Course Outline Tax 1

Prescribed Books:

General Principles and Income Taxation by Jafar Dimaampao

National Internal Revenue Code (1997, as amended)
Income Taxation by Mamalateo

Topics:
Definition of Taxation
Lifeblood Doctrine
Necessity Theory
Doctrine of Symbiotic Relationship
Characteristics of States Power to Tax
Aspects/Process/Phases of Taxation
Purposes of Taxation
Extent of States Taxing Power
Principles of Sound Tax System
Taxation as Distinguished from the Other Inherent Power
Cases:
1. Vera vs. Fernandez
2. NPC vs. Cabanatuan
3. Cebu Portland Cement vs. CTA
4. CIR vs. Pineda
5. CIR vs Algue, Inc
6. CIR vs. Metro Star Superama
7. CIR vs. CTA
8. CIR vs. Manila Bankers Life, Inc
9. PBC vs. CIR
10. Phil. Guarantee Co., Inc vs. CIR
11. CIR vs. BPI
12. Valley Trading Co. vs. CA

89 SCRA 199
GR No. 149110, April 9, 2003
GR No. L-29059, Dec. 15, 1987
21 SCRA 105
GR No. L-28896, Feb. 17, 1988
GR No. 185371, Dec. 8, 2010
234 SCRA 348
GR No. 169123, March 16, 2011
302 SCRA 250
13 SCRA 775
GR No. 134062, April 17, 2007
GR No. 495529, March 31, 1989

FACTS:This is a petition for review for certiorari of the order of the CFI of Isabela denying the petitioners prayer
for the writ of preliminary injunction.
The petitioner Valley Trading Co., Inc. filed a complaint in the court a quo seeking a declaration
of the supposed nullity of Section 2B.02, Sub-paragraph 1, Letter (A), Paragraph 2 of Ordinance No. T-1,
Revenue Code of Cauayan, Isabela, which imposed a graduated tax on retailers, independent wholesalers
and distributors; and for the refund of P23,202.12, plus interest of 14 % per annum thereon, which
petitioner had paid pursuant to said ordinance. Petitioner likewise prayed for the issuance of a writ of
preliminary prohibitory injunction to enjoin the collection of said tax.
Petitioner takes the position that said ordinance imposes a "graduated fixed tax based on Sales"
that "in effect imposes a sales tax in contravention of Local Tax Code which prohibits a municipality from
imposing a percentage tax on sales.
Respondents claim in their answer that the tax is an annual fixed business tax, not a percentage tax
on sales, imposable by a municipality under Section 19(A-1) of the Local Tax Code. The Acting Secretary
of Finance, in his letter of April 14, 1977, upholding the validity of said tax on the ground that the same is
an annual graduated fixed tax imposed on the privilege to engage in business, and not a percentage tax on
sales which consists of a fixed percentage of the proceeds realized out of every sale transaction of taxable
items sold by the taxpayer.

The trial court denied the prayer for a writ of preliminary injunction on the ground that "the
collection of taxes cannot be enjoined".
ISSUES:1. WON a writ of preliminary injunction may be issued
HELD: According to the Supreme Court, taxes are lifeblood of the government. The issuance of writ of preliminary
injunction will delay the functions of the government. Furthermore, such action will run counter to the well
settled rule that laws are presumed to be valid unless and until the courts declare the contrary in clear and
unequivocal terms. A court should issue a writ of preliminary injunction only when the petitioner assailing
a statute has made out a case of unconstitutionality or invalidity strong enough to overcome, in the mind of
the judge, the presumption of validity, aside from a showing of a clear legal right to the remedy sought.
The case before Us, however, presents no features sufficient to overcome such presumption.
There mere fact that a statute is alleged to be unconstitutional or invalid will not entitle a party to
have its enforcement enjoined. Under the foregoing disquisitions, We see no plausible reason to consider
this case as an exception.
WHEREFORE, judgment is hereby rendered DISMISSING this petition and SUSTAINING the
validity of the questioned orders of the trial court.
13. Lorenzo vs. Posadas

64 Phil 353

Facts: Thomas Hanley died, leaving a will and a considerable amount of real and personal properties. Proceedings
for the probate of his will and the settlement and distribution of his estate were begun in the CFI of
Zamboanga. The will was admitted to probate.

The CFI considered it proper for the best interests of the estate to appoint a trustee to administer the real
properties which, under the will, were to pass to nephew Matthew ten years after the two executors
named in the will was appointed trustee. Moore acted as trustee until he resigned and the plaintiff
Lorenzo herein was appointed in his stead.

Herein petitioner Lorenzo, in his capacity as trustee of the estate brought an action against respondent Posadas,
Collector of Internal Revenue. Petitioner alleges the respondent to have exceeded in its tax collection,
which, as assessed by the former, should only be in the amount of PhP1,434.24 instead of PhP2,052.74.
Disregarding the allegation, respondent filed a motion in the CFI of Zamboanga praying that the trustee be
made to pay such tax. The motion was granted. Petitioner paid the amount in protest, however notified the
respondent that until a refund is prompted, suit would be bought for its recovery. Respondent overruled the
protest. Hence, the case at bar.
Issue/s: Whether or not the provisions of Act No. 3606 (Tax Law) which is favorable to the taxpayer be given
retroactive effect?
Held and Reasoning: No. The respondent levied and assessed the inheritance tax collected from the petitioner
under the provisions of section 1544 of the Revised Administrative Code as amended by Act No. 3606.
However, the latter only enacted in 1930 not the law in force when the testator died in 1922. Laws cannot
be applied retroactively. The Court states that it is a well-settled principle that inheritance taxation is
governed by the statue in force at the time of the death of the decendent. The Court also emphasized
that a statute should be considered as prospective in its operation, unless the language of the statute
clearly demands or expresses that it shall have retroactive effect Act No. 3606 does not contain any
provisions indicating a legislative intent to give it a retroactive effect. Therefore, the provisions of Act No.
3606 cannot be applied to the case at bar.

14. Mactan Cebu Intl Airport Authority vs. Marcos

261 SCRA 667

FACTS:Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act
No. 6958, mandated to "principally undertake the economical, efficient and effective control, management
and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu
City, . . . and such other Airports as may be established in the Province of Cebu . . . (Sec. 3, RA 6958).
Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment
of realty taxes in accordance with Section 14 of its Charter.
On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer
of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the
petitioner , in the total amount of P2,229,078.79.
Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor
the aforecited Section 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted
that it is an instrumentality of the government performing governmental functions, citing section 133 of the
Local Government Code of 1991 which puts limitations on the taxing powers of local government units.
Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the
MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by
virtue of Sections 193 and 234 of the Local Governmental Code that took effect on January 1, 1992.
Petitioner was compelled to pay its tax account "under protest" and thereafter filed a Petition for
Declaratory Relief with the Regional Trial Court of Cebu, Branch .
MCIAA basically contended that the taxing powers of local government units do not extend to the
levy of taxes or fees of any kind on an instrumentality of the national government.
Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands
on the same footing as an agency or instrumentality of the national government by the very nature of its
powers and functions.
Respondent City, however, asserted that MACIAA is not an instrumentality of the government
but merely a government-owned corporation performing proprietary functions As such, all exemptions
previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and
234 of the Local Government Code when it took effect on January 1, 1992.
The trial court dismissed the petition and ruled that the New Local Government Code of 1991
or RA 7160 provides the express cancellation and withdrawal of exemption of taxes by government owned
and controlled corporation per Sections.
With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided
for in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local
Government Code of 1991.
Petitioners motion for reconsideration was denied by the trial court, the petitioner then filed the
instant petition.
ISSUE: W/N Petitioner is liable to is exempted from the payment of realty taxes.
HELD:MCIAA is not exempt from payment of realty taxes. There can be no question that under Section 14 of R.A.
No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or
any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and
exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing
authority. The only exception to this rule is where the exemption was granted to private parties based on
material consideration of a mutual nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution.

The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by
local government units of their power to tax, the scope thereof or its limitations, and the exemption from
taxation.
Reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid
down in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia,
"taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and
local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the
Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by
the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof
has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first
paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons,
including government-owned and controlled corporations, Section 193 of the LGC prescribes the general
rule, viz., they are withdrawn upon the effectivity of the LGC.
Note that as a reproduced in Section 234(a), the phrase "and any government-owned or controlled
corporation so exempt by its charter" was excluded. The justification for this restricted exemption in
Section 234(a) seems obvious: to limit further tax exemption privileges, specially in light of the general
provision on withdrawal of exemption from payment of real property taxes in the last paragraph of property
taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy
to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-reliant communities
and make them effective partners in the attainment of national goals. The power to tax is the most effective
instrument to raise needed revenues to finance and support myriad activities of local government units for
the delivery of basic services essential to the promotion of the general welfare and the enhancement of
peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for
the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and
all other units of government were that such privilege resulted in serious tax base erosion and distortions in
the tax treatment of similarly situated enterprises, and there was a need for this entities to share in the
requirements of the development, fiscal or otherwise, by paying the taxes and other charges due from them.
The petitioner cannot claim that it was never a "taxable person" under its Charter. It was only
exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is
conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real
property tax.
Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the government performing governmental functions may be subject to tax. Where it is done precisely to
fulfill a constitutional mandate and national policy, no one can doubt its wisdom.
15. Pepsi Cola Bottling Co. vs. Municipality of Tanauan , Leyte

69 SCRA 460

FACTS: Pepsi-Cola Bottling Co. filed a case before the CFI of Leyte praying for the declaration of the Local
Autonomy Act as unconstitutional, being an undue delegation of taxing authority as well as to declare
Ordinances Nos. 23 and 27, of the municipality of Tanauan, Leyte, null and void.
Pepsi alleged that both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and
the production tax rates imposed therein are practically the same. The first levies and collects "from soft
drinks producers and manufacturers a tax of 1/16 of a centavo for every bottle of soft drink corked" while
the other levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of
this municipality a tax of ONE CENTAVO on each gallon of volume capacity."

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production
tax. CFI Leyte DISMISED and UPHELD the constitutionality of the ordinance; CA gave the case
directly to SC
ISSUE: 1. WoN the taxing power of LGUs constitute undue delegation
2. WoN Ordinances Nos. 23 and 27 are unconstitutional as it constitutes double taxation
3. WoN the taxes are oppressive, unjust and confiscatory
HELD: 1. NEGATIVE. Municipal corporations are exceptions to the doctrine of non-delegation. Legislative powers
may be delegated to local governments in respect of matters of local concern. This is sanctioned by
immemorial practice. By necessary implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on such local governmental agencies
the power to tax. Under the New Constitution, local governments are granted the autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local
government unit shall have the power to create its sources of revenue and to levy taxes, subject to such
limitations as may be provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the legislative power to enact and vest in local governments the power
of local taxation.
Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State
has not deemed wise to tax for more general purposes. This is not to say though that the constitutional
injunction against deprivation of property without due process of law may be passed over under the guise
of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as
when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the
person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the
assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided.
2. NEGATIVE. There is no validity to the assertion that the delegated authority can be declared
unconstitutional on the theory of double taxation. Moreover, double taxation, in general, is not forbidden by
our fundamental law. It becomes obnoxious only where the taxpayer is taxed twice for the benefit of the
same governmental entity or by the same jurisdiction for the same purpose, but not in a case where one tax
is imposed by the State and the other by the city or municipality.
The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 to serve as
substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect. This is because it was discovered that the producer or manufacturer could increase the volume
contents of the bottle and still pay the same tax rate.
Also, Ord. No. 27 is NOT a percentage tax on sales as the tax is levied on the produce and not on
the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes
of determining the tax rate on the products, but there is not set ratio between the volume of sales and the
amount of the tax.
Ord. No. 27 is also NOT a specific tax. Specific taxes are those imposed on specified articles, such
as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified.
3. The tax of one peso on each gallon of volume capacity on all soft drinks, produced or manufactured, or
an equivalent of 1- centavos per case, cannot be considered unjust and unfair. An increase in the tax alone
would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are
allowed much discretion in determining the rates of imposable taxes. This is in line with the constutional
policy of according the widest possible autonomy to local governments in matters of local taxation, an

aspect that is given expression in the Local Tax Code. And, unless the amount is so excessive as to be
prohibitive, courts will go slow in writing off an ordinance as unreasonable.
Finally, municipalities are empowered to impose, not only municipal license taxes upon persons
engaged in any business or occupation but also to levy for public purposes, just and uniform taxes.
Ordinance No. 27 comes within the second power of a municipality.
16. Cervantes vs. Auditor General

GR No. L-4043, May 26, 1952

FACTS: This is a petition for review of a decision of Auditor General denying petitioners claim for quarters
allowance as manager of the National Abaca and other Fibers Corp. (NAFCO).
Petitioner was the manager of NAFCO in 1949 with an annual salary of P15,000.00. By a
resolution of the Board of Directors, he was granted quarter allowance of not exceeding P400 a month
effective the first of that month. This allowance was disapproved by the Central Committee of the
government enterprise council on the strength of the recommendation of the NAFCO auditor, concurred in
by the Auditor General, (1) that quarters allowance constituted additional compensation prohibited by the
charter of the NAFCO, which fixes the salary of the general manager thereof at the sum not to exceed
P15,000 a year, and (2) that the precarious financial condition of the corporation did not warrant the
granting of such allowance.
Petitioner asked the Control Committee to reconsider its action and approve his claim for
allowance which was again referred by the Control Committee to the auditor General for comment. The
Committee in turn referred it to the NAFCO auditor, who reaffirmed his previous recommendation and
emphasized that the fact that the corporation's finances had not improved. Hence, this petition for review.
ISSUE: Whether or not RA No. 51 is null and void
HELD: NEGATIVE. The rule is that so long as the Legislature "lays down a policy and a standard is established
by the statute" there is no undue delegation. Republic Act No. 51 in authorizing the President of the
Philippines, among others, to make reforms and changes in government-controlled corporations, lays down
a standard and policy that the purpose shall be to meet the exigencies attendant upon the establishment of
the free and independent government of the Philippines and to promote simplicity, economy and efficiency
in their operations. The standard was set and the policy fixed. The President had to carry the mandate. This
he did by promulgating the executive order in question which, tested by the rule above cited, does not
constitute an undue delegation of legislative power.
NOTE: RA No. 51 authorizes the President of the Philippines, among other things, to effect such reforms and
changes in government owned and controlled corporations for the purpose of promoting simplicity,
economy and efficiency in their operation

17. Maceda vs Macaraig

GR No. 88291, June 8, 1993

FACTS:Commonwealth Act 120 created NAPOCOR as a public corporation to undertake the development of
hydraulic power and the production of power from other sources. On June 4, 1949, Republic Act No. 357
was enacted authorizing the President of the Philippines (Pres. Quirino) to guarantee, absolutely and
unconditionally, as primary obligor, the payment of any and all NPC loans.
He was also authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate
objectives and for the reconstruction and development of the economy of the country. It was expressly

stated that any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions
and restrictions of the Republic of the Philippines, its provinces, cities and municipalities.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real
estate taxes and on September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A.
No. 120, as amended. A new section was added to the charter, now known as Section 13, R.A .No. 6395,
which declares the non-profit character and tax exemptions of NPC.
To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared
exempt from the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or
administrative proceedings.
It is also exempt from all income taxes, franchise taxes and realty taxes to be paid to the National
Government including import duties, compensating taxes and advanced sales tax, and wharfage fees on
import of foreign goods and all taxes, duties, fees, imposts on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of electric power.
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to
fulfill its role under aforesaid P.D. No. 40. PD 380 specified that NAPOCORs exemption includes all taxes,
etc. imposed directly or indirectly.
PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries; however,
empowering the President or the Minister of Finance, upon recommendation of the Fiscal Incentives
Review Board (FIRB) to restore, partially or completely, the exemptions withdrawn or revised. The FIRB
issued Resolution 10-85 restoring the duty and tax exemptions privileges of NAPOCOR for period 11 June
1984- 30 June 1985. Resolution 1-86 restored such exemption indefinitely effective July 1, 1985.
EO 93 withdrew the exemption. FIRB issued Resolution 17-87 restoring NAPOCORs exemption
.Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and
delivered to NAPOCOR. Oil companies started to pay specific and ad valorem taxes on their sales of oil
products to NAPOCOR only in 1984.
ISSUE: Whether or not the NAPOCOR is no longer subject to tax exemption from indirect tax when PD 938 stated
the exemption in general term.
HELD: NEGATIVE. Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the
phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D.
No. 380, does not expressly include "indirect taxes (Indirect Tax - tax is imposed upon goods BEFORE
reaching the consumer who ultimately pays for it, not as a tax, but as a part of the purchase price. E.g. the
internal revenue indirect taxes (specific tax, percentage taxes, (VAT) and the tariff and customs indirect
taxes (import duties, special import tax and other dues).
Supreme Court ruled that NPC laws show that it has been the lawmaker's intention that the NPC
was to be completely tax exempt from all forms of taxes direct and indirect. And when the NPC was
authorized to contract with the IBRD for foreign financing, any loans obtained were to be completely tax
exempt.
After the NPC was authorized to borrow from other sources of funds aside issuance of bonds
it was again specifically exempted from all types of taxes "to facilitate payment of its indebtedness."
Even when the ceilings for domestic and foreign borrowings were periodically increased, the tax exemption
privileges of the NPC were maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No.
987 but the exemption was, however, restored by R.A. No. 6395. In fact P.D. No. 380 added phrase
"directly or indirectly" to said Section 13(d).
Furthermore SC held that both presidential decrees were made by the same person, it would have
been very easy for him to retain the same or similar language used in P.D. No. 380 P.D. No. 938 if his

intention were to preserve the indirect tax exemption of NPC. One common theme in all these laws is that
the NPC must be enable to pay its indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total
domestic indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time. The NPC
must be and has to be exempt from all forms of taxes if this goal is to be achieved.
18. Phil. Petroleum Co. vs. Municipality of Pililla

GR No. 85318, June 3, 1991

FACTS:Petitioner, Philippine Petroleum Corporation (PPC for short) is a business enterprise engaged in the
manufacture of lubricated oil basestock which is a petroleum product, with its refinery plant situated at
Malaya, Pililla, Rizal, conducting its business activities within the territorial jurisdiction of the
Municipality of Pililla, Rizal.
Under Section 142 of the National Internal Revenue Code of 1939, manufactured oils and other
fuels are subject to specific tax.
Later, Presidential Decree No. 231, otherwise known as the Local Tax Code was issued by former
President Ferdinand E. Marcos governing the exercise by provinces, cities, municipalities and barrios of
their taxing and other revenue-raising powers. Sections 19 and 19 (a) thereof, provide among others, that
the municipality may impose taxes on business, except on those for which fixed taxes are provided on
manufacturers, importers or producers of any article of commerce of whatever kind or nature, including
brewers, distillers, rectifiers, repackers, and compounders of liquors, distilled spirits and/or wines in
accordance with the schedule listed therein.
The Secretary of Finance issued a Circular directed to all provincial, city and municipal treasurers
to refrain from collecting any local tax imposed in old or new tax ordinances in the business of
manufacturing, wholesaling, retailing, or dealing in petroleum products subject to the specific tax under the
National Internal Revenue Code.
Likewise, another Circular was issued by the Secretary of Finance instructing all City Treasurers
to refrain from collecting any local tax imposed in tax ordinances enacted before or after the effectivity of
the Local Tax Code on the businesses of manufacturing, wholesaling, retailing, or dealing in, petroleum
products subject to the specific tax under the National Internal Revenue Code.
Meanwhile, Respondent Municipality of Pililla enacted Municipal Tax Ordinance No. 1
otherwise known as "The Pililla Tax Code of 1974". Sections 9 and 10 of the said ordinance imposed a tax
on business, except for those for which fixed taxes are provided in the Local Tax Code.
P.D. 436 was promulgated increasing the specific tax on lubricating oils, gasoline, bunker fuel oil,
diesel fuel oil and other similar petroleum products levied under Sections 142, 144 and 145 of the National
Internal Revenue Code, as amended, and granting provinces, cities and municipalities certain shares in the
specific tax on such products in lieu of local taxes imposed on petroleum products.
Provincial Circular No. 6-77 was also issued directing all city and municipal treasurers to refrain
from collecting the so-called storage fee on flammable or combustible materials imposed under the local
tax ordinance of their respective locality, said fee partaking of the nature of a strictly revenue measure or
service charge.
P.D. 1158 otherwise known as the National Internal Revenue Code of 1977 was enacted, Section
153 of which specifically imposes specific tax on refined and manufactured mineral oils and motor fuels.
Enforcing the provisions of the above-mentioned ordinance, the respondent filed a complaint on
April 4, 1986 docketed as Civil Case No. 057-T against PPC for the collection of the business tax from
1979 to 1986; storage permit fees from 1975 to 1986; mayor's permit and sanitary inspection fees from
1975 to 1984. PPC, however, have already paid the last-named fees starting 1985 (Rollo, p. 74).
The trial court rendered a decision against the petitioner. Hence, the instant petition.
Issue: Whether petitioner PPC whose oil products are subject to specific tax under the NIRC, is still liable to pay (a)
tax on business and (b) storage fees, considering Provincial Circular No. 6-77; and mayor's permit and

sanitary inspection fee unto the respondent Municipality of Pililla, Rizal, based on Municipal Ordinance
No. 1.-YES
Ruling: Petitioner PPC contends that: (a) Provincial Circular No. 2673 declared as contrary to national economic
policy the imposition of local taxes on the manufacture of petroleum products as they are already subject to
specific tax under the National Internal Revenue Code; (b) the above declaration covers not only old tax
ordinances but new ones, as well as those which may be enacted in the future; (c) both Provincial Circulars
(PC) 26-73 and 26 A-73 are still effective, hence, unless and until revoked, any effort on the part of the
respondent to collect the suspended tax on business from the petitioner would be illegal and unauthorized;
and (d) Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum products.
There is no question that Pililla's Municipal Tax Ordinance No. 1 imposing the assailed taxes, fees
and charges is valid as it conforms with the mandate of law.
But P.D. No. 426 amending the Local Tax Code is deemed to have repealed Provincial Circulars
issued by the Secretary of Finance when Sections 19 and 19 (a), were carried over into P.D. No. 426 and no
exemptions were given to manufacturers, wholesalers, retailers, or dealers in petroleum products.
Well-settled is the rule that administrative regulations must be in harmony with the
provisions of the law. In case of discrepancy between the basic law and an implementing rule or
regulation, the former prevails.
Furthermore, while Section 2 of P.D. 436 prohibits the imposition of local taxes on petroleum
products, said decree did not amend Sections 19 and 19 (a) of P.D. 231 as amended by P.D. 426, wherein
the municipality is granted the right to levy taxes on business of manufacturers, importers, producers of any
article of commerce of whatever kind or nature. A tax on business is distinct from a tax on the article itself.
Thus, if the imposition of tax on business of manufacturers, etc. in petroleum products contravenes a
declared national policy, it should have been expressly stated in P.D. No. 436.
The exercise by local governments of the power to tax is ordained by the present Constitution. To
allow the continuous effectivity of the prohibition set forth in PC No. 26-73 (1) would be tantamount to
restricting their power to tax by mere administrative issuances. Under Section 5, Article X of the 1987
Constitution, only guidelines and limitations that may be established by Congress can define and limit
such power of local governments. Thus:
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 . . .
Provincial Circular No. 6-77 enjoining all city and municipal treasurers to refrain from collecting
the so-called storage fee on flammable or combustible materials imposed in the local tax ordinance of their
respective locality frees petitioner PPC from the payment of storage permit fee.
The storage permit fee being imposed by Pililla's tax ordinance is a fee for the installation and
keeping in storage of any flammable, combustible or explosive substances. Inasmuch as said storage makes
use of tanks owned not by the municipality of Pililla, but by petitioner PPC, same is obviously not a charge
for any service rendered by the municipality as what is envisioned in Section 37 of the same Code.
Section 10 (z) (13) of Pililla's Municipal Tax Ordinance No. 1 prescribing a permit fee is a permit
fee allowed under Section 36 of the amended Code.
As to the authority of the mayor to waive payment of the mayor's permit and sanitary inspection
fees, the trial court did not err in holding that "since the power to tax includes the power to exempt thereof
which is essentially a legislative prerogative, it follows that a municipal mayor who is an executive officer
may not unilaterally withdraw such an expression of a policy thru the enactment of a tax." The waiver
partakes of the nature of an exemption. It is an ancient rule that exemptions from taxation are construed in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority (Esso Standard Eastern,
Inc. v. Acting Commissioner of Customs, 18 SCRA 488 [1966]). Tax exemptions are looked upon with
disfavor (Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 121 [1983]). Thus, in

the absence of a clear and express exemption from the payment of said fees, the waiver cannot be
recognized. As already stated, it is the law-making body, and not an executive like the mayor, who can
make an exemption. Under Section 36 of the Code, a permit fee like the mayor's permit, shall be required
before any individual or juridical entity shall engage in any business or occupation under the provisions of
the Code.
However, since the Local Tax Code does not provide the prescriptive period for collection of local
taxes, Article 1143 of the Civil Code applies. Said law provides that an action upon an obligation created
by law prescribes within ten (10) years from the time the right of action accrues. The Municipality of
Pililla can therefore enforce the collection of the tax on business of petitioner PPC due from 1976 to
1986, and NOT the tax that had accrued prior to 1976.

19. Roxas, et al vs CTA

GR No. L-25043, April 26, 1968

FACTS: Don Pedro Roxas and Dona Carmen Ayala, transmitted to their grandchildren by hereditary succession the
following properties:
1) Agricultural lands with total area of 19,000 hectares in the municipality of
Nausgbu, Batangas;
2) A residential house and lot located in Malate, Manila and;
3) Shares of stocks in different corporations. To manage the same, the children
Antonio Roxas, Eduardo Roxas and Jose Roxas formed a partnership called Roxas y
Compania. After World War II, the tenants who have all been tilling the lands in Nasugbu
expressed their desire to purchase the parcels which they actually occupied. The Government persuaded the
Roxas brothers to do the same and the latter agreed to sell 13,500 hectares to the Government for
distribution to actual occupants.
It turned out however that the Government did not have funds to cover the purchase price, and so a
special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia
certain amount as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under
the arrangement, farmers were allowed to buy the lands for the same price but by instalment, and
contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly
amortization paid by the farmers.
In 1953 and 1955, Roxas y Cia derived from said instalment payments a net gain, 50% of which
was reported for income tax purposes as gain on the sale of capital asset held for more than 1 year pursuant
to Section 34 of the Tax Code.
In 1958, the CIR demanded from Roxas y Cia the payment of real estate dealers tax (based on the
fact that Roxas y Cia received house rentals from Jose Roxas in the amount of P8,000.00) and tax for
dealers of securities for 1952.
The Commissioner also assessed deficiency income taxes against the Roxas brothers for the years
1953 and 1955 from the inclusion as income of Roxas y Cia of the unreported 50% of the net profits
derived from the sale of the NasUgbu farm lands. It also disallowed the deductions from gross income of
various business expenses and contributions claimed by Roxas y Cia and the Roxas brothers.
The Roxas brothers protested the assessment but inasmuch as said protest was denied, they
instituted an appeal in the CTA which sustained the assessment except the demand for the payment of the
fixed tax on dealer of securities and the disallowance of the deductions for contributions to the Philippine
Air Force Chapel and Hijas de Jesus Retiro de Manresa.
Not satisfied, Roxas y Cia and the Roxas brothers appealed to the SC. The CIR did not appeal.
ISSUE(S): (1) WON the gain derived from the sale of the Nasugbu farm lands is not an ordinary gain, hence not
100% taxable
(2) WON the deductions for business expenses and contributions are deductible
(3) WON Roxas y Cia is not liable for the payment of the fixed tax on real estate dealers
HELD: 1) AFFIRMATIVE.This is an isolated transaction with its peculiar circumstances in spite of the fact that
there were hundreds of vendees. Although they paid for their respective holdings in instalment for a period
of 10 years, it would nevertheless not make the vendor Roxa y Cia a real estate dealer during the 10-year
amortization period.
It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled
them for generations was not only in consonance with, but more in obedience to the request and pursuant to
the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government
to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to
subsequently subdivide them among the farmers at very reasonable terms and prices. However, the
Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered
the Government's burden, went out of its way and sold lands directly to the farmers in the same way and

under the same terms as would have been the case had the Government done it itself. For this magnanimous
act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude.
The power of taxation is sometimes called also the power to destroy. Therefore it should be
exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg".And, in order to maintain
the general public's trust and confidence in the Government this power must be used justly and not
treacherously. It does not conform with our sense of justice in the instant case for the Government to
persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent
call.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence,
pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived
from the sale thereof is capital gain, taxable only to the extent of 50%.
2a) NEGATIVE. Representation expenses are deductible from gross income as expenditures
incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer
proves that they are reasonable in amount, ordinary and necessary, and incurred in connection with his
business. In the case at bar, the evidenced does not show such link between the expenses and the business
of Roxas u Cia.
Under Section 39(h), a contribution to a government entity is deductible when used exclusively for
public purposes. However, in this case, the contributions to the Christmas funds of the Pasay City Police,
Pasay City Firemen and Baguio City were not spent for public purpose but as Christmas gifts to the
families of the members of said entities. For this reason, the disallowance must be sustained.
Contribution to Our Lady of Fatima chapel at the FEU must be disallowed on the ground that the
said university gives dividends to its stockholders. The chapel has not been shown to belong to the Catholic
Church or any religious organization but to FEU, contributions to which are not deductible under Section
30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of its
stockholders.
2b) AFFIRMATIVE. On the other hand, the contribution to the Manila Police trust fund is an
allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be
used exclusively for its public functions.
Though Philippines Herald is not a corporation or an association contemplated in Section 30(h) of
the Tax Code, It should be noted however that the contributions were not made to the Philippines Herald
but a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes.
Members of this group of citizens do not receive profits for all the funds they raised were for Manilas
neediest families and such a group may be classified as an association organized exclusively for charitable
purposes mentioned in Section 30(h) of the tax Code.
3) NEGATIVE. The imposition of the real estate dealers fixed tax upon it, because it earned a
rental income of P8,000.00 per annum in 1952 is VALID although it came from Jose Roxas, one of the
partners. Section 194 of the Tax Code does not provide any qualification as to the persons paying the
rentals.
"Real estate dealer" includes any person engaged in the business of buying, selling, exchanging,
leasing or renting property on his own account as principal and holding himself out as a full or part-time
dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate
amount of three thousand pesos or more a year:
The above-mentioned law is too clear and explicit to admit construction. Hence, the finding of the
CTA is sustained.
20. Sison, Jr vs. Ancheta

GR No. L-59431, July 25, 1984

Facts:Petitioners challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended Section 21
of the National Internal Revenue Code of 1977.
Petitioner as taxpayer alleged that "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 characterizes the above section as
arbitrary amounting to class legislation, oppressive and capricious in character.
For petitioner, therefore, there is a transgression of both the equal protection and due process
clauses of the Constitution as well as of the rule requiring uniformity in taxation.
The OSG prayed for dismissal of the petition due to lack of merit.
Issue:

WON the assailed provision violates the equal protection and due process clause of the Constitution
while also violating the rule that taxes must be uniform and equitable.

Held: Negative. The petition is without merit. The SC ruled against Sison. The power to tax, an inherent
prerogative, has to be availed of to assure the performance of vital state functions. It is the source of the
bulk of public funds. To paraphrase a recent decision, taxes being the lifeblood of the government, their
prompt and certain availability is of the essence.
On due process: it is undoubted that it may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property from abuse of power. Petitioner alleges arbitrariness but his mere allegation does
not suffice and there must be a factual foundation of such unconstitutional taint.
On equal protection: it is suffices that the laws operate equally and uniformly on all persons
under similar circumstances, both in the privileges conferred and the liabilities imposed.
On the matter that the rule of taxation shall be uniform and equitable- this requirement is met
when the tax operates with the same force and effect in every place where the subject may be found.
Also, the rule of uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable.
"Equality and uniformity in taxation means that all taxable articles or kinds of property of the
same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and
natural classifications for purposes of taxation.
The taxing power has the authority to make reasonable and natural classifications for purposes of
taxation. Where the differentiation complained of conforms to the practical dictates of justice and
equity it is not discriminatory within the meaning of this clause and is therefore uniform. There is quite
a similarity then to the standard of equal protection for all that is required is that the tax applies equally to
all persons, firms and corporations placed in similar situation.
21. Tolentino vs. Sec. of Finance
22. Lutz vs. Araneta

235 SCRA 630

98 Phil. 148

FACTS: This case was initiated in the Court of First Instance of Negros Occidental to test the legality of the taxes
imposed by Commonwealth Act No. 567, otherwise known as the Sugar Adjustment Act.
Commonwealth Act No. 567, otherwise known as Sugar Adjustment Act was promulgated in 1940
to stabilize the sugar industry so as to prepare it for the eventuality of the loss of its preferential position in
the United States market and the imposition of export taxes", provided for under Sec. 6 of the Act.
Sec.2 thereof provides for an increase of the existing tax on the manufacture of sugar while section
3 levies on owners or persons in control of lands devoted to the cultivation of sugar cane and ceded to
others for a consideration, on lease or otherwise a tax equivalent to the difference between the money

value of the rental or consideration collected and the amount representing 12 per centum of the assessed
value of such land.
Plaintiff, Walter Lutz, in his capacity as Judicial Administrator of the Intestate Estate of Antonio
Jayme Ledesma, seeks to recover from the Collector of Internal Revenue the sum of P14,666.40 paid by the
estate as taxes, under section 3 of the Act, for the crop years 1948-1949 and 1949-1950; alleging that such
tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively,
which in plaintiff's opinion is not a public purpose for which a tax may be constitutioally levied. The action
having been dismissed by the Court of First Instance, the plaintifs appealed the case directly to this Court
(Judiciary Act, section 17).
Issue: Whether or not the tax imposed is constitutional. YES!
Held: CA No. 567 is not a pure exercise of the taxing power. Analysis of the Act, and particularly of section 6
(heretofore quoted in full), will show that the tax is levied with a regulatory purpose, to provide means for
the rehabilitation and stabilization of the threatened sugar industry. In other words, the act is primarily an
exercise of the police power.
It must, that the protection and promotion of the sugar industry is a matter of public concern, it
follows that the Legislature may determine within reasonable bounds what is necessary for its protection
and expedient for its promotion.
Here, the legislative discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in section 6 of the law (above quoted) bear
no relation to the objective pursued or are oppressive in character. If objective and methods are alike
constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution
and attainment. Taxation may be made the implement of the state's police power.
Thus, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that inequalities which result from a singling out of one particular class for
taxation or exemption infringe no constitutional limitation.
The funds raised under the Act should be exclusively spent in aid of the sugar industry, since it is
that very enterprise that is being protected. It may be that other industries are also in need of similar
protection; but the legislature is not required by the Constitution to adhere to a policy of all or none.
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in Florida
"The protection of a large industry constituting one of the great sources of the state's wealth and therefore
directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to
such an extent by public interests as to be within the police power of the sovereign. "
Full text ng Sec. 6 if ever matanong ni Sir.
SEC. 6. All collections made under this Act shall accrue to a special fund in the Philippine
Treasury, to be known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any
or all of the following purposes or to attain any or all of the following objectives, as may be provided by
law.
First, to place the sugar industry in a position to maintain itself, despite the gradual loss of the
preferntial position of the Philippine sugar in the United States market, and ultimately to insure its
continued existence notwithstanding the loss of that market and the consequent necessity of meeting
competition in the free markets of the world; Second, to readjust the benefits derived from the sugar
industry by all of the component elements thereof the mill, the landowner, the planter of the sugar cane,
and the laborers in the factory and in the field so that all might continue profitably to engage therein;
Third, to limit the production of sugar to areas more economically suited to the production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their living and working
conditions: Provided, That the President of the Philippines may, until the adjourment of the next regular
session of the National Assembly, make the necessary disbursements from the fund herein created (1) for
the establishment and operation of sugar experiment station or stations and the undertaking of researchers

(a) to increase the recoveries of the centrifugal sugar factories with the view of reducing manufacturing
costs, (b) to produce and propagate higher yielding varieties of sugar cane more adaptable to different
district conditions in the Philippines, (c) to lower the costs of raising sugar cane, (d) to improve the buying
quality of denatured alcohol from molasses for motor fuel, (e) to determine the possibility of utilizing the
other by-products of the industry, (f) to determine what crop or crops are suitable for rotation and for the
utilization of excess cane lands, and (g) on other problems the solution of which would help rehabilitate
and stabilize the industry, and (2) for the improvement of living and working conditions in sugar mills and
sugar plantations, authorizing him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore enumerated, and, likewise,
authorizing the disbursement from the fund herein created of the necessary amount or amounts needed for
salaries, wages, travelling expenses, equipment, and other sundry expenses of said agency or agencies.
23. Gomez vs. Palomar

25 SCRA 827

FACTS: On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in San
Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014 Dagohoy Street,
Singalong, Manila did not bear the special anti-TB stamp required by the statute, it was returned to the
petitioner.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and 10 (July
15, 1960). Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to franking privilege which are not
exempted from the payment of the five centavos intended for the Philippine Tuberculosis Society, such
extra charge may be collected in cash, for which official receipt (General Form No. 13, A) shall be issued,
instead of affixing the semi-postal stamp in the manner hereinafter indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the extra charge of five
centavos for the Philippine Tuberculosis Society shall be collected on each separately-addressed piece of
second-class mail matter, and the total sum thus collected shall be entered in the same official receipt to be
issued for the postage at the second-class rate. In making such entry, the total number of pieces of secondclass mail posted shall be stated, thus: "Total charge for TB Fund on 100 pieces . .. P5.00." The extra
charge shall be entered separate from the postage in both of the official receipt and the Record of
Collections.
2. First-class and third-class mail permits. Mails to be posted without postage affixed
under permits issued by this Bureau shall each be charged the usual postage, in addition to the
five-centavo extra charge intended for said society. The total extra charge thus received shall be
entered in the same official receipt to be issued for the postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter under
metered mail permit issued by this Bureau, the extra charge of five centavos for said society shall
be collected in cash and an official receipt issued for the total sum thus received, in the manner
indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards and
envelopes to holders of business reply permits, the five-centavo charge intended for said society
shall be collected in cash on each reply card or envelope delivered, in addition to the required
postage which may also be paid in cash. An official receipt shall be issued for the total postage
and total extra charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and other
persons entitled to the franking privilege under existing laws may pay in cash such extra charge
intended for said society, instead of affixing the semi-postal stamps to their mails, provided that
such mails are presented at the post-office window, where the five-centavo extra charge for said
society shall be collected on each piece of such mail matter. In such case, an official receipt shall
be issued for the total sum thus collected, in the manner stated in subparagraph 1.

Mail under permits, metered mails and franked mails not presented at the post-office window shall
be affixed with the necessary semi-postal stamps. If found in mail boxes without such stamps, they shall be
treated in the same way as herein provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its Agencies and
Instrumentalities Performing Governmental Functions." Adm. Order 10, amending Adm. Order 3, as
amended, exempts "copies of periodical publications received for mailing under any class of mail matter,
including newspapers and magazines admitted as second-class mail."
The Petitioner now questions the constitutionality of Republic Act 1635,1 as amended by
Republic Act 2631,2 and the the rule of uniformity and equality of taxation.
The lower court declared the statute and the orders unconstitutional
ISSUES: 1. WON it violates equal protection clause for the purpose of taxation?
2. WON the state is immune from taxation.
RULING: The SC ruled for the both issues in the Negative.
1. The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an excise tax, laid
upon the exercise of a privilege, namely, the privilege of using the mails. As such the objections levelled
against it must be viewed in the light of applicable principles of taxation.
To begin with, it is settled that the legislature has the inherent power to select the subjects of
taxation and to grant exemptions. This power has aptly been described as "of wide range and flexibility."5
Indeed, it is said that in the field of taxation, more than in other areas, the legislature possesses the greatest
freedom in classification. The reason for this is that traditionally, classification has been a device for fitting
tax programs to local needs and usages in order to achieve an equitable distribution of the tax burden.
The classification is likewise based on considerations of administrative convenience. For it is now a settled
principle of law that "consideration of practical administrative convenience and cost in the administration
of tax laws afford adequate ground for imposing a tax on a well-recognized and defined class.9 In the case
of the anti-TB stamps, undoubtedly, the single most important and influential consideration that led the
legislature to select mail users as subjects of the tax is the relative ease and convenienc eof collecting the
tax through the post offices. The small amount of five centavos does not justify the great expense and
inconvenience of collecting through the regular means of collection. On the other hand, by placing the duty
of collection on postal authorities the tax was made almost self-enforcing, with as little cost and as little
inconvenience as possible.
And then of course it is not accurate to say that the statute constituted mail users into a class. Mail
users were already a class by themselves even before the enactment of the statue and all that the legislature
did was merely to select their class. Legislation is essentially empiric and Republic Act 1635, as amended,
no more than reflects a distinction that exists in fact.
2.
Granted the power to select the subject of taxation, the State's power to grant exemption
must likewise be conceded as a necessary corollary. Tax exemptions are too common in the law; they have
never been thought of as raising issues under the equal protection clause.
As for the Government and its instrumentalities, their exemption rests on the State's sovereign immunity
from taxation. The State cannot be taxed without its consent and such consent, being in derogation of its
sovereignty, is to be strictly construed.
24. Carlos Super Drug Co. vs (?)

GR No. 166494, June 29, 2007

25. Tio vs Videogram

151 SCRA 208

FACTS: Petitioner assails the constitutionality of PD 1987 entitled An Act Creating the Videogram Regluatory
Board with broad powers to regulate and supervise the videogram industry. The decree was promulgated
on October 5, 1985 and took effect on April 10, 1986.
On November 5, 1985, PD 1994 amended the National Revenue code, inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready
for playback, regardless of length, an annual tax of five pesos; Provided, That locally
manufactured or imported blank video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila theaters association, integrated movie producers and
others filed their intervention and was permitted by the court over petitioner's opposition, upon the
allegations that intervention was necessary for the complete protection of their rights and that their
"survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors
were thereafter allowed to file their Comment in Intervention.
Petitioners attack the constitutionality of the decree on the following grounds:
Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation
of the due process clause of the Constitution;
There is no factual nor legal basis for the exercise by the President of the vast powers conferred
upon him by Amendment No. 6;
There is undue delegation of power and authority; The Decree is an ex-post facto law; and There is
over regulation of the video industry as if it were a nuisance, which it is not.
ISSUES: 1.WON Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;
2. WON The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation
of the due process clause of the Constitution;
HELD: Section 10. Tax on Sale, Lease or Disposition of Videograms. The provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the general object of the DECREE, which is the
regulation of the video industry through the Videogram Regulatory Board as expressed in its title. The tax
provision is not inconsistent with, nor foreign to that general subject and title. The express purpose of the
DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore
uncontrolled distribution of videograms is evident from Preambles (2 and 5), (2) videogram(s)
establishments collectively earn around P600 Million per annum from rentals, sales and disposition of
videograms, and such earnings have not been subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year .(5) proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition of the movie industry upon which more
than 75,000 families and 500,000 workers depend for their livelihood, but also provide an additional source
of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution of
videograms. Those preambles explain the motives of the lawmaker in presenting the measure. The title of
the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to
include the purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to
express all those objectives in the title or that the latter be an index to the body of the DECREE.
The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted
by the realization that earnings of videogram establishments of around P600 million per annum have not
been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an enduser tax, imposed on retailers for every videogram they make available for public viewing. It is similar to
the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden
on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need
for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of

intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an
objective of the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another.
It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has
been repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". Taxation has been made the implement of the state's
police power.
The rate of tax is a matter better addressed to the taxing legislature.
26. CIR vs. Central Luzon Drug Co.
27. FELS Energy vs. Province of Batangas

456 SCRA 414/445

Feb. 16, 2007

FACTS:NPC entered into a contract with Polar Energy for five years over diesel engine power barges. The two
parties have agreed that NPC shall be responsible for the payment of all real estate taxes and assessments in
respect of the power barges. Polar Energy subsequently assigned its rights under the agreement to FELS.
Two years later, FELS received an assessment of real property taxes on the power barges from the
Provincial Assessor. FELS referred the matter to NPC, reminding it of its obligation under the Agreement
to pay all real estate taxes. It then gave NPC the full power and authority to represent it in any conference
regarding the real property assessment of the Provincial Assessor.
NPC > MR > Denied.
Case brought to LBAA.
NPC > Petition to Set Aside Decision >ground: barges are non-taxable > Denied >FELS ordered
to pay real estate taxes.
The LBAA ruled that the power plant facilities, while they may be classified as movable or
personal property, are nevertheless considered real property for taxation purposes because they are installed
at a specific location with a character of permanency.
The LBAA also pointed out that the owner of the bargesFELS, a private corporationis the one
being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes
and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and
cannot be extended to FELS.
Finally, the LBAA also ruled that the petition was filed out of time.
Case brought to CBAA (Central Board of Assessment Appeals).
FELS > Appeal > LCBAA decision reversed.
LBAA > MR > Earlier decision reversed.
FELS &NPC > separate MR > Denied.
Case reached the CA.
FELS & NPC> separate petition for review > respectively denied >ground: prescription
ISSUES: 1. WON appeal before LBAA was field out of time.
2. WON the power barges are real property and are thus subject to real property tax.
3. WON the power barges are exempt from real estate tax under Sec. 234 (c) of R.A. No. 7160, it being
used by NPC a GOCC engaged in the supply, generation, and transmission of electric power.
HELD:1. Notice of assessment sent by Provincial Assessor to FELS states:
If you are not satisfied with this assessment, you may, within sixty (60) days from the date of
receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on

the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or
documents submitted in support of the appeal.
Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to
file a motion for reconsideration of the Provincial Assessors decision, a remedy not sanctioned by law.
If the taxpayer fails to appeal in due course, the right of the local government to collect the taxes
due with respect to the taxpayers property becomes absolute upon the expiration of the period to appeal. It
also bears stressing that the taxpayers failure to question the assessment in the LBAA renders the
assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from
questioning the correctness of the assessment, or from invoking any defense that would reopen the question
of its liability on the merits.
2. As found by the appellate court, the CBAA and LBAA power barges are real property and are thus
subject to real property tax. Tax assessments by tax examiners are presumed correct and made in good
faith, with the taxpayer having the burden of proving otherwise.
Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which,
though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast"
are considered immovable property. Thus, power barges are categorized as immovable property by
destination, being in the nature of machinery and other implements intended by the owner for an industry
or work which may be carried on in a building or on a piece of land and which tend directly to meet the
needs of said industry or work.
3. The owner of the taxable properties is petitioner FELS being the assignee of POLAR Energy. Part of
their Agreement stipulates:
OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures,
fittings, machinery and equipment on the Site used in connection with the Power Barges which have been
supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the
purpose of converting Fuel of NAPOCOR into electricity.
It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its
exemption in Section 234 (c) of R.A. No. 7160, which reads:
SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment
of the real property tax:
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or controlled corporations engaged in the supply and distribution of water
and/or generation and transmission of electric power; x x x
The law states that the machinery must be actually, directly and exclusively used by the
government owned or controlled corporation; moreover, Section 5.5, Article 5 of the Agreement provides:
OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of
the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges
to convert such Fuel into electricity in accordance with Part A of Article 7.
It is a basic rule that obligations arising from a contract have the force of law between the parties.
Not being contrary to law, morals, good customs, public order or public policy, the parties to the contract
are bound by its terms and conditions.
The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be
responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The
privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC
and does not bind a third person not privy thereto, in this case, the Province of Batangas