place, said amount cannot be considered as a "business asset" which can be

deducted as a loss in contemplation of law because its collection is not

enforceable as a matter of right, but is dependent merely upon the generosity
and magnanimity of the U. S. government. As of the end of 1945, there was
absolutely no law under which petitioner could claim compensation for the
destruction of his properties during the battle for the liberation of the
Philippines. And under the Philippine Rehabilitation Act of 1946, the payments
of claims by the War Damage Commission merely depended upon its discretion
to be exercised in the manner it may see lit, but the non-payment of which
cannot give rise to any enforceable right.

EMILIO Y. HILADO, PETITIONER, VS. THE COLLECTOR OF

INTERNAL REVENUE
AND THE COURT OF TAX
APPEALS, RESPONDENTS; G.R. No. L-9408,
October 31, 1956; Bautista Angelo J
Facts:
On March 31, 1952, petitioner filed his income tax return for 1951 with the
treasurer of Bacolod City wherein he claimed, among other things, the amount
of P12, 837.65 as a deductible item from his gross income pursuant to General
Circular No. V-123 issued by the Collector of Internal Revenue. On the basis of
said return, an assessment notice demanding the payment of P9, 419 was sent to
petitioner, who paid the tax in monthly installments, the last payment having
been made on January 2, 1953.

2. Yes. It is well known that our internal revenue laws are not political in
nature and as such were continued in force during the period of enemy
occupation and in effect were actually enforced by the occupation government.
Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector As a matter of fact, income tax returns were filed during that period and income
of Internal Revenue, issued General Circular No. V-139 which not only revoked tax payment were effected and considered valid and legal. Such tax laws are
deemed to be the laws of the occupied territory and not of the occupying enemy
and declared voids his general Circular No. V-123 but laid down the rule that
losses of property which occurred during the period of World War II from fires, ISSUE
storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are
deductible in the year of actual loss or destruction of said property. The
Whether the Secretary of Finance acted with valid authority in revoking
deduction was disallowed and the CIR demanded from him P3, 546 as
General Circular No. V-123 and approving in lieu thereof, General
deficiency income tax for said year. The petition for reconsideration filed by
Circular No. V-139.
petitioner was denied so he filed a petition for review with the CTA. The SC
HELD
affirmed the assessment made by the CIR. Hence, this appeal.
Yes. The Secretary of Finance is vested with authority to revoke, repeal or
abrogate the acts or previous rulings of his predecessors in office because the
construction of a statute by those administering it is not binding on their
successors if the latter becomes satisfied that a different construction should be
given. General Circular No. V-123, having been issued on a wrong construction
by the law, cannot give rise to a vested right that can be invoked by a taxpayer.
A vested right cannot spring from a wrong interpretation.

Issue: 1. whether Hilado can claim compensation during the war; and
2. Whether the internal revenue laws can been enforced during the
war
Ruling:
1. No. Assuming that said amount represents a portion of the 75% of his war
damage claim which was not paid, the same would not be deductible as a loss in
1951 because, according to petitioner, the last installment he received from the
War Damage Commission, together with the notice that no further payment
would be made on his claim, was in 1950. In the circumstance, said amount
would at most be a proper deduction from his 1950 gross income. In the second

An administrative officer cannot change a law enacted by Congress. Once a

regulation which merely interprets a statute is determined erroneous, it becomes
a nullity. The CIRs erroneous construction of the law does not preclude or stop
the Government from collecting a tax legally due.

assets, instead of the entitys net taxable income as provided for under the Tax
Code;

Under Art. 2254 of the Civil Code, no vested/acquired right can arise from
acts/omissions which are against the law or which infringe upon the rights of
others.

Mandate the collection of income tax on a per transaction basis, contrary to the
Tax Code provision which imposes income tax on net income at the end of the
taxable period;

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATION, INC.

VS. EXECUTIVE SECRETARY- MINIMUM CORPORATE INCOME
TAX

Go against the due process clause because the government collects income tax
even when the net income has not yet been determined; gain is never assured by
mere receipt of the selling price; and

Constitutionality; justifiable controversy. A dispute ripens into a judicial

controversy by the mere enactment of a questioned law or the approval of a
challenged act, even without any other overt act. Thus, there is no need to wait
until the concerned taxpayers have shut down their operations as a result of the
questioned minimum corporate income tax (MCIT) or creditable withholding
tax (CWT). Chamber of Real Estate and Builders Associations, Inc. vs. The
Hon. Executive Secretary Alberto Romulo, et al., G.R. No. 160756, March 9,
2010.

Contravene the equal protection clause because the CWT is being charged
upon real estate enterprises, but not on other business enterprises, more
particularly, those in the manufacturing sector, which do business similar to that
of a real estate enterprise
CREBA assails the imposition of the minimum corporate income tax (MCIT) as
being violative of the due process clause as it levies income tax even if there is
no realized gain. They also question the creditable withholding tax (CWT) on
sales of real properties classified as ordinary assets stating that (1) they ignore
the different treatment of ordinary assets and capital assets; (2) the use of gross
selling price or fair market value as basis for the CWT and the collection of tax
on a per transaction basis (and not on the net income at the end of the year) are
inconsistent with the tax on ordinary real properties; (3) the government collects
income tax even when the net income has not yet been determined; and (4) the
CWT is being levied upon real estate enterprises but not on other enterprises,
more particularly those in the manufacturing sector.

FACTS:
Petitioner Chamber of Real Estate and Builders Associations, Inc. (CREBA),
an association of real estate developers and builders in the Philippines,
questioned the validity of Section 27(E) of the Tax Code which imposes the
minimum corporate income tax (MCIT) on corporations. Under the Tax Code, a
corporation can become subject to theMCIT at the rate of 2% of gross income,
beginning on the 4thtaxable year immediately following the year in which it
commenced its business operations, when such MCIT is greater than the normal
corporate income tax. If the regular income tax is higher than the MCIT, the
corporation does not pay the MCIT.CREBA argued, among others, that the use
of gross income asMCIT base amounts to a confiscation of capital because gross
income, unlike net income, is not realized gain.CREBA also sought to invalidate
the provisions of RR No. 2-98, as amended, otherwise known as the
Consolidated Withholding Tax Regulations, which prescribe the rules and
procedures for the collection of CWT on sales of real properties classified as
ordinary assets, on the grounds that these regulations:

ISSUE:
Are the impositions of the MCIT on domestic corporations and CWT on
income from sales of real properties classified as ordinary assets
unconstitutional?
HELD:

Use gross selling price (GSP) or fair market value(FMV) as basis for
determining the income tax on the sale of real estate classified as ordinary

NO. MCIT does not tax capital but only taxes income as shown by the fact that
the MCIT is arrived at by deducting the capital spent by a corporation in the sale
of its goods, i.e., the cost of goods and other direct expenses from gross sales.
2

Besides, there are sufficient safeguards that exist for the MCIT: (1) it is only
imposed on the 4th year of operations; (2) the law allows the carry forward of
any excess MCIT paid over the normal income tax; and (3) the Secretary of
Finance can suspend the imposition of MCIT in justifiable instances.

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.

The regulations on CWT did not shift the tax base of a real estate business
income tax from net income to GSP or FMV of the property sold since the taxes
withheld are in the nature of advance tax payments and they are thus just
installments on the annual tax which may be due at the end of the taxable year.
As such the tax base for the sale of real property classified as ordinary assets
remains to be the net taxable income and the use of the GSP or FMV is because
these are the only factors reasonably known to the buyer in connection with the
performance of the duties as a withholding agent.

On equal protection - it 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
unattainable." When the problem of classification became of issue, the Court
said: "Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed the same rate. The taxing power has
the authority to make reasonable and natural classifications for purposes of
taxation..." As provided by this Court, 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.

Neither is there violation of equal protection even if the CWT is levied only on
the real industry as the real estate industry is, by itself, a class on its own and
can be validly treated different from other businesses.
Sison vs Ancheta
GR No. L-59431, 25 July 1984
Facts:

Sarasola v Trinidad

Section 1 of BP Blg 135 amended the Tax Code and petitioner Antero M. Sison,
as taxpayer, alleges 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 said provision as arbitrary amounting to
class legislation, oppressive and capricious in character. It therefore violates
both the equal protection and due process clauses of the Constitution as well as
of the rule requiring uniformity in taxation.

Commissioner of Internal Revenue vs. Algue Inc.

GR No. L-28896 | Feb. 17, 1988
Facts:

Algue Inc. is a domestic corp engaged in engineering, construction and

other allied activities

On Jan. 14, 1965, the corp. received a letter from the CIR regarding its
Issue: Whether or not the assailed provision violates the equal protection
and due process clauses of the Constitution while also violating the rule that delinquency income taxes from 1958-1959, amtg to P83, 183.85
taxes must be uniform and equitable.

A letter of protest or reconsideration was filed by Algue Inc on Jan 18

Held: The petition is without merit.


On March 12, a warrant of distraint and levy was presented to Algue Inc.
thru its counsel, Atty. Guevara, who refused to receive it on the ground of the
pending protest

RA 1125: the appeal may be made within thirty days after receipt of the
decision or ruling challenged

During the intervening period, the warrant was premature and could
therefore not be served.

Since the protest was not found on the records, a file copy from the corp.
was produced and given to BIR Agent Reyes, who deferred service of the
warrant

Originally, CIR claimed that the 75K promotional fees to be personal

holding company income, but later on conformed to the decision of CTA

On April 7, Atty. Guevara was informed that the BIR was not taking any
action on the protest and it was only then that he accepted the warrant of
distraint and levy earlier sought to be served

There is no dispute that the payees duly reported their respective shares of
the fees in their income tax returns and paid the corresponding taxes thereon.
CTA also found, after examining the evidence, that no distribution of dividends
was involved

On April 23, Algue filed a petition for review of the decision of the CIR
with the Court of Tax Appeals

CIR suggests a tax dodge, an attempt to evade a legitimate assessment by

involving an imaginary deduction

CIR contentions:

The claimed deduction of P75, 000.00 was properly disallowed because

it was not an ordinary reasonable or necessary business expense

Algue Inc. was a family corporation where strict business procedures

were not applied and immediate issuance of receipts was not required. At the
end of the year, when the books were to be closed, each payee made an
accounting of all of the fees received by him or her, to make up the total of P75,
000.00. This arrangement was understandable in view of the close relationship
among the persons in the family corporation

Payments are fictitious because most of the payees are members of the
same family in control of Algue and that there is not enough substantiation of
such payments

CTA: 75K had been legitimately paid by Algue Inc. for actual services
rendered in the form of promotional fees. These were collected by the Payees
for their work in the creation of the Vegetable Oil Investment Corporation of the
Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.

The amount of the promotional fees was not excessive. The total
commission paid by the Philippine Sugar Estate Development Co. to Algue Inc.
was P125K. After deducting the said fees, Algue still had a balance of P50,
000.00 as clear profit from the transaction. The amount of P75, 000.00 was 60%
of the total commission. This was a reasonable proportion, considering that it
was the payees who did practically everything, from the formation of the
Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties.

Issue: W/N the Collector of Internal Revenue correctly disallowed the P75,
000.00 deductions claimed by Algue as legitimate business expenses in its
income tax returns

Sec. 30 of the Tax Code: allowed deductions in the net income

Expenses - All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered xxx

Ruling:

Taxes are the lifeblood of the government and so should be collected

without unnecessary hindrance, made in accordance with law.


The burden is on the taxpayer to prove the validity of the claimed
deduction

provisions contain a uniform p ro v is o 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.

In this case, Algue Inc. has proved that the payment of the fees was
necessary and reasonable in the light of the efforts exerted by the payees in
inducing investors and prominent businessmen to venture in an experimental
enterprise and involve themselves in a new business requiring millions of pesos.

ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the
Constitution.

Taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one's hard
earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material
values

2. Whether or not there is undue delegation of legislative power in violation

of Article VI Sec 28(2) of the Constitution.
3. Whether or not there is a violation of the due process and equal
protection under Article III Sec. 1 of the Constitution.
RULING:

Taxation must 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

1. 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, and excise and
franchise taxes.

Algue Inc.s appeal from the decision of the CIR was filed on time with the
CTA in accordance with Rep. Act No. 1125. And we also find that the claimed
deduction by Algue Inc. was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the CIR.

2. There is no undue delegation of legislative power but only of the discretion as

to the execution of a law. This is constitutionally permissible. Congress does not
abdicate its functions or unduly delegate power when it describes what job must
be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go
forward.

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005
FACTS:

3. The power of the State to make reasonable and natural classifications for the
purposes of taxation has long been established. Whether it relates to the subject
of taxation, the kind of property, the rates to be levied, or the amounts to be
raised, the methods of assessment, valuation and collection, the States power is
entitled to presumption of validity. As a rule, the judiciary will not interfere with
such power absent a clear showing of unreasonableness, discrimination, or
arbitrariness.

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
5

Gerochi, et al. v. DOE

MATALIN COCONUT CO., INC. vs. MUNICIPAL COUNCIL OF

MALABANG, LANAO DEL SUR
Facts:
1. The Municipal Council of Malabang, Lanao del Sur enacted the
Municipal Ordinance No. 45-46 imposing a police inspection fee of
P0.30 per sack of Cassava Starch produced and shipped out of the said
Municipality where penalties are imposed for violations thereof.

Facts:
RA 9136, otherwise known as the Electric Power Industry Reform Act of 2001
(EPIRA), which sought to impose a universal charge on all end-users of
electricity for the purpose of funding NAPOCORs projects, was enacted and
took effect in 2001.

It made unlawful for any company, person, or group of persons to ship

out goods specifically Cassava Starch or Flour without paying to the
Municipal Treasurer (or his duly authorized representatives) a fee fixed
by the Ordinance and a police inspection fee of P0.30 (shouldered by
the shipper if moving the goods outside the Municipality).

Petitioners contest the constitutionality of the EPIRA, stating that the imposition
of the universal charge on all end-users is oppressive and confiscatory and
amounts to taxation without representation for not giving the consumers a
chance to be heard and be represented.

In case of violations, the Ordinance prescribed the payment of a fine of

P100 < P1,000; an additional payment of P1.00 per sack that was
illegally shipped; or imprisonment of 20 days, or both, depends in the
discretion of the Court.

Issue: Whether or not the universal charge is a tax.

Held:
NO. The assailed universal charge is not a tax, but an exaction in the exercise
of the States police power. That public welfare is promoted may be gleaned
from Sec. 2 of the EPIRA, which enumerates the policies of the State regarding
electrification. Moreover, the Special Trust Fund feature of the universal charge
reasonably serves and assures the attainment and perpetuity of the purposes for
which the universal charge is imposed (e.g. to ensure the viability of the
countrys electric power industry), further boosting the position that the same is
an exaction primarily in pursuit of the States police objectives

2. Validity of the Ordinance was challenged by Matalin Coconut Inc.,

alleging being violative of R.A. 2264, unreasonable, oppressive and
confiscatory.
Purakan Plantation Companty is also affected, crippling its operations to
transport its goods to the port through the said Municipality.
3. Trial Court decided the Municipal Ordinance is null and void; ordered
the Municipal Treasurer refund the payments it made from the period
of: Sept. 27, 66 to May 2, 67 with a total amount of: P25,000.00 and
subsequent payments; and, prohibiting the collection of P0.30 police
inspection fees.

If generation of revenue is the primary purpose and regulation is merely

incidental, the imposition is a tax; but if regulation is the primary purpose, the
fact that revenue is incidentally raised does not make the imposition a tax.
The taxing power may be used as an implement of police power. The theory
behind the exercise of the power to tax emanates from necessity; without taxes,
government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.

Issue: Whether the said Ordinance is valid.

Held: Invalid.

The Court ruled that tax should be based on sales, not in the quantity of Held: Yes. The act is primarily an exercise of the police power. It is shown in
goods that have yet to be sold. Moreover, for taxes to be valid, it should the Act that the tax is levied with a regulatory purpose, to provide means for the
rehabilitation and stabilization of the threatened sugar industry.
be levied for public purposes, just, and uniform.

It is inherent in the power to tax that a state be free to select the subjects of
The imposition of a police inspection fee of P0.30 per bag was found to
taxation, and it has been repeatedly held that inequalities which result from a
be unjust and unreasonable.
singling out of one particular class for taxation or exemption infringe no
constitutional limitation.
LUTZ v. ARANETA GR No. L-7859, December 22, 1955
98 PHIL 148
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
FACTS:
other industries are also in need of similar protection; but the legislature is not
Plaintiff Walter Lutz, in his capacity as judicial administrator of the intestate
required by the Constitution to adhere to a policy of all or none.
estate of Antionio Ledesma, sought to recover from the CIR the sum of
ISSUE:
P14,666.40 paid by the estate as taxes, under section 3 of the CA 567 or the
Sugar Adjustment Act thereby assailing its constitutionality, for it provided for
Whether the tax is valid in supporting an industry.
an increase of the existing tax on the manufacture of sugar, alleging that such
enactment is not being levied for a public purpose but solely and exclusively for HELD:
the aid and support of the sugar industry thus making it void and
The tax is levied with a regulatory purpose, i.e. to provide means for the
unconstitutional. The sugar industry situation at the time of the enactment was
rehabilitation and stabilization of the threatened sugar industry. The act is
in an imminent threat of loss and needed to be stabilized by imposition of
primarily an exercise of police power, and is not a pure exercise of taxing
emergency measures.
power. As sugar production is one of the great industries of the Philippines; and
ISSUE: Is CA 567 constitutional, despite its being allegedly violative of the that its promotion, protection and advancement redounds greatly to the general
equal protection clause, the purpose of which is not for the benefit of the
welfare, the legislature found that the general welfare demanded that the
general public but for the rehabilitation only of the sugar industry?
industry should be stabilized, and provided that the distribution of benefits there
from be readjusted among its component to enable it to resist the added strain of
HELD:
the increase in tax that it had to sustain. Further, it cannot be said that the
devotion of tax money to experimental stations to seek increase of efficiency in
Yes. The protection and promotion of the sugar industry is a matter of public
concern, it follows that the Legislature may determine within reasonable bounds sugar production, utilization of by-products, etc., as well as to the improvement
of living and working conditions in sugar mills and plantations, without any part
what is necessary for its protection and expedient for its promotion. Here, the
of such money being channeled directly to private persons, constitute
legislative discretion must be allowed to fully play, subject only to the test of
expenditure of tax money for private purposes.
reasonableness; and it is not contended that the means provided in the law bear
no relation to the objective pursued or are oppressive in character. If objective
The tax is valid.
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.

would be to apply and enforce the law when sufficiently definitive and not
constitutional infirm.

NATIONAL TELECOMMUNICATIONS COMMISSION, petitioner, vs.

HONORABLE COURT OF APPEALS and PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY, respondents.

WHEREFORE, the decision of the Court of Appeals is SET ASIDE.

FACTS:
SO ORDERED.
Sometime in 1988, the National Telecommunications Commission (NTC)
served on the Philippine Long Distance Telephone Company (PLDT)
assessment notices and demands for payment in connection to Section 40 (e) (f)
and (g) of the Revised NTC Schedule of Fees and Charges. The PLDT
challenged the assessments of the NTC. Then NTC rendered a Decision denying
the protest of PLDT. On May 12, 1994, PLDT appealed to the Court of Appeals.
The CA ordered the NTC to recompute its assessments and demands for
payment. On November 20, 1996, NTC moved for partial reconsideration for
the Decision of the CA with respect to the basis of the assessment under Section
40 (e) but the CA denied its motion. Thus, petitioner found its way to this court.

Republic vs. Philippine Rabbit Bus Lines

G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner, vs.THE HONORABLE
COMMISSION ON AUDIT, HONORABLECOMMISSIONER
BARTOLOME C. FERNANDEZ and HONORABLECOMMISSIONER
ALBERTO P. CRUZ, respondents.
Topic: (1) tax vs. ordinary debt, (2) purpose/objective of taxation: non-revenue
/ special / regulatoryPonente: Davide, Jr. J.

ISSUE:
DOCTRINE:
Whether the Court of Appeals erred in holding that the computation of
supervision and regulation fees under Section 40 (F) of the Public Service Act
should be based on the par value of the subscribed capital stock.

A taxpayer may not offset taxes due from the claims that he may have against
the government.

HELD:

QUICK FACTS

Yes. Concise and clear is the ruling of this Court in the case of Philippine Long
Distance Telephone Company vs. Public Service Commission, 66 SCRA 341,
that the basis for computation of the fee to be charged by NTC on PLDT, is "
the capital stock subscribed or paid and not, alternatively, the property and
equipment."The law in point is clear and categorical. There is no room for
construction. It simply calls for application. It bears stressing that it is not the
NTC that imposed such a fee. It is the legislature itself. Since Congress has the
power to exercise the State inherent powers of Police Power, Eminent Domain
and Taxation, the distinction between police power and the power to tax, which
could be significant if the exercising authority were mere political subdivisions
(since delegation by it to such political subdivisions of one power does not
necessarily include the other), would not be of any moment when, as in the case
under consideration, Congress itself exercises the power. All that is to be done

: Caltex Philippines questions the decisions of COA for disallowing the

offsetting of its claims for reimbursement with its due OPSFremittance
FACTS:
The Oil Price Stabilization Fund (OPSF) was created under Sec. 8, PD 1956, as
amended by EO 137 for the purpose of minimizing frequent price changes
brought about by exchange rate adjustments. It will be used to reimburse the oil
companies for cost increase and possible cost under recovery incurred due to
reduction of domestic prices.COA sent a letter to Caltex directing the latter to
remit to the OPSF its collection. Caltex requested COA for an early release of
its reimbursement certificates which the latter denied.COA disallowed recover
of financing charges, inventory losses and sales tomarcopper and atlas but
allowed the recovery of product sale or those arising from export sales.
Petitioners Contention: Department of Finance issued Circular No. 4-88
8

PD 1956, as amended by EO No. 137 explicitly provides that the source of

OPSF is taxation

allowing reimbursement. Denial of claim for reimbursement would be

inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the Revised
Administrative Code (Retention of Money for Satisfaction of Indebtedness to
Government) allows offsetting. Amounts due do not arise as a result of taxation
since PD 1956 did not create source of taxation, it instead established a special
fund. This lack of public purpose behind OPSF exactions distinguishes it from
tax. Respondents Contention: Based on Francia v. IAC, theres no offsetting of
taxes against the claims that a taxpayer may have against the government, as
taxes do not arise from contracts or depend upon the will of the taxpayer, but are
imposed by law.

Caltex Philippines vs. Commission on Audit (COA)

GR 92585, 8 May 1992
En Banc, Davide (J): 12 concur, 2 took no part
Facts:
In 1989, COA sent a letter to Caltex, directing it to remit its collection to the
Oil Price Stabilization Fund (OPSF), excluding that unremitted for 1986 and
188 of the additional tax on petroleum products authorized under Section 8 of
PD 1956; and that pending such remittance, all its claims for reimbursement
from the OPSF shall be held in abeyance. Caltex requested COA,
notwithstanding an early release of its reimbursement certificates from the
OPSF, which COA denied. On 31 May 1989, Caltex submitted a proposal to
COA for the payment and the recovery of claims. COA approved the proposal
but prohibited Caltex from further off seting remittances and reimbursements
for the current and ensuing years. Caltex moved for reconsideration.

ISSUE: WON Caltex is entitled to offsetting

DECISION: NO. COA AFFIRMED
HELD:
It is settled that a taxpayer may not offset taxes due from the claims that he
may have against the government. Taxes cannot be subject of compensation
because the government and taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.

Issue: Whether the amounts due from Caltex to the OPSF may be off setted
against Caltex outstanding claims from said funds.

Technically, the oil companies merely act as agents for the Government in the
latters collection since the taxes are, in reality, passed unto the end-users the
consuming public. Their primary obligation is to account for and remit the taxes
collection to the administrator of the OPSF.

Held: Taxation is no longer envisioned as a measure merely to raise revenue to

support the existence of government; taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and stabilization of a threatened
industry which is affected with public interest as to be within the police power
of the state. PD 1956, as amended by EO 137, explicitly provides that the source
of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he
may have against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off.

there is not merit in Caltexs contention that the OPSF contributions are not
for a public purpose because they go to a special fund of the government.
Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of the government; taxes may believed with a regulatory
purpose to provide means for the rehabilitation and stabilization of a threatened
industry which is affected with public interest as to be within the police power
of the State.
The oil industry is greatly imbued with public interest as it vitally affects the
general welfare.

Francia vs. IAC

162 SCRA 753

Ruling:

FACTS:
Francia was the registered owner of a house and lot in Pasay City. A
portion of said property was expropriated by the republic. It appeared that
Francia did not pay his real estate taxes from 1963 to 1977. He contended that
his tax delinquency had been extinguished by legal compensation since the
government owed him 4,116 when a portion of his land was expropriated.
ISSUE: can there be off-setting of debts and taxes?
RULING:
No. there can be no off-setting of taxes original the claims against the
claims that the taxpayer may have against the government. Taxes cannot be the
subject of compensation. The government and the taxpayer are not mutually
creditor and debtors of each other and a claim for each other and a claim for
taxes is not such a debt demand, contract or judgment as is allowed to be set-off.
Furthermore, the tax was due to the city government. While the expropriation
effected by the national government. In fact, the expropriation payment was
already deposited with the PNB long before the sale at public auction of his
property was conducted.
ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT, ET
AL.G.R. No. L-67649, June 28, 1988

There can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater than the tax was
being collected. The collection of a tax cannot await the results of a lawsuit
against the government. A claim for taxes is not such a debt, demand, contract
or judgment as is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the remedy in an
action or any indebtedness of the state or municipality to one who is liable to the
state or municipality for taxes. Government and taxpayer are not mutually
creditors and debtors of each other under Article 1278 of the Civil Code and
acclaim for taxes is not such a debt, demand, contract or judgment as is allowed
to be set-off.
PHILEX V. CIR (tax v. ordinary debt)
FACTS:
BIR asked Philex to pay tax for 1991-1992 in the total
Amount of P123, 821,982.52. Philex refused stating that it has pending claims
for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in
the amount of P119,977,037.02 plus interest. Therefore asking for an off-set.
Philex filed a case with the CTA.

Facts:

Philex was able to obtain its VAT input credit/refund not only for the taxable
year 1989 to 1991 but also for 1992and 1994

On October 15, 1977, a 125 square meter portion of Franciss property was
expropriated by the Republic of the Philippines for the sum of P4, 116.00
representing the estimated amount equivalent to the assessed value of the
aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real
estate taxes. Thus, on December 5, 1977, his property was sold at public auction
by the City Treasurer of Pasay City pursuant to Section 73 of Presidential
Decree No.464 known as the Real Property Tax Code in order to satisfy a tax
delinquency of P2, 400.00.

In view of the grant of its VAT input credit/refund, Philex now contends that the
same should, ipso jure, off-set its excise tax liabilities, since both had already
become due and demandable, as well as fully liquidated; hence, legal
compensation can properly take place.

Issue: May compensation take place?

WON there should be an offset?

ISSUE:

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HELD: NO.
Taxes cannot be subject to compensation for the simple reason that the
government and the taxpayer are not creditors and debtors of each other. There
is a material distinction between a tax and debt.DE BTS are due to the
Government in its corporate capacity, while TAXES are due to the Government
in its sovereign capacity.

Issue: Whether or not the supervision fee is an income tax or a license fee.

A distinguishing feature of a tax is that it is compulsory rather than a matter of

bargain. Hence, a tax does not depend upon the consent of the taxpayer. A
taxpayer cannot refuse to pay his taxes when they fall due simply because he
has a claim against the government or that the collection of the tax is

fact that incidentally, revenue is also obtained does not make the imposition a
tax.

Held:

It is a license fee. A LICENSE FEE is imposed in the exercise of the police

power primarily for purposes of regulation, while TAX is imposed under the
Philexs claim is an outright disregard of the basic principle in tax law that taxes taxing power primarily for purposes of raising revenues.
are the lifeblood of the government and so should be collected without
If the generating of revenue is the primary purpose and regulation is merely
unnecessary hindrance.
incidental, the imposition is a tax; but if regulation is the primary purpose, the

Contingent on the result of the lawsuit it filed against the government.

Moreover, Philexs theory that would automatically apply its VAT input
credit/refund against its tax liabilities can easily give rise to confusion and
abuse, depriving the government of authority over the manner by which
taxpayers credit and offset their tax liabilities.
Progressive Development Corporation vs. Quezon City
Facts:
The City Council of QC passed an ordinance known as the Market Code of QC,
which imposed a 5% supervision fee on gross receipts on rentals or lease of
privately-owned market spaces in QC.
In case of failure of the owners of the market spaces to pay the tax for three
consecutive months, the City shall revoke the permit of the privately-owned
market to operate.
Progressive Development Corp, owner and operator of Farmers Market, filed a
petition for prohibition against QC on the ground that the tax imposed by the
Market Code was in reality a tax on income, which the municipal corporation
was prohibited by law to impose.

To be considered a license fee, the imposition must relate to an occupation or

activity that so engages the public interest in health, morals, safety, and
development as to require regulation for the protection and promotion of such
public interest; the imposition must also bear a reasonable relation to the
probable expenses of regulation, taking into account not only the costs of direct
regulation but also its incidental consequences.
In this case, the Farmers Market is a privately-owned market established for the
rendition of service to the general public. It warrants close supervision and
control by the City for the protection of the health of the public by insuring the
maintenance of sanitary conditions, prevention of fraud upon the buying public,
etc.
Since the purpose of the ordinance is primarily regulation and not revenue
generation, the tax is a license fee. The use of the gross amount of stall rentals
as basis for determining the collectible amount of license tax does not, by itself,
convert the license tax into a prohibited tax on income.
Such basis actually has a reasonable relationship to the probable costs of
regulation and supervision of Progressives kind of business, since ordinarily,
the higher the amount of rentals, the higher the volume of items sold.
The higher the volume of goods sold, the greater the extent and frequency of
supervision and inspection may be required in the interest of the buying public.
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Apostolic Prefect of Mt. Province vs. Treasurer of Baguio

Exemptions from Taxation Assessment

71 Phil. 547

Whether or not APMP is exempt from taxes

HELD:

FACTS:

The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution. Based on Justice Cooleys words: "While the
word 'tax' in its broad meaning, includes both general taxes and special
assessments, and in a general sense a tax is an assessment, and an assessment is
a tax, yet there is a recognized distinction between them in that assessment is
confined to local impositions upon property for the payment of the cost of
public improvements in its immediate vicinity and levied with reference to
special benefits to the property assessed.

In 1937, an ordinance (Ord. 137) was passed in the City of Baguio. The said
ordinance sought to assess properties of property owners within the defined city
limits. Apostolic Prefect of Mt. Province (APMP), on the other hand, is a
religious corporation duly established under Philippine laws. Pursuant to the
ordinance, it contributed a total amount of P1, 019.37. It filed the said
contribution in protest. APMP later averred that it should be exempt from the
said special contribution since as a religious institution, it has a constitutionally
guaranteed right not to be taxed including its properties.
ISSUE: Whether or not APMP is exempt from taxes.
HELD:
The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution. Based on Justice Cooleys words: While the
word tax in its broad meaning, includes both general taxes and special
assessments, and in a general sense a tax is an assessment, and an assessment is
a tax, yet there is a recognized distinction between them in that assessment is
confined to local impositions upon property for the payment of the cost of
public improvements in its immediate vicinity and levied with reference to
special benefits to the property assessed. The differences between a special
assessment and a tax are that (1) a special assessment can be levied only on
land; (2) a special assessment cannot (at least in most states) be made a personal
liability of the person assessed; (3) a special assessment is based wholly on
benefits; and (4) a special assessment is exceptional both as to time and locality.
The imposition of a charge on all property, real and personal, in a prescribed
area, is a tax and not an assessment, although the purpose is to make a local
improvement on a street or highway. A charge imposed only on property owners
benefited is a special assessment rather than a tax notwithstanding the statute
calls it a tax. In the case at bar, the Prefect cannot claim exemption because the
assessment is not taxation per se but rather a system for the benefits of the
inhabitants of the city.
ISSUE:

The differences between a special assessment and a tax are that (1) a special
assessment can be levied only on land; (2) a special assessment cannot (at least
in most states) be made a personal liability of the person assessed; (3) a special
assessment is based wholly on benefits; and (4) a special assessment is
exceptional both as to time and locality.
The imposition of a charge on all property, real and personal, in a prescribed
area, is a tax and not an assessment, although the purpose is to make a local
improvement on a street or highway.
A charge imposed only on property owners benefited is a special assessment
rather than a tax notwithstanding the statute calls it a tax." In the case at bar, the
Prefect cannot claim exemption because the assessment is not taxation per se
but rather a system for the benefits of the inhabitants of the city.
Diaz vs. Secretary of Finance (2011)
Facts:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this
petition for declaratory relief assailing the validity of the impending imposition
of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the
collections of toll way operators. Court treated the case as one of prohibition.
Petitioners hold the view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of "sale of services" that are
subject to VAT; that a toll fee is a "user's tax," not as ale of services; that to

12

impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its
imposition would violate then on-impairment clause of the constitution. The
government avers that the NIRC imposes VAT on all kinds of services of
franchise grantees, including toll way operations; that the Court should seek the
meaning and intent of the law from the words used in the statute; and that the
imposition of VAT on toll way operations has been the subjects early as 2003 of
several BIR rulings and circulars. The government also argues that petitioners
have no right to invoke the non-impairment of contracts clause since they
clearly have no personal interest in existing toll operating agreements (TOAs)
between the government and toll way operators. At any rate, the nonimpairment clause cannot limit the State's sovereign taxing power which is
generally read into contracts.
Issue:
May toll fees collected by toll way operators be subjected to VAT (Are toll
way operations a franchise and/or a service that is subject to VAT)?
Ruling:
When a toll way operator takes a toll fee from a motorist, the fee is in effect for
the latter's use of thetollway facilities over which the operator enjoys private
proprietary rights that its contract and the law recognize. In this sense, the toll
way operator is no different from the service providers under Section108 who
allow others to use their properties or facilities for fee.Tollway operators are
franchise grantees and they do not belong to exceptions that Section 119 spares
from the payment of VAT. The word "franchise" broadly covers government
grants of a special right to do an act or series of acts of public concern. Toll way
operators are, owing to the nature and object of their business, "franchise
grantees." The construction, operation, and maintenance of toll facilities on
public improvements are activities of public consequence that necessarily
require a special grant of authority from the state. A tax is imposed under the
taxing power of the government principally for the purpose of raising revenues
to fund public expenditures. Toll fees, on the other hand, are collected by
private toll way operators as reimbursement for the costs and expenses incurred
in the construction, maintenance and operation of the toll ways, as well as to
assure them a reasonable margin of income. Although toll fees are charged for

the use of public facilities, therefore, they are not government exactions that can
be properly treated as a tax. Taxes may be imposed only by the government
under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
National Development Co. vs. Commissioner L-53961, 30 June 1987
En Banc, Cruz (J): 14 concur
Facts:
The National Development Co. (NDC) entered into contracts in Tokyo with
several Japanese shipbuilding companies for the construction of 12 ocean-going
vessels. Initial payments were made in cash and through irrevocable letters of
credit. When the vessels were completed and delivered to the NDC in Tokyo,
the latter remitted to the shipbuilders the amount of US$ 4,066,580.70 as
interest on the balance of the purchase price. No tax was withheld. The
Commissioner then held NDC liable on such tax in the total amount of P5,
115,234.74. The Bureau of Internal Revenue served upon the NDC a warrant of
distrait and levy after negotiations failed
Issue:
Whether the NDC is liable for deficiency tax.
Held:
The Japanese shipbuilders were liable on the interest remitted to them under
Section 37 of the Tax Code. The NDC is not the one taxed. The imposition of
the deficiency taxes on the NDS is a penalty for its failure to withhold the same
from the Japanese shipbuilders. Such liability is imposed by Section 53(c) of the
Tax Code. NDC was remiss in the discharge of its obligation of its obligation as
the withholding agent of the government and so should be liable for its
omission.

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