the partners, not the partnership (although obligated to file an income tax return for
administration and data) are liable for income tax in their individual capacity.
MANILA MEMORIAL PARK, INC v. SECRETARY OF DSWD
FACTS: On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following privileges:
SECTION 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative to utilization of transportation
services, hotels and similar lodging establishment[s], restaurants and recreation centers and purchase of medicine
anywhere in the country: Provided, That private establishments may claim the cost as tax credit;
b) a minimum of twenty percent (20%) discount on admission fees charged by theaters, cinema houses and concert
halls, circuses, carnivals and other similar places of culture, leisure, and amusement; xxx
On August 23, 1993, Revenue Regulations (RR) No. 0294 was issued to implement RA 7432. Sections 2(i) and 4 of
RR No. 0294 provide: Sec. 2. DEFINITIONS. – For purposes of these regulations:
i. Tax Credit – refers to the amount representing the 20% discount granted to a qualified senior citizen by all
establishments relative to their utilization of transportation services, hotels and similar lodging establishments,
restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other
similar places of culture, leisure and amusement, which discount shall be deducted by the said establishments from
their gross income for income tax purposes and from their gross sales for value added tax or other percentage tax
purposes. On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:SECTION 4. Privileges
for the Senior Citizens. – The senior citizens shall be entitled to the following:(a) the grant of twenty percent (20%)
discount from all establishments relative to the utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or
enjoyment of senior citizens, including funeral and burial services for the death of senior citizens; xxxx The
establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost of the
goods sold or services rendered:
Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year
that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value added
tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code, as amended.
Issue: WHETHER SECTION 4 OF REPUBLIC ACT NO. 9257 AND ITS IMPLEMENTING RULES AND
REGULATIONS, INSOFAR AS THEY PROVIDE THAT THE TWENTY PERCENT (20%) DISCOUNT TO
SENIOR CITIZENS MAY BE CLAIMED AS A TAX DEDUCTION BY THE PRIVATE ESTABLISHMENTS,
ARE INVALID AND UNCONSTITUTIONAL.
Ruling:
No. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners for the
discount privilege accorded to senior citizens. This is because the discount is treated as a deduction, a tax deductible
expense that is subtracted from the gross income and results in a lower taxable income. Being a tax deduction, the
discount does not reduce taxes owed on a peso for peso basis but merely offers a fractional reduction in taxes owed.
Theoretically, the treatment of the discount as a deduction reduces the net income of the private establishments
concerned. The discounts given would have entered the coffers and formed part of the gross sales of the private
establishments, were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private property
for public use or benefit. This constitutes compensable taking for which petitioners would ordinarily become entitled
26
to a just compensation. Just compensation is defined as the full and fair equivalent of the property taken from its
owner by the expropriator. The measure is not the takers gain but the owners loss. The word just is used to intensify
the meaning of the word compensation, and to convey the idea that the equivalent to be rendered for the property to
be taken shall be real, substantial, full and ample. A tax deduction does not offer full reimbursement of the senior
citizen discount. As such, it would not meet the definition of just compensation.
Having said that, this raises the question of whether the State, in promoting the health and welfare of a special group
of citizens, can impose upon private establishments the burden of partly subsidizing a government program. The
Court believes so. The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to
nation-building, and to grant benefits and privileges to them for their improvement and well-being as the State
considers them an integral part of our society. The priority given to senior citizens finds its basis in the Constitution
as set forth in the law itself. As a form of reimbursement, the law provides that business establishments extending
the twenty percent discount to senior citizens may claim the discount as a tax deduction. The law is a legitimate
exercise of police power which, similar to the power of eminent domain, has general welfare for its object. While
the Constitution protects property rights, petitioners must accept the realities of business and the State, in the
exercise of police power, can intervene in the operations of a business which may result in an impairment of
property rights in the process.
Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners and the
other private establishments concerned. This being the case, the means employed in invoking the active participation
of the private sector, in order to achieve the purpose or objective of the law, is reasonably and directly related.
Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the continued implementation of
the same would be unconscionably detrimental to petitioners, the Court will refrain from quashing a legislative act.
Carlos Superdrug Corp v. DSWD, 553 Phil. 120 (2007). When we ruled that petitioners in Carlos Superdrug case
failed to prove that the 20% discount is arbitrary, oppressive or confiscatory. We noted that no evidence, such as a
financial report, to establish the impact of the 20% discount on the overall profitability of petitioners was presented
in order to show that they would be operating at a loss due to the subject regulation or that the continued
implementation of the law would be unconscionably detrimental to the business operations of petitioners.
In the case at bar, petitioners proceeded with a hypothetical computation of the alleged loss that they will suffer
similar to what the petitioners in Carlos Superdrug Corporationdid. We, thus, found that the 20% discount as well as
the tax deduction scheme is a valid exercise of the police power of the State. Thus, it is constitutional.
b. Non-delegability of power to tax
Pepsi-Cola Bottling vs. Municipality of Tanauan, G.R. No. L- 31156, February 27, 1976
Facts: 1. Pepsi filed a complaint before the CFI to declare SEC 2 of RA No. 2264 (Local Autonomy Act) as
unconstitutional and as an undue delegation of taxing authority. Pepsi also sought to have Ordinances 23 and 27 by
the Municipality of Tanauan be declared as null and void 2. In a Stipulation of Facts entered into by the parties: a.
Ordinances No. 23 and 27 cover the same subject matter and the imposed production tax are the same. b. The
Municipal Treasurer is seeking to enforce compliance by Pepsi of Ordinance No. 27 alone 3. Ordinance No. 23 levies and collects from soft drinks producers and manufacturers at tax of 1/16 of a centavo for every bottle of soft
drink corked. 4. Ordinance No. 27 – levies and collects “on soft drinks produced or manufactured within the
territorial jurisdiction of the municipality a tax of 1 centavo on each gallon of volume capacity. 5. Tax imposed on
both Ordinances No. 23 and 27 is denominated as “municipal production tax” 6. CFI dismissed the complaint and
upheld the constitutionality of the 2 ordinances.
Issue/s: a. Is Sec 2, RA 2264 an undue delegation of power, confiscatory and oppressive? b. Do ordinances nos. 23
and 27 constitute double taxation and impose percentage or specific taxes? c. Are ordinances nos. 23 unjust and
unfair?
27
Ruling: 1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right
to every gov’t without being expressly conferred by the people. It is purely legislative and which the central
legislative body cannot delegate wither to the executive of judicial department of the gov’t without infringing upon
the theory of separation of powers. Legislative powers may be delegated to local governments in respect of matters
of local concern. This is sanctioned by immemorial practice. By necessary implication, the legislative power to
create political corporations for purposes of local selfgov’t carries with it the power to confer on such local
governmental agencies the power to tax. The plenary (unlimited) nature of the taxing power thus delegated would
not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not
limited to the exact measure of that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose
and collect taxes as the legislature may deem expedient. Thus municipalities may be permitted to tax subjects which
for reasons of public policy the state has not deemed wise to tax for more general purposes. 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. Moreover, double taxation, in general, is not forbidden by our fundamental law, since we have
not adopted as part of our fundamental law the injunction
Delegation of Powers of Taxation & Double Taxation against double taxation found in the Constitution of the
United States and some states of the Union. Double taxation becomes obnoxious (objectionable) 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 of municipality. 2.
Ordinance No. 27 was intended as a plain substitute of Ordinance No. 23 and operates as a repeal of the latter even
without words to that effect. As admitted, it is Ordinance no. 27 alone that is being enforced by the Municipal
Treasurer. As long as the tax levied under the authority of a city or municipal ordinance is not within the exceptions
and limitations in the law, the same comes within the ambit of the general rule. The limitation applies to the
prohibition against municipalities and municipal districts to impose “any percentage tax on sales or other taxes in
any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of
the NIRC. As such, a municipal ordinance which prescribes a set ratio between the amount of the tax and the
volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the
municipality to enact. (That is Ordinance 23 ) But, the imposition of “a tax of one centavo (P0.01) on each
gallon of volume capacity” on all soft drinks produced or manufactured under Ordinance No. 27 does not partake
of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce
(whether sold or not) and not on the sales. There is not set ratio between the volume of sales and the amount of the
tax. Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles (spirits,
wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches, firecrackers, etc.) and soft
drink is not one of those specified. 3. The tax of imposed by Ordinance No. 27 cannot be considered unjust and
unfair. Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This is in
line with the constitutional policy of according the widest possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the Local Tax Code. Unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as unreasonable. ACCORDINGLY, the constitutionality
of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld
and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, repealing Municipal
Ordinance No. 23, same series, is hereby declared of valid and legal effect.
3. Who may question the validity of a tax measure or expenditure of taxes
JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT vs. THE COMMISSION ON ELECTIONS January
27, 1983 | De Castro, J. | Taxation 1 | Taxpayers’ Suit
DOCTRINE:
28
It is only when an act complained of, which may include a legislative enactment or statute, involves the illegal
expenditure of public money that the so-called taxpayer suit may be allowed. CASE SUMMARY: Petitioners sue as
taxpayers to compel a special election. SC dismisses the petition. See doctrine.
FACTS:
Petition for mandamus to review the decision of the Commission on Elections Petitioners Eulalio and Igot filed
this petition as a representative suit for and on behalf of those who wish to participate in the election, to compel
COMELEC to call a special election to fill up 12 existing vacancies in the Interim Batasang Pambansa. o The
petition is based on Sec. 5(2), Article VIII of the 1973 Constitution, which reads: “In case a vacancy arises in the
Batasang Pambansa 18 months or more before a regular election, the [COMELEC] shall call a special election to be
held within 60 days after the vacancy occurs to elect the Member to serve the unexpired term.” Lozada claims that
he is a taxpayer and a bonafide elector of Cebu City, and a transient voter of Quezon City. He wants to run for the
position in the Batasan. Igot alleges that as a taxpayer, he has standing to petition by mandamus the calling of a
special election as mandated by the Constitution. o They allege that they are deeply concerned about their duties as
citizens and they want to uphold the Constitutional mandate; and that they filed the petition since the subject matters
are of profound and general interest. COMELEC opposes the petition alleging that petitioners lack standing to file
the petition because they are not the proper parties to institute the action, the SC has no jurisdiction to entertain the
same, and that the Constitutional provision above cited does not apply to the Interim Batasang Pambansa.
ISSUES: W/N have standing to sue? – NO.
RULING:
The Court held that petitioners may not file the instant petition as taxpayers, because there is no allegation that tax
money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election,
which is allegedly its duty under Sec 5(2), Art. VIII of the Constitution, and therefore, there is actually no
expenditure of public funds involved in the act complained of. It is only when an act complained of, which may
include a legislative enactment or statute, involves the illegal expenditure of public money that the so-called
taxpayer suit may be allowed. What the instant case seeks is one that entails expenditure of public funds which
may be illegal, because it would be spent for a purpose that has no authority in the Constitution or a statute.
Petitioners also do not have standing to sue as voters, because they do not have the requisite personal and substantial
interest in the case such that they have or would sustain direct injury as a result of the assailed act. The alleged
inaction of the COMELEC to call a special election to fill the vacant seats in the Batasang Pambansa would
adversely affect only the generalized interest of all citizens. The SC’s jurisdiction over the COMELEC, as provided
in the Constitution, is only to review by certiorari the latter’s decision, orders, or rulings. In this case, there is no
such decision, order or ruling of the COMELEC that is brought to the Court for review. It is not alleged that
petitioners asked COMELEC to perform its alleged duty, and that it had issued an order/resolution denying such
petition. Further, the writ of mandamus cannot issue because there is no showing that COMELEC has unlawfully
refused or neglected to perform a ministerial duty. The holding of special elections would entail huge expenditures
of money that have to be financed by the necessary appropriations, which is an act only the Batasang Pambansa can
do. The Court held that the provision cited by the petitioners applies only to the regular Batasang Pambansa, and not
the Interim one. This is because of the Interim Batasang Pambansa’s composition, which is the members of the
Constitutional Convention, Congressmenn, Senators, and the President and Vice-President. Thus, even if there were
vacancies therein, no province or legislative district would ever be without representation, unlike in the Regular
Batasang Pambansa. Further, said provision is in the main body of the Constitution, and not in the Transitory
Provisions.
Chavez vs. PCGG, G.R. No. 130716, December 9, 1998
Facts: Petitioner, invoking his constitutional right to information and the correlative duty of the state to disclose
publicly all its transactions involving the national interest, demands that respondents make public any and all
negotiations and agreements pertaining to PCGG’s task of recovering the Marcoses’ ill-gotten wealth. He claims
29
that any compromise on the alleged billions of ill-gotten wealth involves an issue of “paramount public interest,”
since it has a “debilitating effect on the country’s economy” that would be greatly prejudicial to the national interest
of the Filipino people. Hence, the people in general have a right to know the transactions or deals being contrived
and effected by the government.
Respondents, on the other hand, do not deny forging a compromise agreement with the Marcos heirs. They claim,
though, that petitioner’s action is premature, because there is no showing that he has asked the PCGG to disclose the
negotiations and the Agreements. And even if he has, PCGG may not yet be compelled to make any disclosure,
since the proposed terms and conditions of the Agreements have not become effective and binding.
Issues: Whether the constitutional right to information may prosper against respondents’ argument that the “should
be disclosed” proposed terms and conditions of the Agreements are not yet effective and binding
Held: Yes. Considering the intent of the framers of the Constitution, we believe that it is incumbent upon the PCGG
and its officers, as well as other government representatives, to disclose sufficient public information on any
proposed settlement they have decided to take up with the ostensible owners and holders of ill-gotten wealth, subject
to some of the following recognized restrictions: (1) national security matters and intelligence information, (2) trade
secrets and banking transactions, (3) criminal matters, and (4) other confidential information.
WHEREFORE, the petition is GRANTED. The General and Supplemental Agreements dated December 28, 1993,
which PCGG and the Marcos heirs entered into are hereby declared NULL AND VOID for being contrary to law
and the Constitution. Respondent PCGG, its officers and all government functionaries and officials who are or may
be directly or indirectly involved in the recovery of the alleged ill-gotten wealth of the Marcoses and their
associates are DIRECTED to disclose to the public the terms of any proposed compromise settlement, as well as the
final agreement, relating to such alleged ill-gotten wealth, in accordance with the discussions embodied in this
Decision.
G. INHERENT AND CONSTITUTIONAL LIMITATIONS ON TAXATION
INHERENT LIMITATIONS
1. Purpose must be public in nature
Planters Products vs. Fertiphil Corporation, G.R. No. 16606, March 14, 2008
FACTS: Petitioner PPI and respondent Fertiphil are private corporations incorporated under Philippine laws, both
engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals. Marcos issued Letter
of Instruction (LOI) 1465, imposing a capital recovery component of Php10.00 per bag of fertilizer. The levy was to
continue until adequate capital was raised to make PPI financially viable. Fertiphil remitted to the Fertilizer and
Pesticide Authority (FPA), which was then remitted the depository bank of PPI. Fertiphil paid P6,689,144 to FPA
from 1985 to 1986.After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy.
Fertiphil demanded from PPI a refund of the amount it remitted, however PPI refused. Fertiphil filed a complaint for
collection and damages, questioning the constitutionality of LOI 1465, claiming that it was unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a denial of due process. PPI argues that Fertiphil
has no locus standi to question the constitutionality of LOI No. 1465 because it does not have a “personal and
substantial interest in the case or will sustain direct injury as a result of its enforcement.” It asserts that Fertiphil did
not suffer any damage from the imposition because “incidence of the levy fell on the ultimate consumer or the
farmers themselves, not on the seller fertilizer company.
ISSUE: Whether or not Fertiphil has locus standi to question the constitutionality of LOI No. 1465.What is the
power of taxation?
RULING:
30
Fertiphil has locus standi because it suffered direct injury; doctrine of standing is a mere procedural technicality
which may be waived. The imposition of the levy was an exercise of the taxation power of the state. While it is true
that the power to tax can be used as an implement of police power, the primary purpose of the levy was 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.
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.
Lutz vs. Araneta, supra
FACTS: Appelant in this case Walter Lutz in his capacity as the Judicial Administrator of the intestate of the
deceased Antonio Jayme Ledesma, seeks to recover from the Collector of the Internal Revenue the total sum of
fourteen thousand six hundred sixty six and forty cents (P 14, 666.40) paid by the estate as taxes, under section 3 of
Commonwealth Act No. 567, also known as the Sugar Adjustment Act, for the crop years 1948-1949 and 19491950. Commonwealth Act. 567 Section 2 provides for an increase of the existing tax on the manufacture of sugar on
a graduated basis, on each picul of sugar manufacturer; while section 3 levies on the owners or persons in control of
the land devoted tot he cultivation of sugarcane and ceded to others for consideration, on lease or otherwise - "a tax
equivalent to the difference between the money value of the rental or consideration collected and the amount
representing 12 per centum of the assessed value of such land. It was alleged that such tax is unconstitutional and
void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a
public purpose for which a tax may be constitutionally levied. The action was dismissed by the CFI thus the plaintiff
appealed directly to the Supreme Court.
ISSUE: Whether or not the tax imposition in the Commonwealth Act No. 567 are unconstitutional.
RULING: Yes, the Supreme Court held that the fact that sugar production is one of the greatest industry of our
nation, sugar occupying a leading position among its export products; that it gives employment to thousands of
laborers in the fields and factories; that it is a great source of the state's wealth, is one of the important source of
foreign exchange needed by our government and is thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement, therefore redounds greatly to the general welfare.
Hence it was competent for the legislature to find that the general welfare demanded that the sugar industry be
stabilized in turn; and in the wide field of its police power, the law-making body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the added strain of the increase in
taxes that it had to sustain.
The subject 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 a valid exercise of police power. Pascual vs.
Secretary of Public Works, G.R. No. L-10405, December 29, 1960
PASCUAL vs. SECRETARY OF PUBLIC WORKS 110 PHIL 331 GR No. L-10405, December 29, 1960
"A law appropriating the public revenue is invalid if the public advantage or benefit, derived from such expenditure,
is merely incidental in the promotion of a particular enterprise."
FACTS: Governor Wenceslao Pascual of Rizal instituted this action for declaratory relief, with injunction, upon the
ground that RA No. 920, which apropriates funds for public works particularly for the construction and
31
improvement of Pasig feeder road terminals. Some of the feeder roads, however, as alleged and as contained in the
tracings attached to the petition, were nothing but projected and planned subdivision roads, not yet constructed
within the Antonio Subdivision, belonging to private respondent Zulueta, situated at Pasig, Rizal; and which
projected feeder roads do not connect any government property or any important premises to the main highway. The
respondents' contention is that there is public purpose because people living in the subdivision will directly be
benefitted from the construction of the roads, and the government also gains from the donation of the land supposed
to be occupied by the streets, made by its owner to the government.
ISSUE: Should incidental gains by the public be considered "public purpose" for the purpose of justifying an
expenditure of the government?
HELD: 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 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.
In 1953, Republic Act No. 920 was passed. This law appropriated P85,000.00 “for the construction, reconstruction,
repair, extension and improvement Pasig feeder road terminals”. Wenceslao Pascual, then governor of Rizal,
assailed the validity of the law. He claimed that the appropriation was actually going to be used for private use for
the terminals sought to be improved were part of the Antonio Subdivision. The said Subdivision is owned by
Senator Jose Zulueta who was a member of the same Senate that passed and approved the same RA. Pascual
claimed that Zulueta misrepresented in Congress the fact that he owns those terminals and that his property would
be unlawfully enriched at the expense of the taxpayers if the said RA would be upheld. Pascual then prayed that the
Secretary of Public Works and Communications be restrained from releasing funds for such purpose. Zulueta, on the
other hand, perhaps as an afterthought, donated the said property to the City of Pasig.
ISSUE: Whether or not the appropriation is valid.
HELD: No, the appropriation is void for being an appropriation for a private purpose. The subsequent donation of
the property to the government to make the property public does not cure the constitutional defect. The fact that the
law was passed when the said property was still a private property cannot be ignored. “In accordance with the rule
that the taxing power must be exercised for public purposes only, money raised by taxation can be expanded only
for public purposes and not for the advantage of private individuals.” Inasmuch as the land on which the projected
feeder roads were to be constructed belonged then to Zulueta, the result is that said appropriation sought a private
purpose, and, hence, was null and void.
2. Prohibition against delegation of taxing power, Exceptions
a. Delegation to LGUs
Sec. 5, Art. X, 1987 Constitution
Section 5. 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. Such taxes, fees, and charges shall accrue exclusively to the local governments.
Book II, RA 7160 - Local Taxation and Fiscal Matters
Maceda vs. Madarang (1991), supra
32
FACTS: On November 3, 1986, 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. Effective March 10, 1987,
Executive Order No. 93 once again withdrew all tax and duty incentives granted to government and private entities
which had been restored under Presidential Decree Nos. 1931 and 1955 but it gave the authority to FIRB to restore,
revise the scope and prescribe the date of effectivity of such tax and/or duty exemptions. On June 24, 1987 the FIRB
issued Resolution No. 17-87 restoring NPC's tax and duty exemption privileges effective March 10, 1987. On
October 5, 1987, the President, through respondent Executive Secretary Macaraig, Jr., confirmed and approved
FIRB Resolution No. 17-87. Though the issues raised was resolved by the Supreme Court in G.R. No. 88291, the
issues was again brought to the Supreme Court for the second time by the petitioner in G.R. No. 88291.
ISSUE: Whether or not the powers conferred upon the FIRB by Section 2(a), (b), and (c) and (4) of Executive Order
No. 93 "constitute undue delegation of legislative power and is, therefore, unconstitutional.”
RULING: No. With the growing complexities of modern life and the many technical fields of governmental
functions, as in matters pertaining to tax exemptions, delegation of legislative powers has become the rule and
nondelegation the exception. The legislature may not have the competence, let alone the interest and the time, to
provide direct and efficacious solutions to many problems attendant upon present day undertakings. The legislature
could not be expected to state all the detailed situations wherein the tax exemption privilege would be restored. The
task may be assigned to an administrative body like the Fiscal Incentives Review Board (FIRB). When E.O No. 93
(S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus, there was no
power delegated to her, rather it was she who was delegating her power. She delegated it to the FIRB, which, for
purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her power. And
E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy to be carried out 85 and it
fixed the standard to which the delegate had to conform in the performance of his functions, 86 both qualities having
been enunciated by this Court in Pelaez vs. Auditor General. 87 For delegation to be constitutionally valid, the law
must be complete in itself and must set forth sufficient standards. Certain aspects of the taxing process that are not
really legislative in nature are vested in administrative agencies. In this case, there really is no delegation, to wit: a)
power to value property; b) power to assess and collect taxes; c) power to perform details of computation,
appraisement or adjustment; among others.
b. Delegation to the President
Sec.28(2), Art. VI, 1987 Constitution: The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the national development program
of the Government.
Garcia vs. Executive Secretary, supra.
FACTS: The President issued an EO 438 which imposed, across the board, including crude oil and other oil
products, additional duty ad valorem. The Tariff Commission held public hearings on said EO and submitted a
report to the President for consideration and appropriate action. The President, on the other hand issued an EO
which levied a special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products
ISSUE: Whether or not the President may issue an Executive Order that can increase tariff rates
DECISION: WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby
DISMISSED for lack of merit. Costs against petitioner.
RATIO DECIDENDI: Yes, the delegation is constitutional. The Court said that although the enactment of
appropriation, revenue and tariff bills is within the province of the Legislative, it does not follow that EO in
question, assuming they may be characterized as revenue measure are prohibited to the President, that they must be
33
enacted instead by Congress. Section 28 of Article VI of the 1987 Constitution provides: “The Congress may, by
law authorize the President to fix… tariff rates and other duties or imposts…” Thus, there is explicit constitutional
permission for Congress to authorize the President "subject to such limitations and restrictions as [Congress] may
impose. This referred to the Tariff and Customs Code which authorized the President to issue said EOs.
Book II, RA 7160
c. Delegation to administrative agencies
Sec.244, NIRC - SEC. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations. - The
Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations
for the effective enforcement of the provisions of this Code.
Maceda vs. Macaraig (1993), supra
Cervantes vs. Auditor General, G.R. No. L-4043, May 26, 1952
Facts: Petitioner was the manager of NAFCO in 1949 with an annual salary of Php 15,000. By a resolution of the
Board of Directors, he was granted a quarter allowance of not exceeding Php 400 a month effective on the first of
that month. This allowance was disapproved by the Central Committee. The petitioner questions the validity of RA
51 which created the office that supervises the offices that recommended and decided the disapproval of his
allowance.
Issue: Whether RA 51 is unconstitutional.
Ruling: No. RA 51 is constitutional. It is not an illegal delegation of legislative power to the executive as argued by
the petitioner. IT is a mandate for the President to streamline Government-Owned and Controlled Corporations.
Hence, the petition for review was dismissed by the Supreme Court. As to the first ground, 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.
Republic Act No. 51 in authorizing the President of the Philippines, 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.
3. Exemption of government entities, agencies and instrumentalities
Sec.27 (C), NIRC
"SECTION 27. Rates of Income Tax on Domestic Corporations. —revised already
"(C) Government-owned or Controlled Corporations, Agencies or Instrumentalities. — The provisions of existing
special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or
controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System
(SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and
the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in a similar business, industry, or
activity.
34
Rationale: This is because taxes are financial burdens imposed for the purpose of raising revenues to defray the cost
of the operation of the Government, and a tax on property of the Government, whether national or local, would
merely have the effect of taking money from one pocket to put it in another pocket another pocket.
Board of Assessment Appeals vs. CTA, G.R. No. L-35683, May 7, 1987
As a rule, the government, its agencies and instrumentalities performing governmental function are exempt from
from VAT. This is because taxes are financial burdens imposed for the purpose of raising revenues to defray the cost
of the operation of the Government, and a tax on property of the Government, whether national or local, would
merely have the effect of taking money from one pocket to put it in another pocket another pocket.
Respondents: Cement manufacturers
FACTS: Petitioner Commissioner of Internal Revenue had ruled that cement is a "manufactured product" and
therefore subject to sales tax. On appeal, CTA adjudged cement to be a "mineral product" within the meaning of
Section 246 of the Tax Code and consequently exempt from sales tax under Section 188 (c) of the same Code, as
said laws stood at the time of the questioned assessments.
Respondents are domestic corporations engaged in the manufacture of cement.
ISSUE: whether or not the cement is a mineral product within the purview of Section 246 of the Tax Code and
cannot be subjected to tax?
HELD: No. it is clear that cement qua cement was never considered as a mineral product within the meaning of
Section 246 of the Tax Code, notwithstanding that at least 80% of its components are minerals, for the simple reason
that cement is the product of a manufacturing process and is no longer the mineral product" contemplated in the Tax
Code (i.e., minerals subjected to simple treatments) for the purpose of imposing the ad valorem tax. Since cement as
such was subject to sales tax immediately before the enactment of Republic Act No. 1299, it should remain to be so
subject thereafter, considering that the law intended "no change of taxes whatsoever."
In the case at bar the assessments are not undisputed or indisputable. The dispute as to the tax liability of private
respondents for sales tax on the sale of cement arose not simply because of ordinary divergence of views in good
faith vis-a-vis the interpretation of the law; 4 the position of private respondents was founded upon the original stand
of the Bureau of Internal Revenue itself that cement is a mineral product rather than a manufactured product and is
therefore subject to ad valorem tax, not sales tax. As pointed out above, this stand was apparently given implied
support in CEPOC vs. Collector, G.R. No. L-20563 (1968), 25 SCRA 789, penned by Justice Angeles. That the
posture of private respondents is plausible — despite the subsequent BIR position that cement is a manufactured
product subject to sales tax — is supported by the fact that the Court of Tax Appeals, the specialized body handling
tax cases, sustained the private respondents in the decisions under review.
MCIAA vs Marcos, G.R. No. 120082, September 11, 1996 - DENIED
FACTS: Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act 6958. Since
the time of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with
Section 14 of its Charter. However on 11 October 1994, the Office of the Treasurer of Cebu, demanded for the
payment of realty taxes on several parcels of land belonging to the petitioner.
Petitioner objected to such demand for payment as baseless and unjustified and asserted that it is an instrumentality
of the government performing governmental functions, which puts limitations on the taxing powers of local
government units.
The City refused to cancel and set aside petitioner’s realty tax account, insisting that the MCIAA is a government
controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the
Local Government Code (LGC), and not an instrumentality of the government but merely a government owned
35
corporation performing proprietary functions. MCIAA paid its tax account “under protest” when City is about to
issue a warrant of levy against the MCIAA’s properties.
MCIAA filed a Petition of Declaratory Relief with the RTC contending that the taxing power of local government
units do not extend to the levy of taxes or fees on an instrumentality of the national government. It contends that by
the nature of its powers and functions, it has the footing of an agency or instrumentality of the national government;
which claim the City rejects. The trial court dismissed the petition, citing that close reading of the LGC provides the
express cancellation and withdrawal of tax exemptions of Government Owned and Controlled Corporations.
ISSUE: Whether the MCIAA is exempted from realty taxes.
RULING: Tax statutes are construed strictly against the government and liberally in favor of the taxpayer. But since
taxes are paid for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from
taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally
in favor of the taxing authority.
A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be
mistaken. Taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a
political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of
the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its
operations.
Further, since taxation is the rule and exemption therefrom the exception, the exemption may be withdrawn at the
pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private
parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by
the non-impairment clause of the Constitution.
MCIAA is a “taxable person” under its Charter (RA 6958), and was only exempted from the payment of real
property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to
make it a taxable person subject to all taxes, except real property tax.
Since Republic Act 7160 or the Local Government Code (LGC) expressly provides that “All general and special
laws, acts, city charters, decrees [sic], executive orders, proclamations and administrative regulations, or part of
parts thereof which are inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly.”
With that repealing clause in the LGC, the tax exemption provided for in RA 6958 had been expressly repealed by
the provisions of the LGC. Therefore, MCIAA has to pay the assessed realty tax of its properties effective after
January 1, 1992 until the present.
>Class notes: comparison between Republic of the Phils and National Government. Agency and Instrumentalities.
An "agency" of the Government refers to "any of the various units of the Government, including a department,
bureau, office instrumentality, or government-owned or controlled corporation, or a local government or a distinct
unit therein;"31 while an "instrumentality" refers to "any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy; usually through a charter. This
term includes regulatory agencies, chartered institutions and government-owned and controlled corporations".
4. International Comity
Sec. 2, Article II, 1987 Constitution
36
Section 2. The Philippines renounces war as an instrument of national policy, adopts the generally accepted
principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice,
freedom, cooperation, and amity with all nations.
The principle of international comity recognizes that States are co-equal sovereigns such that one cannot exercise its
inherent sovereign powers over another, including the power to tax.
States find it mutually advantageous to create self-imposed restraints on their taxing powers with reference to
properties of foreign governments. Moreov to properties of foreign governments. Moreover, when on state enters the
territory of another, there is an implied understanding that the former does not intend to degrade its dignity by
placing itself under the jurisdiction of the latter, note that a foreign state cannot be sued without its consent, thus it
would be useless to impose or assess a tax which cannot be collected.
Tanada vs. Angara, supra
Facts: On April 15, 1994, the Philippine Government represented by its Secretary of the Department of Trade and
Industry signed the Final Act binding the Philippine Government to submit to its respective competent authorities
the WTO (World Trade Organization) Agreements to seek approval for such. On December 14, 1994, Resolution
No. 97 was adopted by the Philippine Senate to ratify the WTO Agreement.
This is a petition assailing the constitutionality of the WTO agreement as it violates Sec 19, Article II, providing for
the development of a self reliant and independent national economy, and Sections 10 and 12, Article XII, providing
for the “Filipino first” policy.
Issue: Whether or not the Resolution No. 97 ratifying the WTO Agreement is unconstitutional
Ruling: The Supreme Court ruled the Resolution No. 97 is not unconstitutional. While the constitution mandates a
bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business
exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino interests
only against foreign competition and trade practices that are unfair. In other words, the Constitution did not intend to
pursue an isolationalist policy. Furthermore, the constitutional policy of a “self-reliant and independent national
economy” does not necessarily rule out the entry of foreign investments, goods and services. It contemplates neither
“economic seclusion” nor “mendicancy in the international community.”
The Senate, after deliberation and voting, gave its consent to the WTO Agreement thereby making it “a part of the
law of the land”. The Supreme Court gave due respect to an equal department in government. It presumes its actions
as regular and done in good faith unless there is convincing proof and persuasive agreements to the contrary. As a
result, the ratification of the WTO Agreement limits or restricts the absoluteness of sovereignty. A treaty
engagement is not a mere obligation but creates a legally binding obligation on the parties. A state which has
contracted valid international obligations is bound to make its legislations such modifications as may be necessary to
ensure the fulfillment of the obligations undertaken.
5. Limitation of territorial jurisdiction or situs
Territorial vs personal jurisdiction
Tax is territorial in application in the sense that the object and/or subject of the tax must be within the territorial
jurisdiction of a State. As such, income earned by non-residents and aliens are not subject to tax in the Philippines
unless they are earned herein – here the subject of the tax is the income. On the other hand, resident citizens are
subject to income tax for their worldwide income– here the object of the tax is the individual who is subject to the
protection of the State.
37
CIR vs. Marubeni, G.R. No. 137377, December 18, 2001
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, a Japanese corporation, engaged in general import and export trading, financing and construction, is duly
registered in the Philippines with Manila branch office. CIR examined the Manila branch’s books of accounts for
fiscal year ending March 1985, and found that respondent had undeclared income from contracts with NDC and
Philphos for construction of a wharf/port complex and ammonia storage complex respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency taxes. CIR claims that
the income respondent derived were income from Philippine sources, hence subject to internal revenue taxes. On
Sept 1986, respondent filed 2 petitions for review with CTA: the first, questioned the deficiency income, branch
profit remittance and contractor’s tax assessments and second questioned the deficiency commercial broker’s
assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that taxpayers who wished
to avail this should on or before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes under Title 3 and business tax
under Chap 2, Title 5 of NIRC, extended the period of availment to Dec 15, 1986 and stated those who already
availed amnesty under EO 41 should file an amended return to avail of the new benefits. Marubeni filed a
supplemental tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the deficiency taxes. CA
affirmed on appeal.
Issue: W/N Marubeni is exempted from paying tax
Held: Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception in Sec 4b of EO 41:
“Sec. 4. Exceptions.—The following taxpayers may not avail themselves of the amnesty herein granted: xxx b)
Those with income tax cases already filed in Court as of the effectivity hereof;”
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a case had already been
filed and was pending before the CTA and Marubeni therefore fell under the exception. However, the point of
reference is the date of effectivity of EO 41 and that the filing of income tax cases must have been made before and
as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with CTA on Sept 26, 1986.
When EO 41 became effective, the case had not yet been filed. Marubeni does not fall in the exception and is thus,
not disqualified from availing of the amnesty under EO 41 for taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractor’s tax assessment (business tax) and respondent’s availment of
the amnesty under EO 64, which expanded EO 41’s coverage. When EO 64 took effect on Nov 17, 1986, it did not
provide for exceptions to the coverage of the amnesty for business, estate and donor’s taxes. Instead, Section 8 said
EO provided that:
“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or inconsistent with this
amendatory Executive Order shall remain in full force and effect.”
38
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of effectivity. The general
rule is that an amendatory act operates prospectively. It may not be given a retroactive effect unless it is so provided
expressly or by necessary implication and no vested right or obligations of contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the deficiency tax
because the income from the projects came from the “Offshore Portion” as opposed to “Onshore Portion”. It claims
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.
(BG: Marubeni won in the public bidding for projects with government corporations NDC and Philphos. In the
contracts, the prices were broken down into a Japanese Yen Portion (I and II) and Philippine Pesos Portion and
financed either by OECF or by supplier’s credit. The Japanese Yen Portion I corresponds to the Foreign Offshore
Portion, while Japanese Yen Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore
Portion. Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)
CIR argues that since the two agreements are turn-key, they call for the supply of both materials and services to the
client, they are contracts for a piece of work and are indivisible. The situs of the two projects is in the Philippines,
and the materials provided and services rendered were all done and completed within the territorial jurisdiction of
the Philippines. Accordingly, respondent’s entire receipts from the contracts, including its receipts from the Offshore
Portion, constitute income from Philippine sources. The total gross receipts covering both labor and materials should
be subjected to contractor’s tax (a tax on the exercise of a privilege of selling services or labor rather than a sale on
products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in the Philippines
because some of them were completed in Japan (and in fact subcontracted) in accordance with the provisions of the
contracts. All services for the design, fabrication, engineering and manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in Japan. These services were rendered outside Philippines’ taxing
jurisdiction and are therefore not subject to contractor’s tax. Petition denied.
CONSTITUTIONAL LIMITATIONS
1. Due process of law
Section 1, Article III, 1987 Constitution
Section 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person
be denied the equal protection of the laws.
The requirement of equal protection of the laws requires that the law must apply equally to all persons within the
same class. As such, providing for a classification and applying the law only to a particular class is not violative of
the constitutional right so long as it comes from a valid classification.
Requisites for a valid classification:
1. Must be based upon substantial distinctions
2. Must be germane to the purpose of law;
3. Must apply to both present and future conditions; and
4. Must apply equally to all members of a class
Two ways by which equal protection clause is violated:
39
1. When classification is made when there should be none
2. When classification is not made when called for
Due process of taxation requires:
1.
2.
3.
Tax must be for public purpose
Imposed in territorial jurisdiction
No arbitrariness or oppression in assessment or collection
Specific Cases:
1. If the ordinance is intended to apply to a specific taxpayer and to no one else regardless of whether or not other
entities belonging to the same class are established in the future, it is a violation of the equal protection clause, but if
intended to apply also to similar entities which may be established in the future, then the tax ordinance is valid
(Ormoc Sugar Central vs. CIR, G.R. No. (Ormoc Sugar Central vs. CIR, G.R. No. L-23794, Feb L-23794, February
17, 1968)
2. The fact that the taxpayer is the only sugar central or refinery in the municipality where the tax ordinance is
enacted does not make said ordinance discriminatory. The reason is that since other refineries to be established in
the future would also be taxable, no singling out of the taxpayer to its disadvantage has ever taken place (Victorias
Milling Co., Inc. vs. Municipality Of Victoria, G.R. No. L-21183, September 27, 1968)
3. The remission of taxes due and payable to the exclusion of taxes already collected does not constitute unfair
discrimination. Each set of taxes is a class by is a class by itself, and the law would be open to attack as class
legislation only if all taxpayers belonging to one class were not treated alike (Juan Luna Subd. Vs. Sarmiento, G.R.
No. L-3538, May 28, 1952)
4. A local ordinance which levies an ad valorem tax on motor vehicles on motor vehicles registered in Manila
without also taxing those which are registered outside the city but which enters the city and use its streets
occasionally violates the rule on the equality of taxation (Assoc. of Customs Brokers vs. Municipality Board of
Manila, G.R. No. Manila, G.R. No. L-4375, May 22, 1953).
5. With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable
transactions, Section 114 par. C merely provides a method of collection, or as stated by provides a method of
collection, or as stated by respondents, a more simplified VAT withholding system. Since it has not been shown that
the class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to invalidate the
provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It
applies to all those who deal with the government (Abakada Guro Party List vs. Ermita, Ibid.).
2. Equal Protection of Law
Ormoc vs. CIR, GR. No. L-23794, February 17, 1968
Facts: The Municipal Board of Ormoc City passed Ordinance No. 4 imposing “on any and all productions of
centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per
centum (1%) per export sale to USA and other foreign countries.” Payments for said tax were made, under protest,
by Ormoc Sugar Company, Inc. Ormoc Sugar Company, Inc. filed before the Court of First Instance of Leyte a
complaint against the City of Ormoc as well as its Treasurer, Municipal Board and Mayor alleging that the
ordinance is unconstitutional for being violative of the equal protection clause and the rule of uniformity of taxation.
The court rendered a decision that upheld the constitutionality of the ordinance. Hence, this appeal.
Issue: Whether or not constitutional limits on the power of taxation, specifically the equal protection clause and
rule of uniformity of taxation, were infringed?
40
Held: Yes. Equal protection clause applies only to persons or things identically situated and does not bar a
reasonable classification of the subject of legislation, and a classification is reasonable where 1) it is based upon
substantial distinctions; 2) these are germane to the purpose of the law; 3) the classification applies not only to
present conditions, but also to future conditions substantially identical to those present; and 4) the classification
applies only to those who belong to the same class.
A perusal of the requisites shows that the questioned ordinance does not meet them, for it taxes only centrifugal
sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time the ordinance was
enacted, Ormoc Sugar Company, Inc. Was the only sugar central in the City of Ormoc. Still, the classification, to be
reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular
and exclusive as to exclude any subsequently established sugar central for the coverage of the tax. As it is now, even
if later a similar company is set up, it cannot be subject to a tax because the ordinance expressly points only to
Ormoc City Sugar Company, Inc. As the entity to be levied upon. Wherefore, the decision appealed was reversed.
Victorias Milling Co. vs. Municipality of Victoria, GR No. L-21183, September 27, 1968
Facts: Ordinance 1 (1956) was approved by the municipal council of Victorias by way of an amendment to 2
municipal ordinances separately imposing license taxes on operators of sugar centrals and sugar refineries. The
changes were: (1) with respect to sugar centrals, by increasing the rates of license taxes; and (2) as to sugar
refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output
capacity. Victorias Milling questioned the validity of Ordinance 1 as it, among others, allegedly singled out
Victorias Milling Co. since it is the only operator of a sugar central and a sugar refinery within the jurisdiction of the
municipality.
Issue: Whether Ordinance 1 is discriminatory.
Held: The ordinance does not single out Victorias as the only object of the ordinance but is made to apply to any
sugar central or sugar refinery which may happen to operate in the municipality. The fact that Victorias Milling is
actually the sole operator of a sugar central and a sugar refinery does not make the ordinance discriminatory. The
ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board of Ormoc City, which specifically spelled
out Ormoc Sugar as the subject of the taxation, the name of the company herein was never mentioned in the
ordinance.
3. Uniformity and equity in taxation
Differenttiate uniformity and equality in taxation
Uniformity – It means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.
A tax is considered uniform when it operates with the same force and effect in every place where the subject is
found. Different articles may be taxed at different amounts provided that the rate is uniform on the same class
everywhere, with all people at all times.
Equitability – Taxation is said to be equitable when its burden falls on those better able to pay.
Equality – It is accomplished when the burden of the tax falls equally and impartially upon all the persons and
property subject to it.
Section 28 (1), Art. VI, 1987 Constitution
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
41
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other
duties or imposts within the framework of the national development program of the Government.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of
the Congress.
Eastern Theoretical vs. Alfonso, G.R. No. L-1104, May 31, 1949
FACTS: Twelve corporation engaged in motion picture business have initiated these proceeding through a
complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila which was
enacted by the municipal Board of said city on April 25 1946 approved by the Mayor on April 27, 1946 and took
effect on May 1, 1946 said ordinance reading as follows:
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY ADMISSION TICKET SOLD BY
CINEMATOGRAPHS, THEATERS VAUDEVILLE COMPANIES THEATRICAL SHOWS AND BOXING
EXHIBITION AND PROVIDING FOR OTHER PURPOSES.
Operator of theaters in Manila And distributor of local or imported aid ordinance impugned that the ordinance is null
and void upon the following grounds: (a) For violation the Constitution more particular the provision regarding the
uniformity and equality of taxation and thee equal protection of the laws; (b) because the Municipal Board of Manila
exceeded and over-stepped the power granted it the Charter of the City of Manila; (c) because it contravenes violates
and is inconsistent with, existing national legislation more particularly revenue and tax laws and (d) because it is
unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and violation our basic and recognizes
principles of taxation and licensing laws.
Defendants allege as affirmative defenses the following: (a) That the ordinance was passed by the Municipal Board
of Manila by virtue of its express legislative power to tax fix the license fee and regulate the business of theaters,
cinematographs and further to fix the location of and to tax, fix the license fee for and regulate the business of
theatrical performances public exhibition circus and other performances and places of amusement; (b) that the
graduated tax required by said ordinance being applied to all cinematographs, theaters, vaudeville companies
theatricalshow and boxing exhibitions similarly situated and as a class without distinction or exception the same
does not violate the prohibition against uniformity and equality of taxation; (c) that the graduated tax onadmission
tickets to theaters and other places of amusement imposed by the National Internal Revenue Code (Commonwealth
Act No. 466) is collected by and for the purposes of the National Government, whereas, Ordinance No.2958
imposes and requires the collection of a similar tax by and for the purposes of the Government of the City of Manila,
and there is no case of double taxation, (d) that said ordinance having been enacted under the express power of the
Municipal Board to tax for revenue as distinguishedfrom its power to license for purely police purposes, the fact that
the amount collected thereunder are higher than what are needed for police regulation and supervision does not
render said ordinance unfair unjust capricious unreasonable and oppressive; (e) that consideration the nature of the
business of the plaintiffs and the enormous volume of business they handle the graduated tax fixed by the ordinance
is not unreasonable.
ISSUE: Whether or not trial court erred in not holding that Ordinance No. 2958 violated the principle of equality
and uniformity of taxation enjoined by the Constitution
HELD: No. The ordinance in question does not tax "many more kinds of amusements" than those therein specified,
such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places of amusement." the argument has
absolutely no merit. The fact that some places of amusement are not taxed while others, such as cinematographs,
42
theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of
amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and
uniformity of the tax imposition. 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; and the appellants cannot point out what places of amusement
taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in
the ordinance.
4. Prohibition against imprisonment for non payment of poll tax
Section 20, Article III, 1987 Constitution
Section 20. No person shall be imprisoned for debt or non-payment of a poll tax.
Poll Tax is a tax on individuals residing within a specified territory, whether citizens or not, without regard to their
property or the occupation in which they may be engaged.
A poll tax is one levied on persons who are residents within the territory of the taxing authority without regard to
their property, business or occupation. Thus, only the basic community tax under the LGC could qualify as a poll
tax, and the non-payment of other (additional) taxes imposed, not being in the nature of poll taxes, may validly be
subjected by law to imprisonment (Vitug, 2006).
In other words, while a person may not be imprisoned for non-payment of a cedula or poll tax, he may be
imprisoned for non-payment of other kinds of taxes where the law so expressly provides (J.Dimaampao, 2015).
A community tax, also called a residence tax or poll tax, is imposed on all the inhabitants of the community who
are eighteen years old and above as well as to juridical persons, like corporations, doing business in the community
or whose office or establishment is located in the community. The term inhabitant of the Philippines means a person
who stayed in the Philippines for more than three months. Therefore the community taxpayers are classified into
individuals and corporations.
Individuals – the following individuals are required by the law to pay community tax:
•
•
•
•
•
Eighteen years old (18) and above;
Regularly employed on a on a wage or salary basis for at least thirty consecutive working days during
any calendar year; or
Engaged in trade, business or occupation; or
Owner of property with an aggregate assessed value of one thousand pesos (P1,000.00) or more; or
Required by law to file an income tax return (ITR)
Corporations – every corporation, no matter how it was created or organized, domestic or foreign, engaged or doing
business in the Philippines.
'Legal Basis' of Collection of Community Tax
Commonwealth Act No. 465 is the law that imposes the payment of residence tax for individual and corporations.
The community tax shall be paid in the place of residence of the individual; or the place where the principal office of
the corporation (or other juridical entity) is located. The liability to pay the community tax is due on the last day of
February. Payments of community tax later than February is subject to interest.
43
Escudero: the cedula, a product of the Spanish occupation, has lost its value as a form of identification over the
years and could be considered obsolete. The cedula is already useless as several other proofs of identity are
available, such as passports, driver’s licenses and other government-issued identification cards. “The cedula now
proves to be an unnecessary burden imposed on our people who are required to present it when doing public
transactions. It was deemed useless by our forebears during the colonial times, it is more so today,”
In 1896, katipuneros led by Andres Bonifacio tore up their cedulas in defiance of Spanish rule in Balintawak.
“Abolishing the cedula practice is also like scrapping a relic of our colonial past. Yes, we must always look back at
our past to know where we are going, but the cedula is a thing of the past that should already be buried,” Escudero
said.
Henares: “Actually, if there is going to be any policy reform, the first reform is to remove what is not needed. The
cedula is something we do not need now,’’ Henares said the Bureau of Internal Revenue had been spending millions
of pesos annually to print the cedula for local governments, but revenue from their sales did not get back to the
agency or the national government.
Community vs. Poll Tax – they are the same.
Section 156-164, RA 7160: Community Tax
Section 156. Community Tax. - Cities or municipalities may levy a community tax in accordance with the
provisions of this Article.
Section 157. Individuals Liable to Community Tax. - Every inhabitant of the Philippines eighteen (18) years of age
or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days
during any calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate
assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return
shall pay an annual additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every
One thousand pesos (P1,000.00) of income regardless of whether from business, exercise of profession or from
property which in no case shall exceed Five thousand pesos (P5,000.00).
In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by
them and the total gross receipts or earnings derived by them.
Section 158. Juridical Persons Liable to Community Tax. - Every corporation no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual
community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten
thousand pesos (P10,000.00) in accordance with the following schedule:
(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the
preceding year based on the valuation used for the payment of real property tax under existing laws, found in the
assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and
(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the
Philippines during the preceding year - Two pesos (P2.00).
The dividends received by a corporation from another corporation however shall, for the purpose of the additional
tax, be considered as part of the gross receipts or earnings of said corporation.
Section 159. Exemptions. - The following are exempt from the community tax:
(1) Diplomatic and consular representatives; and
(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.
44
Section 160. Place of Payment. - The community tax shall be paid in the place of residence of the individual, or in
the place where the principal office of the juridical entity is located.
Section 161. Time for Payment; Penalties for Delinquency. (a) The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than
the last day of February of each year. If a person reaches the age of eighteen (18) years or otherwise loses the benefit
of exemption on or before the last day of June, he shall be liable for the community tax on the day he reaches such
age or upon the day the exemption ends. However, if a person reaches the age of eighteen (18) years or loses the
benefit of exemption on or before the last day of March, he shall have twenty (20) days to pay the community tax
without becoming delinquent.
Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day of
July of any year, or who cease to belong to an exempt class or after the same date, shall not be subject to the
community tax for that year.
(b) Corporations established and organized on or before the last day of June shall be liable for the community tax for
that year. But corporations established and organized on or before the last day of March shall have twenty (20) days
within which to pay the community tax without becoming delinquent. Corporations established and organized on or
after the first day of July shall not be subject to the community tax for that year.
If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of
twenty-four percent (24%) per annum from the due date until it is paid.
Section 162. Community Tax Certificate. - A community tax certificate shall be issued to every person or
corporation upon payment of the community tax. A community tax certificate may also be issued to any person or
corporation not subject to the community tax upon payment of One peso (P1.00).
Section 163. Presentation of Community Tax Certificate On Certain Occasions. (a) When an individual subject to the community tax acknowledges any document before a notary public, takes the
oath of office upon election or appointment to any position in the government service; receives any license,
certificate. or permit from any public authority; pays any tax or free; receives any money from any public fund;
transacts other official business; or receives any salary or wage from any person or corporation with whom such
transaction is made or business done or from whom any salary or wage is received to require such individual to
exhibit the community tax certificate.
The presentation of community tax certificate shall not be required in connection with the registration of a voter.
(b) When, through its authorized officers, any corporation subject to the community tax receives any license,
certificate, or permit from any public authority, pays any tax or fee, receives money from public funds, or transacts
other official business, it shall be the duty of the public official with whom such transaction is made or business
done, to require such corporation to exhibit the community tax certificate.
(c) The community tax certificate required in the two preceding paragraphs shall be the one issued for the current
year, except for the period from January until the fifteenth (15th) of April each year, in which case, the certificate
issued for the preceding year shall suffice.
Section 164. Printing of Community Tax Certificates and Distribution of Proceeds. (a) The Bureau of Internal Revenue shall cause the printing of community tax certificates and distribute the same to
the cities and municipalities through the city and municipal treasurers in accordance with prescribed regulations.
The proceeds of the tax shall accrue to the general funds of the cities, municipalities and barangays except a portion
thereof which shall accrue to the general fund of the national government to cover the actual cost of printing and
distribution of the forms and other related expenses. The city or municipal treasurer concerned shall remit to the
45
national treasurer the said share of the national government in the proceeds of the tax within ten (10) days after the
end of each quarter.
(b) The city or municipal treasurer shall deputize the barangay treasurer to collect the community tax in their
respective jurisdictions: Provided, however, That said barangay treasurer shall be bonded in accordance with
existing laws.
(c) The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall accrue
entirely to the general fund of the city or municipality concerned. However, proceeds of the community tax collected
through the barangay treasurers shall be apportioned as follows:
(1) Fifty percent (50%) shall accrue to the general fund of the city or municipality concerned; and
(2) Fifty percent (50%) shall accrue to the barangay where the tax is collected.
5. Prohibition against impairment of obligations or contracts
Tolentino vs. Secretary of Finance (1994), supra.
FACTS: The contention of petitioners is that in enacting Republic Act No. 7716, or the Expanded Value-Added Tax
Law, Congress violated the Constitution because, although H. No. 11197 had originated in the House of
Representatives, it was not passed by the Senate but was simply consolidated with the Senate version (S. No. 1630)
in the Conference Committee to produce the bill which the President signed into law. Philippine Press Institute
(PPI), contends that by removing the exemption of the press from the VAT while maintaining those granted to
others, the law discriminates against the press. CREBA (CHAMBER OF REAL ESTATE AND BUILDERS
ASSOCIATIONS) asserts that R.A. No. 7716 impairs the obligations of contracts, and violates the rule that taxes
should be uniform and equitable and that Congress shall “evolve a progressive system of taxation”.
CUP (Cooperative Union of the Philippines) argues that legislature was to adopt a definite policy of granting tax
exemption to cooperatives that the present Constitution embodies provisions on cooperatives. To subject
cooperatives to the VAT would, therefore, be to infringe a constitutional policy.
ISSUE: Whether or not RA 7716 is unconstitutional.
RULING: No. In withdrawing the exemption, the law merely subjects the press to the same tax burden to which
other businesses have long ago been subject. The VAT is not a license tax. It is imposed purely for revenue
purposes.
Equality and uniformity of taxation mean that all taxable articles or kinds of property of the same class be taxed at
the same rate. It is enough that the statute or ordinance applies equally to all persons, firms, and corporations placed
in similar situation.
Section 10, Article III, 1987 Constitution
Section 10. No law impairing the obligation of contracts shall be passed.
Revocability of Tax Exemption: A law which changes the terms of the contract by making new conditions, or
changing those in the contract, or dispenses with those expressed, impairs the obligation.
However, the non-impairment rule does not apply to public utility franchises since a franchise is subject to
amendment, alteration or repeal by the Congress when the public interest so requires (Article XII, Section 11). This
is so because under the Constitution [now Section 11, Article XII, 1987 Constitution], the legislature can impair a
grantee’s franchise since a franchise is subject to amendment, alteration or or repeal by the Congress when the
46
public interest so requires. (Cagayan Electric Power & Light Co., Inc. vs. CIR, G.R. No. L-60126, September 25,
1985)
Rules applicable to revocation:
a. When the exemption is unilaterally granted by law and the same is withdrawn by virtue of another law, there is no
violation.
b. When the exemption is bilaterally agreed upon between the government and the taxpayer, it cannot be withdrawn
without impairing the contract.
c. When the exemption is granted under a franchise, it may be revoked because a franchise is subject to amendment,
alteration, or repeal by Congress.
6. Prohibition against infringement of religious freedom
American Bible Society vs. City of Manila, G.R. No. L-9637 April 30, 1957
Facts: Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary corporation duly registered and
doing business in the Philippines through its Philippine agency established in Manila in November, 1898. The
defendant appellee is a municipal corporation with powers that are to be exercised in conformity with the provisions
of Republic Act No. 409, known as the Revised Charter of the City of Manila. During the course of its ministry,
plaintiff sold bibles and other religious materials at a very minimal profit.
On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff that it was conducting the
business of general merchandise since November, 1945, without providing itself with the necessary Mayor's permit
and municipal license, in violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and 3364,
and required plaintiff to secure, within three days, the corresponding permit and 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 (Annex A). Plaintiff now questions the imposition of such fees.
Issue: Whether or not the said ordinances are constitutional and valid (contention: it restrains the free exercise and
enjoyment of the religious profession and worship of appellant).
Held: No. Section 1, subsection (7) of Article III of the Constitution, provides that:
(7) 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. The provision aforequoted is
a constitutional guaranty of the free exercise and enjoyment of religious profession and worship, which carries with
it the right to disseminate religious information.
It may be true that in the case at bar the price asked for the bibles and other religious pamphlets was in some
instances a little bit higher than the actual cost of the same but this cannot mean that appellant was engaged in the
business or occupation of selling said "merchandise" for profit. For this reason. The Court believe that the provisions
of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, for in doing so it would impair
its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of
religious beliefs.
With respect to Ordinance No. 3000, as amended, the Court do not find that it imposes any charge upon the
enjoyment of a right granted by the Constitution, nor tax the exercise of religious practices.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered unconstitutional, however inapplicable to
said business, trade or occupation of the plaintiff. As to Ordinance No. 2529 of the City of Manila, as amended, is
also not applicable, so defendant is powerless to license or tax the business of plaintiff Society.
47
Class notes: (1) Ordinance is constitutional because it did not infringe the religious freedom. No restraint was
mentioned in the ordinance. The ordinance is for general application. (2) Selling bible is purely religious activity and
not engage for business or profit. The ordinance is not applicable to the American Bible Society.
7. Prohibition against taxation of religious, charitable and educational entities
Basis: Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation (Art. IV, Sec. 28 [3]).
It covers real property taxes only. Accordingly, a conveyance of such exempt property can be subject to transfer
taxes.
Abra Valley College vs Aquino, 162 SCRA 106
Facts: Abra Valley College rents out the ground floor of its college building to Northern Marketing Corporation
while the second floor thereof is used by the Director of the College for residential purposes. The municipal and
provincial treasurers served upon the College a “notice of seizure” and later a “notice of sale” due to the alleged
failure of the College to pay real estate taxes and penalties thereon. The school filed suit to annul said notices,
claiming that it is tax-exempt.
Issue: Whether the College is exempt from taxes.
Held: While the Court allows a more liberal and non-restrictive interpretation of the phrase “exclusively for
educational purposes,” 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. While the second floor’s use,
as residence of the director, is incidental to education; the lease of the first floor cannot by any stretch of imagination
be considered incidental to the purposes 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.
Lung Center of the Phils vs. Quezon City, GR No. 144104, June 29, 2004
FACTS: Petitioner is a non-stock, non-profit entity established by virtue of PD No. 1823, seeks exemption from
real property taxes when the City Assessor issued Tax Declarations for the land and the hospital building. Petitioner
predicted on its claim that it is a charitable institution. The request was denied, and a petition hereafter filed before
the Local Board of Assessment Appeals of Quezon City (QC-LBAA) for reversal of the resolution of the City
Assessor. Petitioner alleged that as a charitable institution, is exempted from real property taxes under Sec 28(3) Art
VI of the Constitution. QC-LBAA dismissed the petition and the decision was likewise affirmed on appeal by the
Central Board of Assessment Appeals of Quezon City. The Court of Appeals affirmed the judgment of the CBAA.
ISSUE: (1) Whether or not petitioner is a charitable institution within the context of PD 1823 and the 1973 and
1987 Constitution and Section 234(b) of RA 7160. (2)Whether or not petitioner is exempted from real property
taxes.
RULING:
48
1. Yes. The Court hold that the petitioner is a charitable institution within the context of the 1973 and 1987
Constitution. Under PD 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 with the Ministry of Health and the
Ministry of Human Settlements. The purpose for which it was created was to render medical services to the public in
general including those who are poor and also the rich, and become a subject of charity. Under PD 1823, petitioner
is entitled to receive donations, even if the gift or donation is in the form of subsidies granted by the government.
2. Partly No. Under PD 1823, the lung center does not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon.
The property tax exemption under Sec. 28(3), Art. VI of the Constitution of the property taxes only. This provision
was implanted by Sec.243 (b) of RA 7160.which provides that in order to be entitled to the exemption, the lung
center must be able to prove that: it is a charitable institution and; its real properties are actually, directly and
exclusively used for charitable purpose. Accordingly, the portions occupied by the hospital used for its patients are
exempt from real property taxes while those leased to private entities are not exempt from such taxes.
Class Notes: What is the test that an institution is a charitable institution? An institution is does not change its
character as charitable institution even if it collects money from the paying patients. The income is not shared by the
shareholder but used for the expenses of the facilities.
Exclusively used – means possess and enjoy to the exclusion of others. It doesn’t matter is the dominant used of the
property is for charitable purposes. It must be solely used for charitable purposes.
“Actually, Directly, and Excusively” memorize verbatim.
Would it matter what is the use of the income of the property? Doesn’t matter. What matter is the use of the property
(Lands, Buildings, and Improvements)
RMO No. 20-2013, BIR Ruling No. 1374-18
REVENUE MEMORANDUM ORDER NO. 20-2013 - Prescribing the Policies and Guidelines in the Issuance of
Tax Exemption Rulings to Qualified Non-Stock, Non-Profit Corporations and Associations Under Section 30 of the
National Internal Revenue Code of 1997, As Amended
8. Prohibition against taxation of non-stock, non-profit educational institutions
Section 27 (B) and 30(H), NIRC
Section 27 (B) Proprietary Educational Institutions and Hospitals.– Proprietary educational institutions and
hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by
Subsection (D) hereof: Provided, That beginning July 1, 2020 until June 30, 2023, the tax rate herein imposed shall
be one percent (1%): Provided, further, That if the gross income from 'unrelated trade, business or other activity'
exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all
sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of
this Subsection, the term 'unrelated trade, business or other activity' means any trade, business or other activity, the
conduct of which is not substantially related to the exercise or performance by such educational institution or
hospital of its primary purpose or function. 'Proprietary' means a private hospital, or any private school maintained
and administered by private individuals or groups with an issued permit to operate from the Department of
Education (DepEd), or the Commission on Higher Education (CHED), or the Technical Education and Skills
Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations. [45]
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed under this Title
in respect to income received by them as such: (H) A nonstock and nonprofit educational institution;
49
Class Notes: The 2 provisions are different,
RMC No. 24-2016: Reiterates the Department of Finance Order No. 149-95 for non-stock non-profit educational
institutions
RMO No. 44-2016: Circularizes the price of sugar at millsite for week-ending March 27, 2016, as provided by the
Sugar Regulatory Administration
DLSU vs. CIR, GR No. 196596, November 9, 2016
CIR vs DLSU, GR No. 196596
FACTS: Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA) No. 2794 authorizing its
revenue officers to examine the latter's books of accounts and other accounting records for all internal revenue taxes
for the period Fiscal Year Ending 2003 and Unverified Prior Years. A Preliminary Assessment Notice was issued to
DLSU.
Subsequently the BIR through a Formal Letter of Demand assessed DLSU the following deficiency taxes: (1)
income tax on rental earnings from restaurants/canteens and bookstores operating within the campus; (2) value
added tax (VAT) on business income; and (3) documentary stamp tax (DST) on loans and lease contracts. The BIR
demanded the payment of P17,303,001.12, inclusive of surcharge, interest and penalty for taxable years 2001, 2002
and 2003. DLSU protested the assessment.
CIR’s ARGUMENT: DLSU's 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
DLSU’s ARGUMENT: Article XIV, Section 4 (3) of the Constitution is clear that all assets and revenues of nonstock, non-profit educational institutions used actually, directly and exclusively for educational purposes are exempt
from taxes and duties. The CTA En Banc dismissed the Commissioner's petition for review and sustained the
findings of the CTA Division.. Hence, this petition.
ISSUE: Whether DLSU is exempted from payment of taxes?
HELD: YES. The revenues and assets of non-stock, non-profit educational institutions proved to have been used
actually, directly, and exclusively for educational purposes are exempt from duties and taxes.
DLSU was able to prove that a portion of the assessed rental income was used actually, directly and exclusively for
educational purposes; hence, exempt from tax The CTA En Banc was satisfied with DLSU's supporting evidence
confirming that part of its rental income had indeed been used to pay the loan it obtained to build the university's
Physical Education — Sports Complex. The revenues and assets of non-stock, non-profit educational institutions
proved to have been used actually, directly, and exclusively for educational purposes are exempt from duties and
taxes. Decision of SC : DENIED CIR petition and AFFIRMED the December 10, 2010 decision and March 29,
2011 resolution of the Court of Tax Appeals En Banc in CTA En Banc Case No. 622, except for the total amount of
deficiency tax liabilities of De La Salle University, Inc., which had been reduced.
Class notes: SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed
under this Title in respect to income received by them as such: (H) A nonstock and nonprofit educational institution;
(The last portion of Sec 30 will not apply to DLSU)
50
9. Grant of tax exemption
Sec. 28 (4), Art. VI, 1987 Constitution
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation.
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of the Government.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries,
and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or
educational purposes shall be exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of
the Congress.
Rationale: in order to prevent the indiscriminate grant of tax exemptions
10.Veto of appropriation, revenue or tariff bill
Sec. 27 (2), Art. VI, 1987 Constitution
SECTION 27. (1) Every bill passed by the Congress shall, before it becomes a law, be presented to the President. If
he approves the same, he shall sign it; otherwise, he shall veto it and return the same with his objections to the
House where it originated, which shall enter the objections at large in its Journal and proceed to reconsider it. If,
after such reconsideration, two-thirds of all the Members of such House shall agree to pass the bill, it shall be sent,
together with the objections, to the other House by which it shall likewise be reconsidered, and if approved by twothirds of all the Members of that House, it shall become a law. In all such cases, the votes of each House shall be
determined by yeas or nays, and the names of the Members voting for or against shall be entered in its Journal. The
President shall communicate his veto of any bill to the House where it originated within thirty days after the date of
receipt thereof; otherwise, it shall become a law as if he had signed it.
(2) The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff
bill, but the veto shall not affect the item or items to which he does not object.
Gonzales vs. Macaraig, G.R. No. 87636, November 19, 1990
FACTS: President Corazon Aquino vetoed Section 55 of the GAA for the fiscal year 1989 and Section 16 of the
GAA for the fiscal year 1990. The reason cited by President Aquino was that both of these sections restrict or
prevent the President, the Senate President, the Speaker of the House, the heads of the constitutional commissions
and the Chief Justice of the SC from restoring or increasing items of appropriation recommended by the President,
which recommendations have already been reduced or disapproved by Congress through the assailed GAAs. In
effect, these sections nullify the statutory and constitutional authority of the aforesaid officials to augment any item
in the GAA for their respective offices from savings in other items of their appropriation.
ISSUE: Whether or not the presidential veto on Section 55 of the GAA for the fiscal year 1989 and Section 16 of
the GAA for the fiscal year 1990 is constitutional.
51
HELD: Yes, the presidential veto on Section 55 of GAA for the fiscal year 1989 and Section 16 of the GAA for the
fiscal year 1990 is constitutional. These sections were vetoed because they violate Section 5(5) of Art. VI of the
1987 Constitution, which grants the President, the President of the Senate, the Speaker of the House, the heads of the
Constitutional Commissions, and the CJ of the SC the authority to augment any item in the general appropriations
law for their respective offices from savings in other items of their appropriations.
This constitutional mandate, also known as the power of augmentation, finds statutory basis in Sections 44 and 45 of
PD 1177, which authorizes the President to use savings to augment any appropriation in the Executive Department.
Congress had the power to override the veto on both sections by having a 2/3 vote of approval by members of each
House, but Congress did not choose to do so. At the same time, Section 55 of GAA 1989 and Section 16 of GAA
1990 should not be construed as having repealed PD 1177, mainly because implied repeals are frowned upon.
11.Non-impairment of the jurisdiction of the Supreme Court
Art. VIII, Sec. 5[2]: The Supreme Court shall have the power to review, revise, modify or affirm on appeal or
certiorari as the law or the Rules of Court may provide, final judgments and orders of lower courts in all cases
involving the legality of any tax, impost, assessment, or toll, or any penalty imposed in relation thereto.
Thus, Congress cannot enact a law which makes the decisions of the Court of Tax Appeals final and non-appealable
to the Supreme Court.
CIR vs. Santos, G.R. No. 119252, August 18, 1997
FACTS: Petitioner in this case, the Commissioner of Internal Revenue and the Commissioner of Customs jointly
seek the reversal of the Decision of herein public respondent, Hon. Apolinario B. Santos, Presiding Judge of RTC
Pasig City, declaring Section 150(a) of Executive Order No. 273 inoperative and without force and effect insofar as
petitioners are concerned. This EO subjected jewelry to a 20% excise tax in addition to a 10% value-added tax under
the old law.
Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in the
manufacture of jewelries and allied undertakings, with private respondent Antonio M. Marco is the President of the
Guild.
Some of the members of the Guild of Philippine Jewelers were given a Mission Order not to sell the jewelries and
other articles displayed in their respective establishments until it can be proven that the necessary taxes thereon have
been paid. In response, Private Respondent prayed that Regional Trial Court declare Sections 126, 127(a) and (b)
and 150(a) of the National Internal Revenue Code and Hdg. No. 71.01, 71.02, 71.03, and 71.04, Chapter 71 of the
Tariff and Customs Code of the Philippines unconstitutional and void, and that the Commissioner of Internal
Revenue and Customs be prevented or enjoined from issuing mission orders and other orders of similar nature. It
even submitted a position paper purporting to be an exhaustive study of the tax rates on jewelry prevailing in other
Asian countries, in comparison to tax rates levied on the same in the Philippines.
ISSUE: Can the Regional Trial Courts declare a law inoperative and without force and effect or otherwise
unconstitutional?
RULING: No. This is a matter on which the RTC is not competent to rule. As Cooley observed: “Debatable
questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.” In
Angara vs. Electoral Commission, Justice Laurel made it clear that “the judiciary does not pass upon questions of
wisdom, justice or expediency of legislation.” And fittingly so, for in the exercise of judicial power, we are allowed
only “to settle actual controversies involving rights which are legally demandable and enforceable,” and may not
52
annul an act of the political departments simply because we feel it is unwise or impractical. This is not to say that
Regional Trial Courts have no power whatsoever to declare a law unconstitutional. In J.M. Tuason and Co. v. Court
of Appeals, we said that “[p]lainly the Constitution contemplates that the inferior courts should have jurisdiction in
cases involving constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior
courts in cases where such constitutionality happens to be in issue.”
This authority of lower courts to decide questions of constitutionality in the first instance was reaffirmed in Ynot v.
Intermediate Appellate Court. But this authority does not extend to deciding questions which pertain to legislative
policy.
The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The
arguments they presented focus on the wisdom of the provisions of law which they seek to nullify. Regional Trial
Courts can only look into the validity of a provision, that is , whether or not it has been passed according to the
procedures laid down by law, and thus cannot inquire as to the reasons for its existence. Granting arguendothat the
private respondents may have provided convincing arguments why the jewelry industry in the Philippines should not
be taxed as it is, it is to the legislature that they must resort to for relief, since with the legislature primarily lies the
discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs(place) of
taxation. This Court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative
judgment.
As succinctly put in Lim vs. Pacquing: “Where a controversy may be settled on a platform other than one involving
constitutional adjudication, the court should exercise becoming modesty and avoid the constitutional question.” As
judges, we can only interpret and apply the law and, despite our doubts about its wisdom, cannot repeal or amend it.
SMC vs. Avelino, G.R. No. L-39699, March 14, 1979
FACTS: City of Cebu, in accordance with Presidential Decree No. 231, enacted in 1973, the Mandaue City Tax
Code. City Treasurer, on April 1, 1974, demanded from SMC payment of the made specific tax on the total volume
of beer it produced in the City of Mandaue. SMC on April 8, 1974, contested the correction of said specific tax "on
the ground that Section 12(e) (7) in relation to Section 12(e) (1) and (2), Mandaue City Ordinance No. 97, is illegal
and void because it imposed a specific tax beyond its territorial jurisdiction.” In an opinion the City Fiscal upheld its
validity which was reversed by the Secretary of Justice, saying the ordinance was of “doubtful validity.”
City of Cebu then filed a suit for collection where it squarely put in issue the validity of such ordinance. San Miguel
Corporation filed a motion to dismiss claiming that the Ordinance No. 97, Section 12 should be nullified and that the
filing of the suit is not the “appeal” contemplated in the Presidential Decree.
CFI: motion to dismiss denied. SMC went to SC praying for writs of certiorari and prohibition.
ISSUE: Whether the filing of such action after such opinion was rendered may be considered "an appeal" under the
Presidential Decree.
HELD: No. It is an accepted juridical norm that the validity of a statute, an executive order or ordinance is a matter
for the judiciary to decide and that whenever in the disposition of a pending case such a question becomes
unavoidable, then it is not only the power but the duty of the Court to resolve such a question. It is likewise
expressly provided in Section 43 of the Judiciary Act that the original jurisdiction over all civil actions involving the
legality of any tax, impost or assessment appertains to the Court of First Instance.
12. Revenue bills shall originate from the House of Representatives
Sec. 24, Art. VI, 1987 Constitution
53
SECTION 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.
Tolentino vs. Secretary of Finance (1994), supra
FACTS: RA 7716, otherwise known as the Expanded Value-Added Tax Law, is an act that seeks to widen the tax
base of the existing VAT system and enhance its administration by amending the National Internal Revenue Code.
There are various suits questioning and challenging the constitutionality of RA 7716 on various grounds.
Tolentino contends that RA 7716 did not originate exclusively from the House of Representatives but is a mere
consolidation of HB. No. 11197 and SB. No. 1630 and it did not pass three readings on separate days on the Senate
thus violating Article VI, Sections 24 and 26(2) of the Constitution, respectively.
Art. VI, Section 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.
Art. VI, Section 26(2): No bill passed by either House shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or
emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be
taken immediately thereafter, and the yeas and nays entered in the Journal.
ISSUE: Whether or not RA 7716 violated Art. VI, Section 24 and Art. VI, Section 26(2) of the Constitution.
HELD: No. The phrase “originate exclusively” refers to the revenue bill and not to the revenue law. It is sufficient
that the House of Representatives initiated the passage of the bill which may undergo extensive changes in the
Senate.
SB. No. 1630, having been certified as urgent by the President need not meet the requirement not only of printing
but also of reading the bill on separate days.
13.Infringement of press freedom
Sec. 4, Art. III, 1987 Constitution
Section 4. No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the
people peaceably to assemble and petition the government for redress of grievances.
Tolentino vs. Secretary of Finance (1194), supra. See previous digest
H. GENERAL CONCEPTS IN TAXATION
1. Prospectivity of tax laws
In general laws should be prospective not retroactive. However, there are some exceptions:
1. If the laws themselves provide for their retroactivity (Art. 4 Civil Code).
54
2. If the laws are remedial in nature.
3. If the statute is penal in nature, provided (a.) It is favorable to the accused or convict.(b.) The accused or convict
is not a habitual delinquent as defined in Art. 22 of the Revised Penal Code.
4. If the laws are of an emergency nature and are authorized by the police power of the government. (Santos vs.
Alvarez 44 O.G. 4259)
5. If the law is curative (necessarily retroactive for the precise purpose to cure errors or irregularities). This kind of
law to be valid must not impair vested rights nor affect final judgments. (Frivaldo vs. Comelec and Lee G.R.
120295, June 28, 1996)
2. Imprescriptibility – This principle states that unless otherwise provided by the tax law itself, taxes in general are
non-cancellable.
3. Situs of taxation – The state has the power to impose only tax within its territorial jurisdiction. The following are
the determinants to the situs of taxation.
1. Nature, kind of classification of the tax being imposed;
2. Subject matter of the tax (person, property, rights or activity);
3. Source of the income being taxed;
4. Place of the excise, privilege, business or occupation being taxed;
5. Citizenship of the taxpayer;
6. Residence of the taxpayer.
Meaning of situs – this refers to the place of taxation or the political state or political unit which has jurisdiction
to impose tax over its inhibitants.
Situs of subjects of taxation - Tax is territorial in application in the sense that the object and/or subject of the tax
must be within the territorial jurisdiction of a State. As such, income earned by non-residents and aliens not subject
to tax in the Philippines unless they earned herein – here the subject of the tax is the income. On the other hand,
resident citizens are subject to income tax for their worldwide income– here the object of the tax is the individual
who is subject to the protection of the State.
Sections 23, 24, 104, NIRC
SEC. 23. General Principles of Income Taxation in the Philippines. - Except when otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the
Philippines;
(B) A nonresident citizen is taxable only on income derived from sources within the Philippines;
(C) An individual citizen of the Philippines who is working and deriving income from abroad as an overseas
contract worker is taxable only on income derived from sources within the Philippines: Provided, That a seaman
55
who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the
complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources
within the Philippines;
(E) A domestic corporation is taxable on all income derived from sources within and without the Philippines; and
(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income
derived from sources within the Philippines.
SEC. 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines.(1) An income tax is hereby imposed
(a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections
(B), (C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines be
every individual citizen of the Philippines residing therein;
(b) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections
(B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an
individual citizen of the Philippines who is residing outside of the Philippines including overseas contract workers
referred to in Subsection(C) of Section 23 hereof; and
(c) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections
(B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an
individual alien who is a resident of the Philippines.
(2) Rates of Tax on Taxable Income of Individuals. [11] - The tax shall be computed in accordance with and at the
rates established in the following schedule:
(a) Tax Schedule Effective January 1, 2018 until December 31, 2022 [4]:
Not over P250,000………………………………… 0%
Over P250,000 but not over P400,000……………20% of the excess over P250,000
Over P400,000 but not over P800,000…………… P30,000 + 25% of the excess over P400,000
Over P800,000 but not over P2,000,000………… P130,000 + 30% of the excess over P800,000
Over P2,000,000 but not over P8,000,000………P490,000 + 32% of the excess over P2,000,000
Over P8,000,000 ……………………………… P2,410,000 + 35% of the excess over P8,000,000
Tax Schedule Effective January 1, 2023 and onwards:
Not over P250,000………………………………………………. 0%
Over P250,000 but not over P400,000……………… 15% of the excess over P250,000
Over P400,000 but not over P800,000……………… P22,500 + 20% of the excess over P400,000
Over P800,000 but not over P2,000,000……………P102,500 + 25% of the excess over P800,000
56
Over P2,000,000 but not over P8,000,000…………P402,500 + 30% of the excess over P2,000,000
Over P8,000,000 ………………………………… P2,202,500 + 35% of the excess over P8,000,000
For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall compute
separately their individual income tax based on their respective total taxable income: Provided, That if any income
cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the
same shall be divided equally between the spouses for the purpose of determining their respective taxable income.
Provided, That minimum wage earners as defined in Section 22(HH) of this Code shall be exempt from the payment
of income tax on their taxable income: Provided, further, That the holiday pay, overtime pay, night shift differential
pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax. [12]
(b) Rate of Tax on Income of Purely Self-employed Individuals and/or Professionals Whose Gross Sales or Gross
Receipts and Other Non-operating Income Does Not Exceed the Value-added Tax(VAT) Threshold as Provided in
Section 109(BB). – Self-employed individuals and/or professionals shall have the option to avail of an eight percent
(8%) tax on gross sales or gross receipts and other non-operating income in excess of Two hundred fifty thousand
pesos (P250,000) in lieu of the graduated income tax rates under Subsection (A)(2)(a) of this Section and the
percentage tax under Section 116 of this Code.
(c) Rate of Tax for Mixed Income Earners. – Taxpayers earning both compensation income and income from
business or practice of profession shall be subject to the following taxes:
(1) All Income from Compensation – The rate prescribed under Subsection (A)(2)(a) of this Section.
(2) All Income from Business or Practice of Profession –
(a) If Total Gross Sales and/or Gross Receipts and Other Non-Operating Income Do Not Exceed the VAT Threshold
as Provided in Section 109(BB) of this Code. – The rates prescribed under Subsection (A)(2)(a) of this Section on
taxable income, or eight percent (8%) income tax based on gross sales or gross receipts and other non-operating
income in lieu of the graduated income tax rates under Subsection (A)(2)(a) of this Section and the percentage tax
under Section 116 of this Code.
(b) If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Exceeds the VAT Thresholds
Provided in Section 109(BB) of this Code. – The rates prescribed under Subsection (A)(2)(a) of this Section.
(B) Rate of Tax on Certain Passive Income: (1) Interests, Royalties, Prizes, and Other Winnings. – A final tax at the rate of twenty percent (20%) is hereby
imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements; royalties, except on books, as well as other
literary works and musical compositions, which shall be imposed a final tax of ten percent (10%); prizes (except
prizes amounting to Ten thousand pesos (P10,000) or less which shall be subject to tax under Subsection (A) of
Section 24; and other winnings (except winning amounting to Ten thousand pesos (P10,000) or less from Philippine
Charity Sweepstakes and Lotto which shall be exempt), derived from sources within the Philippines: Provided,
however, That interest income received by an individual taxpayer (except a nonresident individual) from a
depository bank under the expanded foreign currency deposit system shall be subject to a final income tax at the rate
of fifteen percent (15%) of such interest income [4]: Provided, further, That interest income from long-term deposit
or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas
(BSP) shall be exempt from the tax imposed under this Subsection: Provided, finally, That should the holder of the
certificate pre-terminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the
entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit
or investment certificate based on the remaining maturity thereof:
Four (4) years to less than five (5) years - 5%;
57
Three (3) years to less than (4) years - 12%; and
Less than three (3) years - 20%
(2) Cash and/or Property Dividends. - A final tax at the rate of ten percent (10%) [4] shall be imposed upon the cash
and/or property dividends actually or constructively received by an individual from a domestic corporation or from a
joint stock company, insurance or mutual fund companies and regional operating headquarters of multinational
companies, or on the share of an individual in the distributable net income after tax of a partnership (except a
general professional partnership) of which he is a partner, or on the share of an individual in the net income after tax
of an association, a joint account, or a joint venture or consortium taxable as a corporation of which he is a member
or co-venturer:
(C) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. - The provisions of Section 39(B)
notwithstanding, a final tax at the rate of fifteen percent (15%) is hereby imposed upon the net capital gains realized
during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic
corporation, except shares sold, or disposed of through the stock exchange. [4]
(D) Capital Gains from Sale of Real Property. –
(1) In General. - The provisions of Section 39(B) notwithstanding, a final tax of six percent (6%) based on the gross
selling price or current fair market value as determined in accordance with Section 6(E) of this Code, whichever is
higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other
disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and
other forms of conditional sales, by individuals, including estates and trusts: Provided, That the tax liability, if any,
on gains from sales or other dispositions of real property to the government or any of its political subdivisions or
agencies or to government-owned or controlled corporations shall be determined either under Section 24 (A) or
under this Subsection, at the option of the taxpayer;
(2) Exception. - The provisions of paragraph (1) of this Subsection to the contrary notwithstanding, capital gains
presumed to have been realized from the sale or disposition of their principal residence by natural persons, the
proceeds of which is fully utilized in acquiring or constructing a new principal residence within eighteen (18)
calendar months from the date of sale or disposition, shall be exempt from the capital gains tax imposed under this
Subsection: Provided, That the historical cost or adjusted basis of the real property sold or disposed shall be carried
over to the new principal residence built or acquired: Provided, further, That the Commissioner shall have been duly
notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his
intention to avail of the tax exemption herein mentioned: Provided, still further, That the said tax exemption can
only be availed of once every ten (10) years: Provided, finally, That if there is no full utilization of the proceeds of
sale or disposition, the portion of the gain presumed to have been realized from the sale or disposition shall be
subject to capital gains tax. For this purpose, the gross selling price or fair market value at the time of sale,
whichever is higher, shall be multiplied by a fraction which the unutilized amount bears to the gross selling price in
order to determine the taxable portion and the tax prescribed under paragraph (1) of this Subsection shall be imposed
thereon.
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts' include real and personal
property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent
or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal
property so transferred but which are situated outside the Philippines shall not be included as part of his 'gross estate'
or 'gross gift’: Provided, further, That franchise which must be exercised in the Philippines; shares, obligations or
bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with
its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which
is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if such shares,
obligations or bonds have acquired a business situs in the Philippines; shares or rights in any partnership, business or
industry established in the Philippines, shall be considered as situated in the Philippines: Provided, still further, that
no tax shall be collected under this Title in respect of intangible personal property:
58
(a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect
of intangible personal property of citizens of the Philippines not residing in that foreign country, or
(b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his
death or donation allows a similar exemption from transfer or death taxes of every character or description in respect
of intangible personal property owned by citizens of the Philippines not residing in that foreign country.
The term 'deficiency' means:
(a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by the donor upon his
return; but the amount so shown on the return shall first be increased by the amount previously assessed (or
Collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded or
otherwise repaid in respect of such tax, or
(b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the amounts previously
assessed, (or collected without assessment) as a deficiency, but such amounts previously assessed, or collected
without assessment, shall first be decreased by the amount previously abated, refunded or otherwise repaid in
respect of such tax.
CIR vs. British Overseas Airway, G.R. No. L-65773-74, April 30, 1987
"The source of an income is the property, activity or service that produced the income. For such source to be
considered as coming from the Philippines, it is sufficient that the income is derived from activity within the
Philippines."
FACTS: Petitioner CIR seeks a review of the CTA's decision setting aside petitioner's assessment of deficiency
income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal years 1959 to 1971.
BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United
Kingdom, and is engaged in the international airline business. During the periods covered by the disputed
assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines. Consequently, it
did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the
assessments, it maintained a general sales agent in the Philippines — Wamer Barnes and Company, Ltd., and later
Qantas Airways — which was responsible for selling BOAC tickets covering passengers and cargoes. The CTA
sided with BOAC citing that the proceeds of sales of BOAC tickets do not constitute BOAC income from Philippine
sources since no service of carriage of passengers or freight was performed by BOAC within the Philippines and,
therefore, said income is not subject to Philippine income tax. The CTA position was that income from
transportation is income from services so that the place where services are rendered determines the source.
ISSUE: Are the revenues derived by BOAC from sales of ticket for air transportation, while having no landing
rights here, constitute income of BOAC from Philippine sources, and accordingly, taxable?
HELD: 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 tickets 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 payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory,
enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of
wealth should share the burden of supporting the government.
Air Canada vs. CIR, G.R. No. 169507, January 11, 2016
59
FACTS: Air Canada is a foreign corporation organized and existing under the laws of Canada. On April 24, 2000, it
was granted an authority to operate as an offline carrier by the Civil Aeronautics Board, subject to certain
conditions, which authority would expire on April 24, 2005. As an off-line carrier, Air Canada does not have flights
originating from or coming to the Philippines and does not operate any airplane in the Philippines. On July 1, 1999,
Air Canada engaged the services of Aerotel Ltd., Corp. (Aerotel) as its general sales agent in the Philippines.
Aerotel sells Air Canada’s passage documents in the Philippines. For the period ranging from the third quarter of
2000 to the second quarter of 2002, Air Canada, through Aerotel, filed quarterly and annual income tax returns and
paid the income tax on Gross Philippine Billings in the total amount of ₱5,185,676.77. On November 28, 2002, Air
Canada filed a written claim for refund of alleged erroneously paid income taxes amounting to ₱5,185,676.77 before
the Bureau of Internal Revenue (BIR). It’s basis was found in the revised definition of Gross Philippine Billings
under Section 28(A)(3)(a) of the 1997 National Internal Revenue Code (NIRC)1. The CTA denied the petition. It
found that Air Canada was engaged in business in the Philippines through a local agent that sells airline tickets on its
behalf. As such, it held that while Air Canada was not liable for tax on its Gross Philippine Billings under Section
28(A)(3), it was nevertheless liable to pay the 32% corporate income tax on income derived from the sale of airline
tickets within the Philippines pursuant to Section 28(A)(1). On appeal, the CTA En Banc affirmed the ruling of the
CTA First Division.
ISSUES & HELD: 1) Whether Air Canada is subject to the 2½% tax on Gross Philippine Billings pursuant to
Section 28(A)(3). NO. Air Canada is not liable to tax on Gross Philippine Billings under Section 28(A)(3). The tax
attaches only when the carriage of persons, excess baggage, cargo, and mail originated from the Philippines in a
continuous and uninterrupted flight, regardless of where the passage documents were sold. Not having flights to and
from the Philippines, petitioner is clearly not liable for the Gross Philippine Billings tax. 2) If not, whether Air
Canada is a resident foreign corporation engaged in trade or business and thus, can be subject to the regular
corporate income tax of 32% pursuant to Section 28(A)(1); YES. Petitioner falls within the definition of resident
foreign corporation under Section 28(A)(1) 2, thus, it may be subject to 32% tax on its taxable income. The Court in
Commissioner of Internal Revenue v. British Overseas Airways Corporation declared British Overseas Airways
Corporation, an international air carrier with no landing rights in the Philippines, as a resident foreign corporation
engaged in business in the Philippines through its local sales agent that sold and issued tickets for the airline
company. An offline carrier is “any foreign air carrier not certificated by the Civil Aeronautics Board, but who
maintains office or who has designated or appointed agents or employees in the Philippines, who sells or offers for
sale any air transportation in behalf of said foreign air carrier and/or others, or negotiate for, or holds itself out by
solicitation, advertisement, or otherwise sells, provides, furnishes, contracts, or arranges for such transportation.”
Petitioner is undoubtedly “doing business” or “engaged in trade or business” in the Philippines. In the case at hand,
Aerotel performs acts or works or exercises functions that are incidental and beneficial to the purpose of petitioner’s
business. The activities of Aerotel bring direct receipts or profits to petitioner. Further, petitioner was issued by the
Civil Aeronautics Board an authority to operate as an offline carrier in the Philippines for a period of five years.
Petitioner is, therefore, a resident foreign corporation that is taxable on its income derived from sources within the
Philippines. SEC. 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. ....
(3) International Carrier. - An international carrier doing business in the Philippines shall pay a tax of two and onehalf percent (2 1/2%) on its ‘Gross Philippine Billings’ as defined hereunder: (a) International Air Carrier. - ‘Gross
Philippine Billings’ refers to the amount of gross revenue derived from carriage of persons, excess baggage, cargo
and mail originating from the Philippines in a continuous and uninterrupted flight, irrespective of the place of sale or
issue and the place of payment of the ticket or passage document: Provided, That tickets revalidated, exchanged
and/or indorsed to another international airline form part of the Gross Philippine Billings if the passenger boards a
plane in a port or point in the Philippines: Provided, further, That for a flight which originates from the Philippines,
but transshipment of passenger takes place at any port outside the Philippines on another airline, only the aliquot
portion of the cost of the ticket corresponding to the leg flown from the Philippines to the point of transshipment
shall form part of Gross Philippine Billings. (Emphasis supplied)
3) Whether the Republic of the Philippines-Canada Tax Treaty is enforceable; YES. While petitioner is taxable as a
resident foreign corporation under Section 28(A)(1) on its taxable income from sale of airline tickets in the
Philippines, it could only be taxed at a maximum of 1½% of gross revenues, pursuant to Article VIII of the Republic
60
of the Philippines-Canada Tax Treaty that applies to petitioner as a “foreign corporation organized and existing
under the laws of Canada.” Our Constitution provides for adherence to the general principles of international law as
part of the law of the land. The timehonored international principle of pacta sunt servanda demands the performance
in good faith of treaty obligations on the part of the states that enter into the agreement. Every treaty in force is
binding upon the parties, and obligations under the treaty must be performed by them in good faith. More
importantly, treaties have the force and effect of law in this jurisdiction. (Deutsche Bank AG Manila Branch v.
Commissioner of Internal Revenue). SEC. 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident
Foreign Corporations. (1) In General. - Except as otherwise provided in this Code, a corporation organized,
authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines,
shall be subject to an income tax equivalent to thirty-five percent (35%) of the taxable income derived in the
preceding taxable year from all sources within the Philippines: Provided, That effective January 1, 1998, the rate of
income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%);
and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%). (Emphasis supplied)
4) Whether petitioner Air Canada is entitled to the refund. NO. As discussed in South African Airways, the grant of
a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct.
The deficiency assessment, although not yet final, created a doubt as to and constitutes a challenge against the truth
and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the
basis for the grant of the refund. In this case, the P5,185,676.77 Gross Philippine Billings tax paid by petitioner was
computed at the rate of 1 ½% of its gross revenues amounting to P345,711,806.08149 from the third quarter of 2000
to the second quarter of 2002. It is quite apparent that the tax imposable under Section 28(A)(l) of the 1997 NIRC
32% of taxable income, that is, gross income less deductions will exceed the maximum ceiling of 1 ½% of gross
revenues as decreed in Article VIII of the Republic of the Philippines-Canada Tax Treaty. Hence, no refund is
forthcoming.
4. Double taxation - means taxing the same person for the same tax period and the same activity twice, by the same
jurisdiction.
Direct double taxation
CIR vs. SC Johnson and Son Inc, 309 SCRA 87 (1999)
FACTS: SC Johnson & Son, Inc., a domestic corporation organized and operating under Philippine laws, entered
into a license agreement with SC Johnson & Son, USA, a non-resident foreign corporation based in the USA for the
use of the trademark, patents, and technology owned by the latter including the right to manufacture, package, and
distribute the products covered by the Agreement and secure assistance in management, marketing, and production
from SC Johnson & Son, USA.
The latter likewise required herein respondent to pay royalties based on a percentage of net sales and subjected the
same to 25 percent withholding tax on royalty payments.
Subsequently, SC Johnson & Son, Inc. filed with the International Tax Affairs Division of the BIR a claim for
refund of overpaid withholding tax on royalties, arguing that the royalties it paid to SC Johnson & Son, USA was
only subject to 10 percent withholding tax pursuant to the most-favored nation clause of the RP-US Tax in relation
to the RP-West Germany Tax.
Because the CIR did not act on the company’s claim for refund, the company filed a petition for review before the
CTA, which ruled in favor of SC Johnson & Son, ordering the CIR to issue a tax credit certificate in the amount of
P963,266.00 representing overpaid withholding tax on royalty payments.
ISSUE: Whether or not SC Johnson is entitled to the 10% on royalties.
RULING: No. Imposing the 10 percent tax will go against the purpose of the treaties which the Philippines has
entered into for the avoidance of double taxation. Double taxation usually takes place when a person is resident of a
61
contracting state and derives income from, or owns capital in, the other contracting state and both states impose tax
on that income or capital.
In order to eliminate double taxation, a tax treaty resorts to several methods. In negotiating tax treaties, the
underlying rationale for reducing the tax rate is that the Philippines will give up a part of the tax in the expectation
that the tax given up for this particular investment is not taxed by the other country.
a. Strict sense: Double taxation in strict sense is when:
1. Both taxes are imposed on the same property or subject matter;
2. For the same purpose;
3. Imposed by the same taxing authority;
4. Within the same jurisdiction;
5. During the same taxing period;
6. Covering the same kind or character of tax.
b. Broad sense - is the opposite of direct double taxation and is not legally objectionable. The absence of one or
more of the foregoing requisites of obnoxious direct tax makes it indirect
c. Constitutionality of double taxation - Double taxation in its stricter sense is unconstitutional but that in the broader
sense is not necessarily so. Our Constitution does not prohibit double taxation. However, double taxation will not be
allowed if it results in a violation of the equal protection clause
Nursery Care Corp vs. Acevedo, GR No. 180651, July 30, 2014
FACTS: The City of Manila assessed and collected taxes from petitioners pursuant to: Section 15 (Tax on
Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the Revenue Code of Manila.
At the same time, the City of Manila imposed additional taxes upon the petitioners pursuant to: Section 21 of the
Revenue Code of Manila,4 as amended as a condition for the renewal of their respective business licenses for the
year 1999. the petitioners formally requested the Office of the City Treasurer for the tax credit or refund of the local
business taxes paid under protest.6However, then City Treasurer Anthony Acevedo (Acevedo) denied the request.
On April 29, 1999, the petitioners filed their respective petitions for certiorari in RTC of Manila who ruled that there
was no double taxation. The CA denied the petitioner’s appeal
ISSUE: Whether or not the petitioners were entitled to the tax credit or tax refund for the taxes paid by reason of
double Taxation.
RULING: Yes. The Collection of taxes pursuant to Section 21 of the Revenue Code of Manila constituted double
taxation The court, deems it fitting and proper to adopt a liberal approach in order to render a just and speedy
disposition of the substantive issue at hand. Courts have the prerogative to relax procedural rules of even the most
mandatory character, mindful of the duty to reconcile both the need to speedily put an end to litigation and the
parties' right to due process. In resolving the issue of double taxation involving Section 21 of the Revenue Code
of Manila, the Court is mindful of the ruling in City of Manila v. Coca-Cola Bottlers Philippines, Inc.,37 which has
been reiterated in Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila.38 In the latter, the Court
has held: x x x [T]he issue of double taxation is not novel, as it has already been settled by this Court in The City of
Manila v. CocaCola Bottlers Philippines, Inc.,in this wise: Petitioners obstinately ignore the exempting proviso in
62
Section 21 of Tax Ordinance No. 7794, to their own detriment.1âwphi1 Said exempting proviso was precisely
included in said section so as to avoid double taxation.
Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing the same
person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed twice, when it
should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be imposed on the same
subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same
taxing period; and the taxes must be of the same kind or character. Using the aforementioned test, the Court finds
that there is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax
Ordinance No. 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business
in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila
contribute tocity revenues; (3) by the same taxing authority – petitioner Cityof Manila; (4) within the same taxing
jurisdiction – within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar
year; and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business.
Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold goods and services
in the course of trade or business based on a certain percentage ofhis gross sales or receipts in the preceding calendar
year, while Section 15 and Section 17 likewise imposed the tax on a person who sold goods and services in the
course of trade or business but only identified such person with particularity, namely, the wholesaler, distributor or
dealer (Section 15), and the retailer (Section 17), all the taxes – being imposed on the privilege of doing business in
the City of Manila in order to make the taxpayers contributeto the city’s revenues – were imposed on the same
subject matter and for the same purpose. Secondly, the taxes were imposed by the same taxing authority (the City of
Manila) and within the same jurisdiction in the same taxing period (i.e., per calendar year). Thirdly, the taxes were
all in the nature of local business taxes. The taxes collected pursuant thereto must be refunded.
Ferrer Jr., vs Bautista, GR. No. 210551, June 30, 2015
FACTS: The Quezon City Council enacted two ordinances namely: (a) SP-2095, S-2011 or The Socialized Housing
Tax, enacted on October 17, 2011, 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. Effective for five (5) years, the Socialized Housing Tax ( SHT ) shall be utilized by the Quezon City
Government for the following projects: (a) land purchase/land banking; (b) improvement of current/existing
socialized housing facilities; (c) land development; (d) construction of core houses, sanitary cores, medium-rise
buildings and other similar structures; and (e) financing of public-private partners hip agreement of the Quezon City
Government and National Housing Authority (NHA) with the private sector.
And (b) Ordinance No. SP-2235, S-2013 was enacted on December 16, 2013 and took effect ten days after when it
was approved by respondent City Mayor. The proceeds collected from the garbage fees on residential properties
shall bedeposited solely and exclusively in an earmarked special account under the general fund to be utilized for
garbage collections. Section 1 of the Ordinance se t forth the schedule and manner for the collection of garbage fees:
The collection of the garbage fee shall accrue on the first day of January and shall be paid simultaneously with the
payment of the real property tax, but not later than the first quarter installment. In case a household owner refuses to
pay, a penalty of 25% of the garbage fee due, plus an interest of 2% per month or a fraction thereof, shall be
charged.
Petitioner alleges that he is a registered co-owner of a 371-square-meter residential property in Quezon City which is
covered by Transfer Certificate of Title (TCT ) No.216288, and that, on January 7, 2014, he paid his realty tax
which already included the garbage fee in the sum of Php100.00.
63
In this case, petitioner also argues that the SHT is a penalty imposed on real property owners because it burdens
them with expenses to provide funds for the housing of informal settlers, and that it is a class legislation since it
favors the latter who occupy properties which is not their own and pay no taxes.
ISSUE: (1) Whether or not the tax ordinances are valid and Constitutional (2) Whether it violated the equal
protection clause of the petitioner
RULING
a. The Socialized Housing Tax is VALID. The 1987 Constitution explicitly espouses the view that the use of
property bears a social function and that all economic agents shall contribute to the common good. Property has not
only an individual function, insofar as it has to provide for the needs of the owner, but also function insofar as it has
to provide for the needs of the other members of the society.
Property Rights of individuals may be subjected to restraints and burdens in order to fulfill the objectives of the
government in the exercise of police power. In this, jurisdiction, it is well-entrenched that taxation may be made the
implement of the state’s police power. The principle is this:
Police power proceeds from the principle that every holder of property, however absolute and unqualified may be
his title, holds it under the implied liability that his use of it shall not be injurious to the equal enjoyment of others
having an equal right to the enjoyment of their property, nor injurious to the right of the community. Rights of
property, like all other social and conventional rights, are subject to reasonable limitations in their enjoyment as
shall prevent them from being injurious, and to such reasonable restraints and regulations established by law as the
legislature, under the governing and controlling power vested in them by the constitution, may think necessary and
expedient.
Property rights of individuals may be subjected to restraints and burdens in order to fulfill the objectives of the
government in the exercise of police power. In this jurisdiction, it is well-entrenched that taxation may be made the
implement of the state’s police power. The SHT charged by the Quezon City Government is a tax which is within its
power to impose.
b. In the subject ordinance imposing garbage collection fee, the rates of the imposable fee defend on land or floor
area and whether the payee is an occupant of a lot, condominium, social housing project or apartment, is declared
UNCONSTITUTIONAL AND ILLEGAL. The rates being charged by the ordinance are unjust and inequitable: a
resident of a 200 sq. m. unit in a condominium or socialized housing project has to pay twice the amount than a
resident of a lot similar in size; unlike unit occupants, all occupants of a lot with an area of 200 sq. m. and less have
to pay a fixed rate of Php100.00; and the same amount of garbage fee is imposed regardless of whether the resident
is from a condominium or from a socialized housing project. Indeed, the classifications under Ordinance No. S-2235
are not germane to its declared purpose of "promoting shared responsibility with the residents to attack their
common mindless attitude in over-consuming the present resources and in generating waste."160 Instead of
simplistically categorizing the payee into land or floor occupant of a lot or unit of a condominium, socialized
housing project or apartment, respondent City Council should have considered factors that could truly measure the
amount of wastes generated and the appropriate fee for its collection.
Factors include, among others, household age and size, accessibility to waste collection, population density of the
barangay or district, capacity to pay, and actual occupancy of the property. R.A. No. 9003 may also be looked into
for guidance. Under said law, WM service fees may be computed based on minimum factors such as type s of solid
waste to include special waste, amount/volume of waste, distance of the transfer station to the waste management
facility, capacity or type of LGU constituency, cost of construction, cost of management, and type of technology.
With respect to utility rates set by municipalities, a municipality has the right to classify consumers under reasonable
classifications based upon factors such as the cost of service, the purpose for which the service or the product is
received, the quantity or the amount received, the different character of the service furnished, the time of its use or
any other matter which presents a substantial difference as a ground of distinction.161[A] lack of uniformity in the
rate charged is not necessarily unlawful discrimination. The establishment of classifications and the charging of
different rates for the several classes is not unreasonable and does not violate the requirements of equality and
64
uniformity. Discrimination to be unlawful must draw an unfair line or strike an unfair balance between those in like
circumstances having equal rights and privileges. Discrimination with respect to rates charged does not vitiate unless
it is arbitrary and without a reasonable fact basis or justification.
Equal protection requires that all persons or things similarly situated should be treated alike, both as to rights
conferred and responsibilities imposed.113 The guarantee means that no person or class of persons shall be denied
the same protection of laws which is enjoyed by other persons or other classes in like circumstances.114 Similar
subjects should not be treated differently so as to give undue favor to some and unjustly discriminate against
others.115 The law may, therefore, treat and regulate one class differently from another class provided there are real
and substantial differences to distinguish one class from another.116
No. It did not violate equal protection clause. An ordinance based on reasonable classification does not violate the
constitutional guaranty of the equal protection of the law. The requirements for a valid and reasonable classification
are:
(1) it must rest on substantial distinctions;
(2) it must be germane to the purpose of the law;
(3) it must not be limited to existing conditions only; and
(4) it must apply equally to all members of the same class.
For the purpose of undertaking a comprehensive and continuing urban development and housing program, the
disparities between a real property owner and an informal settler as two distinct classes are too obvious and need not
be discussed at length. The differentiation conforms to the practical dictates of justice and equity and is not
discriminatory within the meaning of the Constitution. Notably, the public purpose of a tax may legally exist even if
the motive which impelled the legislature to impose the tax was to favor one over another. It is inherent in the power
to tax that a State is free to select the subjects of taxation.119 Inequities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation. Further, the reasonableness of
Ordinance No. SP-2095 cannot be disputed. It is not confiscatory or oppressive since the tax being imposed therein
is below what the UDHA actually allows. As pointed out by respondents, while the law authorizes LGUs to collect
SHT on lands with an assessed value of more than ₱50,000.00, the questioned ordinance only covers lands with an
assessed value exceeding ₱100,000.00. Even better, on certain conditions, the ordinance grants a tax credit
equivalent to the total amount of the special assessment paid beginning in the sixth (6th) year of its effectivity. Far
from being obnoxious, the provisions of the subject ordinance are fair and just.
d. Modes of eliminating double taxation
1. Tax Deduction – an amount subtracted from the gross income to arrive at taxable income.
2. Tax Credit - an amount subtracted from an individual’s or entity’s tax liability (tax due) to arrive at arrive at the
tax liability still due.
A deduction differs from a credit, in that deduction reduces taxable income while a credit reduces tax liability .
3. Treaties with other states: a tax treaty sets out the respective rights to tax of the state of source (situs) and the state
of residence with regard to certain cases, an exclusive right to tax is conferred on one of the contracting states;
however, for other items of income or capital, both states are given the right to tax, although the amount of tax that
may be imposed by the state of source is limited.
It applies whenever the state of source is given full or limited right to tax. The treaty makes it incumbent upon the
state of residence to allow relief in order to avoid double taxation.
65
Note: The BIR issued RMO No. 1-2000, as amended by RMO No. 72-2010, requiring taxpayers to file for a Tax
Treaty Relief Application on or before the transaction date before availing of the provisions of a tax treaty.
However, as held by the Supreme Court, this administrative requirement cannot defeat the right of any taxpayer
entitled to the preferential rates in the tax treaty.
5. Escape from taxation
a. Shifting of tax burden – the burden of payment is transferred from the statutory taxpayer to another without
violating the law (ex. VAT).
Ways of shifting the tax burden
Taxes that can be shifted
b. Distinguish: tax avoidance and tax evasion
Tax Avoidance: exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing
taxable property or income, in order to avoid or reduce tax liability Also known as “tax minimization” (eg: utilizing
all allowable deductions.
Tax Evasion: use of taxpayer of illegal or fraudulent means to defeat or lessen the payment of tax. Also known as
“tax dodging”. It presupposes malice, fraud, bad faith, or willful intent on the part of the taxpayer either to underdeclare income or over-declare deductions to defeat the tax liability.
Tax Evasion
Elements of tax evasion
a. The end to be achieved, i.e. the payment of less than that known by an by the taxpayer to be legally due;
b. An accompanying state of mind which is described as being bed as being “evil”, in “bad faith”, “willful”, or
“deliberate and not merely accidental’ and
c. A course of action or failure of action which is unlawful.
Section 254, NIRC
Sec. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to evade or defeat
any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon
conviction thereof, be punished with a fine of not less than Five hundred thousand pesos (₱500,000) but not more
than Ten million pesos (₱10,000,000), and imprisonment of not less than six (6) years but not more than ten (10)
years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil
suit for the collection of taxes.
CIR vs. CA, G.R. No. 197590, November 24, 2014
66
IN TAX EVASION CASES, A DEFICIENCY ASSESSMENT IS NOT NECESSARY HOWEVER, THE FACT
THAT A TAX IS DUE MUST FIRST BE PROVED BEFORE ONE CAN BE PROSECUTED FOR TAX
EVASION
BUREAU OF INTERNAL REVENUE vs. COURT OF APPEALS, SPOUSES ANTONIO VILLAN MANLY, and
RUBY ONG MANLY
FACTS: Respondent Antonio Villan Manly (Antonio) is a stockholder and the Executive Vice President of
Standard Realty Corporation, a family-owned corporation. He is also engaged in rental business. His spouse,
respondent Ruby Ong Manly, is a housewife. On April 27, 2005, petitioner Bureau of Internal Revenue (BIR) issued
Letter of Authority No. 2001 00012387authorizing its revenue officers to investigate respondent spouses’ internal
revenue tax liabilities for taxable year 2003 and prior years. BIR issued a letter to Manly spouses requiring them to
submit documentary evidence to substantiate the source of their cash purchase of a 256square meter log cabin in
Tagaytay City, a Toyota Rav 4 and a Toyota Prado. Since Spouses Manly failed to comply with the letter, the
revenue officers concluded that Manly’s Income Tax Return (ITR) for taxable years 2000, 2001 and 2003 were
under declared. And since the under declaration exceeded 30% of the reported or declared income, it was considered
a prima facie evidence of fraud with intent to evade the payment of proper tax due to the government.
The BIR and the state prosecutor, thus, recommended the filing of criminal cases against Spouses Manly for failing
to supply correct and accurate information in their ITRs.
The Secretary of Justice reversed the resolution of the state prosecutor.
The CA likewise dismissed the Petition for Certiorari by the petitioner BIR.
ISSUE: Whether a deficiency assessment is necessary before one can be prosecuted for tax evasion
HELD: No. In Ungab v. Judge Cusi, Jr., we ruled that tax evasion is deemed complete when the violator has
knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax. Corollarily,
an assessment of the tax deficiency is not required in a criminal prosecution for tax evasion. However, in
Commissioner of Internal Revenue v. Court of Appeals, we clarified that although a deficiency assessment is not
necessary, the fact that a tax is due must first be proved before one can be prosecuted for tax evasion. In the case of
income, for it to be taxable, there must be a gain realized or received by the taxpayer, which is not excluded by law
or treaty from taxation. The government is allowed to resort to all evidence or resources available to determine a
taxpayer’s income and to use methods to reconstruct his income. A method commonly used by the government is
the expenditure method, which is a method of reconstructing a taxpayer’s income by deducting the aggregate yearly
expenditures from the declared yearly income. In the case at bar, petitioner used this method to determine
respondent spouses’ tax liability. Petitioner deducted respondent spouses’ major cash acquisitions from their
available funds. And since the under declaration is more than 30% of respondent spouses’ reported or declared
income, which under Section 248(B) of the NIRC constitutes as prima facie evidence of false or fraudulent return,
petitioner recommended the filing of criminal cases against respondent spouses under Sections 254 and 255, in
relation to Section 248(B) of the NIRC.
CIR vs. Toda Jr., G.R. No. 147188, September 14, 2004
TAX EVASION COMMISSIONER OF INTERNAL REVENUE vs. THE ESTATE OF BENIGNO P. TODA, JR.,
Represented by Special Co-administrators Lorna Kapunan and Mario Luza Bautista, G.R. No. 147188, September
14, 2004
FACTS: The case at bar stemmed from a Notice of Assessment sent to CIC by the Commissioner of Internal
Revenue for deficiency income tax arising from an alleged simulated sale of a 16-storey commercial building known
as Cibeles Building, situated on two parcels of land on Ayala Avenue, Makati City. On 2 March 1989, CIC
authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell
67
the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90
million.
On 30 August 1989, TODA purportedly sold the property for P100 million to Rafael A. Altonaga, who, in turn, sold
the same property on the same day to Royal Match Inc. (RMI) for P200 million. THESE TWO TRANSACTIONS
were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public. FOR THE SALE
OF THE PROPERTY TO RMI, Altonaga paid capital gains tax in the amount of P10 million. On 16 April 1990,
CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain from the
sale of real property in the amount of P75,728.021. After crediting withholding taxes of P254,497.00, it paid
P26,341,207 for its net taxable income of P75,987,725.
On 12 July 1990, TODA sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced
by a Deed of Sale of Shares of Stocks. Three and a half years later, or on 16 January 1994, Toda died. On 29 March
1994, the BUREAU OF INTERNAL REVENUE (BIR) sent an assessment notice and demand letter to the CIC for
deficiency income tax for the year 1989 in the amount of P79,099,999.22.
The NEW CIC asked for a reconsideration, asserting that the assessment should be directed against the old CIC, and
not against the new CIC, which is owned by an entirely different set of stockholders; moreover, Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all tax liabilities for the fiscal years 19871989. On 27 January 1995, the Estate of Benigno P. Toda, Jr., received a Notice of Assessment dated 9 January
1995 from the Commissioner of Internal Revenue for deficiency income tax for the year 1989 in the amount of
P79,099,999.22.
The Estate thereafter filed a letter of protest. The COMMISSIONER dismissed the protest, stating that a fraudulent
scheme was deliberately perpetuated by the CIC wholly owned and controlled by Toda by covering up the additional
gain of P100 million, which resulted in the change in the income structure of the proceeds of the sale of the two
parcels of land and the building thereon to an individual capital gains, thus evading the higher corporate income tax
rate of 35%. The ESTATE filed a petition for review with the CTA alleging that the Commissioner erred in holding
the Estate liable for income tax deficiency; that the inference of fraud of the sale of the properties is unreasonable
and unsupported; and that the right of the Commissioner to assess CIC had already prescribed.
The COMMISSIONER argued that the two transactions actually constituted a single sale of the property by CIC to
RMI, and that Altonaga was neither the buyer of the property from CIC nor the seller of the same property to RMI.
The additional gain of P100 million (the difference between the second simulated sale for P200 million and the first
simulated sale for P100 million) realized by CIC was taxed at the rate of only 5% purportedly as capital gains tax of
Altonaga, instead of at the rate of 35% as corporate income tax of CIC. The income tax return filed by CIC for 1989
with intent to evade payment of the tax was thus false or fraudulent. On the other hand, the CTA held that the
Commissioner failed to prove that CIC committed fraud to deprive the government of the taxes due it. It ruled that
even assuming that a pre-conceived scheme was adopted by CIC, the same constituted mere tax avoidance, and not
tax evasion. Hence, the CTA declared that the ESTATE is not liable for deficiency income tax of P79,099,999.22.
Court of Appeals affirmed the decision of the CTA.
ISSUE: 1. Whether the case is considered as tax evasion or tax avoidance. (TAX EVASION)
RULING: (1) TAX AVOIDANCE AND TAX EVASION are the two most common ways used by taxpayers in
escaping from taxation. TAX AVOIDANCE is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. TAX EVASION, on the other hand, is a
scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities.
TAX EVASION CONNOTES THE INTEGRATION OF THREE FACTORS: (1) the END TO BE ACHIEVED,
i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an ACCOMPANYING STATE OF MIND which is described as being evil, in bad faith,
willfull, or deliberate and not accidental; and (3) a COURSE OF ACTION or failure of action which is unlawful.
68
All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the
purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI,
and not from Altonaga. That P40 million was debited by RMI and reflected in its trial balance as other inv. Cibeles
Bldg. Also, as of 31 July 1989, another P40 million was debited and reflected in RMIs trial balance as other inv.
Cibeles Bldg. This would show that the REAL BUYER OF THE PROPERTIES was RMI, and not the intermediary
Altonaga.
TAX PLANNING is by definition to reduce, if not eliminate altogether, a tax. Surely petitioner cannot be faulted for
wanting to reduce the tax from 35% to 5%. The scheme resorted to by CIC in making it appear that there were two
sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a
legitimate tax planning. Such scheme is tainted with fraud. FRAUD IN ITS GENERAL SENSE, is deemed to
comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal
or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and
unconscionable advantage is taken of another. Here, it is obvious that the objective of the SALE TO ALTONAGA
was to reduce the amount of tax to be paid especially that the transfer from him to RMI would then subject the
income to only 5% individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose of
acquiring and transferring title of the subject properties on the same day was to create a tax shelter. Altonaga never
controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely
a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales
was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. In a
nutshell, the INTERMEDIARY TRANSACTION, i.e., the sale of Altonaga, which was prompted more on the
mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion. To ALLOW A
TAXPAYER to deny tax liability on the ground that the sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the SALE TO
ALTONAGA should be disregarded for income tax purposes. The TWO SALE TRANSACTIONS should be treated
as a single direct sale by CIC to RMI.
IMPORTANT PRINCIPLE: TAX EVASION VS TAX AVOIDANCE; WHEN IS THERE TAX EVASION
TAX AVOIDANCE AND TAX EVASION are the two most common ways used by taxpayers in escaping from
taxation. TAX AVOIDANCE is the tax saving device within the means sanctioned by law. This method should be
used by the taxpayer in good faith and at arms length. TAX EVASION, on the other hand, is a scheme used outside
of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal
liabilities.
TAX EVASION CONNOTES THE INTEGRATION OF THREE FACTORS: (1) the END TO BE ACHIEVED,
i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due; (2) an ACCOMPANYING STATE OF MIND which is described as being evil, in bad faith,
willfull, or deliberate and not accidental; and (3) a COURSE OF ACTION or failure of action which is unlawful.
Tax Avoidance
Delpher Traders Corp. Vs. IAC, G.R. No. L-69259 January 26, 1988
DELPHER TRADES CORPORATION, and DELPHIN PACHECO vs. INTERMEDIATE APPELLATE COURT
and HYDRO PIPES PHILIPPINES, INC.,
FACTS: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real
estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of
Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of the Bulacan land
registry. On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same
property and providing that during the existence or after the term of this lease the lessor should he decide to sell the
property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions. 4
69
months later, lessee Construction Components International, Inc. assigned its rights and obligations under the
contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin
Pacheco and Pelagia Pacheco. The contract of lease, as well as the assignment of lease were annotated at the back of
the title, as per stipulation of the parties. On January 3, 1976, a deed of exchange was executed between lessors
Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter
the leased property together with another parcel of land for 2,500 shares of stock of defendant corporation with a
total value of P1,500,000.00 On the ground that it was not given the first option to buy the leased property pursuant
to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation
acquired the property from Pelagia Pacheco and Delphin Pacheco. The CFI of Bulacan ruled in favor of the plaintiff.
The IAC affirmed the decision of the CFI.
ISSUE: Whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the
Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the private
respondent's right of first refusal over the leased property included in the "deed of exchange."
ARGUMENTS: Eduardo Neria, a CPA and son-in-law of the late Pelagia Pacheco testified that Delpher Trades
Corporation is a family corporation and that the corporation was organized by the children of the two spouses
(spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles in order to
perpetuate their control over the property through the corporation and as a means to avoid taxes. Under this factual
backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel of land since
the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the beneficial
ownership and control of Petitioner Corporation remained in the hands of the original co-owners, there was no
transfer of actual ownership interests over the land when the same was transferred to Petitioner Corporation in
exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in
substance. In reality, Petitioner Corporation is a mere alter ego or conduit of the Pacheco co-owners On the other
hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and distinct from
the Pachecosn and that there was actual transfer of ownership interests over the leased property when the same was
transferred to Delpher Trades Corporation in exchange for the latter's shares of stock.
RULING: No, it was not meant to be a contract of sale. After incorporation, one becomes a stockholder of a
corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof
(Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in
exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the
Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription
"The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation,
formed or to be formed. It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos
have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also
belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos.
What they really did was to invest their properties and change the nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time
save on inheritance taxes. The records do not point to anything wrong or objectionable about this "estate planning"
scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could
be his taxes or altogether avoid them, by means which the law permits, cannot be doubted. The "Deed of Exchange"
of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There
was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed
their ownership from one form to another. The ownership remained in the same hands. Hence, the private
respondent has no basis for its claim of a light of first refusal under the lease contract.
DISPOSITIVE PORTION WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and
resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in
Civil Case No. 885-V79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.
70
Yutivo Sons vs. CTA, G.R. No. L-13203, January 28, 1961
FACTS: Petitioner was engaged, prior to the last world war, in the importation and sale of hardware supplies and
equipment. After the liberation, it resumed its business and bought a number of cars and trucks from General Motors
Overseas, an American corporation licensed to do business in the Philippines. As importer, GM paid sales tax
prescribed by sections 184, 185 and 186 of the Tax Code on the basis of its selling price to Yutivo. Said tax being
collected only once on original sales, Yutivo paid no further sales tax on its sales to the public. On June 13, 1946,
the Southern Motors, Inc. (SM) was organized to engage in the business of selling cars, trucks and spare parts. Its
original authorized capital stock was P1,000,000 divided into 10,000 shares with a par value of P100 each. After the
incorporation of SM and until the withdrawal of GM from the Philippines in the middle of 1947, the cars and tracks
purchased by Yutivo from GM were sold by Yutivo to SM which, in turn, sold them to the public in the Visayas and
Mindanao. When General Motors Overseas Corporation (GM) decided to withdraw from the Philippines in the
middle of 1947, the U.S. manufacturer of GM cars and trucks appointed Yutivo as importer for the Visayas and
Mindanao, and Yutivo continued its previous arrangement of selling exclusively to Southern Motors, Inc. (SM). In
the same way that GM used to pay sales taxes based on its sales to Yutivo, the latter, as importer, paid sales tax
prescribed on the basis of its selling price to SM, and since such sales tax, as already stated, is collected only once
on original sales, SM paid no sales tax on its sales to the public. The Collector of Internal Revenue made an
assessment upon Yutivo and demanded from the latter P1,804,769.85 as deficiency sales tax plus surcharge. The
assessment was disputed by the petitioner.
ISSUE: Whether or not sales tax already paid by Yutivo should first be deducted from the selling price of SM in
computing the sales tax due on each vehicle.
HELD: No. The Court likewise found that the Tax Court erred in computing the alleged deficiency sales tax on the
selling price of SM without previously deducting therefrom the sales tax due thereon. The sales tax provisions
impose a tax on original sales measured by "gross selling price" or "gross value in money". These terms, as
interpreted by the respondent Collector, do not include the amount of the sales tax, if invoiced separately. This is the
exact amount which, according to Presiding Judge Nable of the Court of Tax Appeals, Yutivo would pay, exclusive
of the surcharges.
c. Impact or Incidence of Taxation
Distinguish Between Impact and Incidence of Taxation!
The term impact is used to express the immediate result of or original imposition of the tax. The impact of a tax is
on the person on whom it is imposed first. Thus, the person who is Habile to pay the tax to the government bears its
impact. The impact of a tax, as such, denotes the act of impinging.
The term incidence refers to the location of the ultimate or the direct money burden of the tax as such. It signifies the
settlement of the tax burden on the ultimate tax payer.
Incidence emerges when the tax finally settles or comes to rest on the person who bears it. It, in fact, is the ultimate
result of shifting. Hence, the incidence of a tax is upon that person who cannot shift the burden any further, so he has
to himself bear the direct money burden of the tax.
It is, thus, easy to distinguish between the impact and incidence of taxation:
1.
2.
3.
Impact refers to the initial burden of the tax, while incidence refers to the ultimate burden of the tax.
Impact is at the point of imposition, incidence occurs at the point of settlement.
The impact of a tax falls upon the person fr6m whom the tax is collected and the incidence rests on the
person who pays it eventually. For example, suppose a tax — excise duty — is imposed on soap. Its impact
is on the producers, in the first instance, as they are liable to pay it to the government. But, the producers
may succeed in collecting it from the consumers by raising the price of soap by the amount of tax. In that
case, consumers eventually pay the tax and so the incidence falls upon them.
71
4.
Impact may be shifted but incidence cannot. For, incidence is the end of the shifting process. Sometimes,
however, when no shifting is possible, as in the case of income tax or such other direct taxes, the impact
coincides with incidence on the same person.
6. Exemption from taxation - grant of immunity to particular persons or corporations of a generally within the same
rate or taxing district are obliged to pay.
Kinds of Tax Exemption
As to Form:
a.
b.
c.
Express - Expressly granted by the Constitution, statutes, treaties, franchises or similar legislative acts.
Implied - When particular persons, properties, or exercise are deemed exempt as they fall outside the scope
of the taxing provision itself.
Contractual - Are those agreed to by the taxing authority in contract lawfully entered into by them under
enabling laws.
As to Basis:
a.
b.
Constitutional Exemptions – Immunities from taxation which originate from the Constitution.
Statutory Exemptions – those which emanate from legislation.
As to Extent:
a.
b.
Total Exemption – connotes absolute immunity.
Partial Exemption – one where a collection of a part of the tax is dispensed with.
Grounds for Tax Grounds for Tax Exemption
a.
b.
c.
Contract – the grant of tax exemption is usually contained in the charter of the corporation to which the
exemption is granted.
Public policy - to encourage new and necessary industries, or to foster charitable institutions.
Reciprocity – to reduce the rigors of international double or multiple taxation, tax exemptions maybe
granted in treaties. A tax exemption is a personal personal privilege of the grantee and therefore not
assignable; it is generally revocable by the government, unless founded on contract and must not be
discriminatory.
Revocation of Tax Exemption:
If the grant of an exemption does not constitute a contract, but merely “a spontaneous concession by the legislature,
not connected with any service or duty imposed” it is REVOCABLE by the power which made the grant.
Thus, if the basis of the tax exemptions is by virtue of a franchise granted by Congress, the exemption may be
revoked.
However, if the tax exemption constitutes a binding contract and contract and for a valuable consideration, the
government cannot unilaterally revoke the tax exemption.
Sec. 28 (4), Art. VI, Constitution
SECTION 28. (1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive
system of taxation.
72
(2) The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations
and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of the Government.
(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation.
(4) No law granting any tax exemption shall be passed without the concurrence of a majority of all the Members of
the Congress.
PLDT vs. City of Davao, G. R. No. 143867, March 25, 2003
FACTS: Petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayors Permit to operate its
Davao Metro Exchange. Respondent City of Davao withheld action on the application pending payment by
petitioner of the local franchise tax in the amount of P3,681,985.72 for the first to the fourth quarter of 1999.
Petitioner protested. Petitioner justifies its claim of tax exemption under R.A. No. 7925, otherwise known as the
Public Telecommunications Policy Act of the Philippines, 23 of which reads: SEC. 23. Equality of Treatment in the
Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises
concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the
franchise.
“in lieu of all taxes” – no difference in tax exemption
ISSUE: Whether or not PLDT is exempted from franchise tax imposed by City of Davao
HELD: No. PLDT is not exempt from franchise tax imposed by City of Davao. R.A. No. 7925 is a legislative
enactment designed to set the national policy on telecommunications and provide the structures to implement it to
keep up with the technological advances in the industry and the needs of the public. The thrust of the law is to
promote gradually the deregulation of the entry, pricing, and operations of all public telecommunications entities
and thus promote a level playing field in the telecommunications industry. There is nothing in the language of 23
nor in the proceedings of both the House of Representatives and the Senate in enacting R.A. No. 7925 which shows
that it contemplates the grant of tax exemptions to all telecommunications entities, including those whose
exemptions had been withdrawn by the LGC. The tax exemption must be expressed in the statute in clear language
that leaves no doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the
exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
In this case, the word exemption in 23 of R.A. No. 7925 could contemplate exemption from certain regulatory or
reporting requirements, bearing in mind the policy of the law.
CIR vs. Acesite, G.R. No. 147295, February 16, 2007
FACTS: Respondent Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases some of
the hotel’s premises to Philippine Amusement and Gaming Corporation (PAGCOR) for casino operations and it also
caters food and beverages to the patrons through the hotel’s restaurant. From the said operations, respondent
incurred output VAT amounting to Php 30,152,892.02. Respondent tried to shift the said taxes to PAGCOR by
incorporating it in the amount billed; however, PAGCOR refused to pay the taxes on account of its tax exempt
status. But when PAGCOR paid the amount due to Acesite, it deducted the supposed to be VAT portion payable, for
fear of the legal consequences of the non-payment of the tax. Respondent then filed an administrative claim for
refund with the Bureau of Internal Revenue (BIR), but the latter failed to resolve the same. Then respondent filed a
73
judicial claim with the Court of Tax Appeals (CTA), contending that its transaction with PAGCOR was subject to
zero rate as it was rendered to a tax-exempt entity. The CTA and the Court of Appeals ruled in favor of Acesite.
ISSUE (1) Whether or not PACGOR’s tax exemption includes exemption from indirect tax (2) Whether or not the
zero percent rate for VAT under the Tax Code applies to respondent
RULING: PAGCOR’s tax exemption includes exemption from indirect tax. Section 13 of P.D. 1869, the charter
creating PAGCOR, provides that: “No tax of any kind or form, income or otherwise, as well as fees, charges or
levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the
Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation.” Also,
“exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from
the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit
of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator
has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under
this Franchise.” Said provision clearly gives PAGCOR a blanket exemption from taxes with no distinction as to
whether the taxes are direct or indirect. Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by
the respondent, the latter is not liable for the payment of it as it is exempt in this particular transaction by operation
of law to pay the indirect tax. Such exemption falls within Section 108 [b] [3] of R.A. 8424, which provides that:
“Services rendered to persons or entities whose exemption under special laws or international agreements to which
the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate.”
Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT pertaining to the
effectively zero-rated transactions between the respondent and PAGCOR. Verily, the respondent has clearly shown
that it paid the subject taxes under a mistake of fact, that is, when it was not aware that the transactions it had with
PAGCOR been zero-rated at the time it made the payments. Such payment is held to be not voluntary and, therefore,
can be recovered or refunded. Tax refunds are based on the principle of quasi-contract or solutio indebiti and the
pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil Code. When money is paid to
another under the influence of a mistake of fact, that is to say, on the mistaken supposition of the existence of a
specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground
upon which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in
good conscience to the person who paid it. Since an action for a tax refund partakes of the nature of an exemption,
which cannot be allowed unless granted in the most explicit and categorical language, it is strictly construed against
the claimant who must discharge such burden convincingly. In the instant case, respondent had discharged this
burden as found by the CTA and the CA. Indeed, the records show that respondent proved its actual VAT payments
subject to refund, as attested to by an independent Certified Public Accountant who was duly commissioned by the
CTA. On the other hand, petitioner never disputed nor contested respondent’s testimonial and documentary
evidence. In fact, petitioner never presented any evidence on its behalf. Petition is therefore denied.
Compared with tax remission or condonation
Tax remission or tax condonation
The word “remit” means to desist or refrain from exacting, inflicting or enforcing something as well as to restore
what has already been taken. The remission of taxes due and payable to the exclusion of taxes already collected does
not constitute unfair discrimination. Such a set of taxes is a class by itself and the law would be open to attack as
class legislation only if all taxpayers belonging to one class were not treated alike. [Juan Luna Subd. V. Sarmiento,
91 Phil 370]
The condonation of a tax liability is equivalent to and is in the nature of a tax exemption. Thus, it should be
sustained only when expressly provided in the law. [Surigao Consolidated Mining v. Commissioner of Internal
Revenue, 9 SCRA 728]
74
Tax amnesty v. tax condonation v. tax exemption
A tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on
persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or
waiver by the Government of its right to collect what otherwise would be due it and, in this sense, prejudicial
thereto, particularly to tax evaders who wish to relent and are willing to reform are given a chance to do so and
therefore become a part of the society with a clean slate.
Like a tax exemption, a tax amnesty is never favored nor presumed in law, and is granted by statute. The terms of
the amnesty must be strictly construed against the taxpayer and liberally in favor of the government. Unlike a tax
exemption, however, a tax amnesty has limited applicability as to cover a particular taxing period or transaction
only.
There is tax condonation or remission when the State desists or refrains from exacting, inflicting or enforcing
something as well as to restore what has already been taken. The condonation of a tax liability is equivalent to and
is in the nature of a tax exemption. Thus, it should be sustained only when expressed in the law.
Tax exemption, on the other hand, is the grant of immunity to particular persons or corporations or to person or
corporations of a particular class from a tax which persons and corporations generally within the same state or
taxing district are obliged to pay. Tax exemption are not favored and are construed strictissimi juris against the
taxpayer.
Juan Luna Subd. Vs. VM Sarmiento, G.R. No. L-3538 May 28, 1952
FACTS: The plaintiff was a corporation duly organized and existing under the laws of the Philippines with principal
office in Manila. On December 29, 1941 it issued to the City Treasurer of Manila, and the City Treasurer accepted
checks No. 628334 for P2,210.52 drawn upon the Philippine Trust Company with which it had a credit balance of
P4,940.17 on its account. This check was to be applied to plaintiff's land tax for the second semester of 1941 the
exact amount of which was yet undetermine and so it was entered in the ledger, Exhibit "F", as deposit by the
taxpayer. On February 20, 1942, presumably after the exact amount had been verified, which was P341.60, the
balance of P1,868.92, covered by voucher No. 1487 of the City Treasure's office, was noted in the ledger as a credit
to the Juan Luna Subdivision, Inc.
Further than this, the records of the City Treasurer's office do not show what was done with the check. But the books
of the Philippine Trust Company do reveal that it was deposited with the Philippine National Bank, the City
Treasurer's sole depository, on December 29, 1941, and that it was presented by that Bank to the Philippine Trust
Company on May 1, 1944 and was cashed by the drawee. Manuel F. Garcia, Assistant Treasurer of the Philippine
Trust Company, testified that soon after his bank was authorized in March, 1942, to reopen for business (it had been
closed by order of the Japanese military authorities,) it received from the Philippine National Bank a bundle of
checks, including appellees check No. 628334, drawn upon the Philippine Trust Company before the Japanese
occupation and held in abeyance by the Philippine National Bank pending resumption of operation by the Philippine
Trust Company; that these checks, including the appellee's check, were accepted and the amounts thereof debited
against the respective drawer's accounts; that with respect to check No. 628334, the operation was effected on May
1, 1944. The City refused after liberation to refund the plaintiff's deposit or apply it to such future taxes as might be
found due, while the Philippine Trust Company was unwilling to reverse its debit entry against the Juan Luna
Subdivision, Inc. It was upon this predicament that the Juan Luna Subdivision, Inc. brought this suit against the City
Treasurer and the Philippine Trust Company as defendants in the alternative. The purpose of the action is determine
which of the two defendants is liable for plaintiff's check. There is a separate cause of action which concerns the
plaintiff and the City Treasurer alone. The amount to be refunded to the plaintiff is the subject of another
disagreement between the Juan Luna Subdivision, Inc. and the City Treasurer. This is the ground of other cause of
action heretofore referred to. The plaintiff claims the whole amount of the check contending that taxes for the last
semester of 1941 have been remitted by Commonwealth Act No. 703. Section 1 of this Act, which was approved on
November 1, 1945, provides: All land taxes and penalties due and payable for the years nineteen hundred and forty-
75
two nineteen hundred and forty-three nineteen hundred and forty-four and fifty per cent of the tax due for nineteen
hundred and forty-five, are hereby remitted. The land taxes and penalties due and payable for the second semester of
the year nineteen hundred and forty-one shall also be remitted the if the remaining fifty per cent corresponding to the
year nineteen hundred and forty-five shall been paid on or before December thirty-first, nineteen hundred and fortyfive.
ISSUE: Whether the provision cover taxes paid before its enactment as the plaintiff maintains and the court below
held, or does it refer, (YES)
RULING: There is no ambiguity in the language of the law. It says "taxes and penalties due and payable," the literal
meaning of which taxes owned or owing. (See Webster's New International Dictionary) Note that the provision
speaks of penalties, and note that penalties accrue only when taxes are not paid on time. The word "remit"
underlined by the appellant does not help its theory, for to remit to desist or refrain from exacting, inflicting, or
enforcing something as well as to restore what has already been taken. (Webster's New International Dictionary.)
We do not see that literal interpretation of Commonwealth Act No. 703 runs counter and does violence to its spirit
and intention , nor do we think that such interpretation would be "constitutionally bad" in that "it would unduly
discriminate against taxpayers who had paid in favor of delinquent taxpayers." The remission of taxes due and
payable to the exclusion of taxes already collected does not constitute unfair discrimination. Each set of taxes is a
class by itself, and the law would be open to attack as class legislation only if all taxpayers belonging to one class
were not treated alike. They are not. As to the justice of the measure, the confinement of the condonation to
deliquent taxes was not without good reason. The property owners who had paid their taxes before liberation and
those who had not were not on the same footing on the need of material relief. It is true that the ravages and
devastations wrought by was operations had rendered the bulk of the people destitute or impoverished and that it
was this situation which prompted the passage of Commonwealth Act No. 703. But it is also true that the taxpayers
who had been in arrears in their obligation would have to satisfy their liability with genuine currency, while the
taxes paid during the occupation had been satisfied in Japanese military notes, many of them at a time when those
notes were well-nigh worthless. To refund those taxes with the restored currency, even if the Government could
afford to do so, would be unduly to enrich many of the payers at a greater expense to the people at large. What is
more, the process of refunding would entail a tremendous amount of work and difficulties, what with the destruction
of tax records and the great number of claimants who would take advantage of such grace. It is said that the
plaintiff's check was in the nature of deposit, held trust by the City Treasurer, and that for this reason, plaintiff's
taxes are to be regarded as still due and payable. This argument is well taken but only to the extent of P1,868.92.
The amount of P341.60 as early as February 20, 1942, had been applied to the second half of plaintiff's 1941 tax and
become part of the general funds of the city treasury. From that date that tax was legally and actually paid and
settled.
7. Tax amnesty, Distinguish from tax exemption
Tax Amnesty – refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and power
to impose penalties on persons or entities guilty of violating a tax law. Tax amnesty aims to grant a general reprieve
to tax evaders who wish to come clean by giving them an opportunity to straighten out their records.
Distinguished with tax exemption – tax amnesty is an immunity from all criminal and civil obligations arising
from non-payment of taxes. It is a general pardon given to all taxpayers. It applies only to past tax periods.
Tax exemption – is an immunity from the civil liability only. It is am immunity or privilege, a freedom from a
charge or burden of which others are subjected.
CIR vs. Philippine Aluminum Wheels, Inc., G.R. No. 216161; August 9, 2017
76
FACTS: Respondent is engaged in the manufacture, production, sale, and distribution of automotive parts and
accessories. On 16 December 2003, the BIR issued a PAN against respondent covering deficiency taxes for the
taxable year 2001. On 28 March 2004, the BIR issued a FAN in the amount of ₱32,100,613.42. On 23 June 2004,
respondent requested for reconsideration of the FAN issued by the BIR. On 8 November 2006, the BIR issued a
Final Decision on Disputed Assessment (FDDA) and demanded full payment of the deficiency tax assessment from
respondent. On 12 April 2007, the FDDA was served through registered mail. On 19 July 2007, respondent filed
with the BIR an application for the abatement of its tax liabilities under Revenue Regulations No. 13-2001 for the
taxable year 2001. The BIR denied respondent's application on the ground that the FDDA was already issued by the
BIR and that the FDDA had become final and executory due to the failure of the respondent to appeal the FDDA
with the CTA. The BIR contended that the FDDA had been sent through registered mail on 12 April 2007 and that
the FDDA had become final, executory, and demandable because of the failure of the respondent to appeal the
FDDA with the CTA within thirty (30) days from receipt of the FDDA. On 19 September 2007, respondent
informed the BIR that it already paid its tax deficiency on withholding tax amounting to ₱736,726.89 through the
Electronic Filing and Payment System of the BIR and that if was also in the process of availing of the Tax Amnesty
Program under Republic Act No. 9480 (RA 9480) as implemented by Revenue Memorandum Circular No. 55-2007
to settle its deficiency tax assessment for the taxable year 2001. On 21 September 2007, respondent complied with
the requirements of RA 9480 which include: the filing of a Notice of Availment, Tax Amnesty Return and Payment
Form, and remitting the tax payment. In a letter dated 29 January 2008, the BIR denied respondent's request and
ordered respondent to pay the deficiency tax assessment amounting to ₱29,108,767.63. In a second letter, the BIR
reiterated that the FDDA had become final and executory for the failure of the respondent to appeal the FDDA with
the CTA within the prescribed period of thirty (30) days. The BIR demanded the full payment of the tax assessment
and contended that the respondent's availment of the tax amnesty under RA 9480 had no effect on the assessment
due to the finality of the FDDA prior to respondent's tax amnesty availment.
ISSUE: Whether respondent is entitled to the benefits of the Tax Amnesty Program under RA 9480.
RULING: Yes. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. It partakes of an absolute
forgiveness or waiver by the government of its right to collect what is due it and to give tax evaders who wish to
relent a chance to start with a clean slate. A tax amnesty, much like a tax exemption, is never favored nor presumed
in law. The grant of a tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority. On 19 September 2007, respondent availed of the Tax Amnesty Program
under RA 9480, as implemented by DO 29-07. Respondent submitted its Notice of Availment, Tax Amnesty Return,
Statement of Assets, Liabilities and Net Worth, and comparative financial statements for 2005 and 2006.
Respondent paid the amnesty tax to the Development Bank of the Philippines, evidenced by its Tax Payment
Deposit Slip dated 21 September 2007. Respondent's completion of the requirements of the Tax Amnesty Program
under RA 9480 is sufficient to extinguish its tax liability under the FDDA of the BIR. The CIR contends that
respondent is disqualified to avail of the tax amnesty under RA 9480. The CIR asserts that the finality of its
assessment, particularly its FDDA is equivalent to a final and executory judgment by the courts, falling within the
exceptions to the Tax Amnesty Program under Section 8 of RA 9480. The CIR is wrong. Section 8(f) is clear: only
persons with "tax cases subject of final and executory judgment by the courts" are disqualified to avail of the Tax
Amnesty Program under RA 9480. There must be a judgment promulgated by a court and the judgment must have
become final and executory. Obviously, there is none in this case. The FDDA issued by the BIR is not a tax, case
"subject to a final and executory judgment by the courts" as contemplated by Section 8(f) of RA 9480. The
determination of the tax liability of respondent has not reached finality and is still not subject to an executory
judgment by the courts as it is the issue pending before this Court. In fact, in Metrobank, this Court held that the
FDDA issued by the BIR was not a final and executory judgment and did not prevent Metrobank from availing of
the immunities and privileges granted under RA 9480.
77
8. Nature of the power to grant tax exemption
Basco vs. PAGCOR, G.R. No. 91649, May 14, 1991
FACTS: The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067A
dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish,
operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines."
Petitioners filed an instant petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR)
Charter — PD 1869, because it is allegedly contrary to morals, public policy and order Petitioners claim that P.D.
1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause
in P.D. 1869 is in violation of the principle of local autonomy. o Section 13 par. (2) of P.D. 1869 exempts
PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees,
charges or levies of whatever nature, whether National or Local."
ISSUE: Does the local Government of Manila have the power to impose taxes on PAGCOR?
HELD: No, the court rules that The City government of Manila has no power to impose taxes on PAGCOR.
The principle of Local autonomy does not make local governments sovereign within the state; the principle of local
autonomy within the constitution simply means decentralization. It cannot be an “Imperium in imperio” it can only
act intra sovereign, or as an arm of the National Government. PAGCOR has a dual role, to operate and to regulate
gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of
the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from
local taxes. The power of local government to "impose taxes and fees" is always subject to "limitations" which
Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked"
(Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power
of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the
principle of local autonomy.
Note: other issues were raised in the case, such as if whether the petitioners have standing in filing the case, but to
make the digest fit into one page I just included the issue which focused that was in accordance to the outline. Please
do read the case in its original when you have the time since there are explanations to its nature which are not
included in this digest
9. Rationale for tax exemptions
Tan Kim Kee vs. CTA, G.R. No. L-18080, April 22, 1963
10.Nature of Tax Exemptions
PLDT vs. City of Davao, GR No. 143867, March 25, 2003
FACTS: Petitioner Philippine Long Distance Telephone Co., Inc. (PLDT) applied for a Mayors Permit to operate its
Davao Metro Exchange. Respondent City of Davao withheld action on the application pending payment by
petitioner of the local franchise tax in the amount of P3,681,985.72 for the first to the fourth quarter of 1999.
Petitioner protested. Petitioner justifies its claim of tax exemption under R.A. No. 7925, otherwise known as the
Public Telecommunications Policy Act of the Philippines, 23 of which reads: SEC. 23. Equality of Treatment in the
Telecommunications Industry. Any advantage, favor, privilege, exemption, or immunity granted under existing
franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications
franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided,
however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises
78
concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the
franchise.
ISSUE: Whether or not PLDT is exempted from franchise tax imposed by City of Davao.
HELD: No. PLDT is not exempt from franchise tax imposed by City of Davao.
R.A. No. 7925 is a legislative enactment designed to set the national policy on telecommunications and provide the
structures to implement it to keep up with the technological advances in the industry and the needs of the public. The
thrust of the law is to promote gradually the deregulation of the entry, pricing, and operations of all public
telecommunications entities and thus promote a level playing field in the telecommunications industry. There is
nothing in the language of 23 nor in the proceedings of both the House of Representatives and the Senate in enacting
R.A. No. 7925 which shows that it contemplates the grant of tax exemptions to all telecommunications entities,
including those whose exemptions had been withdrawn by the LGC. The tax exemption must be expressed in the
statute in clear language that leaves no doubt of the intention of the legislature to grant such exemption. And, even if
it is granted, the exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the
taxing authority. In this case, the word exemption in 23 of R.A. No. 7925 could contemplate exemption from certain
regulatory or reporting requirements, bearing in mind the policy of the law.
Maceda vs. Macaraig (1991), supra
FACTS:
Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and resolutions of respondents Executive
Secretary, SOF, CIR, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the
National Power Corporation (NPC) from indirect tax and duties. RA 358, RA 6395 and PD 380 expressly grant NPC
exemptions from all taxes whether direct or indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax
exemptions granted to all GOCCs including the NPC but granted the President and/or the Secretary of Finance by
recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the latter law, FIRB issued a
resolution restoring the tax and duty exemption privileges of the NPC. The actions of the respondents were thus
questioned by the petitioner for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction
and/or restraining order.
To which public respondents argued, that petitioner does not have the standing to challenge the questioned orders
and resolution because he was not in any way affected by such grant of tax exemptions.
ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the FIRB restoring the tax
exemptions?
HELD: Yes. In this petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a
duly-elected Senator of the Philippines." Public respondent argues that petitioner must show that he has sustained
direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to
all members of the public. The Court however agrees with the petitioner that as a taxpayer he may file the instant
petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions
the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by
respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.
Other version:
FACTS: Act 120 created NPC as a public corporation to undertake the development of hydraulic power and the
production of power from other sources RA 358 granted NPC tax duty and exemption privileges RA 6395 revised
79
the charter of NPC, tasking it to carry out the policy of the national electrification, and provided in detail NPC tax
exemptions PD 380 specified that NPC’s exemptions include all taxes, etc. imposed “directly or indirectly”
PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries, however, empowering the
president or minister of finance, upon recommendation of FIRB to restore, partially or completely, the exemptions
withdrawn or revised FIRB issued resolution 10-85 restoring the duty and tax exemptions privileges of NPC from
june 1984 to june 1985 Resolution 1-86 restored such exemption indefinitely effective July 1985 EO 93 again
withdraw the exemption FIRB issued Resolution 17-87 restoring NPC’s exemption, which was approved by the
president on October 1987. Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum
products sold and delivered to NPC Oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NPC only in 1984 NPC claimed for a refund (468.58M) Only portion thereof, corresponding ot Caltex,
was approved and released by way of tax credit memo. The claim for refund of taxes paid by PetroPhil, Shell and
Caltex amounting to 410.58M was denied NPC moved for reconsideration, starting that all deliveries of petroleum
products to NPC are tax exempt, regardless of the period of delivery
ISSUE: WON NPC cease to enjoy exemption from indirect tax when PD 938 stated exemption in general terms
RULING: NPC is a nonprofit public corporation created for the general good and welfare, and wholly owned by the
Philippine gov’t From the very beginning of the corporation’s existence, NPC enjoyed preferential tax treatment “to
enable the corporation to pay the indebtedness and obligation” and effective implementation if the policy enunciated
in Sec. 1 of RA 6395 From the preamble of PD 938, it is evident that its provisions were not intended to be strictly
construed against NPC On the contrary, the law mandates that it should be interpreted liberally so as to enhance the
tax exempt status of NPC. It is a recognized principle that the rule on strict interpretation does not apply in the case
of exemptions in favor of government political subdivision or instrumentality
In the case of property owned by the state or a city or other public corporations, the express exception should not be
construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to
such property, “ exception is the rule and taxation is the exception”
11.Equitable recoupment
It provides that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities should be
pertinent only to taxes arising from the same transaction on which an overpayment is made and underpayment is
due.
This doctrine, however, was rejected by the Supreme Court, saying that it was not convinced of the wisdom and
proprietary thereof, and that it may work to tempt both the collecting agency and the taxpayer to delay and neglect
their respective pursuits of legal action within the period set by law. (Collector vs UST, 104 PHIL 1062)
12.Prohibition on compensation and set-off
General Rule: Taxes are not subject to set-off or legal compensation. The government and the taxpayer are not
creditors and debtors or each other. Obligations in the nature of debts are due to the government in its corporate
capacity, while taxes are due to the government in its sovereign capacity (Philex Mining Corp. vs CIR, 294 SCRA
687; Republic vs Mambulao Lumber Co., 6 SCRA 622)
Exception: Where both the claims of the government and the taxpayer against each other have already become due
and demandable as well as fully liquated. (see Domingo vs Garlitos, L-18904, June 29, 1963)
80
Francia vs. IAC, GR No. L-67649, June 28, 1988
ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ,
respondents.
Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The
auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of
Deeds.
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate
Court, to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to
recover a 203 square meter lot which was, sold at public auction to Ho Fernandez and ordered titled in the latter's
name.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January
24, 1980.
FACTS: Engracio Francia is the registered owner of a 328 square meters residential lot described and covered by
Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City 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 RP for the sum of P4,116.00 representing the
estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia
failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City
Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code
in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property (Francia
was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas). On
March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New
Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in
his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a
On April 23, 1981, the lower court dismissed the amended complaint and ordered The Register of Deeds of Pasay
City to issue a new TCT in favor of the defendant Ho Fernandez over the parcel of land including the improvements
thereon, subject to whatever encumbrances appearing at the back of TCT No. 4739 (37795) and ordering the same
TCT The Intermediate Appellate Court affirmed the decision of the lower court in toto. Hence, this petition for
review.
ISSUE: WHETHER OR NOT THE EXPROPRIATION COMPENSATE FOR THE REAL ESTATE TAXES DUE.
HELD: NO. There can be no off-setting of taxes against the claims that the taxpayer may have against the
government. Francia’s argument is that the government owed him P4, 116.00 when a portion of his land was
expropriated on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as of October 15,
1977. Following Article 1278 of the Civil Code, there is legal compensation when obligations of persons, who in
their own right are reciprocally debtors and creditors of each other, are extinguished. The circumstances in the
instant case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be
bound principally and that he be at the same time a principal creditor of the other; that the two debts be due.
A taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the
governmental body not included in the tax levy. 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. As stated in the case of Republic v. Mambulao Lumber Co. (4
SCRA 622), internal revenue taxes cannot be the subject of set-off or compensation, thus: "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
81
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., 73-74). "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. ..." As reiterated
in the case of Corders v. Gonda 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."
The Supreme Court emphasized: 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. On the issue that the selling price of P2, 400.00 was grossly inadequate, the same is not tenable. The
Supreme Court said: “alleged gross inadequacy of price is not material when the law gives the owner the right to
redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the
owner to effect redemption.” If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. “Where
land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale.” This rule arises from
necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it
is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the
land. WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the
respondent court is affirmed.
13.Compromise
A tax compromise is an agreement whereby the taxpayer offers to pay something less than what is due and the
government accepts it as a full settlement of his tax liability.
In compromise, there is meeting of the minds of the taxpayer and the government, lacking of which, there is no
compromise to speak of. A compromise offer to pay P1.5 billion in settlement of a P30-billion tax liability, for
example, remains to be an offer until accepted.
Since compromises effectively condones, waives the collection of taxes, or gives away revenues belonging to the
government, any tax compromise not in accordance with the law is a ground for graft and corruption or even
plunder.
But who can compromise tax liabilities? Under the law, only the commissioner of Internal Revenue can enter into
tax compromises. He has the sole authority to compromise taxes and nobody else. Not the president. Not even the
secretary of finance.
As a general rule, the civil liability cannot be compromised. There are only two exceptions. First, when the
assessment is considered to be of doubtful validity, in which case, the commissioner can compromise to not less
than 40 percent of the basic tax. And second, when the taxpayer is financially incapable to pay the liability, in
which case, it can be compromised to not less than 10 percent of the basic tax.
Can be proved by submitting the books of accounts, bank accounts, financial statements.
The rule for the criminal aspect, on the other hand, is the reverse. The general rule is all criminal liabilities can be
compromised. There are only two exceptions, i.e., first, when a case is already filed in court and, second, when the
case involves fraudulent acts (Section 204, Tax Code).
82
I. CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES AND REGULATIONS
a. Nature of internal revenue laws
Hilado vs Collector, 100 Phil 288 (1956)
FACTS:
Petitioner claimed in his 1951 income tax return the deduction of the portion of his war damage claim which had
been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but
which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part
of his claim will not be paid until the United States Congress should make further appropriation. He claims that said
amount represents a “business asset” within the meaning of said Act which he is entitled to deduct as a loss in his
return for 1951.
ISSUE: Whether Hilado is correct.
Ruling No. TAXATION; INCOME TAX; LOSSES DEDUCTIBLE; LOSS CONSISTING OF PORTION OF WAR
DAMAGE CLAIM. Assuming that the said amount represents a portion of petitioner’s war damage claim which
was not paid, the same would not be deductible as a loss in 1951 because, according to petitioner, the last
installment he received from the War Damage Commission, together with the notice that no further payment would
be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his
1950 gross income. Neither can the said amount be considered as a “business asset” which can be deducted as a loss
in contemplation of law because its collections is not enforceable as a matter of right, but is dependent merely upon
the generosity and magnanimity of the U.S. government. ID.; LOSSES OF PROPERTY DURING THE WAR
DEDUCTIBLE IN THE YEAR OF ACTUAL DESTRUCTION. It is true that under the authority of section 338 of
the National Internal Revenue Code the Secretary of Finance, in the exercise of his administrative powers, caused
the issuance of General Circular No. V123 as an implementation or interpretative regulation of section 30 of the
same Code, under which the aforesaid amount was allowed to be deducted “in the year the last installment was
received with notice that no further payment would be made until the United States Congress makes further
appropriation therefore,” but such circular was found later to be wrong and was revoked and the Secretary of
Finance, through the V139 which not only revoked and declared void his previous Circular No. V-123 but laid down
the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or
other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual
destruction of said property. As the amount claimed does not represent a “business asset” that may be deducted as a
loss in 1951, it is clear that the. loss of the corresponding asset or property could only be deducted in the year it was
actually sustained. This is in line with section 30(d) of the National Internal Revenue Code which prescribes that
losses sustained are allowable as deduction only within the corresponding taxable year. 3. ID.; ID.; WRONG
CONSTRUCTION OF LAW CANNOT GIVE RISE TO VESTED RIGHTS.·General Circular No. V-123, having
been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer.
The reason is obvious; a vested right cannot spring from a wrong interpretation.
b. Construction of tax laws
1.
2.
3.
4.
5.
On the interpretation and construction of tax statutes, legislative intention must be considered
In case of doubt, tax statutes are construed strictly against the government and liberally construed in
favor of the taxpayer.
The rule of strict construction against the government is not applicable where the language of the tax
law is plain and there is no doubt as to the legislative intent.
The exemptions (or equivalent provisions, such as tax amnesty and tax condonation) are not presumed
and when granted are strictly construed against the grantee.
The exemptions, however, are construed liberally in favor of the grantee in the following:
a. When the law so provides for such liberal construction;
83
b.
6.
7.
Exemptions from certain taxes granted under special circumstances to special classes of
persons;
c. Exemptions in favor of the Government, its political subdivisions;
d. Exemptions to traditional exemptees, such as, those in favor of charitable institutions.
The tax laws are presumed valid.
The power to tax is presumed to exist.
1. Rule when legislative intent is clear
Umali vs. Estanislao, 209 SCRA 446 (1992)
FACTS: Congress enacted Republic Act 7167 amending the NIRC (adjusting the basic and additional exemptions
allowable to individuals for income tax purposes to the poverty threshold level). The said Act was signed and
approved by the President on 19 December 1991 and published on 14 January 1992 in "Malaya" a newspaper of
general circulation. On 26 December 1991, the CIR promulgated Revenue Regulations No. 1-92 stating that the
regulations shall take effect on compensation income from January 1, 1992.
Petitioners filed a petition for mandamus to compel the CIR to implement RA 7167 in regard to income earned or
received in 1991, and prohibition to enjoin the CIR from implementing the revenue regulation.
ISSUE: Assuming that Rep. Act 7167 took effect on 30 January 1992 (15 days after its publication in “Malaya”),
whether or not the said law nonetheless covers or applies to compensation income earned or received during
calendar year 1991.
RULING: Yes. The Court is of the considered view that Rep. Act 7167 should cover or extend to compensation
income earned or received during calendar year 1991. Sec. 29, par. [L], Item No. 4 of the National Internal Revenue
Code, as amended, provides: Upon the recommendation of the Secretary of Finance, the President shall
automatically adjust not more often than once every three years, the personal and additional exemptions taking into
account, among others, the movement in consumer price indices, levels of minimum wages, and bare subsistence
levels. The exemptions were last adjusted in 1986. The president could have adjusted it in 1989 but did not do so.
The poverty threshold level refers to the level at the time Rep. Act 7167 was enacted by Congress. The Act is a
social legislation intended to alleviate in part the present economic plight of the lower income taxpayers. Rep. Act
7167 says that the increased personal exemptions shall be available after the law shall have become effective. These
exemptions are available upon the filing of personal income tax returns, done not later than the 15th day of April
after the end of a calendar year. Thus, under Rep. Act 7167, which became effective, on 30 January 1992, the
increased exemptions are literally available on or before 15 April 1992 [though not before 30 January 1992]. But
these increased exemptions can be available on 15 April 1992 only in respect of compensation income earned or
received during the calendar year 1991. The personal exemptions as increased by Rep. Act 7167 are not available in
respect of compensation income received during the 1990 calendar year; the tax due in respect of said income had
already accrued, and been presumably paid (The law does not state retroactive application). The personal
exemptions as increased by Rep. Act 7167 cannot be regarded as available as to compensation income received
during 1992 because it would in effect postpone the availability of the increased exemptions to 1 January-15 April
1993. The implementing regulations collide with Section 3 of Rep. Act 7167 which states that the statute "shall take
effect upon its approval”. The revenue regulation should take effect on compensation income earned or received
from 1 January 1991. Since this decision is promulgated after 15 April 1992, those taxpayers who have already paid
are entitled to refunds or credits.
2. Rule when there is doubt
84
Lorenzo vs. Posadas
FACTS: Thomas Hanley died in Zamboanga, leaving a will and considerable amount of real and personal
properties. Hanley’s will provides the following: his money will be given to his nephew, Matthew Hanley, as well as
the real estate owned by him. The CFI for the best interests of the estate appointed a trustee to administer the real
properties which, under the will, were to pass to nephew Matthew ten years after the two executors named in the
will was appointed trustee. Moore acted as trustee until he resigned and the plaintiff Lorenzo herein was appointed
in his stead. Juan Posadas, Collector of Internal Revenue, assessed inheritance tax against the estate amounting to
P2,057.74 which includes penalty and surcharge. He filed a motion in the testamentary proceedings so that Lorenzo
will be ordered to pay the amount due. Lorenzo paid the amount in protest after CFI granted Posadas’ motion. He
claimed that the inheritance tax should have been assessed after 10 years.Lorenzo asked for a refund but Posadas
declined.
ISSUE: when should the tax be assessed?
RULING: The Supreme Court ruled that transmission by inheritance is taxable at the time of the predecessor's death,
notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary, and the tax
measured by the value of the property transmitted at that time regardless of its appreciation or depreciation.
Additionally, the obligation to pay taxes rests not upon the privileges enjoyed by, or the protection afforded to, a
citizen by the government but upon the necessity of money for the support of the state. For this reason, no one is
allowed to object to or resist the payment of taxes solely because no personal benefit to him can be pointed out.
While courts will not enlarge, by construction, the government's power of taxation, they also will not place upon tax
laws so loose a construction as to permit evasions on merely fanciful and insubstantial distinctions.
3. Rule when language is plain
J. SOURCES OF TAX LAWS
a. The Constitution
b. NIRC
c. Local Government Code
d. Treaties
Deutsche Bank AG vs CIR, G.R. No. 188550, August 28, 2013 (Landmark Case)
FACTS: petitioner withheld and remitted to BIR 15% branch profit remittance tax (BPRT) on its regular banking
unit (RBU) net income to Deutsche Bank Germany (DB Germany) for 2002 and prior taxable years. Believing that it
made an overpayment of the BPRT, petitioner filed an administrative claim for refund or issuance of its tax credit.
On the same date, It requested from the International Tax Affairs Division (ITAD) a confirmation of its entitlement
to the preferential tax rate of 10% under the RP-Germany tax treaty. Alleging the inaction of the BIR on its
administrative claim, petitioner filed a Petition for Review with the CTA. On the second CTA division the claim of
petitioner for a refund was denied on the ground that the application for a tax treaty relief was not filed with ITAD
prior to the payment by the former of its BPRT and actual remittance of its branch profits to DB Germany, or prior
to its availment of the preferential rate of ten percent (10%) under the RP-Germany Tax Treaty provision. The court
a quo held that petitioner violated the fifteen (15) day period mandated under Section III paragraph (2) of Revenue
Memorandum Order (RMO) No. 1-2000.The CTA En Banc affirmed the CTA Second Division’s Decision
ISSUE: whether the failure to strictly comply with RMO No. 1-2000 will deprive persons or corporations of the
benefit of a tax treaty.
85
HELD: No. Under Section 28(A)(5) of the NIRC, any profit remitted to its head office shall be subject to a tax of
15% based on the total profits applied for or earmarked for remittance without any deduction of the tax component.
By virtue of the RP-Germany Tax Treaty, we are bound to extend to a branch in the Philippines, remitting to its head
office in Germany, the benefit of a preferential rate equivalent to 10% BPRT. Constitution provides for adherence to
the general principles of international law as part of the law of the land. The time-honored international principle of
pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter
into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be
performed by them in good faith. More importantly, treaties have the force and effect of law in this jurisdiction. Tax
treaties are entered into “to reconcile the national fiscal legislations of the contracting parties and, in turn, help the
taxpayer avoid simultaneous taxations in two different jurisdictions.” Bearing in mind the rationale of tax treaties,
the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to
divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with
a tax treaty.
The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the
administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from
the BIR should merely operate to confirm the entitlement of the taxpayer to the relief. The obligation to comply with
a tax treaty must take precedence over the objective of RMO No. 1-2000. Logically, noncompliance with tax treaties
has negative implications on international relations, and unduly discourages foreign investors. While the
consequences sought to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be
remedied through other system management processes, but we cannot totally deprive those who are entitled to the
benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax
treaty relief.
e. Special Laws
f. SC/CTA decisions
g. IRR, other issuances, rulings and opinions
Revenue Regulations - Revenue Regulations (RR) are issuances signed by the Secretary of Finance, upon
recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for
the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes.
Revenue Memorandum Circular (RMCs) - are issuances that publish pertinent and applicable portions, as well as
amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
Revenue Memorandum Orders (RMOs) - are issuances that provide directives or instructions; prescribe
guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations,
except auditing.
BIR Rulings - BIR Rulings are the official position of the Bureau to queries raised by taxpayers and other
stakeholders relative to clarification and interpretation of tax laws.
- Rulings of First Impression - The ruling is of first impression, which means the interpretations made by the
Commissioner of Internal Revenue is one without established precedents.
- Rulings of Established Precedence
A. Validity of revenue rules and regulations
RMO 1-99: issued January 4, 1999 prescribes the guidelines and procedures for the transmittal to computerized
Revenue District Offices of duplicate copies of all tax returns received by the Revenue Data Centers.
86
Umali vs. Estanislao, G.R. No. 104037 May 29, 1992
B. Effectivity of revenue rules and regulations
RMC 20-86
C. Nature of rulings, effects of a void ruling
Section 244-246
SEC. 244. Authority of Secretary of Finance to Promulgate Rules and Regulations. - The Secretary of Finance, upon
recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective
enforcement of the provisions of this Code.
SEC. 245. Specific Provisions to be Contained in Rules and Regulations. - The rules and regulations of the Bureau
of Internal Revenue shall, among other thins, contain provisions specifying, prescribing or defining:
(a) The time and manner in which Revenue Regional Director shall canvass their respective Revenue Regions for
the purpose of discovering persons and property liable to national internal revenue taxes, and the manner in which
their lists and records of taxable persons and taxable objects shall be made and kept;
(b) The forms of labels, brands or marks to be required on goods subject to an excise tax, and the manner in which
the labelling, branding or marking shall be effected;
(c) The conditions under which and the manner in which goods intended for export, which if not exported would be
subject to an excise tax, shall be labelled, branded or marked;
(d) The conditions to be observed by revenue officers respecting the institutions and conduct of legal actions and
proceedings;
(e) The conditions under which goods intended for storage in bonded warehouses shall be conveyed thither, their
manner of storage and the method of keeping the entries and records in connection therewith, also the books to be
kept by Revenue Inspectors and the reports to be made by them in connection with their supervision of such houses;
(f) The conditions under which denatured alcohol may be removed and dealt in, the character and quantity of the
denaturing material to be used, the manner in which the process of denaturing shall be effected, so as to render the
alcohol suitably denatured and unfit for oral intake, the bonds to be given, the books and records to be kept, the
entries to be made therein, the reports to be made to the Commissioner, and the signs to be displayed in the business
or by the person for whom such denaturing is done or by whom, such alcohol is dealt in;
(g) The manner in which revenue shall be collected and paid, the instrument, document or object to which revenue
stamps shall be affixed, the mode of cancellation of the same, the manner in which the proper books, records,
invoices and other papers shall be kept and entries therein made by the person subject to the tax, as well as the
manner in which licenses and stamps shall be gathered up and returned after serving their purposes;
(h) The conditions to be observed by revenue officers respecting the enforcement of Title III imposing a tax on
estate of a decedent, and other transfers mortis causa, as well as on gifts and such other rules and regulations which
the Commissioner may consider suitable for the enforcement of the said Title III;
(i) The manner in which tax returns, information and reports shall be prepared and reported and the tax collected and
paid, as well as the conditions under which evidence of payment shall be furnished the taxpayer, and the preparation
and publication of tax statistics;
87
(j) The manner in which internal revenue taxes, such as income tax, including withholding tax, estate and donor's
taxes, value-added tax, other percentage taxes, excise taxes and documentary stamp taxes shall be paid through the
collection officers of the Bureau of Internal Revenue or through duly authorized agent banks which are hereby
deputized to receive payments of such taxes and the returns, papers and statements that may be filed by the
taxpayers in connection with the payment of the tax: Provided, however, That notwithstanding the other provisions
of this Code prescribing the place of filing of returns and payment of taxes, the Commissioner may, by rules and
regulations, require that the tax returns, papers and statements that may be filed by the taxpayers in connection with
the payment of the tax. Provided, however, That notwithstanding the other provisions of this Code prescribing the
place of filing of returns and payment of taxes, the Commissioner may, by rules and regulations require that the tax
returns, papers and statements and taxes of large taxpayers be filed and paid, respectively, through collection
officers or through duly authorized agent banks: Provided, further, That the Commissioner can exercise this power
within six (6) years from the approval of Republic Act No. 7646 or the completion of its comprehensive
computerization program, whichever comes earlier: Provided, finally, That separate venues for the Luzon, Visayas
and Mindanao areas may be designated for the filing of tax returns and payment of taxes by said large taxpayers.
For the purpose of this Section, "large taxpayer" means a taxpayer who satisfies any of the following criteria;
(1) Value-Added Tax (VAT). - Business establishment with VAT paid or payable of at least One hundred thousand
pesos (P100,000) for any quarter of the preceding taxable year;
(2) Excise Tax. - Business establishment with excise tax paid or payable of at least One million pesos (P1,000,000)
for the preceding taxable year;
(3) Corporate Income Tax. - Business establishment with annual income tax paid or payable of at least One million
pesos (P1,000,000) for the preceding taxable year; and
(4) Withholding Tax. - Business establishment with withholding tax payment or remittance of at least One million
pesos (P1,000,000) for the preceding taxable year.cralaw
Provided, however, That the Secretary of Finance, upon recommendation of the Commissioner, may modify or add
to the above criteria for determining a large taxpayer after considering such factors as inflation, volume of business,
wage and employment levels, and similar economic factors.cralaw
The penalties prescribed under Section 248 of this Code shall be imposed on any violation of the rules and
regulations issued by the Secretary of Finance, upon recommendation of the Commissioner, prescribing the place of
filing of returns and payments of taxes by large taxpayers.
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by
the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of
him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts
on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
Misamis Oriental vs. DOF, G.R. No. 108524 November 10, 1994
88
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC. vs. DEPARTMENT OF FINANCE
SECRETARY G.R. No. 108524 November 10, 1994
FACTS: Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation engaged in the
buying and selling of copra in Misamis Oriental. Respondents represent departments of the executive branch of
government charged with the generation of funds and the assessment, levy and collection of taxes and other imposts.
The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11, 1991, which
implemented VAT Ruling 190-90, copra was classified as agricultural food product under Sec. 103(b) of the
National Internal Revenue Code and, therefore, exempt from VAT at all stages of production or distribution. Said
circular classified copra as an agricultural non food product and declared it "exempt from VAT only if the sale is
made by the primary producer pursuant to Section 103(a) of the Tax Code, as amended." Petitioner sought to nullify
Revenue Memorandum Circular No. 47-91 and enjoin the collection by respondent revenue officials of the Value
Added Tax (VAT) on the sale of copra by members of petitioner organization as the classification had the effect of
denying to the petitioner the exemption it previously enjoyed when copra was classified as an agricultural food
product under Sec. 103(b) of the NIRC.
Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the competent
government agency to determine the proper classification of food products. Petitioner cites the opinion of Dr.
Quintin Kintanar of the Bureau of Food and Drug to the effect that copra should be considered "food" because it is
produced from coconut which is food and 80% of coconut products are edible.
On the other hand, the respondents argue that the opinion of the BIR, as the government agency charged with the
implementation and interpretation of the tax laws, is entitled to great respect.
ISSUE: Whether the BIR is the proper the competent government agency to determine the proper classification of
food products. ISSUE: WON the petitioner is exempt from the tax.
RULING: NO. In interpreting §103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict
construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer and liberally
in favor of the state. As the government agency charged with the enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great
weight. Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under §
245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions of internal
revenue laws, including rulings on the classification of articles for sales tax and similar purposes."
If the ruling is reversed, it shall not be applied retroactively.
D. Application of revenue regulations, rulings
Section 246
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by
the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be
prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of
him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts
on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
ABS-CBN vs. CTA, 108 SCRA 142 (1981)
89
Summary: Petitioner ABS-CBN dutifully withheld and turned over to the BIR the amount of 30% of 1⁄2 of the film
rentals paid to it by foreign corporations not engaged in trade or business within the Philippines, from 1965-1968. In
1968 however, the tax code was amended, increasing the tax rate from 30% to 35%. On the basis of the new
Circular, CIR issued against ABS-CBN a letter of assessment and demand requiring them to pay deficiency
withholding income tax on the remitted film rentals for the years 1965 to 1968 and film royalty as of the end of 1968
in the total amount of P525,897.06. ABSCBN requested for a reconsideration and withdrawal of the assessment.
However, without acting thereon, CIR issued a warrant of distraint and levy overpetitioner's personal as well as real
properties. The CTA found them liable to pay the deficiency withholding income tax but the Supreme Court
reversed. The court held that such rulings were not to be given retroactive effect. Moreover, the court found that
petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already
remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as
the enumerated exceptions are concerned, admittedly, petitioner did not fall under any of them. Doctrines: Rulings
or circulars promulgated by the CIR have no retroactive application where to so apply them would be prejudicial to
taxpayers.
Parties: Petitioner ABS-CBN BROADCASTING CORPORATION Respondent COURT OF TAX APPEALS and
THE COMMISSIONER OF INTERNAL REVENUE
FACTS: During the period from 1965 to 1968, petitioner ABS-CBN was engaged in the business of telecasting local
and foreign films acquired from foreign corporations not engaged in trade or business within the Philippines for
which it paid rentals after withholding income tax of 30% of one-half of the film rentals. April 12, 1961: In
implementation of Sec. 24 (b) of Tax Code (as amended by R.A. No. 2343), the CIR issued General Circular No. V334, which allows the deduction of the proportionate cost of production or exhibition of motion picture films from
the rental income of non- resident foreign corporations. Pursuant to the foregoing, ABS-CBN dutifully withheld and
turned over to the Bureau of Internal Revenue (BIR) the amount of 30% of one-half of the film rentals paid by it to
foreign corporations not engaged in trade or business within the Philippines. The last year that petitioner withheld
taxes pursuant to the foregoing Circular was in 1968. June 27, 1968: R.A. No. 5431 amended Section 24 (b) of the
Tax Code increasing the tax rate from 30% to 35% and revising the tax basis from “such amount” referring to rents,
etc. to “gross income.”
Feb. 8, 1971: The CIR issued Revenue Memorandum Circular No. 4-71, revoking
General Circular No. V-334, and holding that the latter was erroneous for lack of legal basis, because the tax therein
prescribed should be based on gross income without deduction whatever. In view thereof, local film distributors and
exhibitors shall deduct and withhold 35% of the entire amount payable by them to non-resident foreign corporations,
as film rental or royalty, or whatever such payment may be denominated, without any deduction whatever, pursuant
to Sec. 24 (b), and pay the withheld taxes in accordance with Sec. 54 of the Tax Code, as amended. On the basis of
the new Circular, CIR issued against ABS-CBN a letter of assessment and demand requiring them to pay deficiency
withholding income tax on the remitted film rentals for the years 1965 to 1968 and film royalty as of the end of 1968
in the total amount of P525,897.06.
ABS-CBN requested for a reconsideration and withdrawal of the assessment. However, without acting thereon, CIR
issued a warrant of distraint and levy over petitioner's personal as well as real properties. CTA Petition for Review
filed by ABS-CB was dismissed. The court ordered ABS-CBN to pay P525,897.06 to the CIR as deficiency
withholding income tax for the taxable years 1965 thru 1968, plus the surcharge and interest, which have accrued
thereon incident to delinquency pursuant to Sec. 51 (e) NIRC.
ISSUE/S: WON respondent CIR can apply General Circular No. 4-71 retroactively and issue a deficiency
assessment against petitioner ABS-CBN in the amount of P525,897.06 as deficiency withholding income tax for the
years 1965, 1966, 1967 and 1968. \
HELD: (NO) Sec. 338-A (now Sec. 246) of the Tax Code (as inserted by R.A. No. 6110 on August 9, 1969): Sec.
338-A. Non-retroactivity of rulings. — Any revocation, modification, or reversal of and of the rules and regulations
promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the
Commissioner of Internal Revenue shall not be given retroactive application if the relocation, modification, or
reversal will be prejudicial to the taxpayers, except in the following cases: (a) where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue:
90
(b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts
on which the ruling is based; or (c) where the taxpayer acted in bad faith.
It is clear from the foregoing that rulings or circulars promulgated by the CIR have no retroactive application where
to so apply them would be prejudicial to taxpayers. The prejudice to petitioner of the retroactive application of
Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971, or 3 years after 1968, the last year
that petitioner had withheld taxes under General Circular No. V-334. The assessment and demand on petitioner to
pay deficiency withholding income tax was also made after 1968 for a period o time commencing in 1965.
Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already
remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as
the enumerated exceptions are concerned, admittedly, petitioner does not fall under any of them. Respondent’s
claim: The provision on non-retroactivity is inapplicable in the present case in that General Circular No. V-334 is a
nullity because in effect, it changed the law on the matter. CTA: Sustained this position holding that deductions are
wholly and exclusively within the power of Congress or the law-making body to grant, condition or deny; and where
the statute imposes a tax equal to a specified rate or percentage of the gross or entire amount received by the
taxpayer, the authority of some administrative officials to modify or change, much less reduce, the basis or measure
of the tax should not be read into law. Therefore, the petitioner did not acquire anynvested right thereunder as the
same was a nullity.
The rationale behind General Circular No. V-334 is that it fixed the return of capital at 50% to simplify the
administrative chore of determining the portion of the rentals covering the return of capital.
Were the “gross income” base clear from Sec. 24 (b), perhaps, the CTA ratiocination could be upheld. Sec. 24 (b)
was not too plain and simple to understand. The fact that the issuance of the General Circular in question was
rendered necessary leads to no other conclusion than that it was not easy of comprehension and could be subjected
to different interpretations.
The principle of legislative approval of administrative interpretation by re- enactment clearly obtains in this case. It
provides that the re-enactment of a statute substantially unchanged is persuasive indication of the adoption
by Congress of a prior executive construction. This case involves not a mere opinion of the Commissioner or ruling
rendered on a mere query, but a Circular formally issued to “all internal revenue officials” by the then CIR.
It was only on June 27, 1968 under R.A. No. 5431, which became the basis of Revenue Memorandum Circular No.
4-71, that Sec. 24 (b) was amended to refer specifically to 35% of the “gross income.” 6. This Court is not
unaware of the well-entrenched principle that the Government is never estopped from collecting taxes because of
mistakes or errors on the part of its agents. But this admits of exceptions in the interest of justice and fairplay.
Tuason, Jr. vs. Lingad: The insertion of Sec. 338-A into the NIRC is indicative of legislative intention to support the
principle of good faith. In the U.S., from where Sec. 24 (b) was patterned, it has been held that the Commissioner of
Collector is precluded from adopting a position inconsistent with one previously taken where injustice would result
therefrom, or where there has been a misrepresentation to the taxpayer.
The petitioner’s payment of interest and surcharge under Sec. 51 (e) of the Tax Code is much less called for because
the petitioner relied in good faith and religiously complied with no less than a Circular issued “to all internal revenue
officials” by the highest official of the BIR and approved by the then Secretary of Finance. Wherefore, the judgment
of the Court of Tax Appeals is hereby reversed, and the questioned assessment set aside.
Comm. Vs. Telefunken, 249 SCRA 401 (1995)
G.R. No. 103915 October 23, 1995
91
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ELEFUNKEN SEMICONDUCTOR PHILIPPINES,
INC., COURT OF TAX APPEALS, AND THE COURT OF APPEALS, respondents.
FACTS: Private respondent Telefunken is a domestic corporation registered with the Board of Investments (BOI) as
an export producer on a preferred pioneer status under Republic Act No. 6135.
From October 1979 to September 1981, Telefunken produced semi-conductor devices amounting to P92,843,774.00
which were entirely sold to foreign markets. It filed percentage tax returns on the said exportation declaring a total
of P2,482,042.35 as contractor's tax, which was paid and verified to have been received by the government.
Telefunken wrote a letter to the Appellate Division of the Bureau of Internal Revenue (BIR) dated January 19, 1982
stating that the payment of contractor's tax of P2,482,042.35 was erroneous and requested its refund or tax credit
thereof. Telefunken contended that under the provisions of Section 7 of Republic Act No. 6135 in relation to Section
8 (a) of Republic Act No. 5186 (The Investment Act), it was exempted from the payment of all national internal
revenue taxes for the period in question, except for income tax.
Petitioner argues that the law speaks of firms registered under Republic Act No. 5186 and thus, the privilege of tax
exemption cannot be made to apply to firms registered under Republic Act No. 6135. Specifically, he states that
Telefunken is not covered by the Tax Code exemption because "exemption from contractor's tax is extended to
pioneer enterprises registered with the Board of Investments under Republic Act No. 5186 in relation to Section 205
of the Tax Code
ISSUE: whether or not Telefunken, a corporation registered under Republic Act No. 6135 as a pioneer export
producer, was exempted from payment of the 3% contractor's tax from October 1979 to September 1981.
HELD: We find petitioner's contentions to be devoid of merit.
Section 7 of Republic Act No. 6135 (the law under which Telefunken is registered) provides that registered export
producers in a pioneer status are entitled to the incentives provided insection 8 (a) of Republic Act No. 5186.
It states:
Sec. 7. Incentives to registered export producers — Registered export producers. — Registered export
producers unless they already enjoy the same privileges under other laws shall be entitled to the incentives
set forth in parahraphs (h), (i) and (j) of Section 7 of Republic Act Numbered Fifty-one hundred eigthy-six,
known as the Investment Incentives Act; and registered export producers that are pioneer enterprises shall
be entitled also to the incentives set forth in paragraphs (a), (b) and (c) of Section 8 of the said Act. In
addition to the said incentives, and in lieu of other incentives provided in Section 7 and in Section 9 of that
Act, registered export producer shall be entitled to benefits and incentives as enumerated hereunder:
We find no ambiguity in the law. When construed together, the above-quoted provisions yield no other conclusion
but that gross receipts of a pioneer enterprise registered with the Board of Investments, such as Telefunken, are
exempt from the contractor's tax. This is in accordance with the policy of the government, as declared in Section 2
of Republic Act No. 6135:
. . . to actively encourage, promote, and diversify exports of services and of manufacturers utilizing
domestic raw materials to the fullest extent possible, and to develop new markets for Philippine products,
in order to attain a rising level of production and employment, increase foreign exchange earnings, hasten
the economic development of the nation, and ensure that the benefits of development accrue to the Filipino
people.
There is no difference between the gross receipts of pioneer enterprises registered with the Board of Investments
under Republic Act No. 6135 and the gross receipts of registered pioneer enterprises under Republic Act No. 5186.
In fact, petitioner himself had ruled in this vein on February 4, 1974 in the case of Asian Transmission Corporation
92
Petitioner now maintains that this 1974 ruling has been abrogated with the passage of the 1977 Tax Code, Section
205(16) which expressly mentions only pioneer enterprises registered with the Board of Investments under Republic
Act No. 5186 as exempt from the contractor's tax, with no reference being made regarding pioneer enterprises
registered under Republic Act No. 6135.
When petitioner made his 1974 ruling, he based the same on Section 191(16) of the Tax Code which states:
Sec. 191. Contractors, proprietors or operators of dockyards, and others. — A contractor's tax of three per
centum of the gross receipts is hereby imposed on the following:
(16) Business agents and other independent contractors except persons, associations and corporations under
contract for embroidery and apparel for export, as well as their agents and contractors and except gross
receipts of or from a pioneer industry registered with the Board of Investments under the provisions of
Republic Act Numbered Five Thousand one hundred and eighty-six. (Emphasis supplied)
A comparison of the above with the previously quoted Section 205(16) of the 1977 Tax Code reveals that both
provisions specifically mention pioneer industries registered with the Board of Investments under Republic Act
No. 5186 as exempt from payment of the contractor's tax. In fact, the wording of the relevant part at both provisions
are the same. Clearly, Telefunken falls under the category of "pioneer industries" contemplated under Section
205(16) and should be entitled to the exemption provided for.
Lastly, under Sec. 246 of the National Internal Revenue Code, rulings of the BIR may not be given retroactive
effect, if the same is prejudicial to the taxpayer.
K. APPLICATIONS OF TAX LAWS, REVENUE REGULATIONS, RULINGS, THE EFFECTS OF REPEAL
a. Application of tax laws
Hijo Plantation vs. CB, 164 SCRA 192 (1988)
HIJO PLANTATION INC., DAVAO FRUITS CORPORATION, TWIN RIVERS PLANTATION, INC. and
MARSMAN & CO., INC., for themselves and in behalf of other persons and entities similarly situated vs.
CENTRAL BANK OF THE PHILIPPINES 09 August 1988
Petition for Certiorari and Prohibition Paras, J.
Doctrine: in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the
basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law
FACTS: Petitioners are domestic corporations engaged in the production and exportation of bananas in and from
Mindanao. Owing to the difficulty of determining the exchange rate of the peso to the dollar because of the floating
rate and the promulgation of CB Circular No. 289 which imposes an 80% retention scheme on all dollar earners,
Congress passed RA 6125 (an act imposing STABILIZATION TAX ON CONSIGNMENTS ABROAD TO
ACCELERATE THE ECONOMIC DEVELOPMENT OF THE PHILIPPINES AND FOR OTHER PURPOSES)
approved and made effective on May 1, 1970, to eliminate the necessity for said circular and to stabilize the peso.
The last paragraph of Sec. 1 thereof provides, “Any export product the aggregate annual F.O.B. value of which shall
exceed five million United States dollars in any one calendar year during the effectivity of this Act shall likewise be
subject to the rates of tax in force during the fiscal years following its reaching the said aggregate value.” During the
first 9 months of calendar year 1971, the total banana export amounted to an annual aggregate F.O.B. value of
P8,949,000.00, thus exceeding the aggregate F.O.B. value of five million United States Dollar, bringing it within the
ambit of RA 6125. Petitioners sought the authoritative pronouncement of the CB regarding when the stabilization
tax was to 1 become due and collectible from it and under what schedule of Section 1 (b) of RA 6125 should said
93
tax be collected. Pet: the stabilization tax does not become due and collectible from the petitioners until July 1, 1972
at the rate of 4% of the F.O.B. peso proceeds of the exports shipped from July 1, 1972 to June 30,1973. 2Resp:
Monetary Board Resolution No. 1995 (dated December 3, 1971) applies. 1
b.) In the case of molasses, coconut oil, dessicated coconut, iron ore and concentrates, chromite ore and
concentrates, copra meal or cake, unmanufactured abaca, unmanufactured tobacco, veneer core and sheets, plywood
(including plywood panels faced with plastics), lumber, canned pineapples, and bunker fuel oil; Eight per centum of
the F.O.B. peso proceeds of exports shipped on or after the date of effectivity of this Act to June thirty, nineteen
hundred seventy-one; Six per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen
hundred seventy one to June thirty nineteen hundred seventy- two; Four per centum of the F.O.B. peso proceeds of
exports shipped from July first, nineteen hundred seventy-two to June thirty nineteen hundred seventy-three; and
Two per centum of the F.O.B. peso proceeds of exports shipped from July first, nineteen hundred seventy three to
June thirty nineteen hundred seventy-four 2
Monetary Board Resolution No. 1995 provides for the ff rates: 1) For exports of bananas shipped during the period
from January 1, 1972 to June 30, 1972; the stabilization tax shall be at the rate of 6%; 2) For exports of bananas
shipped during the period from July 1, 1972 to June 30, 1973, the stabilization tax shall be at the rate of 4%; and
ISSUE: WON the Monetary Board acted beyond its authority in promulgating Board Resolution No. 1995 (to carry
into effect the provisions of RA 6125)
HELD: YES Ratio: There is here no dispute that the banana industry is liable to pay the stabilization tax prescribed
under RA. 6125 (last paragraph of Sec.1). Pet: respondent gave retroactive effect to the law (RA 6125) by ruling in
Monetary Board Resolution No. 1995, that the export stabilization tax on banana industry would start to accrue on
January 1, 1972 at the rate of 6% of the F.O.B. peso proceeds of export shipped from July 1, 1971 to June 30, 1972
Resp: RA 6125 merely prescribes the rates that may be imposed but does not provide when the tax shall be collected
and makes no reference to any definite fixed period when the tax shall begin to be collected In the very nature of
things, in many cases it becomes impracticable for the legislature to provide general regulations for the various and
varying details for the management of a particular department of the Government. It therefore becomes convenient
for the legislative department of the government, by law, in a most general way, to provide for the conduct, control,
and management of the work of the particular department of the government; to authorize certain persons, in charge
of the management and control of such department. Such is the case in RA 6125, which provided in its Section 6, as
follows: All rules and regulations for the purpose of carrying out the provisions of the act shall be promulgated by
the Central Bank of the Philippines and shall take effect fifteen days after publication in three newspapers of general
circulation throughout the Philippines, one of which shall be in the national language. Such regulations have
uniformly been held to have the force of law, whenever they are found to be in consonance and in harmony with the
general purposes and objects of the law. Such regulations once established and found to be in conformity with the
general purposes of the law, are just as binding upon all the parties, as if the regulation had been written in the
original law itself. Upon the other hand, should the regulation conflict with the law, the validity of the regulation
cannot be sustained. Pursuant to the aforecited provision, the Monetary Board issued Resolution No. 1179 which
contained the rules and regulations for the implementation of said provision which Board resolution was
subsequently embodied in Central Bank Circular No. 309, dated August 10, 1970, Section 3 of which, "provides that
the stabilization tax shall begin to apply on January first following the calendar year during which such export
products shall have reached the aggregate annual F.O.B. value of more than $5 million and the applicable tax rates
shall be the rates prescribed in schedule (b) of Section 1 of RA No. 6125 for the fiscal year following the reaching of
the said aggregate value." Central Bank Circular No. 309 was subsequently reaffirmed in Monetary Board
Resolution No. 1995 herein assailed by petitioners for being null and void. Since the Banana Exports reached the
aggregate annual F.O.B. value of US $5 million in August 1971, the stabilization tax on banana should be imposed
only on July 1, 1972, the fiscal year following the calendar year during which the industry attained the $5 million
mark. This conclusion finds support in the very language of the law and upon congressional record where a
clarification on the applicability of the law was categorically made by the then Senator Aytona who stated that the
tax shall be applicable only
94
3) For exports of bananas shipped during the period from July 1, 1973, to June 30, 1974, the stabilization tax shall
be at the rate of 2%. after the $5 million aggregate value is reached, making such tax prospective in application and
for a period of one year- referring to the fiscal year. Respondent bank through the Monetary Board clearly
overstepped RA 6125 which empowered it to promulgate rules and regulations for the purpose of carrying out the
provisions of said act, because while Section 1 of the law authorizes it to levy a stabilization tax on petitioners only
in the fiscal year following their reaching the aggregate annual F.O.B. value of US $5 million, that is, the fiscal year
July 1, 1972 to June 30, 1973, at a tax rate of 4% of the F.O.B. peso proceeds, respondent in gross violation of the
law, instead issued Resolution No. 1995 which impose a 6% stabilization tax for the calendar year January 1, 1972
to June 30, 1972, which obviously is in excess of its jurisdiction. While Monetary Board Resolution No. 1995
cannot be said to be the product of grave abuse of discretion but rather the result of respondent's overzealous desire
to carry into effect the provisions of RA 6125, it is evident that the Board acted beyond its authority under the law
and the Constitution. Hence, the petition for certiorari and prohibition in the case at bar, is proper. Moreover, there is
no dispute that in case of discrepancy between the basic law and a rule or regulation issued to implement said law,
the basic law prevails because said rule or regulation cannot go beyond the terms and provisions of the basic law.
Rules that subvert the statute cannot be sanctioned. Department zeal may not be permitted to outrun the authority
conferred by statute. Disposition: petition GRANTED.
CIR vs Filipina Cia de Seguros, 107 Phil 1055 (1960)
Respondent Filipinas Compañia de Seguros, an insurance company, is also engaged in business as a real estate
dealer. On January 4, 1956, respondent, in accordance with the single rate then prescribed under Section 182 of the
National Internal Revenue Code.1 paid the amount of P150.00 as real estate dealer's fixed annual tax for the year
1956. Subsequently said Section 182 of the Code was amended by Republic Act No. 1612, which took effect on
August 24, 1956, by providing a small of graduated rates: P150 if the annual income of the real estate dealer from
his business as such is P4,000, but does not exceed P10,000; P300, if such annual income exceeds P10,000 but does
not exceed P30,000; and P500 if such annual income exceeds P30,000.
On June 17, 1957, petitioner Commissioner of Internal Revenue assessed and demanded from respondent (whose
annual income exceeded P30,000.00) the amount of P350.00 as additional real estate dealer's fixed annual tax for the
year 1956. On July 16, 1957, respondent wrote a letter to petitioner stating that the "records will show that the real
estate dealer's fixed tax for 1956 of this Company was fully paid by us prior to the effectivity of Republic Act No.
1612 which amended, among other things, Sections 178 and 192 of the National Internal Revenue Code." And, as to
the retroactive effect of said Republic Act No. 1612, respondent added that the Republic Act No. 1856 which,
among other things, amended Section 182 of the National Internal Revenue Code, Congress has clearly shown its
intention when it provided that the increase in rates of taxes envisioned by Republic Act No. 1612 is to be made
effective as of 1 January 1957".
On October 23, 1957, petitioner informed respondent that "Republic Act No. 1856 which took effect June 22, 1957
amended the date of effectivity of Republic Act 1612 to January 1, 1957. However, the said amendment applies only
to fixed taxes on occupation and not to fixed taxes on business." Hence, petitioner insisted that respondent should
pay the amount of P350.00 as additional real estate dealer's fixed annual tax for the year 1956.
On November 20, 1957, respondent filed with the Court of Tax Appeals a petition for review. To this petition,
petitioner filed his answer on December 6, 1957. As petitioner practically admitted the material factual allegations in
the petition for review, the case was submitted for judgment on the pleadings.
On November 22, 1958, the Court of Tax Appeals rendered a decision sustaining the contention of respondent
company and ordering the petitioner Commissioner of Internal Revenue to desist from collecting the P350.00
additional assessment. From this decision, petitioner appealed to us.
As a rule, laws have no retroactive effect, unless the contrary is provided. (Art. 4, Civil Code of the Philippines;
Manila Trading and Supply Co. vs. Santos, et al., 66 Phil., 237; La Provisora Filipina vs. Ledda, 66 Ph 573.)
Otherwise stated, a state shou!d be consider as prospective in its operation whether it enacts, amen or repeals a tax,
95
unless the language of the statute clearly demands or expresses that it shall have a retroactive effect (61 C. J. 1602,
cited in Loremo vs. Posadas, 64 Phi 353.) The rule applies with greater force to the case bar, considering that
Republic Act No. 1612, which imposes the new and higher rates of real estate dealer's annual fixed tax, expressly
provides in Section 21 thereof the said Act "shall take effect upon its approval" on August 24, 1956.
The instant case involves the fixed annual real estat dealer's tax for 1956. There is no dispute that before the
enactment of Republic Act No. 1612 on August 2 1956, the uniform fixed annual real estate dealer's was P150.00
for all owners of rental properties receiving an aggregate amount of P3,000.00 or more a year in the form of rentals2
and that. "the yearly fixed taxes are due on the first of January of each year" unless tendered in semi-annual or
quarterly installments.3 Since the petitioner indisputably paid in full on January 4, 1956, the total annual tax then
prescribed for the year 1956, require it to pay an additional sum of P350.00 to complete the P500.00 provided in
Republic Act No. 1612 which became effective by its very terms only on August 24 1956, would, in the language of
the Court of Tax Appeals result in the imposition upon respondent of a tax burden to which it was not liable before
the enactment of said amendatory act, thus rendering its operation retroactive rather than prospective, which cannot
be done, as it would contravene the aforecited Section 21 of Republic Act No. 1612 as well as the established rule
regarding prospectivity of operation of statutes.
The view that Congress did intend to impose said increased rates of real estate dealer's annual tax prospectively and
not retroactively, finds some affirmation in Republic Act No. 1856, approved on June 22, 1957, which fixed the
effective date of said new rates under Republic Act No. 1612 by inserting the following proviso in Section 182 of
the National Internal Revenue Code:
Provided, further, That any amount collected in excess of the rates in effect prior to January one, nineteen hundred
and fifty-seven, shall be refunded or credited to the taxpayer concerned subject to the provisions of section three
hundred and nine of this Code. (Sec. 182 (b) (2) (1).)
Petitioner, however, contends that the above-quoted provision refers only to fixed taxes on occupation and does not
cover fixed taxes on business, such as the real estate dealer's fixed tax herein involved. This is technically correct,
but we note from the deliberations in the Senate, where the proviso in question was introduced as an amendment,
that said House Bill No. 5919 which became Republic Act No. 1856 was considered, amended, and enacted into
law, in order precisely that the "iniquitous effects" which were then being felt by taxpayers. in general, on account
of the approval of Republic Act No. 1612, Which was being given retroactive effect by the Bureau of Internal
Revenue by collecting these taxes retroactively from January 1, 1956, be eliminated and complaints against such
action be finally settled. (See Senate Congressional Record, May 4, 1957, pp. 10321033.)
It is also to be observed that said House Bill No. 5819 as originally presented, was expressly intended to amend
certain provisions of the National Internal Revenue Code dealing on fixed taxes on business. The provisions in
respect of fixed tax on occupation were merely subsequently added. This would seem to indicate that the proviso in
question was intended to cover not only fixed taxes on occupation, but also fixed taxes on business. (Senate
Congressional Record, March 7, 1957, p. 444.)The fact that said proviso was placed only at the end of paragraph
"(B) On occupation" is not, therefore, view of the circumstances, decisive and unmistakable indication that Congress
limited the proviso to occupation taxes.
Even though the primary purpose of the proviso is to limit restrain the general language of a statute, the legislature,
unfotunately, does not always use it with technical correctness; consequently, where its use creates an ambiguity, it
is the duty of the court to ascertain the legislative intention, through resort to usual rules of construction applicable
to statutes, generally an give it effect even though the statute is thereby enlarged, or the proviso made to assume the
force of an independent enactment and although a proviso as such has no existence apart from provision which it is
designed to limit or to qualify. (Statutory Construction by E. T. Crawford, pp. 604-605.)
. . . When construing a statute, the reason for its enactment should be kept in mind, and the statute should be
construe with reference to its intended scope and purpose. (Id. at p. 249.)
96
On the general principle of prospectivity of statute on the language of Republic Act 1612 itself, especially Section
21 thereof, and on the basis of its intended scope and purpose as disclosed in the Congressional Record we find
ourselves in agreement with the Court of Tax Appeals.
Wherefore, the decision appealed from is hereby affirmed without costs. So ordered.
I. An action for tax refund partakes the nature of tax exemption. Hence, it must be construed against the claimant; II.
In CIR vs. Acetate, the court ruled that PAGCOR's exemption includes indirect taxes. * > all are correct
I. The "in lieu of all taxes" clause renders PLDT exempt from tax under RA 7925; II. The word exemption under RA
7925 means "tax exemption" as ruled in PLDT vs City of Davao. * all are incorrect
I. In Juan Luna vs M. Sarmiento, Section 1 of CA 703 refers to taxes still unpaid and does not cover taxes already
paid; II. Tax exemption is immunity from the civil liability and criminal liability. * I is correct.
I. In CIR vs Philippine Aluminum Wheels, tax abatement may be denied if the FDDA becomes final and executory;
II. Tax Amnesty is generally prospective in application. * both are incorrect.
I. As held In Basco vs Pagcor, the Local Autonomy Clause of the Constitution was violated by PD 1869. II.
Equitable recoupment is not allowed in the PHilippines *
I. The CIR may compromise any internal revenue tax when there is reasonable doubt as to the validity of the claim
against the taxpayer; II. Internal revenue laws are not political in nature and may be continued in force during the
period of enemy occupation *
I. In Umali vs Estanislao, RA 7167 took effect on 30 January 1992 as provided under Revene Regulations No. 1-92;
II. In case of doubt, tax statutes are construed against the taxpayer. *
I. Special Laws may be sources of tax laws; II. Non-compliance with the procedures provided in the Revenue
Memorandum Order is a ground for denial of claim for lower tax treaty benefits *
I. Revenue Regulations are issuances signed by the Commissioner of Internal Revenue, upon recommendation of the
Secretary of Finance; II. Rulings of first impression are interpretations of CIR with respect to the provisions of the
Tax Code without established precedents. *
I. Any revocation, modification or reversal of any of the rules shall not be given retroactive effect if the revocation
will be prejudicial to the taxpayer. II. In Misamis Oriental vs. DOF, the CIR is bound by the ruling of his
predecessors. *
I. Double taxation is prohibited. II. Tax exemptions may be extended by mere implication or inference *
97