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CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 1

CONSTITUTIONAL LIMITATIONS
DUE PROCESS (ART III. Sec 1)
Section 1. No person shall be deprived of life,
liberty, or property without due process of law

COMMISSIONER OF INTERNAL REVENUE
vs. METRO STAR SUPERAMA, INC.

FACTS: Petitioner is a domestic corporation
doing business in the Philippines. On January
26, 2001, the Regional Director of Revenue
Region No. 10, Legazpi City, issued Letter of
Authority No. 00006561 for Revenue Officer
Daisy G. Justiniana to examine petitioners
books of accounts and other accounting
records for income tax and other internal
revenue taxes for the taxable year 1999

Petitioner failed to comply with several
requests for the presentation of records and
Subpoena Duces Tecum. The OIC of BIR
Legal Division issued an Indorsement dated
September 26, 2001 informing Revenue
District Officer of Revenue Region No. 67,
Legazpi City to proceed with the investigation
based on the best evidence obtainable
preparatory to the issuance of assessment
notice

Revenue District Officer Socorro O. Ramos-
Lafuente issued a Preliminary 15-day Letter
which said that a post audit review was held
and it was ascertained that there was
deficiency value-added and withholding taxes
due from petitioner in the amount of P
292,874.16

On April 11, 2002, petitioner received a Formal
Letter of Demand dated April 3, 2002 from
Revenue District No. 67, Legazpi City,
assessing petitioner for the said amount. [See
full text for computation :)]

Subsequently, Revenue District Office No. 67
sent a copy of the Final Notice of Seizure
dated May 12, 2003, which petitioner received
on May 15, 2003 otherwise respondent BIR
shall be constrained to serve and execute the
Warrants of Distraint and/or Levy and
Garnishment to enforce collection

On February 6, 2004, petitioner received from
Revenue District Office No. 67 a Warrant of
Distraint and/or Levy No. 67-0029-23 dated
May 12, 2003 demanding payment of
deficiency value-added tax and withholding tax
payment. Petitioner filed an MR but the
Commissioner denied it. Petitioner, through
counsel received said Decision on February
18, 2005

Denying that it received a Preliminary
Assessment Notice (PAN) and claiming that it
was not accorded due process, Metro Star filed
a petition for review with the CTA

CTA 2nd Division ruled there was denial of due
process on the part of Petitioner. It reasoned
(1) [w]hile there [is] a disputable presumption
that a mailed letter [is] deemed received by the
addressee in the ordinary course of mail, a
direct denial of the receipt of mail shifts the
burden upon the party favored by the
presumption to prove that the mailed letter was
indeed received by the addressee. (2) there
was no clear showing that Metro Star actually
received the alleged PAN, dated January 16,
2002. It, accordingly, ruled that the Formal
Letter of Demand dated April 3, 2002, as well
as the Warrant of Distraint and/or Levy dated
May 12, 2003 were void

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This decision was affirmed by CTA En Banc;
hence this appeal

ISSUE: WON there was denial of due process.

Held: Yes. [see other 2 issues below]

(1) There was a failure to follow the procedure
on the proper service of Assessment Notices
(2) This failure to strictly comply with the
requisites is tantamount to denial of due
process.

It is an elementary rule enshrined in the 1987
Constitution that no person shall be deprived of
property without due process of law. In
balancing the scales between the power of the
State to tax and its inherent right to prosecute
perceived transgressors of the law on one side,
and the constitutional rights of a citizen to due
process of law and the equal protection of the
laws on the other, the scales must tilt in favor
of the individual, for a citizens right is amply
protected by the Bill of Rights under the
Constitution. Thus, while taxes are the
lifeblood of the government, the power to tax
has its limits, in spite of all its plenitude.

Commissioner of Internal Revenue v. Algue,
Inc., it was said:
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.
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 ones 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.
But even as we concede the inevitability
and indispensability of taxation, it is a
requirement in all democratic regimes that
it be exercised reasonably and in
accordance with the prescribed
procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come
to his succor. For all the awesome power of the
tax collector, he may still be stopped in his
tracks if the taxpayer can demonstrate x x x
that the law has not been observed.

WON CIR sufficiently showed that Metro Inc.
received the assessment notices.

Held: No.

On the matter of service of a tax assessment, a
further perusal of our ruling in Barcelon is
instructive: Jurisprudence is replete with cases
holding that if the taxpayer denies ever having
received an assessment from the BIR, it is
incumbent upon the latter to prove by
competent evidence that such notice was
indeed received by the addressee. The onus
probandi was shifted to respondent to prove by
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contrary evidence that the Petitioner received
the assessment in the due course of mail.

Citing Gonzalo P. Nava vs. Commissioner of
Internal Revenue, the SC further explained:
The facts to be proved to raise this
presumption are (a) that the letter was properly
addressed with postage prepaid, and (b) that it
was mailed

Barcelona further rules "What is essential to
prove the fact of mailing is the registry receipt
issued by the Bureau of Posts or the Registry
return card which would have been signed by
the Petitioner or its authorized representative.
And if said documents cannot be located,
Respondent at the very least, should have
submitted to the Court a certification issued by
the Bureau of Posts and any other pertinent
document which is executed with the
intervention of the Bureau of Posts"

In the case at bar, The Court agrees with the
CTA that the CIR failed to discharge its duty
and present any evidence to show that Metro
Star indeed received the PAN dated January
16, 2002.

It could have simply presented the registry
receipt or the certification from the postmaster
that it mailed the PAN, but failed. Neither did it
offer any explanation on why it failed to comply
with the requirement of service of the PAN.

It merely accepted the letter of Metro Stars
chairman dated April 29, 2002, that stated that
he had received the FAN dated April 3, 2002,
but not the PAN; that he was willing to pay the
tax as computed by the CIR; and that he just
wanted to clarify some matters with the hope of
lessening its tax liability.

Is the failure to strictly comply with notice
requirements prescribed under Section 228 of
the National Internal Revenue Code of 1997
and Revenue Regulations (R.R.) No. 12-99
tantamount to a denial of due process?

Held: Yes.

Tax Code. SEC. 228. Protesting of
Assessment. - When the Commissioner or his
duly authorized representative finds that proper
taxes should be assessed, he shall first notify
the taxpayer of his findings ... The taxpayers
shall be informed in writing of the law and the
facts on which the assessment is made;
otherwise, the assessment shall be void."

Section 228 of the Tax Code clearly requires
that the taxpayer must first be informed that he
is liable for deficiency taxes through the
sending of a PAN. He must be informed of the
facts and the law upon which the assessment
is made.

The law imposes a substantive, not merely a
formal, requirement. To proceed heedlessly
with tax collection without first establishing a
valid assessment is evidently violative of the
cardinal principle in administrative
investigations - that taxpayers should be able
to present their case and adduce supporting
evidence

This is in accordance with Revenue Regulation
No. 12-99 of the BIR:

SECTION 3. Due Process Requirement in the
Issuance of a Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a
deficiency tax assessment:
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3.1.1 Notice for informal conference. The
Revenue Officer who audited the taxpayer's
records shall, among others, state in his report
whether or not the taxpayer agrees with his
findings that the taxpayer is liable for deficiency
tax or taxes. If the taxpayer is not amenable,
based on the said Officer's submitted report of
investigation, the taxpayer shall be informed, in
writing, by the Revenue District Office or by the
Special Investigation Division, as the case may
be (in the case Revenue Regional Offices) or
by the Chief of Division concerned (in the case
of the BIR National Office) of the discrepancy
or discrepancies in the taxpayer's payment of
his internal revenue taxes, for the purpose of
"Informal Conference," in order to afford the
taxpayer with an opportunity to present his side
of the case. If the taxpayer fails to respond
within fifteen (15) days from date of receipt of
the notice for informal conference, he shall be
considered in default, in which case, the
Revenue District Officer or the Chief of the
Special Investigation Division of the Revenue
Regional Office, or the Chief of Division in the
National Office, as the case may be, shall
endorse the case with the least possible delay
to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his
duly authorized representative, as the case
may be, for appropriate review and issuance of
a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN).
If after review and evaluation by the
Assessment Division or by the Commissioner
or his duly authorized representative, as the
case may be, it is determined that there exists
sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said
Office shall issue to the taxpayer, at least by
registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules
and regulations, or jurisprudence on which the
proposed assessment is based (see illustration
in ANNEX A hereof). If the taxpayer fails to
respond within fifteen (15) days from date of
receipt of the PAN, he shall be considered in
default, in which case, a formal letter of
demand and assessment notice shall be
caused to be issued by the said Office, calling
for payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties.

From the provision quoted above, it is clear
that the sending of a PAN to taxpayer to inform
him of the assessment made is but part of the
due process requirement in the issuance of a
deficiency tax assessment, the absence of
which renders nugatory any assessment made
by the tax authorities. The use of the word
shall in subsection 3.1.2 describes the
mandatory nature of the service of a PAN.

The persuasiveness of the right to due process
reaches both substantial and procedural rights
and the failure of the CIR to strictly comply with
the requirements laid down by law and its own
rules is a denial of Metro Stars right to due
process.

Thus, for its failure to send the PAN stating the
facts and the law on which the assessment
was made as required by Section 228 of R.A.
No. 8424, the assessment made by the CIR is
void.

ii. Equal Protection (Art III, Sec. 1)
nor shall any person be denied the equal
protection of the laws.

iii. Uniformity and Equity in Taxation (Art VI,
Sec. 21)
The Senate or the House of Representatives or
any of its respective committees may conduct
inquiries in aid of legislation in accordance with
its duly published rules of procedure. The
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rights of persons appearing in, or affected by,
such inquiries shall be respected.

SISON VS ANCHETA

Facts:
-Petitioner as taxpayer alleged that by virtue of
Section I of Batas Pambansa Blg. 135
amending Section 21 of the National Internal
Revenue Code of 1977, which provides for
rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net
income, (c) royalties, prizes, and other
winnings, (d) interest from bank deposits and
yield or any other monetary benefit from
deposit substitutes and from trust fund and
similar arrangements, (e) dividends and share
of individual partner in the net profits of taxable
partnership, (f) adjusted gross income, he
would be unduly discriminated against by the
imposition of higher rates of tax upon his
income arising from the exercise of his
profession vis-a-vis those which are imposed
upon fixed income or salaried individual
taxpayers. He alleged that the section is
arbitrary amounting to class legislation,
oppressive and capricious in character; an
allegation of transgression of both the equal
protection and due process clauses of
Issue: whether or not uniformity and equity in
taxation were observed. YES
Ruling:
-The power to tax is an inherent prerogative
which has to be availed of to assure the
performance of vital state functions.
-The petitioner alleges arbitrariness. A mere
allegation does not suffice. There must be a
factual foundation of such unconstitutional
taint. This is merely to adhere to the
authoritative doctrine that were the due
process and equal protection clauses are
invoked, considering that they are not fixed
rules but rather broad standards, there is a
need for of such persuasive character as would
lead to such a conclusion. Absent such a
showing, the presumption of validity must
prevail.
-It is undoubted that the due process clause
may be invoked where a taxing statute is so
arbitrary that it finds no support in the
Constitution. It has also been held that where
the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public
purpose, or, in case of a retroactive statute is
so harsh and unreasonable, it is subject to
attack on due process grounds.
- With regard to equal protection, it suffices
then that the laws operate equally and
uniformly on all persons under similar
circumstances or that all persons must be
treated in the same manner, the conditions not
being different, both in the privileges conferred
and the liabilities imposed. Favoritism and
undue preference cannot be allowed. For the
principle is that equal protection and security
shall be given to every person under
circumtances which if not Identical are
analogous. If law be looked upon in terms of
burden or charges, those that fall within a class
should be treated in the same fashion,
whatever restrictions cast on some in the group
equally binding on the rest." The Constitution
does not require things which are different in
fact or opinion to be treated in law as though
they were the same. In the case of Lutz V.
Araneta, the court provided that at any rate, it
is inherent in the power to tax that a state be
free to select the subjects of taxation, and it
has been repeatedly held that 'inequalities
which result from a singling out of one
particular class for taxation, or exemption
infringe no constitutional limitation.'"
-The rule of uniformity does not call for perfect
uniformity or perfect equality, because this is
hardly attainable. Equality and uniformity in
taxation means that all taxable articles or kinds
of property of the same class shall be taxed at
the same rate. The taxing power has the
authority to make reasonable and natural
classifications for purposes of taxation
-What misled petitioner is his failure to take into
consideration the distinction between a tax rate
and a tax base. There is no legal objection to a
broader tax base or taxable income by
eliminating all deductible items and at the
same time reducing the applicable tax rate.
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Taxpayers may be classified into different
categories. To repeat, it is enough that the
classification must rest upon substantial
distinctions that make real differences. In the
case of the gross income taxation embodied in
Batas Pambansa Blg. 135, the, discernible
basis of classification is the susceptibility of the
income to the application of generalized rules
removing all deductible items for all taxpayers
within the class and fixing a set of reduced tax
rates to be applied to all of them. As there is
practically no overhead expense, these
taxpayers are not entitled to make deductions
for income tax purposes because they are in
the same situation more or less. On the other
hand, in the case of professionals in the
practice of their calling and businessmen, there
is no uniformity in the costs or expenses
necessary to produce their income. It would not
be just then to disregard the disparities by
giving all of them zero deduction and
indiscriminately impose on all alike the same
tax rates on the basis of gross income. There
is ample justification then for the Batasang
Pambansa to adopt the gross system of
income taxation to compensation income, while
continuing the system of net income taxation
as regards professional and business income.

TIU vs COURT OF APPEALS
Tiu vs CA
G.R. No. 127410 January 20, 1999
Facts:
Congress passed into law RA 7227 entitled "An
Act Accelerating the Conversion of Military
Reservations Into Other Productive Uses,
Creating the Bases Conversion and
Development Authority for this Purpose,
Providing Funds Therefor and for Other
Purposes." Section 12 thereof created the
Subic Special Economic Zone and granted
there to special privileges. President Ramos
issued Executive Order No. 97, clarifying the
application of the tax and duty incentives. The
President issued Executive Order No. 97-A,
specifying the area within which the tax-and-
duty-free privilege was operative.
The petitioners challenged before this Court
the constitutionality of EO 97-A for allegedly
being violative of their right to equal protection
of the laws. This Court referred the matter to
the Court of Appeals. Proclamation No. 532
was issued by President Ramos. It delineated
the exact metes and bounds of the Subic
Special Economic and Free Port Zone,
pursuant to Section 12 of RA 7227.
Respondent Court held that "there is no
substantial difference between the provisions
of EO 97-A and Section 12 of RA 7227. In
both, the 'Secured Area' is precise and well-
defined as '. . . the lands occupied by the Subic
Naval Base and its contiguous extensions as
embraced, covered and defined by the 1947
Military Bases Agreement between the
Philippines and the United States of America,
as amended . . .'"
Issue: WON Executive Order No. 97-A violates
the equal protection clause of the Constitution
No
Held:
The Court found real and substantive
distinctions between the circumstances
obtaining inside and those outside the Subic
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Naval Base, thereby justifying a valid and
reasonable classification. The fundamental
right of equal protection of the laws is not
absolute, but is subject to reasonable
classification. If the groupings are
characterized by substantial distinctions that
make real differences, one class may be
treated and regulated differently from another.
The classification must also be germane to the
purpose of the law and must apply to all those
belonging to the same class.
Classification, to be valid, must (1) rest on
substantial distinctions, (2) be germane to the
purpose of the law, (3) not be limited to existing
conditions only, and (4) apply equally to all
members of the same class.
The Supreme Court believed it was reasonable
for the President to have delimited the
application of some incentives to the confines
of the former Subic military base. It is this
specific area which the government intends to
transform and develop from its status quo ante
as an abandoned naval facility into a self-
sustaining industrial and commercial zone,
particularly for big foreign and local investors to
use as operational bases for their businesses
and industries.

RUFINO R. TAN, petitioner, vs. RAMON R.
DEL ROSARIO, JR., as SECRETARY OF
FINANCE & JOSE U. ONG, as
COMMISSIONER OF INTERNAL REVENUE,
respondents.

(G.R. No. 109446, October 3, 1994)
CARAG, CABALLES, JAMORA AND
SOMERA LAW OFFICES, CARLO A.
CARAG, MANUELITO O. CABALLES,
ELPIDIO C. JAMORA, JR. and BENJAMIN A.
SOMERA, JR., petitioners, vs. RAMON R.
DEL ROSARIO, in his capacity as
SECRETARY OF FINANCE and JOSE U.
ONG, in his capacity as COMMISSIONER
OF INTERNAL REVENUE, respondents.
FACTS:
G.R. No. 109289
Petitioner here assails the constitutionality of
Republic Act No. 7496, also commonly known
as the Simplified Net Income Taxation Scheme
("SNIT"), amending certain provisions of the
National Internal Revenue Code. Petitioner
asserted that the enactment of said law
violates certain constitutional provisions, one of
which is Article VI, Section 28(1) The rule of
taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of
taxation.
In this law, a tax is imposed upon the taxable
net income as determined received during
each taxable year from all sources, other than
income covered by paragraphs (b), (c), (d) and
(e) of section 21 by every individual whether a
citizen of the Philippines or an alien residing in
the Philippines who is self-employed or
practices his profession, determined in
accordance with a list of schedule (tax
computation per net income), among other
things.
According to petitioner, R.A. 7496 desecrates
the constitutional requirement that taxation
"shall be uniform and equitable" in that the law
would now attempt to tax single proprietorships
and professionals differently from the manner it
imposes the tax on corporations and
partnerships.
G.R. No. 109446
Petitioners here assail Section 6 of Revenue
Regulations No. 2-93. They argue that public
respondents have exceeded their rule-making
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authority in applying SNIT to general
professional partnerships.
The questioned regulation reads:
Sec. 6. General Professional Partnership
The general professional partnership (GPP)
and the partners comprising the GPP are
covered by R. A. No. 7496. Thus, in
determining the net profit of the partnership,
only the direct costs mentioned in said law are
to be deducted from partnership income. Also,
the expenses paid or incurred by partners in
their individual capacities in the practice of their
profession which are not reimbursed or paid by
the partnership but are not considered as direct
cost, are not deductible from his gross income.

ISSUES:
1. WON RA 7496 is not unconstitutional
YES. (more related to the topic)

2. WON public respondents have exceeded
their authority in promulgating Section 6,
Revenue Regulations No. 2-93, to carry out
Republic Act No. 7496. - NO
HELD:
First Issue
Petitioners contention clearly forgets that such
a system of income taxation (taxing single
proprietorships and professionals differently
from corporations and partnerships) has long
been the prevailing rule even prior to R.A.
7496.
Uniformity of taxation, like the kindred concept
of equal protection, merely requires that all
subjects or objects of taxation, similarly
situated, are to be treated alike both in
privileges and liabilities. Uniformity does not
forfend classification as long as:
(1) the standards that are used therefor are
substantial and not arbitrary,
(2) the categorization is germane to achieve
the legislative purpose,
(3) the law applies, all things being equal, to
both present and future conditions, and
(4) the classification applies equally well to all
those belonging to the same class
(Pepsi Cola vs. City of Butuan, 24 SCRA 3;
Basco vs. PAGCOR, 197 SCRA 52).
What may instead be perceived to be apparent
from the amendatory law is the legislative
intent to increasingly shift the income tax
system towards the schedular approach in the
income taxation of individual taxpayers and to
maintain, by and large, the present global
treatment on taxable corporations. SC certainly
does not view this classification to be arbitrary
and inappropriate.

Second Issue:
The Court, first of all, should like to correct the
apparent misconception that general
professional partnerships are subject to the
payment of income tax or that there is a
difference in the tax treatment between
individuals engaged in business or in the
practice of their respective professions and
partners in general professional partnerships.
The fact of the matter is that a general
professional partnership, unlike an ordinary
business partnership (which is treated as a
corporation for income tax purposes and so
subject to the corporate income tax), is not
itself an income taxpayer. The income tax is
imposed not on the professional partnership,
which is tax exempt, but on the partners
themselves in their individual capacity
computed on their distributive shares of
partnership profits. Section 23 of the Tax Code,
which has not been amended at all by Republic
Act 7496, is explicit on this.
There is, then and now, no distinction in
income tax liability between a person who
practices his profession alone or individually
and one who does it through partnership
(whether registered or not) with others in the
exercise of a common profession. Indeed,
outside of the gross compensation income tax
and the final tax on passive investment
income, under the present income tax system
all individuals deriving income from any source
whatsoever are treated in almost invariably the
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same manner and under a common set of
rules.
Section 6 of Revenue Regulation No. 2-93 did
not alter, but merely confirmed, the above
standing rule as now so modified by R.A No.
7496 on basically the extent of allowable
deductions applicable to all individual income
taxpayers on their non-compensation income.
There is no evident intention of the law, either
before or after the amendatory legislation, to
place in an unequal footing or in significant
variance the income tax treatment of
professionals who practice their respective
professions individually and of those who do it
through a general professional partnership.

ABAKADA vs ERMITA
(Please refer General Facts of iii, iv and v
here in this case)
FACTS:
Before R.A. No. 9337 took effect, petitioners
ABAKADA GURO Party List, et al., filed a
petition for prohibition on May 27, 2005
questioning the constitutionality of Sections 4,
5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC). Section 4
imposes a 10% VAT on sale of goods and
properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a
10% VAT on sale of services and use or lease
of properties. These questioned provisions
contain a uniform proviionss authorizing the
President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to
12%, effective January 1, 2006, after specified
conditions have been satisfied. Petitioners
argue that the law is unconstitutional.

II. Equal Protection (Art III, Sec 1)
Petitioners Association of Pilipinas Shell
Dealers, Inc., et al. argue that Section 8 of R.A.
No. 9337, amending Sections 110 (A)(2), 110
(B), and Section 12 of R.A. No. 9337,
amending Section 114 (C) of the NIRC are
arbitrary, oppressive, excessive and
confiscatory. Their argument is premised on
the constitutional right against deprivation of
life, liberty of property without due process of
law, as embodied in Article III, Section 1 of the
Constitution.
Petitioners also contend that these provisions
violate the constitutional guarantee of equal
protection of the law. Petitioners point out that
the limitation on the creditable input tax if the
entity has a high ratio of input tax, or invests in
capital equipment, or has several transactions
with the government, is not based on real and
substantial differences to meet a valid
classification.

ISSUE: Whether or not it violates the
Due Process and Equal Protection Clauses?
NO
HELD: The doctrine is that where the due
process and equal protection clauses are
invoked, considering that they are not fixed
rules but rather broad standards, there is a
need for proof of such persuasive character as
would lead to such a conclusion. Absent such
a showing, the presumption of validity must
prevail
The equal protection clause under the
Constitution means that "no person or class of
persons shall be deprived of the same
protection of laws which is enjoyed by other
persons or other classes in the same place and
in like circumstances.
The argument is pedantic, if not outright
baseless. The law does not make any
classification in the subject of taxation, the kind
of property, the rates to be levied or the
amounts to be raised, the methods of
assessment, valuation and collection.
Petitioners alleged distinctions are based on
variables that bear different consequences.
While the implementation of the law may yield
varying end results depending on ones profit
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margin and value-added, the Court cannot go
beyond what the legislature has laid down and
interfere with the affairs of business.
The equal protection clause does not require
the universal application of the laws on all
persons or things without distinction. This
might in fact sometimes result in unequal
protection. What the clause requires is equality
among equals as determined according to a
valid classification. By classification is meant
the grouping of persons or things similar to
each other in certain particulars and different
from all others in these same particulars.
III. Uniformity and Equity in Taxation (Art. VI
Sec 21)
Issue: Whether or not the law imposes
a uniform and equitable imposition? YES
UNIFORMITY:
Uniformity in taxation means that all taxable
articles or kinds of property of the same class
shall be taxed at the same rate. 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.
In this case, the tax law is uniform as it
provides a standard rate of 0% or 10% (or
12%) on all goods and services. Sections 4, 5
and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the NIRC,
provide for a rate of 10% (or 12%) on sale of
goods and properties, importation of goods,
and sale of services and use or lease of
properties. These same sections also provide
for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to
the type of industry or trade that will bear the
70% limitation on the creditable input tax, 5-
year amortization of input tax paid on purchase
of capital goods or the 5% final withholding tax
by the government. It must be stressed that the
rule of uniform taxation does not deprive
Congress of the power to classify subjects of
taxation, and only demands uniformity within
the particular class.
EQUITABILITY:
R.A. No. 9337 is also equitable. The law is
equipped with a threshold margin. The VAT
rate of 0% or 10% (or 12%) does not apply to
sales of goods or services with gross annual
sales or receipts not exceeding P1,500,000.00.
Also, basic marine and agricultural food
products in their original state are still not
subject to the tax, thus ensuring that prices at
the grassroots level will remain accessible.
It is admitted that R.A. No. 9337 puts a
premium on businesses with low profit
margins, and unduly favors those with high
profit margins. Congress was not oblivious to
this. Thus, to equalize the weighty burden the
law entails, the law, under Section 116,
imposed a 3% percentage tax on VAT-exempt
persons under Section 109(v), i.e., transactions
with gross annual sales and/or receipts not
exceeding P1.5 Million. This acts as a
equalizer because in effect, bigger businesses
that qualify for VAT coverage and VAT-exempt
taxpayers stand on equal-footing.
Moreover, Congress provided mitigating
measures to cushion the impact of the
imposition of the tax on those previously
exempt. Excise taxes on petroleum
products and natural gas were reduced.
Percentage tax on domestic carriers was
removed. Power producers are now exempt
from paying franchise tax.
Aside from these, Congress also increased the
income tax rates of corporations, in order to
distribute the burden of taxation. Domestic,
foreign, and non-resident corporations are now
subject to a 35% income tax rate, from a
previous 32%. Intercorporate dividends of non-
resident foreign corporations are still subject to
15% final withholding tax but the tax credit
allowed on the corporations domicile was
increased to 20%. The Philippine Amusement
and Gaming Corporation (PAGCOR) is not
exempt from income taxes anymore. Even the
sale by an artist of his works or services
performed for the production of such works
was not spared.
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 11

Churchill and Tait v Concepcion
FACTS:
Herein petitioners are businessmen engages in
advertising (billboards/signs) . In this petitioner,
they assail the validity of Act No. 2339 as
amended by Act No. 2423 which imposed a tax
of P2 per square meter on signs and
billboards. They alleged that In not holding that
the tax constitutes deprivation of property
without compensation or due process of law,
because it is confiscatory and unjustly
discriminatory and (2) said tax is void for lack
of uniformity, because it is not graded
according to value; because the classification
on which it is based on any reasonable ground;
and furthermore, because it constitutes double
taxation.
ISSUE: WON Act 2423 violates the uniformity
in taxation provided for by the Constitution .
NO
HELD:
The only limitation, in so far as these questions
are concerned, placed upon the Philippine
Legislature in the exercise of its taxing power is
that found in section 5 of the Philippine Bill,
wherein it is declared "that the rule of taxation
in said Islands shall be uniform."
Uniformity in taxation says Black on
Constitutional Law, page 292 means that all
taxable articles or kinds of property, of the
same class, shall be taxed at the same rate. It
does not mean that lands, chattels, securities,
incomes, occupations, franchises, privileges,
necessities, and luxuries, shall all be assessed
at the same rate. Different articles may be
taxed at different amounts, provided the rate is
uniform on the same class everywhere, with all
people, and at all times.
A tax is uniform when it operates with the same
force and effect in every place where the
subject of it is found The words "uniform
throughout the United States," as required of a
tax by the Constitution, do not signify an
intrinsic, but simply a geographical, uniformity,
and such uniformity is therefore the only
uniformity which is prescribed by the
Constitution. A tax is uniform, within the
constitutional requirement, when it operates
with the same force and effect in every place
where the subject of it is found. "Uniformity," as
applied to the constitutional provision that all
taxes shall be uniform, means that all property
belonging to the same class shall be taxed
alike. The statute under consideration imposes
a tax of P2 per square meter or fraction thereof
upon every electric sign, bill-board, etc.,
wherever found in the Philippine Islands. Or in
other words, "the rule of taxation" upon such
signs is uniform throughout the Islands. The
rule, which we have just quoted from the
Philippine Bill, does not require taxes to be
graded according to the value of the subject or
subjects upon which they are imposed,
especially those levied as privilege or
occupation taxes. We can hardly see wherein
the tax in question constitutes double taxation.
The fact that the land upon which the billboards
are located is taxed at so much per unit and
the billboards at so much per square meter
does not constitute "double taxation." Double
taxation, within the true meaning of that
expression, does not necessarily affect its
validity. And again, it is not for the judiciary to
say that the classification upon which the tax is
based "is mere arbitrary selection and not
based upon any reasonable grounds." The
Legislature selected signs and billboards as a
subject for taxation and it must be presumed
that it, in so doing, acted with a full knowledge
of the situation.
iv. Progressive Taxation (Art VI, Sec 21)
Congress is required to evolve a progressive
system of taxation.

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE,
respondents. G.R. No. 115455 August 25,
1994

CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 12

The value-added tax (VAT) is levied on the
sale, barter or exchange of goods and
properties as well as on the sale or exchange
of services. It is equivalent to 10% of the gross
selling price or gross value in money of goods
or properties sold, bartered or exchanged or of
the gross receipts from the sale or exchange of
services. Republic Act No. 7716 seeks to
widen the tax base of the existing VAT system
and enhance its administration by amending
the National Internal Revenue Code.

FACTS: These are various suits for certiorari
and prohibition, challenging the constitutionality
of Republic Act No. 7716.
The contention of petitioners is that in enacting
Republic Act No. 7716, or the Expanded
Value-Added Tax Law, Congress violated the
Constitution.

Petitioners Arguments:
1. That VAT is regressive and that it violates
the requirement that "The rule of taxation shall
be uniform and equitable [and] Congress shall
evolve a progressive system of taxation."
2. Chamber of Real Estate and Builders
Association (CREBA), petitioner in G.R.
115754, argued that the VAT will reduce the
mark up of its members by as much as 85% to
90%.
3. Cooperative Union of the Philippines (CUP)
contended that the VAT is regressive in the
sense that it will hit the "poor" and middle-
income group in society harder than it will the
"rich".

RULING:
Claims of Regressivity, Denial of Due Process,
Equal Protection, and Impairment
of Contracts
There is, however, no justification for passing
upon the claims that the law also violates the
rule that taxation must be progressive and that
it denies petitioners' right to due process and
that equal protection of the laws. The reason
for this different treatment has been cogently
stated by an eminent authority on constitutional
law thus: "[W]hen freedom of the mind is
imperiled by law, it is freedom that commands
a momentum of respect; when property is
imperiled it is the lawmakers' judgment that
commands respect. This dual standard may
not precisely reverse the presumption of
constitutionality in civil liberties cases, but
obviously it does set up a hierarchy of values
within the due process clause." 41
Indeed, the absence of threat of immediate
harm makes the need for judicial intervention
less evident and underscores the essential
nature of petitioners' attack on the law on the
grounds of regressivity, denial of due process
and equal protection and impairment of
contracts as a mere academic discussion of
the merits of the law. For the fact is that there
have even been no notices of assessments
issued to petitioners and no determinations at
the administrative levels of their claims so as to
illuminate the actual operation of the law and
enable us to reach sound judgment regarding
so fundamental questions as those raised in
these suits.
Thus, the broad argument against the VAT is
that it is regressive and that it violates the
requirement that "The rule of taxation shall be
uniform and equitable [and] Congress shall
evolve a progressive system of taxation." 42
Petitioners in G.R. No. 115781 quote from a
paper, entitled "VAT Policy Issues: Structure,
Regressivity, Inflation and Exports" by Alan A.
Tait of the International Monetary Fund, that
"VAT payment by low-income households will
be a higher proportion of their incomes (and
expenditures) than payments by higher-income
households. That is, the VAT will be
regressive." Petitioners contend that as a result
of the uniform 10% VAT, the tax on
consumption goods of those who are in the
higher-income bracket, which before were
taxed at a rate higher than 10%, has been
reduced, while basic commodities, which
before were taxed at rates ranging from 3% to
5%, are now taxed at a higher rate.
Just as vigorously as it is asserted that the law
is regressive, the opposite claim is pressed by
respondents that in fact it distributes the tax
burden to as many goods and services as
possible particularly to those which are within
the reach of higher-income groups, even as the
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 13

law exempts basic goods and services. It is
thus equitable. The goods and properties
subject to the VAT are those used or
consumed by higher-income groups. These
include real properties held primarily for sale to
customers or held for lease in the ordinary
course of business, the right or privilege to use
industrial, commercial or scientific equipment,
hotels, restaurants and similar places, tourist
buses, and the like. On the other hand, small
business establishments, with annual gross
sales of less than P500,000, are exempted.
This, according to respondents, removes from
the coverage of the law some 30,000 business
establishments. On the other hand, an
occasional paper 43 of the Center for
Research and Communication cities a NEDA
study that the VAT has minimal impact on
inflation and income distribution and that while
additional expenditure for the lowest income
class is only P301 or 1.49% a year, that for a
family earning P500,000 a year or more is
P8,340 or 2.2%.
Lacking empirical data on which to base any
conclusion regarding these arguments, any
discussion whether the VAT is regressive in
the sense that it will hit the "poor" and middle-
income group in society harder than it will the
"rich," as the Cooperative Union of the
Philippines (CUP) claims in G.R. No. 115873,
is largely an academic exercise. On the other
hand, the CUP's contention that Congress'
withdrawal of exemption of producers
cooperatives, marketing cooperatives, and
service cooperatives, while maintaining that
granted to electric cooperatives, not only goes
against the constitutional policy to promote
cooperatives as instruments of social justice
(Art. XII, 15) but also denies such
cooperatives the equal protection of the law is
actually a policy argument. The legislature is
not required to adhere to a policy of "all or
none" in choosing the subject of taxation. 44
Nor is the contention of the Chamber of Real
Estate and Builders Association (CREBA),
petitioner in G.R. 115754, that the VAT will
reduce the mark up of its members by as much
as 85% to 90% any more concrete. It is a mere
allegation. On the other hand, the claim of the
Philippine Press Institute, petitioner in G.R. No.
115544, that the VAT will drive some of its
members out of circulation because their
profits from advertisements will not be enough
to pay for their tax liability, while purporting to
be based on the financial statements of the
newspapers in question, still falls short of the
establishment of facts by evidence so
necessary for adjudicating the question
whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard
for courts to enforce. What Congress is
required by the Constitution to do is to "evolve
a progressive system of taxation." This is a
directive to Congress, just like the directive to it
to give priority to the enactment of laws for the
enhancement of human dignity and the
reduction of social, economic and political
inequalities (Art. XIII, 1), or for the promotion
of the right to "quality education" (Art. XIV, 1).
These provisions are put in the Constitution as
moral incentives to legislation, not as judicially
enforceable rights.
We have endeavored to discuss, within limits,
the validity of Republic Act No. 7716 in its
formal and substantive aspects as this has
been raised in the various cases before us. To
sum up, we hold:
(1) That the procedural requirements of the
Constitution have been complied with by
Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal
requirements for the enactment of statutes
beyond those prescribed by the Constitution
have been observed is precluded by the
principle of separation of powers;
(3) That the law does not abridge freedom of
speech, expression or the press, nor interfere
with the free exercise of religion, nor deny to
any of the parties the right to an education; and
(4) That, in view of the absence of a factual
foundation of record, claims that the law is
regressive, oppressive and confiscatory and
that it violates vested rights protected under
the Contract Clause are prematurely raised
and do not justify the grant of prospective relief
by writ of prohibition.
ABAKADA vs ERMITA
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 14

ARGUMENTS: Petitioners contend that the
limitation on the creditable input tax is anything
but regressive. It is the smaller business with
higher input tax-output tax ratio that will suffer
the consequences.
Issue: WON the law meets the
requirement for a progressive taxation? YES
HELD:
Progressive taxation is built on the principle of
the taxpayers ability to pay. This principle was
also lifted from Adam Smiths Canons of
Taxation, and it states:
The subjects of every state ought to contribute
towards the support of the government, as
nearly as possible, in proportion to their
respective abilities; that is, in proportion to the
revenue which they respectively enjoy under
the protection of the state.
Taxation is progressive when its rate goes up
depending on the resources of the person
affected. The VAT is an antithesis of
progressive taxation. By its very nature, it is
regressive. The principle of progressive
taxation has no relation with the VAT system
inasmuch as the VAT paid by the consumer or
business for every goods bought or services
enjoyed is the same regardless of income. In
other words, the VAT paid eats the same
portion of an income, whether big or small. The
disparity lies in the income earned by a person
or profit margin marked by a business, such
that the higher the income or profit margin, the
smaller the portion of the income or profit that
is eaten by VAT. A converso, the lower the
income or profit margin, the bigger the part that
the VAT eats away. At the end of the day, it is
really the lower income group or businesses
with low-profit margins that is always hardest
hit.
Nevertheless, the Constitution does not
really prohibit the imposition of indirect
taxes, like the VAT. What it simply provides is
that Congress shall "evolve a progressive
system of taxation." The Court stated in
the Tolentino case, thus:
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.
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.
v. Origin of Appropriation, Revenue and
Tariff Bills (Art VI, Sec. 24)

All appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of
local application, and private bills, shall
originate exclusively in the House of
Representatives, but the Senate may propose
or concur with amendments.

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE,
respondents. G.R. No. 115455 August 25,
1994

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. The
following provisions of the Constitution are
cited in support of the proposition that because
Republic Act No. 7716 was passed in this
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 15

manner, it did not originate in the House of
Representatives and it has not thereby become
a law:
Art. VI, 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.
Id., 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.
It appears that on various dates between July
22, 1992 and August 31, 1993, several bills 1
were introduced in the House of
Representatives seeking to amend certain
provisions of the National Internal Revenue
Code relative to the value-added tax or VAT.
These bills were referred to the House Ways
and Means Committee which recommended
for approval a substitute measure, H. No.
11197, entitled
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM TO WIDEN ITS
TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 106, 107, 108 AND 110 OF TITLE
IV, 112, 115 AND 116 OF TITLE V, AND 236,
237 AND 238 OF TITLE IX, AND REPEALING
SECTIONS 113 AND 114 OF TITLE V, ALL
OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED

The bill (H. No. 11197) was considered on
second reading starting November 6, 1993
and, on November 17, 1993, it was approved
by the House of Representatives after third and
final reading.
It was sent to the Senate on November 23,
1993 and later referred by that body to its
Committee on Ways and Means.
On February 7, 1994, the Senate Committee
submitted its report recommending approval of
S. No. 1630, entitled
AN ACT RESTRUCTURING THE VALUE-
ADDED TAX (VAT) SYSTEM TO WIDEN ITS
TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE
PURPOSES SECTIONS 99, 100, 102, 103,
104, 105, 107, 108, AND 110 OF TITLE IV,
112 OF TITLE V, AND 236, 237, AND 238 OF
TITLE IX, AND REPEALING SECTIONS 113,
114 and 116 OF TITLE V, ALL OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES

It was stated that the bill was being submitted
"in substitution of Senate Bill No. 1129, taking
into consideration P.S. Res. No. 734 and H.B.
No. 11197."
On February 8, 1994, the Senate began
consideration of the bill (S. No. 1630). It
finished debates on the bill and approved it on
second reading on March 24, 1994. On the
same day, it approved the bill on third reading
by the affirmative votes of 13 of its members,
with one abstention.
H. No. 11197 and its Senate version (S. No.
1630) were then referred to a conference
committee which, after meeting four times
(April 13, 19, 21 and 25, 1994), recommended
that "House Bill No. 11197, in consolidation
with Senate Bill No. 1630, be approved in
accordance with the attached copy of the bill
as reconciled and approved by the conferees."
The Conference Committee bill, entitled "AN
ACT RESTRUCTURING THE VALUE-ADDED
TAX (VAT) SYSTEM, WIDENING ITS TAX
BASE AND ENHANCING ITS
ADMINISTRATION AND FOR THESE
PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, AND FOR OTHER PURPOSES,"
was thereafter approved by the House of
Representatives on April 27, 1994 and by the
Senate on May 2, 1994. The enrolled bill was
then presented to the President of the
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 16

Philippines who, on May 5, 1994, signed it. It
became Republic Act No. 7716. On May 12,
1994, Republic Act No. 7716 was published in
two newspapers of general circulation and, on
May 28, 1994, it took effect, although its
implementation was suspended until June 30,
1994 to allow time for the registration of
business entities. It would have been enforced
on July 1, 1994 but its enforcement was
stopped because the Court, by the vote of 11
to 4 of its members, granted a temporary
restraining order on June 30, 1994.
Petitioners' contention is that Republic Act No.
7716 did not "originate exclusively" in the
House of Representatives as required by Art.
VI, 24 of the Constitution, because it is in fact
the result of the consolidation of two distinct
bills, H. No. 11197 and S. No. 1630. In this
connection, petitioners point out that although
Art. VI, SS 24 was adopted from the American
Federal Constitution, 2 it is notable in two
respects: the verb "shall originate" is qualified
in the Philippine Constitution by the word
"exclusively" and the phrase "as on other bills"
in the American version is omitted. This
means, according to them, that to be
considered as having originated in the House,
Republic Act No. 7716 must retain the essence
of H. No. 11197.

RULING: This argument will not bear analysis.
To begin with, it is not the law but the
revenue bill which is required by the
Constitution to "originate exclusively" in the
House of Representatives. It is important to
emphasize this, because a bill originating in the
House may undergo such extensive changes
in the Senate that the result may be a rewriting
of the whole. The possibility of a third version
by the conference committee will be discussed
later. At this point, what is important to note is
that, as a result of the Senate action, a distinct
bill may be produced. To insist that a revenue
statute and not only the bill which initiated
the legislative process culminating in the
enactment of the law must substantially be
the same as the House bill would be to deny
the Senate's power not only to "concur with
amendments" but also to "propose
amendments." It would be to violate the
coequality of legislative power of the two
houses of Congress and in fact make the
House superior to the Senate.
The contention that the constitutional design is
to limit the Senate's power in respect of
revenue bills in order to compensate for the
grant to the Senate of the treaty-ratifying power
3 and thereby equalize its powers and those of
the House overlooks the fact that the powers
being compared are different. We are dealing
here with the legislative power which under the
Constitution is vested not in any particular
chamber but in the Congress of the
Philippines, consisting of "a Senate and a
House of Representatives." 4 The exercise of
the treaty-ratifying power is not the exercise of
legislative power. It is the exercise of a check
on the executive power. There is, therefore, no
justification for comparing the legislative
powers of the House and of the Senate on the
basis of the possession of such nonlegislative
power by the Senate. The possession of a
similar power by the U.S. Senate 5 has never
been thought of as giving it more legislative
powers than the House of Representatives.
In the United States, the validity of a provision
( 37) imposing an ad valorem tax based on
the weight of vessels, which the U.S. Senate
had inserted in the Tariff Act of 1909, was
upheld against the claim that the provision was
a revenue bill which originated in the Senate in
contravention of Art. I, 7 of the U.S.
Constitution. 6 Nor is the power to amend
limited to adding a provision or two in a
revenue bill emanating from the House. The
U.S. Senate has gone so far as changing the
whole of bills following the enacting clause and
substituting its own versions. In 1883, for
example, it struck out everything after the
enacting clause of a tariff bill and wrote in its
place its own measure, and the House
subsequently accepted the amendment. The
U.S. Senate likewise added 847 amendments
to what later became the Payne-Aldrich Tariff
Act of 1909; it dictated the schedules of the
Tariff Act of 1921; it rewrote an extensive tax
revision bill in the same year and recast most
of the tariff bill of 1922. 7 Given, then, the
power of the Senate to propose amendments,
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 17

the Senate can propose its own version even
with respect to bills which are required by the
Constitution to originate in the House.
It is insisted, however, that S. No. 1630 was
passed not in substitution of H. No. 11197 but
of another Senate bill (S. No. 1129) earlier filed
and that what the Senate did was merely to
"take [H. No. 11197] into consideration" in
enacting S. No. 1630. There is really no
difference between the Senate preserving H.
No. 11197 up to the enacting clause and then
writing its own version following the enacting
clause (which, it would seem, petitioners admit
is an amendment by substitution), and, on the
other hand, separately presenting a bill of its
own on the same subject matter. In either case
the result are two bills on the same subject.
Indeed, what the Constitution simply means is
that the initiative for filing revenue, tariff, or tax
bills, bills authorizing an increase of the public
debt, private bills and bills of local application
must come from the House of Representatives
on the theory that, elected as they are from the
districts, the members of the House can be
expected to be more sensitive to the local
needs and problems. On the other hand, the
senators, who are elected at large, are
expected to approach the same problems from
the national perspective. Both views are
thereby made to bear on the enactment of
such laws.
Nor does the Constitution prohibit the filing in
the Senate of a substitute bill in anticipation of
its receipt of the bill from the House, so long as
action by the Senate as a body is withheld
pending receipt of the House bill. The Court
cannot, therefore, understand the alarm
expressed over the fact that on March 1, 1993,
eight months before the House passed H. No.
11197, S. No. 1129 had been filed in the
Senate. After all it does not appear that the
Senate ever considered it. It was only after the
Senate had received H. No. 11197 on
November 23, 1993 that the process of
legislation in respect of it began with the
referral to the Senate Committee on Ways and
Means of H. No. 11197 and the submission by
the Committee on February 7, 1994 of S. No.
1630. For that matter, if the question were
simply the priority in the time of filing of bills,
the fact is that it was in the House that a bill (H.
No. 253) to amend the VAT law was first filed
on July 22, 1992. Several other bills had been
filed in the House before S. No. 1129 was filed
in the Senate, and H. No. 11197 was only a
substitute of those earlier bills.
ABAKADA vs ERMITA
ARGUMENT: Petitioners claim that the
amendments to these provisions of the NIRC
did not at all originate from the House. They
aver that House Bill No. 3555 proposed
amendments only regarding Sections 106, 107,
108, 110 and 114 of the NIRC, while House Bill
No. 3705 proposed amendments only to
Sections 106, 107,108, 109, 110 and 111 of
the NIRC; thus, the other sections of the NIRC
which the Senate amended but which
amendments were not found in the House bills
are not intended to be amended by the House
of Representatives. Hence, they argue that
since the proposed amendments did not
originate from the House, such amendments
are a violation of Article VI, Section 24 of the
Constitution.

ISSUE:
Whether or not there is a violation
of Article VI, Section 24 of the
Constitution. NO
Held:
In the present cases, petitioners admit that it
was indeed House Bill Nos. 3555 and 3705
that initiated the move for amending provisions
of the NIRC dealing mainly with the value-
added tax. Upon transmittal of said House bills
to the Senate, the Senate came out with
Senate Bill No. 1950 proposing amendments
not only to NIRC provisions on the value-added
tax but also amendments to NIRC provisions
on other kinds of taxes. Is the introduction by
the Senate of provisions not dealing directly
with the value- added tax, which is the only
kind of tax being amended in the House bills,
still within the purview of the constitutional
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 18

provision authorizing the Senate to propose or
concur with amendments to a revenue bill that
originated from the House? In
the Tolentino case, it is not the law but the
revenue bill which is required by the
Constitution to "originate exclusively" in the
House of Representatives. It is important to
emphasize this, because a bill originating in the
House may undergo such extensive changes
in the Senate that the result may be a rewriting
of the whole. . . . At this point, what is important
to note is that, as a result of the Senate action,
a distinct bill may be produced. To insist that
a revenue statute and not only the bill
which initiated the legislative process
culminating in the enactment of the law
must substantially be the same as the
House bill would be to deny the Senates
power not only to "concur with
amendments" but also to "propose
amendments." It would be to violate the
coequality of legislative power of the two
houses of Congress and in fact make the
House superior to the Senate.
Given, then, the power of the Senate to
propose amendments, the Senate can
propose its own version even with respect
to bills which are required by the
Constitution to originate in the House.
Indeed, what the Constitution simply means is
that the initiative for filing revenue, tariff or tax
bills, bills authorizing an increase of the public
debt, private bills and bills of local application
must come from the House of Representatives
on the theory that, elected as they are from the
districts, the members of the House can be
expected to be more sensitive to the local
needs and problems. On the other hand, the
senators, who are elected at large, are
expected to approach the same problems
from the national perspective. Both views
are thereby made to bear on the enactment
of such laws.
Since there is no question that the revenue bill
exclusively originated in the House of
Representatives, the Senate was acting within
its constitutional power to introduce
amendments to the House bill when it included
provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, excise
and franchise taxes. Verily, Article VI, Section
24 of the Constitution does not contain any
prohibition or limitation on the extent of the
amendments that may be introduced by the
Senate to the House revenue bill.
Furthermore, the amendments introduced by
the Senate to the NIRC provisions that had not
been touched in the House bills are still in
furtherance of the intent of the House in
initiating the subject revenue bills.
vi. Voting requirements for Tax Exemptions
(Art. VI Sec 28 (4)
No law granting any tax exemption shall be
passed without the concurrence of a majority of
all the Members of the Congress.
JOHN HAY VS LIM GR 119775
FACTS:
By the present petition for prohibition,
mandamus and declaratory relief with prayer
for a temporary restraining order (TRO) and/or
writ of preliminary injunction, petitioners assail,
in the main, the constitutionality of Presidential
Proclamation No. 420, Series of 1994,
CREATING AND DESIGNATING A PORTION
OF THE AREA COVERED BY THE FORMER
CAMP JOHN [HAY] AS THE JOHN HAY
SPECIAL ECONOMIC ZONE PURSUANT TO
REPUBLIC ACT NO. 7227.
Republic Act No. 7227, AN ACT
ACCELERATING THE CONVERSION OF
MILITARY RESERVATIONS INTO OTHER
PRODUCTIVE USES, CREATING THE
BASES CONVERSION AND DEVELOPMENT
AUTHORITY FOR THIS PURPOSE,
PROVIDING FUNDS THEREFOR AND FOR
OTHER PURPOSES, otherwise known as the
Bases Conversion and Development Act of
1992, which was enacted on March 13, 1992,
set out the policy of the government to
accelerate the sound and balanced conversion
into alternative productive uses of the former
military bases under the 1947 Philippines-
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 19

United States of America Military Bases
Agreement, namely, the Clark and Subic
military reservations as well as their extensions
including the John Hay Station (Camp John
Hay or the camp) in the City of Baguio.[1]
As noted in its title, R.A. No. 7227 created
public respondent Bases Conversion and
Development Authority[2] (BCDA), vesting it
with powers pertaining to the multifarious
aspects of carrying out the ultimate objective of
utilizing the base areas in accordance with the
declared government policy.
R.A. No. 7227 likewise created the Subic
Special Economic [and Free Port] Zone (Subic
SEZ) the metes and bounds of which were to
be delineated in a proclamation to be issued by
the President of the Philippines.[3]
R.A. No. 7227 granted the Subic SEZ
incentives ranging from tax and duty-free
importations, exemption of businesses therein
from local and national taxes, to other
hallmarks of a liberalized financial and
business climate.[4]
And R.A. No. 7227 expressly gave authority to
the President to create through executive
proclamation, subject to the concurrence of the
local government units directly affected, other
Special Economic Zones (SEZ) in the areas
covered respectively by the Clark military
reservation, the Wallace Air Station in San
Fernando, La Union, and Camp John Hay.[5]
On August 16, 1993, BCDA entered into a
Memorandum of Agreement and Escrow
Agreement with private respondents Tuntex
(B.V.I.) Co., Ltd (TUNTEX) and Asiaworld
Internationale Group, Inc. (ASIAWORLD),
private corporations registered under the laws
of the British Virgin Islands, preparatory to the
formation of a joint venture for the development
of Poro Point in La Union and Camp John Hay
as premier tourist destinations and recreation
centers. Four months later or on December 16,
1993, BCDA, TUNTEX and ASIAWORD
executed a Joint Venture Agreement[6]
whereby they bound themselves to put up a
joint venture company known as the Baguio
International Development and Management
Corporation which would lease areas within
Camp John Hay and Poro Point for the
purpose of turning such places into principal
tourist and recreation spots, as originally
envisioned by the parties under their
Memorandum of Agreement.
On May 11, 1994, the sanggunian passed a
resolution requesting the Mayor to order the
determination of realty taxes which may
otherwise be collected from real properties of
Camp John Hay.[13] The resolution was
intended to intelligently guide the sanggunian
in determining its position on whether Camp
John Hay be declared a SEZ, it (the
sanggunian) being of the view that such
declaration would exempt the camps property
and the economic activity therein from local or
national taxation.
ISSUE :
Whether Proclamation No. 420 is constitutional
by providing for national and local tax
exemption within and granting other economic
incentives to the John Hay Special Economic
Zone; and
RULING:
As gathered from the earlier-quoted Section 12
of R.A. No. 7227, the privileges given to Subic
SEZ consist principally of exemption from tariff
or customs duties, national and local taxes of
business entities therein (paragraphs (b) and
(c)), free market and trade of specified goods
or properties (paragraph d), liberalized banking
and finance (paragraph f), and relaxed
immigration rules for foreign investors
(paragraph g). Yet, apart from these,
Proclamation No. 420 also makes available to
the John Hay SEZ benefits existing in other
laws such as the privilege of export processing
zone-based businesses of importing capital
equipment and raw materials free from taxes,
duties and other restrictions;[39] tax and duty
exemptions, tax holiday, tax credit, and other
incentives under the Omnibus Investments
Code of 1987;[40] and the applicability to the
subject zone of rules governing foreign
investments in the Philippines.[41]
While the grant of economic incentives may be
essential to the creation and success of SEZs,
free trade zones and the like, the grant thereof
to the John Hay SEZ cannot be sustained. The
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 20

incentives under R.A. No. 7227 are exclusive
only to the Subic SEZ, hence, the extension of
the same to the John Hay SEZ finds no
support therein. Neither does the same grant of
privileges to the John Hay SEZ find support in
the other laws specified under Section 3 of
Proclamation No. 420, which laws were
already extant before the issuance of the
proclamation or the enactment of R.A. No.
7227.
More importantly, the nature of most of the
assailed privileges is one of tax exemption. It is
the legislature, unless limited by a provision of
the state constitution, that has full power to
exempt any person or corporation or class of
property from taxation, its power to exempt
being as broad as its power to tax.[42] Other
than Congress, the Constitution may itself
provide for specific tax exemptions,[43] or local
governments may pass ordinances on
exemption only from local taxes.[44]
The challenged grant of tax exemption would
circumvent the Constitutions imposition that a
law granting any tax exemption must have the
concurrence of a majority of all the members of
Congress.[45] In the same vein, the other kinds
of privileges extended to the John Hay SEZ are
by tradition and usage for Congress to legislate
upon.
Contrary to public respondents suggestions,
the claimed statutory exemption of the John
Hay SEZ from taxation should be manifest and
unmistakable from the language of the law on
which it is based; it must be expressly granted
in a statute stated in a language too clear to be
mistaken.[46] Tax exemption cannot be implied
as it must be categorically and unmistakably
expressed.[47]
If it were the intent of the legislature to grant to
the John Hay SEZ the same tax exemption and
incentives given to the Subic SEZ, it would
have so expressly provided in the R.A. No.
7227.
This Court no doubt can void an act or policy of
the political departments of the government on
either of two groundsinfringement of the
Constitution or grave abuse of discretion.[48]
This Court then declares that the grant by
Proclamation No. 420 of tax exemption and
other privileges to the John Hay SEZ is void for
being violative of the Constitution. This renders
it unnecessary to still dwell on petitioners claim
that the same grant violates the equal
protection guarantee.
vii. Delegation to President to fix Tariff
Rates, etc. (Art VI Sec 28 (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.

viii. Presidents Veto Power on
Appropriation Revenue, Tariff (Art. VI, Sec.
27 (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.

CIR vs CTA and MANILA GOLF
FACTS: Herein private respondent, Manila
Golf & Country Club, Inc. is a non-stock
corporation. True, it maintains a golf course
and operates a clubhouse with a lounge, bar
and dining room, but these facilities are for the
exclusive use of its members and
accompanied guests, and it charges on cost-
plus-expense basis. As such, it claims it should
have been exempt from payment of privilege
taxes were it not for the last paragraph of
Section 191-A of R.A. No. 6110, otherwise
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 21

known as the "Omnibus Tax Law." Section
191-A reads:
Sec. 191-A. Caterer. A caterer's tax is
hereby imposed as follows:
(1) On proprietors or operators of restaurants,
refreshment parlors and other eating places,
including clubs, and caterers, three per cent of
their gross receipts.
(2) On proprietors or operators of restaurants,
bars, cafes and other eating places, including
clubs, where distilled spirits, fermented liquors,
or wines are served, three per cent of their
gross receipts from sale of food or
refreshments and seven per cent of their gross
receipts from sale of distilled spirits, fermented
liquors or wines. Two sets of commercial
invoices or receipts serially numbered in
duplicate shall be separately prepared and
issued, one for sale of refreshments served,
and another for each sale of distilled spirits,
fermented liquors or wines served, the originals
of the invoices or receipts to be issued to the
purchaser or customer.
(3) On proprietors or operators of restaurants,
refreshment parlors, bars, cafes and other
eating places which are maintained within the
preferences or compound of a hotel, motel,
resthouse, cockpit, race track, jai-alai, cabaret,
night or day club by means of a connecting
door or passage twenty per cent of their gross
receipts.
Where the establishments are operated or
maintained by clubs of any kind or nature
(irrespective of the disposition of their net
income and whether or not they cater
exclusively to members or their guests) the
keepers of the establishments shall pay the
corresponding tax at the rate fixed above.
(Emphasis supplied)
Republic Act No. 6110 took effect on
September 1, 1969. By this virtue, petitioners
CIR assessed the club fixed taxes as operators
of golf links and restaurants, and also
percentage tax (caterer's tax) for its sale of
foods and fermented liquors/wines for the
period covering September 1969 to December
1970 in the amount of P32,504.96. The club
protested claiming the assessment to be
without basis because Section 42 was vetoed
by then President Marcos.
Sec. 42 Reads:
SEC. 42. Inserting a new Section 191-A which
imposes a caterer's tax of three percent of the
gross receipts of proprietors or operators of
restaurants, refreshment parlors and other
eating places; three percent of gross receipts
from sale of food or refreshment and seven
percent on gross receipts from the sale of
distilled spirits, fermented liquors or wines, on
proprietors or operators of restaurants, bars,
cafes and other eating places, including clubs,
where distilled spirits, fermented liquors, or
wines are served; and twenty percent of gross
receipts on proprietor or operators of
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 22

restaurants, refreshment parlors, bars, cafes
and other eating places maintained within the
premises or compound of a hotel, motel,
resthouse, cockpit, race track, jai-alai, cabaret,
night or day club, or which are accessible to
patrons of said establishments by means of a
connecting door or passage.
The protestation of the club was denied by the
petitioner CIR who maintains that Section 42
was not entirely vetoed but merely the words
"hotels, motels, resthouses" on the ground that
it might restrain the development of hotels
which is essential to the tourism industry.

ISSUE: whether the presidential veto referred
to the entire section or merely to the imposition
of 20% tax on gross receipts of operators or
proprietors of restaurants, refreshment parlors,
bars and other eating places which are
maintained within the premises or compound of
a hotel, motel or resthouses.

HELD: The presidential veto referred merely to
the inclusion of hotels, motels and resthouses
in the 20% caterer's tax bracket but not to the
whole section. But, as mentioned earlier also,
the CTA opined that the President could not
veto words or phrases in a bill but only an
entire item. Obviously, what the CTA meant by
"item" was an entire section. We do not agree.
But even assuming it to be so, it would also be
to petitioner's favor. The ineffectual veto by the
President rendered the whole section 191-A as
not having been vetoed at all and it, therefore,
became law as an unconstitutional veto has no
effect, whatsoever.
However, the Court agrees with then Solicitor
General Estelito Mendoza and his associates
that inclusion of hotels, motels and resthouses
in the 20% caterer's tax bracket are "items" in
themselves within the meaning of Sec. 20(3),
Art. VI of the 1935 Constitution which,
therefore, the President has the power to veto.
An "item" in a revenue bill does not refer to an
entire section imposing a particular kind of tax,
but rather to the subject of the tax and the tax
rate. In the portion of a revenue bill which
actually imposes a tax, a section identifies the
tax and enumerates the persons liable therefor
with the corresponding tax rate. To construe
the word "item" as referring to the whole
section would tie the President's hand in
choosing either to approve the whole section at
the expense of also approving a provision
therein which he deems unacceptable or veto
the entire section at the expense of foregoing
the collection of the kind of tax altogether. The
evil which was sought to be prevented in giving
the President the power to disapprove items in
a revenue bill would be perpetrated rendering
that power inutile


CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 23

ix. Taxes Levied for Special Purpose (Art VI,
Sec 29 (3) )
All money collected on any tax levied for a
special purpose shall be treated as a special
fund and paid out for such purpose only. If the
purpose for which a special fund was created
has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of
the Government.
CIR vs CTA and MANILA GOLF
x. Grant to LGUs to create its own source of
Revenue (Art. X Sec. 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.

xi. Flexible Tariff Clause (Art. VI, Sec 28 (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.


AKBAYAN vs AQUINO
AKBAYAN VS AQUINO JULY 16, 2008

FACTS:
Petitioners non-government organizations,
Congresspersons, citizens and taxpayers
seek via the present petition for mandamus
and prohibition to obtain from respondents the
full text of the Japan-Philippines Economic
Partnership Agreement (JPEPA) including the
Philippine and Japanese offers submitted
during the negotiation process and all pertinent
attachments and annexes thereto.
The JPEPA, which will be the first bilateral free
trade agreement to be entered into by the
Philippines with another country in the event
the Senate grants its consent to it, covers a
broad range of topics which respondents
enumerate as follows: trade in goods, rules of
origin, customs procedures, paperless trading,
trade in services, investment, intellectual
property rights, government procurement,
movement of natural persons, cooperation,
competition policy, mutual recognition, dispute
avoidance and settlement, improvement of the
business environment, and general and final
provisions.[5]
Petitioner emphasize that the refusal of the
government to disclose the said agreement
violates there right to information on matters of
public concern and of public interest. That the
non-disclosure of the same documents
undermines their right to effective and
reasonable participation in all levels of social,
political and economic decision making.
Respondent herein invoke executive privilege.
They relied on the ground that the matter
sought involves a diplomatic negotiation then in
progress, thus constituting an exception to the
right to information and the policy of full
disclosure of matters that are of public concern
like the JPEPA. That diplomatic negotiation are
covered by the doctrine of executive privilege.
(While the final text of the JPEPA has now
been made accessible to the public since
September 11, 2006,[6] respondents do not
dispute that, at the time the petition was filed
up to the filing of petitioners Reply when the
JPEPA was still being negotiated the initial
drafts thereof were kept from public view.)
ISSUES: Whether or not executive privilege
may be invoked. YES
Whether or not the President can validly
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 24

exclude Congress from the JPEPA
negotiations. YES
RULING:
1.JPEPA, A Matter of Public Concern
To be covered by the right to information, the
information sought must meet the threshold
requirement that it be a matter of public
concern xxx
From the nature of the JPEPA as an
international trade agreement, it is evident that
the Philippine and Japanese offers submitted
during the negotiations towards its execution
are matters of public concern. This,
respondents do not dispute. They only claim
that diplomatic negotiations are covered by the
doctrine of executive privilege, thus constituting
an exception to the right to information and the
policy of full public disclosure.
Privileged Character of Diplomatic Negotiations
Recognized
The privileged character of diplomatic
negotiations has been recognized in this
jurisdiction. In discussing valid limitations on
the right to information, the Court in Chavez v.
PCGG held that information on inter-
government exchanges prior to the conclusion
of treaties and executive agreements may be
subject to reasonable safeguards for the sake
of national interest.
Applying the principles adopted in PMPF v.
Manglapus, it is clear that while the final text of
the JPEPA may not be kept perpetually
confidential since there should be ample
opportunity for discussion before [a treaty] is
approved the offers exchanged by the
parties during the negotiations continue to be
privileged even after the JPEPA is published. It
is reasonable to conclude that the Japanese
representatives submitted their offers with the
understanding that historic confidentiality
would govern the same. Disclosing these offers
could impair the ability of the Philippines to
deal not only with Japan but with other foreign
governments in future negotiations.
Diplomatic negotiations are recognized as
privileged in this jurisdiction, the JPEPA
negotiations constituting no exception. It bears
emphasis, however, that such privilege is only
presumptive. For as Senate v. Ermita holds,
recognizing a type of information as privileged
does not mean that it will be considered
privileged in all instances. Only after a
consideration of the context in which the claim
is made may it be determined if there is a
public interest that calls for the disclosure of
the desired information, strong enough to
overcome its traditionally privileged status.
2. Treaty-making power of the President
Petitioner-members of the House of
Representatives additionally anchor their claim
to have a right to the subject documents on the
basis of Congress inherent power to regulate
commerce, be it domestic or international.
They allege that Congress cannot meaningfully
exercise the power to regulate international
trade agreements such as the JPEPA without
being given copies of the initial offers
exchanged during the negotiations thereof. In
the same vein, they argue that the President
cannot exclude Congress from the JPEPA
negotiations since whatever power and
authority the President has to negotiate
international trade agreements is derived only
by delegation of Congress, pursuant to Article
VI, Section 28(2) of the Constitution and
Sections 401 and 402 of Presidential Decree
No. 1464.[55]
The subject of Article VI Section 28(2) of the
Constitution is not the power to negotiate
treaties and international agreements, but the
power to fix tariff rates, import and export
quotas, and other taxes. Thus it provides:
(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.
As to the power to negotiate treaties, the
constitutional basis thereof is Section 21 of
Article VII the article on the Executive
Department which states:
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 25

No treaty or international agreement shall be
valid and effective unless concurred in by at
least two-thirds of all the Members of the
Senate.
The doctrine in PMPF v. Manglapus that the
treaty-making power is exclusive to the
President, being the sole organ of the nation in
its external relations, was echoed in BAYAN v.
Executive Secretary[56] where the Court held:
By constitutional fiat and by the intrinsic nature
of his office, the President, as head of State, is
the sole organ and authority in the external
affairs of the country. In many ways, the
President is the chief architect of the nation's
foreign policy; his "dominance in the field of
foreign relations is (then) conceded." Wielding
vast powers and influence, his conduct in the
external affairs of the nation, as Jefferson
describes, is executive altogether.
As regards the power to enter into treaties or
international agreements, the Constitution
vests the same in the President, subject only to
the concurrence of at least two thirds vote of all
the members of the Senate. In this light, the
negotiation of the VFA and the subsequent
ratification of the agreement are exclusive acts
which pertain solely to the President, in the
lawful exercise of his vast executive and
diplomatic powers granted him no less than by
the fundamental law itself. Into the field of
negotiation the Senate cannot intrude, and
Congress itself is powerless to invade it. x x x
(Italics in the original; emphasis and
underscoring supplied)

The same doctrine was reiterated even more
recently in Pimentel v. Executive Secretary[57]
where the Court ruled:
In our system of government, the President,
being the head of state, is regarded as the sole
organ and authority in external relations and is
the country's sole representative with foreign
nations. As the chief architect of foreign policy,
the President acts as the country's mouthpiece
with respect to international affairs. Hence, the
President is vested with the authority to deal
with foreign states and governments, extend or
withhold recognition, maintain diplomatic
relations, enter into treaties, and otherwise
transact the business of foreign relations. In
the realm of treaty-making, the President has
the sole authority to negotiate with other states.
Nonetheless, while the President has the sole
authority to negotiate and enter into treaties,
the Constitution provides a limitation to his
power by requiring the concurrence of 2/3 of all
the members of the Senate for the validity of
the treaty entered into by him. x x x (Emphasis
and underscoring supplied)
While the power then to fix tariff rates and
other taxes clearly belongs to Congress, and is
exercised by the President only by delegation
of that body, it has long been recognized that
the power to enter into treaties is vested
directly and exclusively in the President,
subject only to the concurrence of at least two-
thirds of all the Members of the Senate for the
validity of the treaty. In this light, the authority
of the President to enter into trade agreements
with foreign nations provided under P.D.
1464[58] may be interpreted as an
acknowledgment of a power already inherent in
its office. It may not be used as basis to hold
the President or its representatives
accountable to Congress for the conduct of
treaty negotiations.
This is not to say, of course, that the
Presidents power to enter into treaties is
unlimited but for the requirement of Senate
concurrence, since the President must still
ensure that all treaties will substantively
conform to all the relevant provisions of the
Constitution.
It follows from the above discussion that
Congress, while possessing vast legislative
powers, may not interfere in the field of treaty
negotiations. While Article VII, Section 21
provides for Senate concurrence, such pertains
only to the validity of the treaty under
consideration, not to the conduct of
negotiations attendant to its conclusion.
Moreover, it is not even Congress as a whole
that has been given the authority to concur as
a means of checking the treaty-making power
of the President, but only the Senate.
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 26

Thus, as in the case of petitioners suing in their
capacity as private citizens, petitioners-
members of the House of Representatives fail
to present a sufficient showing of need that
the information sought is critical to the
performance of the functions of Congress,
functions that do not include treaty-negotiation.
Right to information vis-a-vis Executive
Privilege
xxx the Court holds that, in determining
whether an information is covered by the right
to information, a specific showing of need for
such information is not a relevant
consideration, but only whether the same is a
matter of public concern. When, however, the
government has claimed executive privilege,
and it has established that the information is
indeed covered by the same, then the party
demanding it, if it is to overcome the privilege,
must show that that information is vital, not
simply for the satisfaction of its curiosity, but for
its ability to effectively and reasonably
participate in social, political, and economic
decision-making.
Conclusion
To recapitulate, petitioners demand to be
furnished with a copy of the full text of the
JPEPA has become moot and academic, it
having been made accessible to the public
since September 11, 2006. As for their demand
for copies of the Philippine and Japanese
offers submitted during the JPEPA
negotiations, the same must be denied,
respondents claim of executive privilege being
valid.
Diplomatic negotiations have, since the Court
promulgated its Resolution in PMPF v.
Manglapus on September 13, 1988, been
recognized as privileged in this jurisdiction and
the reasons proffered by petitioners against the
application of the ruling therein to the present
case have not persuaded the Court. Moreover,
petitioners both private citizens and members
of the House of Representatives have failed
to present a sufficient showing of need to
overcome the claim of privilege in this case.

SOUTHERN CROSS CEMENT
CORPORATION, petitioner, vs. THE
PHILIPPINE CEMENT MANUFACTURERS
CORP., THE SECRETARY OF THE
DEPARTMENT OF TRADE & INDUSTRY,
THE SECRETARY OF THE DEPARTMENT
OF FINANCE, and THE COMMISSIONER OF
THE BUREAU OF CUSTOMS, respondents.
FACTS:
The Philippines, for one, enacted Republic Act
No. 8751 (on the imposition of countervailing
duties), Rep. Act No. 8752 (on the imposition
of anti-dumping duties) and, finally, Rep. Act
No. 8800, also known as the Safeguard
Measures Act ("SMA") soon after it joined the
General Agreement on Tariff and Trade
(GATT) and the World Trade Organization
(WTO) Agreement.
The SMA provides the structure and
mechanics for the imposition of emergency
measures, including tariffs, to protect domestic
industries and producers from increased
imports which inflict or could inflict serious
injury on them. The wisdom of the policies
behind the SMA, however, is not put into
question by the petition at bar. The questions
submitted to the Court relate to the means and
the procedures ordained in the law to ensure
that the determination of the imposition or non-
imposition of a safeguard measure is proper.
Petitioner Southern Cross is a domestic
corporation engaged in the business of cement
manufacturing, production, importation and
exportation. Its principal stockholders are
Taiheiyo Cement Corporation and Tokuyama
Corporation, purportedly the largest cement
manufacturers in Japan.
Private respondent Philcemcor is an
association of domestic cement manufacturers.
It has eighteen (18) members, per Record.
While Philcemcor heralds itself to be an
association of domestic cement manufacturers,
it appears that considerable equity holdings, if
not controlling interests in at least twelve (12)
of its member-corporations, were acquired by
the three largest cement manufacturers in the
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 27

world, namely Financiere Lafarge S.A. of
France, Cemex S.A. de C.V. of Mexico, and
Holcim Ltd. of Switzerland (formerly
Holderbank Financiere Glaris, Ltd., then
Holderfin B.V.).
Respondent DTI accepted an application from
Philcemcor, alleging that the importation of
gray Portland cement in increased quantities
has caused declines in domestic production,
capacity utilization, market share, sales and
employment; as well as caused depressed
local prices. Accordingly, Philcemcor sought
the imposition at first of provisional, then later,
definitive safeguard measures on the import of
cement pursuant to the SMA. Philcemcor filed
the application in behalf 12 of its member-
companies.
After preliminary investigation, the Bureau of
Import Services of the DTI, determined that
critical circumstances existed justifying the
imposition of provisional measures. On 7
November 2001, the DTI issued an Order,
imposing a provisional measure equivalent to
P20.60 per 40 kilogram bag on all importations
of gray Portland cement for a period not 200
days from the date of issuance by the BOC of
the implementing Customs Memorandum
Order.
The Tariff Commission issued its Formal
Investigation Report Report. Among the factors
studied by the Tariff Commission in its Report
were the market share of the domestic
industry, production and sales, capacity
utilization, financial performance and
profitability, and return on sales.
Accordingly, the Tariff Commission made the
following recommendation, to wit: The
elements of serious injury and imminent threat
of serious injury not having been established, it
is hereby recommended that no definitive
general safeguard measure be imposed on the
importation of gray Portland cement.
After reviewing the report, then DTI Secretary
Manuel Roxas II disagreed with the conclusion
of the Tariff Commission that there was no
serious injury to the local cement industry
caused by the surge of imports.

ISSUE: Whether or not the DTI Secretary is
bound to adopt the negative recommendation
of the Tariff Commission on the application for
safeguard measure. YES

HELD:
The Court agrees: binding on the DTI
Secretary is the Tariff Commission's
determinations on whether a product is
imported in increased quantities, absolute or
relative to domestic production and whether
any such increase is a substantial cause of
serious injury or threat thereof to the domestic
industry.
Undoubtedly, Section 13 prescribes certain
limitations and restrictions before general
safeguard measures may be imposed.
However, the most fundamental restriction on
the DTI Secretary's power in that respect is
contained in Section 5 of the SMA that there
should first be a positive final determination of
the Tariff Commission which the Court of
Appeals curiously all but ignored. Section 5
reads: Conditions for the Application of
General Safeguard Measures. The Secretary
shall apply a general safeguard measure upon
a positive final determination of the [Tariff]
Commission that a product is being imported
into the country in increased quantities,
whether absolute or relative to the domestic
production, as to be a substantial cause of
serious injury or threat thereof to the domestic
industry; however, in the case of non-
agricultural products, the Secretary shall first
establish that the application of such safeguard
measures will be in the public interest.
The plain meaning of Section 5 shows that it is
the Tariff Commission that has the power to
make a "positive final determination." This
power lodged in the Tariff Commission, must
be distinguished from the power to impose the
general safeguard measure which is properly
vested on the DTI Secretary.
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 28

All in all, there are two condition precedents
that must be satisfied before the DTI Secretary
may impose a general safeguard measure on
grey Portland cement. First, there must be a
positive final determination by the Tariff
Commission that a product is being imported
into the country in increased quantities
(whether absolute or relative to domestic
production), as to be a substantial cause of
serious injury or threat to the domestic
industry. Second, in the case of non-
agricultural products the Secretary must
establish that the application of such safeguard
measures is in the public interest.
The distinction is vital, as a "positive final
determination" clearly antecedes, as a
condition precedent, the imposition of a
general safeguard measure. At the same time,
a positive final determination does not
necessarily result in the imposition of a general
safeguard measure. Under Section 5,
notwithstanding the positive final determination
of the Tariff Commission, the DTI Secretary is
tasked to decide whether or not that the
application of the safeguard measures is in the
public interest.
Section 5 plainly evinces legislative intent to
restrict the DTI Secretary's power to impose a
general safeguard measure by preconditioning
such imposition on a positive determination by
the Tariff Commission. Such legislative intent
should be given full force and effect, as the
executive power to impose definitive safeguard
measures is but a delegated power the
power of taxation, by nature and by command
of the fundamental law, being a preserve of the
legislature. Section 28(2), Article VI of the 1987
Constitution confirms the delegation of
legislative power, yet ensures that the
prerogative of Congress to impose limitations
and restrictions on the executive exercise of
this power
The safeguard measures which the DTI
Secretary may impose under the SMA may
take the following variations, to wit: (a) an
increase in, or imposition of any duty on the
imported product; (b) a decrease in or the
imposition of a tariff-rate quota on the product;
(c) a modification or imposition of any
quantitative restriction on the importation of the
product into the Philippines; (d) one or more
appropriate adjustment measures, including
the provision of trade adjustment assistance;
and (e) any combination of the above-
described actions. Except for the provision of
trade adjustment assistance, the measures
enumerated by the SMA are essentially
imposts, which precisely are the subject of
delegation under Section 28(2), Article VI of
the 1987 Constitution.
This delegation of the taxation power by the
legislative to the executive is authorized by the
Constitution itself. At the same time, the
Constitution also grants the delegating
authority (Congress) the right to impose
restrictions and limitations on the taxation
power delegated to the President. The
restrictions and limitations imposed by
Congress take on the mantle of a constitutional
command, which the executive branch is
obliged to observe.
The SMA empowered the DTI Secretary, as
alter ego of the President, to impose definitive
general safeguard measures, which basically
are tariff imposts of the type spoken of in the
Constitution. However, the law did not grant
him full, uninhibited discretion to impose such
measures. The DTI Secretary authority is
derived from the SMA; it does not flow from
any inherent executive power. Thus, the
limitations imposed by Section 5 are absolute,
warranted as they are by a constitutional fiat.
Moreover, the DTI Secretary does not have the
power to review the findings of the Tariff
Commission for it is not subordinate to the DTI.
It falls under the supervision, not of the DTI nor
of the Department of Finance (as mistakenly
asserted by Southern Cross), but of the
National Economic Development Authority, an
independent planning agency of the
government of co-equal rank as the DTI. As
the supervision and control of a Department
Secretary is limited to the bureaus, offices, and
agencies under him, he DTI Secretary
generally cannot exercise review authority over
actions of the Tariff Commission. Neither does
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 29

the SMA specifically authorize the DTI
Secretary to alter, amend or modify in any way
the determination made by the Tariff
Commission. The most that the DTI Secretary
could do to express displeasure over the Tariff
Commission's actions is to ignore its
recommendation, but not its determination.

xii. Exemption from Real Property Taxes
(Art VI. Sec 28 (3) )
Charitable institutions, churches and
personages 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.


Abra Valley vs. Aquino

FACTS: ABRA VALLEY COLLEGE, INC.
represented by PEDRO V. BORGONIA,
petitioner, vs. HON. JUAN P. AQUINO, Judge,
Court of First Instance, Abra; ARMIN M.
CARIAGA, Provincial Treasurer, Abra;
GASPAR V. BOSQUE, Municipal Treasurer,
Bangued, Abra; HEIRS CF PATERNO
MILLARE, respondents.

Petitioner, an educational corporation and
institution of higher learning duly incorporated
with the Securities and Exchange Commission
in 1948, filed a complaint on July 10, 1972 in
the court a quo to annul and declare void the
"Notice of Seizure" and the "Notice of Sale" of
its lot and building located at Bangued, Abra,
for non-payment of real estate taxes and
penalties amounting to P5,140.31

Said "Notice of Seizure" of the college lot and
building was duly registered in the name of
petitioner, plaintiff below, on July 6, 1972, by
respondents Municipal Treasurer and
Provincial Treasurer, defendants below, was
issued for the satisfaction of the said taxes
thereon.

The "Notice of Sale" was caused to be served
upon the petitioner by the respondent
treasurers on July 8, 1972 for the sale at public
auction of said college lot and building, which
sale was held on the same date. Dr. Paterno
Millare [Mun. Mayor of Abra] was the highest
bidder.

On October 12, 1972, with the aforesaid sale of
the school premises at public auction, the
respondent Judge, Hon. Juan P. Aquino of the
Court of First Instance of Abra, Branch I,
ordered the respondents provincial and
municipal treasurers to deliver to the Clerk of
Court the proceeds of the auction sale.
Petitioner, through Director Borgonia,
deposited with the trial court the sum of
P6,000.00. Parties then entered into a
stipulation of facts.

Aside from the Stipulation of Facts [about
substitution of parties, read full text], the trial
court among others, found the following: (e)
that the Director with his family is in the second
floor of the main building;

The succeeding Provincial Fiscal, Hon. Jose A.
Solomon and his Assistant, Hon. Eustaquio Z.
Montero, filed a Memorandum for the
Government on March 25, 1974, and a
Supplemental Memorandum on May 7, 1974,
wherein they opined "that based on the
evidence, the laws applicable, court decisions
and jurisprudence, the school building and
school lot used for educational purposes of
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 30

the Abra Valley College, Inc., are exempted
from the payment of taxes."

Nonetheless, the trial court disagreed because
of the use of the second floor by the Director of
petitioner school for residential purposes. He
thus ruled for the government and rendered the
assailed decision.

Petitioner contends that the primary use of the
lot and building for educational purposes, and
not the incidental use thereof, determines and
exemption from property taxes under Section
22 (3), Article VI of the 1935 Constitution.
Hence, the seizure and sale of subject college
lot and building, which are contrary thereto as
well as to the provision of Commonwealth Act
No. 470, otherwise known as the Assessment
Law, are without legal basis and therefore void.

On the other hand, private respondents
maintain that the college lot and building in
question which were subjected to seizure and
sale to answer for the unpaid tax are used:
(1) for the educational purposes of the college;
(2) as the permanent residence of the
President and Director thereof, Mr. Pedro V.
Borgonia, and his family including the in-laws
and grandchildren; and
(3) for commercial purposes because the
ground floor of the college building is being
used and rented by a commercial
establishment, the Northern Marketing
Corporation

ISSUE: WON the lot and building in question
are used exclusively for educational purposes

Held: NO, it is not. Of the two-storey building
in question, the first floor is used for
commercial purposes. Hence, it is taxable to
that extent.

Due to its time frame, the constitutional
provision which finds application in the case at
bar is Section 22, paragraph 3, Article VI, of
the then 1935 Philippine Constitution, which
expressly grants exemption from realty taxes
for "Cemeteries, churches and parsonages or
convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively
for religious, charitable or educational
purposes . . . ."

Relative thereto, Section 54, paragraph c,
Commonwealth Act No. 470 as amended by
Republic Act No. 409, otherwise known as the
Assessment Law, provides:

"The following are exempted from real property
tax under the Assessment Law: (c) churches
and parsonages or convents appurtenant
thereto, and all lands, buildings, and
improvements used exclusively for religious,
charitable, scientific or educational purposes.

In this regard petitioner argues that the primary
use of the school lot and building is the basic
and controlling guide, norm and standard to
determine tax exemption, and not the mere
incidental use thereof.

As early as 1916 in YMCA of Manila vs.
Collector of Internal Revenue, 33 Phil. 217
[1916], this Court ruled that:
while it may be true that the YMCA keeps a
lodging and a boarding house and maintains a
restaurant for its members, still these do not
constitute business in the ordinary acceptance
of the word, but an institution used exclusively
for religious, charitable and educational
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 31

purposes, and as such, it is entitled to be
exempted from taxation.

In the case of Bishop of Nueva Segovia v.
Provincial Board of Ilocos Norte, 51 Phil. 352
[1972], this Court included in the exemption a
vegetable garden in an adjacent lot and
another lot formerly used as a cemetery.
It was clarified that the term "used exclusively"
considers incidental use also. Thus, the
exemption from payment of land tax in favor of
the convent includes, not only the land actually
occupied by the building but also the adjacent
garden devoted to the incidental use of the
parish priest. The lot which is not used for
commercial purposes but serves solely as a
sort of lodging place, also qualifies for
exemption because this constitutes incidental
use in religious functions.

The phrase "exclusively used for educational
purposes" was further clarified by this Court in
the cases of Herrera vs. Quezon City Board of
Assessment Appeals, 3 SCRA 186 [1961] and
Commissioner of Internal Revenue vs. Bishop
of the Missionary District, 14 SCRA 991
[1965]"Moreover, the exemption in favor of
property used exclusively for charitable or
educational purposes is 'not limited to property
actually indispensable' therefor (Cooley on
Taxation, Vol. 2, p. 1430), but extends to
facilities which are incidental to and reasonably
necessary for the accomplishment of said
purposes, such as in the case of hospitals, 'a
school for training nurses, a nurses' home,
property use to provide housing facilities for
interns, resident doctors, superintendents, and
other members of the hospital staff, and
recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such as
'Athletic fields' including 'a firm used for the
inmates of the institution.'" (Cooley on
Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use
of the property for purposes mentioned in the
Constitution (Apostolic Prefect v. City
Treasurer of Baguio, 71 Phil. 547 [1941]).

It must be stressed however, that while this
Court allows a more liberal and non-restrictive
interpretation of the phrase "exclusively used
for educational purposes" as provided for in
Article VI, Section 22, paragraph 3 of the 1935
Philippine Constitution, reasonable emphasis
has always been made that exemption extends
to facilities which are incidental to and
reasonably necessary for the accomplishment
of the main purposes.

Otherwise stated, the use of the school
building or lot for commercial purposes is
neither contemplated by law, nor by
jurisprudence. Thus, while the use of the
second floor of the main building in the case at
bar for residential purposes of the Director and
his family, may find justification under the
concept of incidental use, which is
complimentary to the main or primary purpose
educational, the lease of the first floor
thereof to the Northern Marketing Corporation
cannot by any stretch of the imagination be
considered incidental to the purpose of
education.

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.

CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 32

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.

ROMAN CATHOLIC BISHOP VS ILOCOS
NORTE

Facts:
-The plaintiff, the Roman Catholic Apostolic
Church is the owner of a parcel of land in the
municipality of San Nicolas, Ilocos Norte. On
the south side is a part of the churchyard, the
convent and an adjacent lot used for a
vegetable garden, a stable and a well for the
use of the convent. In the center is the
remainder of the churchyard and the church.
On the north is an old cemetery with two of its
walls still standing, and a portion where
formerly stood a tower, the base of which still
be seen.
-As required by the defendants, the plaintiff
paid, under protest, the land tax on the lot
adjoining the convent and the lot which
formerly was the cemetery with the portion
where the tower stood.
-The plaintiff filed this action for the recovery of
the sum paid to the defendants alleging that
the collection of this tax is illegal.
-The lower court absolved the defendants from
paying tax.

Issue: Whether or not the property being taxed
must be exempted from the same. YES

Ruling:
-The exemption in favor of the convent in the
payment of the land tax (sec. 344 [c]
Administrative Code) refers to the home of the
parties who presides over the church and who
has to take care of himself in order to
discharge his duties. Therefore it must include
not only the land actually occupied by the
church, but also the adjacent ground destined
to the ordinary incidental uses of man. Except
in large cities where the density of the
population and the development of commerce
require the use of larger tracts of land for
buildings, a vegetable garden belongs to a
house and, in the case of a convent, it use is
limited to the necessities of the priest, which
comes under the exemption.
-In regard to the lot which formerly was the
cemetery, while it is no longer used as such,
neither is it used for commercial purposes and,
according to the evidence, is now being used
as a lodging house by the people who
participate in religious festivities, which
constitutes an incidental use in religious
functions, which also comes within the
exemption.
-both lots are exempt from land tax and the
defendants are ordered to refund to plaintiff
whatever was paid as tax.
LUNG CENTER vs QUEZON CITY
Facts: Lung Center of the Philippines is a non-
stock and non-profit entity established by virtue
of PD No. 1823. It is the registered owner of
the land on which the Lung Center of the
Philippines Hospital is erected. A big space in
the ground floor of the hospital is being leased
to private parties, for canteen and small store
spaces, and to medical or professional
practitioners who use the same as their private
clinics. Also, a big portion on the right side of
the hospital is being leased for commercial
purposes to a private enterprise known as the
Elliptical Orchids and Garden Center.
When the City Assessor of Quezon City
assessed both its land and hospital building for
real property taxes, the Lung Center of the
Philippines filed a claim for exemption on its
averment that it is a charitable institution with a
minimum of 60% of its hospital beds
exclusively used for charity patients and that
the major thrust of its hospital operation is to
serve charity patients. The claim for exemption
was denied, prompting a petition for the
reversal of the resolution of the City Assessor
with the Local Board of Assessment Appeals of
Quezon City, which denied the same. On
appeal, the Central Board of Assessment
Appeals of Quezon City affirmed the local
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 33

boards decision, finding that Lung Center of
the Philippines is not a charitable institution
and that its properties were not actually,
directly and exclusively used for charitable
purposes. Hence, the present petition for
review with averments that the Lung Center of
the Philippines is a charitable institution under
Section 28(3), Article VI of the Constitution,
notwithstanding that it accepts paying patients
and rents out portions of the hospital building
to private individuals and enterprises.
Issue: WON the Lung Center of the Philippines
is a charitable institution within the context of
the Constitution, and therefore, exempt from
real property tax (charitable institution but not
entirely exempt from tax)
Held: The Lung Center of the Philippines is a
charitable institution. To determine whether an
enterprise is a charitable institution or not, the
elements which should be considered include
the statute creating the enterprise, its corporate
purposes, its constitution and by-laws, the
methods of administration, the nature of the
actual work performed, that character of the
services rendered, the indefiniteness of the
beneficiaries and the use and occupation of the
properties.
However, under the Constitution, in order to be
entitled to exemption from real property tax,
there must be clear and unequivocal proof that
(1) it is a charitable institution and (2)its real
properties are ACTUALLY, DIRECTLY and
EXCLUSIVELY used for charitable purposes.
While portions of the hospital are used for
treatment of patients and the dispensation of
medical services to them, whether paying or
non-paying, other portions thereof are being
leased to private individuals and enterprises.
Exclusive is defined as possessed and enjoyed
to the exclusion of others, debarred from
participation or enjoyment. If real property is
used for one or more commercial purposes, it
is not exclusively used for the exempted
purposes but is subject to taxation.
Even as we find that the petitioner is a
charitable institution, we hold, that those
portions of its real property that are leased to
private entities are not exempt from real
property taxes as these are not actually,
directly and exclusively used for charitable
purposes.
The settled rule in this jurisdiction is that laws
granting exemption from tax are construed
strictissimi juris against the taxpayer and
liberally in favor of the taxing power. Taxation
is the rule and exemption is the exception. The
effect of an exemption is equivalent to an
appropriation. Hence, a claim for exemption
from tax payments must be clearly shown and
based on language in the law too plain to be
mistaken.
Section 2 of Presidential Decree No. 1823,
relied upon by the petitioner, specifically
provides that the petitioner shall enjoy the tax
exemptions and privileges:
SEC. 2. TAX EXEMPTIONS AND
PRIVILEGES. Being a non-profit, non-stock
corporation organized primarily to help combat
the high incidence of lung and pulmonary
diseases in the Philippines, all donations,
contributions, endowments and equipment and
supplies to be imported by authorized entities
or persons and by the Board of Trustees of the
Lung Center of the Philippines, Inc., for the
actual use and benefit of the Lung Center, shall
be exempt from income and gift taxes, the
same further deductible in full for the purpose
of determining the maximum deductible
amount under Section 30, paragraph (h), of the
National Internal Revenue Code, as amended.
The Lung Center of the Philippines shall be
exempt from the payment of taxes, charges
and fees imposed by the Government or any
political subdivision or instrumentality thereof
with respect to equipment purchases made by,
or for the Lung Center.
It is plain as day that under the decree, the
petitioner does not enjoy any property tax
exemption privileges for its real properties as
well as the building constructed thereon.
Accordingly, we hold that the portions of the
land leased to private entities as well as those
parts of the hospital leased to private
individuals are not exempt from such taxes.
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 34


COMMISSIONER OF INTERNAL REVENUE,
PETITIONER, vs. ST. LUKE'S MEDICAL
CENTER, INC., RESPONDENT.
x - - - - - - - - - - - - - - - - - - - - - - - x
(G.R. No. 195960)
ST. LUKE'S MEDICAL CENTER, INC.,
PETITIONER, vs. COMMISSIONER OF
INTERNAL REVENUE, RESPONDENT.
FACTS:
St. Luke's Medical Center, Inc. (St. Luke's) is a
hospital organized as a non-stock and non-
profit corporation. On December 2002, BIR
assessed St. Luke's deficiency taxes
amounting to P76Million+ for 1998, comprised
of deficiency income tax, value-added tax,
withholding tax on compensation and
expanded withholding tax. This amount was
later reduced to P63Million+.
On January 2003, St. Luke's filed an
administrative protest with the BIR against the
deficiency tax assessments (which was
eventually appealed to the CTA).
BIR argued that Section 27(B) of the NIRC,
which imposes a 10% preferential tax rate on
the income of proprietary non-profit hospitals,
should be applicable to St. Luke's. According to
the BIR, Section 27(B), introduced in 1997, "is
a new provision intended to amend the
exemption on non-profit hospitals that were
previously categorized as non-stock, non-profit
corporations under Section 26 of the 1997 Tax
Code x x x." It is a specific provision which
prevails over the general exemption on income
tax granted under Section 30(E) and (G) for
non-stock, non-profit charitable institutions and
civic organizations promoting social welfare.
ISSUE: WON St. Luke's is liable for deficiency
income tax in 1998 under Section 27(B) of the
NIRC, which imposes a preferential tax rate of
10% on the income of proprietary non-profit
hospitals. YES
HELD:
Note: Important here is just the discussion
about exemption of charitable institutions from
real property taxes
The issue raised by the BIR involves the effect
of the introduction of Section 27(B) in the NIRC
of 1997 vis--vis Section 30(E) and (G) on the
income tax exemption of charitable and social
welfare institutions.
The 10% income tax rate under Section 27(B)
specifically pertains to proprietary educational
institutions and proprietary non-profit hospitals.
The BIR argues that Congress intended to
remove the exemption that non-profit hospitals
previously enjoyed under Section 27(E) of the
NIRC of 1977, which is now substantially
reproduced in Section 30(E) of the NIRC of
1997.
St. Luke's claims tax exemption under Section
30(E) and (G) of the NIRC. It contends that it is
a charitable institution and an organization
promoting social welfare. The arguments of St.
Luke's focus on the wording of Section 30(E)
exempting from income tax non-stock, non-
profit charitable institutions. St. Luke's asserts
that the legislative intent of introducing Section
27(B) was only to remove the exemption for
"proprietary non-profit" hospitals.
SC partly grants the petition of the BIR but on a
different ground. Section 27(B) of the NIRC
does not remove the income tax exemption of
proprietary non-profit hospitals under Section
30(E) and (G). Section 27(B) on one hand, and
Section 30(E) and (G) on the other hand, can
be construed together without the removal of
such tax exemption. The effect of the
introduction of Section 27(B) is to subject the
taxable income of two specific institutions,
namely, proprietary non-profit educational
institutions and proprietary non-profit hospitals,
among the institutions covered by Section 30,
to the 10% preferential rate under Section
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 35

27(B) instead of the ordinary 30% corporate
rate under the last paragraph of Section 30 in
relation to Section 27(A)(1).
Section 27(B) of the NIRC imposes a 10%
preferential tax rate on the income of (1)
proprietary non-profit educational institutions
and (2) proprietary non-profit hospitals. The
only qualifications for hospitals are that they
must be proprietary and NON-PROFIT.
"Proprietary" means private, following the
definition of a "proprietary educational
institution" as "any private school maintained
and administered by private individuals or
groups" with a government permit. "NON-
PROFIT" means no net income or asset
accrues to or benefits any member or specific
person, with all the net income or asset
devoted to the institution's purposes and all its
activities conducted not for profit. "Non-profit"
does not necessarily mean "charitable."
To be a charitable institution, however, an
organization must meet the substantive test.
Charity is essentially a gift to an indefinite
number of persons which lessens the burden
of government. In other words, charitable
institutions provide for free goods and services
to the public which would otherwise fall on the
shoulders of government. Thus, as a matter of
efficiency, the government forgoes taxes which
should have been spent to address public
needs, because certain private entities already
assume a part of the burden. This is the
rationale for the tax exemption of charitable
institutions. The loss of taxes by the
government is compensated by its relief from
doing public works which would have been
funded by appropriations from the Treasury.
Charitable institutions, however, are not ipso
facto entitled to a tax exemption. The
requirements for a tax exemption are specified
by the law granting it. The Court in Lung
Center case declared that the Lung Center of
the Philippines is a charitable institution for the
purpose of exemption from real property taxes.
This ruling uses the same premise as Hospital
de San Juan and Jesus Sacred Heart College
which says that receiving income from paying
patients does not destroy the charitable nature
of a hospital.
As a general principle, a charitable institution
does not lose its character as such and its
exemption from taxes simply because it
derives income from paying patients, whether
out-patient, or confined in the hospital, or
receives subsidies from the government, so
long as the money received is devoted or used
altogether to the charitable object which it is
intended to achieve; and no money inures to
the private benefit of the persons managing or
operating the institution.
For real property taxes, the incidental
generation of income is permissible because
the test of exemption is the use of the property.
The Constitution provides that "charitable
institutions, churches and personages 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." The test of exemption is not strictly a
requirement on the intrinsic nature or character
of the institution. The test requires that the
institution use the property in a certain way, i.e.
for a charitable purpose. Thus, the Court held
that the Lung Center of the Philippines did not
lose its charitable character when it used a
portion of its lot for commercial purposes. The
effect of failing to meet the use requirement is
simply to remove from the tax exemption that
portion of the property not devoted to charity.
THE CONSTITUTION EXEMPTS
CHARITABLE INSTITUTIONS ONLY FROM
REAL PROPERTY TAXES. In the NIRC,
Congress decided to extend the exemption to
income taxes. However, the way Congress
crafted Section 30(E) of the NIRC is materially
different from Section 28(3), Article VI of the
Constitution. Section 30(E) of the NIRC defines
the corporation or association that is exempt
from income tax. On the other hand, Section
28(3), Article VI of the Constitution does not
define a charitable institution, but requires that
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 36

the institution "actually, directly and
exclusively" use the property for a charitable
purpose.
Section 30(E) of the NIRC provides that a
charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable
purposes;
(3) Operated exclusively for charitable
purposes; and
(4) No part of its net income or asset shall
belong to or inure to the benefit of any
member, organizer, officer or any specific
person.
Thus, both the organization and operations of
the charitable institution must be devoted
"exclusively" for charitable purposes. The
organization of the institution refers to its
corporate form, as shown by its articles of
incorporation, by-laws and other constitutive
documents. Section 30(E) of the NIRC
specifically requires that the corporation or
association be non-stock, which is defined by
the Corporation Code as "one where no part of
its income is distributable as dividends to its
members, trustees, or officers" 49 and that any
profit "obtain[ed] as an incident to its
operations shall, whenever necessary or
proper, be used for the furtherance of the
purpose or
purposes for which the corporation was
organized." However, under Lung Center, any
profit by a charitable institution must not only
be plowed back "whenever necessary or
proper," but must be "devoted or used
altogether to the charitable object which it is
intended to achieve."
The operations of the charitable institution
generally refer to its regular activities. Section
30(E) of the NIRC requires that these
operations be exclusive to charity. There is
also a specific requirement that "no part of the
net income or asset shall belong to or inure to
the benefit of any member, organizer, officer or
any specific person." The use of lands,
buildings and improvements of the institution is
but a part of its operations.
There is no dispute that St. Luke's is organized
as a non-stock and non-profit charitable
institution. However, this does not
automatically exempt St. Luke's from paying
taxes. This only refers to the organization of St.
Luke's. Even if St. Luke's meets the test of
charity, a charitable institution is not ipso facto
tax exempt. To be exempt from real property
taxes, Section 28(3), Article VI of the
Constitution requires that a charitable
institution use the property "actually, directly
and exclusively" for charitable purposes. To be
exempt from income taxes, Section 30(E) of
the NIRC requires that a charitable institution
must be "organized and operated exclusively"
for charitable purposes. Likewise, to be exempt
from income taxes, Section 30(G) of the NIRC
requires that the institution be "operated
exclusively" for social welfare.
However, the last paragraph of Section 30 of
the NIRC qualifies the words "organized and
operated exclusively" by providing that:
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from
any of their properties, real or personal, or from
any of their activities conducted for profit
regardless of the disposition made of such
income, shall be subject to tax imposed under
this Code.
In short, the last paragraph of Section 30
provides that if a tax exempt charitable
institution conducts "any" activity for profit,
SUCH ACTIVITY IS NOT TAX EXEMPT even
as its not-for-profit activities remain tax exempt.
This paragraph qualifies the requirements in
Section 30(E) that the "non-stock corporation
or association must be organized and operated
exclusively for x x x charitable x x x purposes x
x x." It likewise qualifies the requirement in
Section 30(G) that the civic organization must
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 37

be "operated exclusively" for the promotion of
social welfare.
Thus, even if the charitable institution must be
"organized and operated exclusively" for
charitable purposes, it is nevertheless allowed
to engage in "activities conducted for profit"
without losing its tax exempt status for its not-
for-profit activities. The only consequence is
that the "income of whatever kind and
character" of a charitable institution "from any
of its activities conducted for profit, regardless
of the disposition made of such income, shall
be subject to tax."
In 1998, St. Luke's had total revenues of P1.73
Billion from services to paying patients. It
cannot be disputed that a hospital which
receives this much from paying patients is not
an institution "operated exclusively" for
charitable purposes. Clearly, revenues from
paying patients are income received from
"activities conducted for profit." St. Luke's is
thus a corporation that is not "operated
exclusively" for charitable or social welfare
purposes insofar as its revenues from paying
patients are concerned. An institution under
Section 30(E) or (G) does not lose its tax
exemption if it earns income from its for-profit
activities. Such income from for-profit activities,
under the last paragraph of Section 30, is
merely subject to income tax, previously at the
ordinary corporate rate but now at the
preferential 10% rate pursuant to Section
27(B).
St. Luke's fails to meet the requirements under
Section 30(E) and (G) of the NIRC to be
completely tax exempt from all its income.
However, it remains a proprietary non-profit
hospital under Section 27(B) of the NIRC as
long as it does not distribute any of its profits to
its members and such profits are reinvested
pursuant to its corporate purposes. St. Luke's,
as a proprietary non-profit hospital, is entitled
to the preferential tax rate of 10% on its net
income from its for-profit activities. St. Luke's is
still therefore liable for deficiency income tax in
1998 under Section 27(B) of the NIRC.
xiii. Tax exemption of Revenues, Assets,
Including Donations to Educational
Institutions (Art XIV, Se. 4(3) (4) )

3. All revenues and assets of non-stock,
non-profit educational institutions used
actually, directly, and exclusively for
educational purposes shall be exempt
from taxes and duties. Upon the
dissolution or cessation of the corporate
existence of such institutions, their assets
shall be disposed of in the manner
provided by law.
Proprietary educational institutions,
including those cooperatively owned,
may likewise be entitled to such
exemptions, subject to the limitations
provided by law, including restrictions on
dividends and provisions for
reinvestment.
4. Subject to conditions prescribed by law,
all grants, endowments, donations, or
contributions used actually, directly, and
exclusively for educational purposes shall
be exempt from tax.


xiv. Non impairment of Supreme Courts
Jurisdiction in Tax Cases (Art VII. Sec.5 (b))

The Supreme Court shall have the following
powers:
All cases involving the legality of any tax,
impost, assessment, or toll, or any penalty
imposed in relation thereto.

xv. Non Imprisonment for non-Payment of
Poll Tax
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 38

(Art. III, Sec 20)
Section 20. No person shall be imprisoned for
debt or non-payment of a poll tax.

RA 7160 Sec 159-164
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.
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
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 39

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
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.


xvi. Freedom of Speech and of the press
(Art III, Sec 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.

xvii. Religious Freedom (Art III, Sec 5)
No law shall be made respecting an
establishment of religion, or prohibiting the free
exercise thereof. The free exercise and
enjoyment of religious profession and worship,
without discrimination or preference, shall
forever be allowed. No religious test shall be
required for the exercise of civil or political
rights.
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 40


ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE,
respondents.

FACTS: These are motions seeking
reconsideration of our decision dismissing 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. The motions, of which there
are 10 in all, have been filed by the several
petitioners in these cases.
Philippine Press Institutes argument: By
removing the exemption of the press from the
VAT while maintaining those granted to others,
the law discriminates against the press.
Philippine Bible Society, Incs argument:
Although it sells bibles, the proceeds derived
from the sales are used to subsidize the cost of
printing copies which are given free to those
who cannot afford to pay so that to tax the
sales would be to increase the price, while
reducing the volume of sale.

RULING:
Claims of press freedom and religious liberty.
We have held that, as a general proposition,
the press is not exempt from the taxing power
of the State and that what the constitutional
guarantee of free press prohibits are laws
which single out the press or target a group
belonging to the press for special treatment or
which in any way discriminate against the
press on the basis of the content of the
publication, and R.A. No. 7716 is none of
these.

Now 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 nondiscriminatory
taxation of constitutionally guaranteed freedom
is unconstitutional."

With respect to the first contention, it would
suffice to say that since the law granted the
press a privilege, the law could take back the
privilege anytime without offense to the
Constitution. The reason is simple: by granting
exemptions, the State does not forever waive
the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law
merely subjects the press to the same tax
burden to which other businesses have long
ago been subject. It is thus different from the
tax involved in the cases invoked by the PPI.
The license tax in Grosjean v. American Press
Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was
found to be discriminatory because it was laid
on the gross advertising receipts only of
newspapers whose weekly circulation was over
20,000, with the result that the tax applied only
to 13 out of 124 publishers in Louisiana.
These large papers were critical of Senator
Huey Long who controlled the state legislature
which enacted the license tax. The censorial
motivation for the law was thus evident.

On the other hand, in Minneapolis Star &
Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax
was found to be discriminatory because
although it could have been made liable for the
sales tax or, in lieu thereof, for the use tax on
the privilege of using, storing or consuming
tangible goods, the press was not. Instead, the
press was exempted from both taxes. It was,
however, later made to pay a special use tax
on the cost of paper and ink which made these
items "the only items subject to the use tax that
were component of goods to be sold at retail."
The U.S. Supreme Court held that the
differential treatment of the press "suggests
that the goal of regulation is not related to
suppression of expression, and such goal is
presumptively unconstitutional." It would
therefore appear that even a law that favors
the press is constitutionally suspect. (See the
dissent of Rehnquist, J. in that case)

CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 41

Nor is it true that only two exemptions
previously granted by E.O. No. 273 are
withdrawn "absolutely and unqualifiedly" by
R.A. No. 7716. Other exemptions from the
VAT, such as those previously granted to PAL,
petroleum concessionaires, enterprises
registered with the Export Processing Zone
Authority, and many more are likewise totally
withdrawn, in addition to exemptions which are
partially withdrawn, in an effort to broaden the
base of the tax.

The PPI says that the discriminatory treatment
of the press is highlighted by the fact that
transactions, which are profit oriented, continue
to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will
suffice to show that by and large this is not so
and that the exemptions are granted for a
purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to
encourage agricultural production and, in other
cases, for the personal benefit of the end-user
rather than for profit. The exempt transactions
are:

(a) Goods for consumption or use which are in
their original state (agricultural, marine and
forest products, cotton seeds in their original
state, fertilizers, seeds, seedlings, fingerlings,
fish, prawn livestock and poultry feeds) and
goods or services to enhance agriculture
(milling of palay, corn, sugar cane and raw
sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or
use (household and personal effects of citizens
returning to the Philippines) or for professional
use, like professional instruments and
implements, by persons coming to the
Philippines to settle here.

(c) Goods subject to excise tax such as
petroleum products or to be used for
manufacture of petroleum products subject to
excise tax and services subject to percentage
tax.

(d) Educational services, medical, dental,
hospital and veterinary services, and services
rendered under employer-employee
relationship.

(e) Works of art and similar creations sold by
the artist himself.
(f) Transactions exempted under special laws,
or international agreements.
(g) Export-sales by persons not VAT-
registered.
(h) Goods or services with gross annual sale or
receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the
Motions for Reconsideration, pp. 58-60)

The PPI asserts that it does not really matter
that the law does not discriminate against the
press because "even nondiscriminatory
taxation on constitutionally guaranteed
freedom is unconstitutional." PPI cites in
support of this assertion the following
statement in Murdock v. Pennsylvania, 319
U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is
"nondiscriminatory" is immaterial. The
protection afforded by the First Amendment is
not so restricted. A license tax certainly does
not acquire constitutional validity because it
classifies the privileges protected by the First
Amendment along with the wares and
merchandise of hucksters and peddlers and
treats them all alike. Such equality in treatment
does not save the ordinance. Freedom of
press, freedom of speech, freedom of religion
are in preferred position.

The Court was speaking in that case of a
license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the
press is unconstitutional because it lays a prior
restraint on the exercise of its right. Hence,
although its application to others, such those
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 42

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."

A similar ruling was made by this Court in
American Bible Society v. City of Manila, 101
Phil. 386 (1957) which invalidated a city
ordinance requiring a business license fee on
those engaged in the sale of general
merchandise. It was held that the tax could not
be imposed on the sale of bibles by the
American Bible Society without restraining the
free exercise of its right to propagate.

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.

Additionally, the Philippine Bible Society, Inc.
claims that although it sells bibles, the
proceeds derived from the sales are used to
subsidize the cost of printing copies which are
given free to those who cannot afford to pay so
that to tax the sales would be to increase the
price, while reducing the volume of sale.
Granting that to be the case, the resulting
burden on the exercise of religious freedom is
so incidental as to make it difficult to
differentiate it from any other economic
imposition that might make the right to
disseminate religious doctrines costly.
Otherwise, to follow the petitioner's argument,
to increase the tax on the sale of vestments
would be to lay an impermissible burden on the
right of the preacher to make a sermon.

On the other hand the registration fee of
P1,000.00 imposed by 107 of the NIRC, as
amended by 7 of R.A. No. 7716, although
fixed in amount, is really just to pay for the
expenses of registration and enforcement of
provisions such as those relating to accounting
in 108 of the NIRC. That the PBS distributes
free bibles and therefore is not liable to pay the
VAT does not excuse it from the payment of
this fee because it also sells some copies. At
any rate whether the PBS is liable for the VAT
must be decided in concrete cases, in the
event it is assessed this tax by the
Commissioner of Internal Revenue.
American Bible Society v City of Manila
FACTS: Plaintiff American Bible Society has
been distributing and selling bibles throughout
the Philippines. The City of Manila informed
plaintiff that it was actually engaged in the
business of general merchandising 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.
Said plaintiff filed under protest and thereafter
filed the present complaint which sought to
declare Municipal Ordinance No. 3000, as
amended, and Ordinances Nos. 2529, 3028
and 3364 illegal and unconstitutional because
they provide for religious censorship and
restrain the free exercise and enjoyment of its
religious profession, to wit: the distribution and
sale of bibles and other religious literature to
the people of the Philippines.
Plaintiffs contention is founded on the
following Constitutional provision:
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 43

Section 1, subsection (7) of Article III of the
Constitution of the Republic of the Philippines,
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.
ISSUE:
(1) Whether or not the ordinances of the City of
Manila, Nos. 3000, as amended, and 2529,
3028 and 3364, are constitutional and valid.
YES
(2)Are the ordinances applicable to plaintiff?
NO
HELD:
1. The ordinances are constitutional because
the license fees required to be paid quarterly in
Section 1 of said Ordinance No. 2529, as
amended, are not imposed directly upon any
religious institution but upon those engaged in
any of the business or occupations therein
enumerated, such as retail "dealers in general
merchandise" which, it is alleged, cover the
business or occupation of selling bibles, books,
etc.
2. Article III, section 1, clause (7) of the
Constitution of the Philippines guarantees the
freedom of religious profession and worship.
The constitutional guaranty of the free exercise
and enjoyment of religious profession and
worship carries with it the right to disseminate
religious information. Any restraints of such
right can only be justified like other restraints of
freedom of expression on the grounds that
there is a clear and present danger of any
substantive evil which the State has the right to
prevent". In the case at bar the license fee
herein involved is imposed upon appellant for
its distribution and sale of bibles and other
religious literature:
In the case of Murdock vs. Pennsylvania, it
was held that an ordinance requiring that a
license be obtained before a person could
canvass or solicit orders for goods, paintings,
pictures, wares or merchandise cannot be
made to apply to members of Jehovah's
Witnesses who went about from door to door
distributing literature and soliciting people to
"purchase" certain religious books and
pamphlets, all published by the Watch Tower
Bible & Tract Society. The "price" of the books
was twenty-five cents each, the "price" of the
pamphlets five cents each. It was shown that in
making the solicitations there was a request for
additional "contribution" of twenty-five cents
each for the books and five cents each for the
pamphlets. Lesser sum were accepted,
however, and books were even donated in
case interested persons were without funds.
On the above facts the Supreme Court held
that it could not be said that petitioners were
engaged in commercial rather than a religious
venture. Their activities could not be described
as embraced in the occupation of selling books
and pamphlets. Then the Court continued:
"We do not mean to say that religious groups
and the press are free from all financial
burdens of government. We have here
something quite different, for example, from a
tax on the income of one who engages in
religious activities or a tax on property used or
employed in connection with activities. It is one
thing to impose a tax on the income or property
of a preacher. It is quite another to exact a tax
from him for the privilege of delivering a
sermon. The tax imposed by the City of
Jeannette is a flat license tax, payment of
which is a condition of the exercise of these
constitutional privileges. The power to tax the
exercise of a privilege is the power to control or
suppress its enjoyment. . . . Those who can tax
the exercise of this religious practice can make
its exercise so costly as to deprive it of the
resources necessary for its maintenance.
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 44

Those who can tax the privilege of engaging in
this form of missionary evangelism can close
all its doors to all those who do not have a full
purse. Spreading religious beliefs in this
ancient and honorable manner would thus be
denied the needy. . . .
It is contended however that the fact that the
license tax can suppress or control this activity
is unimportant if it does not do so. But that is to
disregard the nature of this tax. It is a license
tax a flat tax imposed on the exercise of a
privilege granted by the Bill of Rights . . . The
power to impose a license tax on the exercise
of these freedom is indeed as potent as the
power of censorship which this Court has
repeatedly struck down. . . . It is not a nominal
fee imposed as a regulatory measure to defray
the expenses of policing the activities in
question. It is in no way apportioned. It is flat
license tax levied and collected as a condition
to the pursuit of activities whose enjoyment is
guaranteed by the constitutional liberties of
press and religion and inevitably tends to
suppress their exercise. That is almost
uniformly recognized as the inherent vice and
evil of this flat license tax."
Nor could dissemination of religious
information be conditioned upon the approval
of an official or manager even if the town were
owned by a corporation as held in the case of
Marsh vs. State of Alabama , or by the United
States itself as held in the case of Tucker vs.
Texas . In the former case the
Supreme Court expressed the opinion that the
right to enjoy freedom of the press and religion
occupies a preferred position as against the
constitutional right of property owners.
"When we balance the constitutional rights of
owners of property against those of the people
to enjoy freedom of press and religion, as we
must here, we remain mindful of the fact that
the latter occupy a preferred position. . . . In
our view the circumstance that the property
rights to the premises where the deprivation of
property here involved, took place, were held
by others than the public, is not sufficient to
justify the State's permitting a corporation to
govern a community of citizens so as to restrict
their fundamental liberties and the enforcement
of such restraint by the application of a State
statute."
Section 27 of Commonwealth Act No. 466,
otherwise known as the National Internal
Revenue Code, provides:
SEC. 27. EXEMPTIONS FROM TAX ON
CORPORATIONS. The following
organizations shall not be taxed under this Title
in respect to income received by them as such

(e) Corporations or associations organized and
operated exclusively for religious, charitable, . .
. or educational purposes, . . .: Provided,
however, That the income of whatever kind
and character from any of its properties, real or
personal, or from any activity conducted for
profit, regardless of the disposition made of
such income, shall be liable to the tax imposed
under this Code;
Appellant's counsel claims that the Collector of
Internal Revenue has exempted the plaintiff
from this tax and says that such exemption
clearly indicates that the act of distributing and
selling bibles, etc. is purely religious and does
not fall under the above legal provisions.
It may be true that in the case at bar the price
asked for the bibles and other religious
pamphlets was in some instances a little bit
higher than the actual cost of the same but this
cannot mean that appellant was engaged in
the business or occupation of selling said
"merchandise" for profit. For this reason We
believe that the provisions of City of Manila
Ordinance No. 2529, as amended, cannot be
applied to appellant, for in doing so it would
impair its free exercise and enjoyment of its
religious profession and worship as well as its
rights of dissemination of religious beliefs.
With respect to Ordinance No. 3000, as
amended, which requires the obtention the
Mayor's permit before any person can engage
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 45

in any of the businesses, trades or occupations
enumerated therein, We do not find that it
imposes any charge upon the enjoyment of a
right granted by the Constitution, nor tax the
exercise of religious practices. In the case of
Coleman vs. City of Griffin, 189 S.E. 427, this
point was elucidated as follows:
An ordinance by the City of Griffin, declaring
that the practice of distributing either by hand
or otherwise, circulars, handbooks, advertising,
or literature of any kind, whether said articles
are being delivered free, or whether same are
being sold within the city limits of the City of
Griffin, without first obtaining written permission
from the city manager of the City of Griffin,
shall be deemed a nuisance and punishable as
an offense against the City of Griffin, does not
deprive defendant of his constitutional right of
the free exercise and enjoyment of religious
profession and worship, even though it
prohibits him
from introducing and carrying out a scheme or
purpose which he sees fit to claim as a part of
his religious system.
It seems clear, therefore, that Ordinance No.
3000 cannot be considered unconstitutional,
even if applied to plaintiff Society. But as
Ordinance No. 2529 of the City of Manila, as
amended, is not applicable to plaintiff-appellant
and defendant-appellee is powerless to license
or tax the business of plaintiff Society involved
herein for, as stated before, it would impair
plaintiff's right to the free exercise and
enjoyment of its religious profession and
worship, as well as its rights of dissemination
of religious beliefs, We find that Ordinance No.
3000, as amended is also inapplicable to said
business, trade or occupation of the plaintiff.
xvii. Non Impairment of Contracts (Art III.
Sec 10)

No law impairing the obligation of contracts
shall be passed.

MANILA ELECTRIC COMPANY, petitioner
vs. PROVINCE OF LAGUNA and BENITO R.
BALAZO, in his capacity as Provincial
Treasurer of Laguna, respondents.
FACTS:
On various dates, certain municipalities of the
Province of Laguna including, Bian, Sta Rosa,
San Pedro, Luisiana, Calauan and Cabuyao,
by virtue of existing laws then in effect, issued
resolutions through their respective municipal
councils granting franchise in favor of petitioner
Manila Electric Company (MERALCO) for the
supply of electric light, heat and power within
their concerned areas. On 19 January 1983,
MERALCO was likewise granted a franchise by
the National Electrification Administration to
operate an electric light and power service in
the Municipality of Calamba, Laguna.
On 12 September 1991, Republic Act No.
7160, otherwise known as the Local
Government Code of 1991, was enacted to
take effect on 01 January 1992 enjoining local
government units to create their own sources
of revenue and to levy taxes, fees and
charges, subject to the limitations expressed
therein, consistent with the basic policy of local
autonomy. Pursuant to the provisions of the
Code, respondent province enacted Laguna
Provincial Ordinance No. 01-92, effective 01
January 1993, providing, in part, as follows:
Sec. 2.09. Franchise Tax. There is hereby
imposed a tax on businesses enjoying a
franchise, at a rate of fifty percent (50%) of one
percent (1%) of the gross annual receipts,
which shall include both cash sales and sales
on account realized during the preceding
calendar year within this province, including the
territorial limits on any city located in the
province [1]
On the basis of the above ordinance,
respondent Provincial Treasurer sent a
demand letter to MERALCO for the
corresponding tax payment. Petitioner
MERALCO paid the tax, which then amounted
to P19,520,628.42, under protest. A formal
claim for refund was thereafter sent by
MERALCO to the Provincial Treasurer of
Laguna claiming that the franchise tax it had
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 46

paid and continued to pay to the National
Government pursuant to P.D. 551 already
included the franchise tax imposed by the
Provincial Tax Ordinance. MERALCO
contended that the imposition of a franchise tax
under Section 2.09 of Laguna Provincial
Ordinance No. 01-92, insofar as it concerned
MERALCO, contravened the provisions of
Section 1 of P.D. 551 which read:
Any provision of law or local ordinance to the
contrary notwithstanding, the franchise tax
payable by all grantees of franchises to
generate, distribute and sell electric current for
light, heat and power shall be two per cent
(2%) of their gross receipts received from the
sale of electric current and from transactions
incident to the generation, distribution and sale
of electric current.
Such franchise tax shall be payable to the
Commissioner of Internal Revenue or his duly
authorized representative on or before the
twentieth day of the month following the end of
each calendar quarter or month, as may be
provided in the respective franchise or
pertinent municipal regulation and shall, any
provision of the Local Tax Code or any other
law to the contrary notwithstanding, be in lieu
of all taxes and assessments of whatever
nature imposed by any national or local
authority on earnings, receipts, income and
privilege of generation, distribution and sale of
electric current.
On 28 August 1995, the claim for refund of
petitioner was denied in a letter signed by
Governor Jose D. Lina. In denying the claim,
respondents relied on a more recent law, i.e.,
Republic Act No. 7160 or the Local
Government Code of 1991, than the old decree
invoked by petitioner.

ISSUES:
1. Whether the imposition of a franchise tax
under Section 2.09 of Laguna Provincial
Ordinance No. 01-92, insofar as petitioner is
concerned, is violative of the non-impairment
clause of the Constitution and Section 1 of
Presidential Decree No. 551.
2. Whether Republic Act. No. 7160, otherwise
known as the Local Government Code of 1991,
has repealed, amended or modified
Presidential Decree No. 551.

RULING:
The petition lacks merit.
Prefatorily, it might be well to recall that local
governments do not have the inherent power to
tax [4] except to the extent that such power
might be delegated to them either by the basic
law or by statute. Presently, under Article X of
the 1987 Constitution, a general delegation of
that power has been given in favor of local
government units. Thus:
Sec. 3. The Congress shall enact a local
government code which shall provide for a
more responsive and accountable local
government structure instituted through a
system of decentralization with effective
mechanisms of recall, initiative, and
referendum, allocate among the different local
government units their powers, responsibilities,
and resources, and provide for the
qualifications, election, appointment and
removal, term, salaries, powers and functions,
and duties of local officials, and all other
matters relating to the organization and
operation of the local units.
x x x x x x x x x
Sec. 5. Each local government 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.
The 1987 Constitution has a counterpart
provision in the 1973 Constitution which did
come out with a similar delegation of revenue
making powers to local governments. [5]
Under the regime of the 1935 Constitution no
similar delegation of tax powers was provided,
and local government units instead derived
their tax powers under a limited statutory
authority. Whereas, then, the delegation of tax
powers granted at that time by statute to local
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 47

governments was confined and defined
(outside of which the power was deemed
withheld), the present constitutional rule
(starting with the 1973 Constitution), however,
would broadly confer such tax powers subject
only to specific exceptions that the law might
prescribe.
Under the now prevailing Constitution, where
there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist
although Congress may provide statutory
limitations and guidelines. The basic rationale
for the current rule is to safeguard the viability
and self-sufficiency of local government units
by directly granting them general and broad tax
powers. Nevertheless, the fundamental law did
not intend the delegation to be absolute and
unconditional; the constitutional objective
obviously is to ensure that, while the local
government units are being strengthened and
made more autonomous, [6] the legislature
must still see to it that (a) the taxpayer will not
be over-burdened or saddled with multiple and
unreasonable impositions; (b) each local
government unit will have its fair share of
available resources; (c) the resources of the
national government will not be unduly
disturbed; and (d) local taxation will be fair,
uniform, and just.
The Local Government Code of 1991 has
incorporated and adopted, by and large the
provisions of the now repealed Local Tax
Code, which had been in effect since 01 July
1973, promulgated into law by Presidential
Decree No. 231 [7] pursuant to the then
provisions of Section 2, Article XI, of the 1973
Constitution. The 1991 Code explicitly
authorizes provincial governments,
notwithstanding any exemption granted by any
law or other special law, x x x (to) impose a tax
on businesses enjoying a franchise. Indicative
of the legislative intent to carry out the
Constitutional mandate of vesting broad tax
powers to local government units, the Local
Government Code has effectively withdrawn
under Section 193 thereof, tax exemptions or
incentives theretofore enjoyed by certain
entities. This law states:
Section 193 Withdrawal of Tax Exemption
Privileges Unless otherwise provided in this
Code, tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether
natural or juridical, including government-
owned or controlled corporations, except local
water districts, cooperatives duly registered
under R.A. No. 6938, non-stock and non-profit
hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this
Code. (Underscoring supplied for emphasis)
Petitioner in its complaint before the Regional
Trial Court cited the ruling of this Court in
Province of Misamis Oriental vs. Cagayan
Electric Power and Light Company, Inc.; [11]
thus:
In an earlier case, the phrase shall be in lieu
of all taxes and at any time levied, established
by, or collected by any authority found in the
franchise of the Visayan Electric Company was
held to exempt the company from payment of
the 5% tax on corporate franchise provided in
Section 259 of the Internal Revenue Code
(Visayan Electric Co. vs. David, 49 O.G. [No. 4]
1385)
Similarly, we ruled that the provision: shall be
in lieu of all taxes of every name and nature in
the franchise of the Manila Railroad
(Subsection 12, Section 1, Act No. 1510)
exempts the Manila Railroad from payment of
internal revenue tax for its importations of coal
and oil under Act No. 2432 and the
Amendatory Acts of the Philippine Legislature
(Manila Railroad vs. Rafferty, 40 Phil. 224).
The same phrase found in the franchise of the
Philippine Railway Co. (Sec. 13, Act No. 1497)
justified the exemption of the Philippine
Railway Company from payment of the tax on
its corporate franchise under Section 259 of
the Internal Revenue Code, as amended by
R.A. No. 39 (Philippine Railway Co vs.
Collector of Internal Revenue, 91 Phil. 35).
Those magic words, shall be in lieu of all
taxes also excused the Cotabato Light and Ice
Plant Company from the payment of the tax
imposed by Ordinance No. 7 of the City of
Cotabato (Cotabato Light and Power Co. vs.
City of Cotabato, 32 SCRA 231).
So was the exemption upheld in favor of the
Carcar Electric and Ice Plant Company when it
was required to pay the corporate franchise tax
CONSTITUTIONAL LIMITATIONS| PERCY TAXIN 48

under Section 259 of the Internal Revenue
Code as amended by R.A. No. 39 (Carcar
Electric & Ice Plant vs. Collector of Internal
Revenue, 53 O.G. [No. 4] 1068). This Court
pointed out that such exemption is part of the
inducement for the acceptance of the franchise
and the rendition of public service by the
grantee. [12]
In the recent case of the City Government of
San Pablo, etc., et al. vs. Hon. Bienvenido V.
Reyes, et al., [13] the Court has held that the
phrase in lieu of all taxes have to give way to
the peremptory language of the Local
Government Code specifically providing for the
withdrawal of such exemptions, privileges, and
that upon the effectivity of the Local
Government Code all exemptions except only
as provided therein can no longer be invoked
by MERALCO to disclaim liability for the local
tax. In fine, the Court has viewed its previous
rulings as laying stress more on the legislative
intent of the amendatory law whether the tax
exemption privilege is to be withdrawn or not
rather than on whether the law can withdraw,
without violating the Constitution, the tax
exemption or not.
While the Court has, not too infrequently,
referred to tax exemptions contained in special
franchises as being in the nature of contracts
and a part of the inducement for carrying on
the franchise, these exemptions, nevertheless,
are far from being strictly contractual in nature.
Contractual tax exemptions, in the real sense
of the term and where the non-impairment
clause of the Constitution can rightly be
invoked, are those agreed to by the taxing
authority in contracts, such as those contained
in government bonds or debentures, lawfully
entered into by them under enabling laws in
which the government, acting in its private
capacity, sheds its cloak of authority and
waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked
without impairing the obligations of contracts.
[14] These contractual tax exemptions,
however, are not to be confused with tax
exemptions granted under franchises. A
franchise partakes the nature of a grant which
is beyond the purview of the non-impairment
clause of the Constitution. [15] Indeed, Article
XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for
the operation of a public utility shall be granted
except under the condition that such privilege
shall be subject to amendment, alteration or
repeal by Congress as and when the common
good so requires.
WHEREFORE, the instant petition is hereby
DISMISSED