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TOLENTINO VS.

THE SECRETARY OF FINANCE Case Digest


ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER
OF INTERNAL REVENUE
1994 Aug 25
G.R. No. 115455
235 SCRA 630
FACTS: The valued-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. It is equivalent
to 10% of the gross selling price or gross value in money of goods or properties
sold, bartered or exchanged or of the gross receipts from the sale or exchange of
services. Republic Act No. 7716 seeks to widen the tax base of the existing VAT
system and enhance its administration by amending the National Internal Revenue
Code.
The Chamber of Real Estate and Builders Association (CREBA) contends that the
imposition of VAT on sales and leases by virtue of contracts entered into prior to the
effectivity of the law would violate the constitutional provision of non-impairment
of contracts.
ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the
contract clause under Art. III, sec 10 of the Bill of Rights.
RULING: No. The Supreme Court the contention of CREBA, that the imposition of the
VAT on the sales and leases of real estate by virtue of contracts entered into prior to
the effectivity of the law would violate the constitutional provision of nonimpairment of contracts, is only slightly less abstract but nonetheless hypothetical.
It is enough to say that the parties to a contract cannot, through the exercise of
prophetic discernment, fetter the exercise of the taxing power of the State. For not
only are existing laws read into contracts in order to fix obligations as between
parties, but the reservation of essential attributes of sovereign power is also read
into contracts as a basic postulate of the legal order. The policy of protecting
contracts against impairment presupposes the maintenance of a government which
retains adequate authority to secure the peace and good order of society. In truth,
the Contract Clause has never been thought as a limitation on the exercise of the
State's power of taxation save only where a tax exemption has been granted for a
valid consideration.
Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it
to make this claim. Rather, its position, as discussed above, is that the removal of
its tax exemption cannot be made by a general, but only by a specific, law.
Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal
and substantive aspects as this has been raised in the various cases before it. To

sum up, the Court holds:


(1) That the procedural requirements of the Constitution have been complied with
by Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the enactment of
statutes - beyond those prescribed by the Constitution - have been observed is
precluded by the principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the press, nor
interfere with the free exercise of religion, nor deny to any of the parties the right to
an education; and
(4) That, in view of the absence of a factual foundation of record, claims that the
law is regressive, oppressive and confiscatory and that it violates vested rights
protected under the Contract Clause are prematurely raised and do not justify the
grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions are DISMISSED.

Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of goods
and properties as well as on the sale or exchange of services. RA 7716 seeks to
widen the tax base of the existing VAT system and enhance its administration by
amending the National Internal Revenue Code. There are various suits challenging
the constitutionality of RA 7716 on various grounds.
One contention is that RA 7716 did not originate exclusively in theHouse of
Representatives as required by Art. VI, Sec. 24 of the Constitution, because it is in
fact the result of the consolidation of 2 distinct bills, H. No. 11197 and S. No. 1630.
There is also a contention that S. No. 1630 did not pass 3 readings as required
by the Constitution.

Issue: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution

Held: The argument that RA 7716 did not originate exclusively in theHouse of
Representatives as required by Art. VI, Sec. 24 of the Constitution will not bear
analysis. To begin with, it is not the law but the revenue bill which is required by the
Constitution to originate exclusively in the House of Representatives. To insist that a
revenuestatute and not only the bill which initiated the legislative process

culminating in the enactment of the law must substantially be the same as the
House bill would be to deny the Senates power not only to concur with
amendments but also to propose amendments. Indeed,what the Constitution simply
means is that the initiative for filingrevenue, tariff or tax bills, bills authorizing an
increase of the public debt, private bills and bills of local application must come
from theHouse of Representatives on the theory that, elected as they are from the
districts, the members of the House can be expected to be more sensitive to the
local needs and problems. Nor does the Constitutionprohibit the filing in the Senate
of a substitute bill in anticipation of its receipt of the bill from the House, so long as
action by the Senate as a body is withheld pending receipt of the House bill.
The next argument of the petitioners was that S. No. 1630 did not pass 3 readings
on separate days as required by the Constitutionbecause the second and third
readings were done on the same day. But this was because the President had
certified S. No. 1630 as urgent. The presidential certification dispensed with the
requirement not only of printing but also that of reading the bill on separate day
s. That upon the certification of a bill by the President the requirement of 3 readings
on separate days and of printing and distribution can be dispensed with is
supported by the weight of legislative practice.

Case Digest

ABAKADA Guro Party List vs. Ermita


G.R. No. 168056 September 1, 2005

FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a
petition for prohibition on May 27, 2005 questioning the constitutionality of Sections
4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of
the National Internal Revenue Code (NIRC). Section 4 imposes a 10% VAT on sale of
goods and properties, Section 5 imposes a 10% VAT on importation of goods, and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties.
These questioned provisions contain a uniform proviso 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.
ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.
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:
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.
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.
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.

ABAKADA v ERmita
Facts: On May 24, 2005, the President signed into law Republic Act 9337 or the VAT
Reform Act. Before the law took effect on July 1, 2005, the Court issued a TRO
enjoining government from implementing the law in response to a slew of petitions
for certiorari and prohibition questioning the constitutionality of the new law.

The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and
6: That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to 12%, after any of the
following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of


the previous year exceeds two and four-fifth percent (2 4/5%);

or (ii) National government deficit as a percentage of GDP of the previous year


exceeds one and one-half percent (1%)

Petitioners allege that the grant of stand-by authority to the President to increase
the VAT rate is an abdication by Congress of its exclusive power to tax because such
delegation is not covered by Section 28 (2), Article VI Consti. They argue that VAT is
a tax levied on the sale or exchange of goods and services which cant be included
within the purview of tariffs under the exemption delegation since this refers to
customs duties, tolls or tribute payable upon merchandise to the government and
usually imposed on imported/exported goods. They also said that the President has
powers to cause, influence or create the conditions provided by law to bring about
the conditions precedent. Moreover, they allege that no guiding standards are made
by law as to how the Secretary of Finance will make the recommendation.

Issue: Whether or not the RA 9337's stand-by authority to the Executive to increase
the VAT rate, especially on account of the recommendatory power granted to the
Secretary of Finance, constitutes undue delegation of legislative power? NO

Held: The powers which Congress is prohibited from delegating are those which are
strictly, or inherently and exclusively, legislative. Purely legislative power which can
never be delegated is the authority to make a complete law- complete as to the
time when it shall take effect and as to whom it shall be applicable, and to
determine the expediency of its enactment. It is the nature of the power and not the
liability of its use or the manner of its exercise which determines the validity of its
delegation.

The exceptions are:

(a) delegation of tariff powers to President under Constitution

(b) delegation of emergency powers to President under Constitution

(c) delegation to the people at large

(d) delegation to local governments

(e) delegation to administrative bodies

For the delegation to be valid, it must be complete and it must fix a standard. A
sufficient standard is one which defines legislative policy, marks its limits, maps out
its boundaries and specifies the public agency to apply it.

In this case, it is not a delegation of legislative power BUT a delegation of


ascertainment of facts upon which enforcement and administration of the increased
rate under the law is contingent. The legislature has made the operation of the 12%
rate effective January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon factual matters
outside of the control of the executive. No discretion would be exercised by the
President. Highlighting the absence of discretion is the fact that the word SHALL is
used in the common proviso. The use of the word SHALL connotes a mandatory
order. Its use in a statute denotes an imperative obligation and is inconsistent with
the idea of discretion.

Thus, it is the ministerial duty of the President to immediately impose the 12% rate
upon the existence of any of the conditions specified by Congress. This is a duty,
which cannot be evaded by the President. It is a clear directive to impose the 12%
VAT rate when the specified conditions are present.

Congress just granted the Secretary of Finance the authority to ascertain the
existence of a fact--- whether by December 31, 2005, the VAT collection as a
percentage of GDP of the previous year exceeds 2 4/5 % or the national government
deficit as a percentage of GDP of the previous year exceeds one and 1%. If either
of these two instances has occurred, the Secretary of Finance, by legislative
mandate, must submit such information to the President.

In making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or
even her subordinate. He is acting as the agent of the legislative department, to
determine and declare the event upon which its expressed will is to take effect. The
Secretary of Finance becomes the means or tool by which legislative policy is
determined and implemented, considering that he possesses all the facilities to
gather data and information and has a much broader perspective to properly
evaluate them. His function is to gather and collate statistical data and other
pertinent information and verify if any of the two conditions laid out by Congress is
present.

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.

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 did not delegate
the power to tax but the mere implementation of the law.

ABAKADA, et al. vs. ErmitaFacts:


They argue that the VAT is a tax levied on the sale, barter or exchange of goods and
properties aswell as on the sale or exchange of services, which cannot be included
within the purview of tariffs under the exempted delegation as the latter refers to
customs duties, tolls or tribute payable upon merchandiseto the government and
usually imposed on goods or merchandise imported or exported.Petitioners
ABAKADA GURO Party List, et al., further contend that delegating to the President
thelegislative power to tax is contrary to republicanism. They insist that
accountability, responsibility andtransparency should dictate the actions of
Congress and they should not pass to the President thedecision to impose taxes.
They also argue that the law also effectively nullified the Presidents power

of control, which includes the authority to set aside and nullify the acts of her
subordinates like the Secretaryof Finance, by mandating the fixing of the tax rate by
the President upon the recommendation of theSecretary of Finance.
Facts:
1. RA 9337: VAT Reform Act enacted on May 24, 2005.2. Sec. 4 (sales of goods
and properties), Sec. 5 (importation of goods) and Sec. 6 (services and lease
of property) of RA 9337, in collective, granted the Secretary of Finance the authority
to ascertain:a. whether by 12/31/05, the VAT collection as a percentage of the 2004
GDP exceeds 2.8% or b. the natl govt deficit as a percentage of the 2004 GDP
exceeds 1.5%3. If either condition is met, the Sec of Finance must inform the
President who, in turn, must impose the12% VAT rate (from 10%) effective January
1, 2006.4. ABAKADA maintained that Congress abandoned its exclusive authority to
fix taxes and that RA 9337contained a uniform proviso authorizing the President
upon recommendation by the DOF Secretary toraise VAT to 12%.5. Sen Pimentel
maintained that RA 9337 constituted undue delegation of legislative powers and
aviolation of due process since the law was ambiguous and arbitrary. Same with
Rep. Escudero.6. Pilipinas Shell dealers argued that the VAT reform was arbitrary,
oppressive and confiscatory.7. Respondents countered that the law was complete,
that it left no discretion to the President, and that itmerely charged the President
with carrying out the rate increase once any of the 2 conditions arise.
Issue:
WON there was undue delegation
No.
Ratio:
Constitution allows as under exempted delegation the delegation of tariffs, customs
duties, and other tolls, levies on goods imported and exported. VAT is tax levied on
sales of goods and services whichcould not fall under this exemption. Hence, its
delegation if unqualified is unconstitutional.2. Legislative power is authority to make
a complete law. Thus, to be valid, a law must be complete initself, setting forth
therein the policy and it must fix a standard, limits of which are sufficiently
determinateand determinable.3. No undue delegation when congress describes
what job must be done who must do it and the scope of the authority given. (Edu v
Ericta)4. Sec of Finance was merely tasked to ascertain the existence of facts. All
else was laid out.5. Mainly ministerial for the sec to ascertain the facts and for the
president to carry out the implementationfor the vat. They were agents of the
legislative dept.6. No delegation but mere implementation of the law.
CIR v. Central Luzon Drug Corp., G.R. No. 159647, April 15, 2005

EMINENT DOMAIN: The concept of public use is no longer confined to the traditional
notion of use by the public, but held synonymous with public interest, public benefit,
public welfare, and public convenience. The discount privilege to which our senior
citizens are entitled is actually a benefit enjoyed by the general public to which
these citizens belong. The discounts given would have entered the coffers and
formed part of the gross sales of the private establishments concerned, were it not
for RA 7432. The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes
entitled to a just compensation. This term refers not only to the issuance of a tax
credit certificate indicating the correct amount of the discounts given, but also to
the promptness in its release. Equivalent to the payment of property taken by the
State, such issuance -- when not done within a reasonable time from the grant of
the discounts -- cannot be considered as just compensation.
Besides, the taxation power can also be used as an implement for the exercise of
the power of eminent domain. Tax measures are but enforced contributions
exacted on pain of penal sanctions and clearly imposed for a public purpose. In
recent years, the power to tax has indeed become a most effective tool to realize
social justice, public welfare, and the equitable distribution of wealth.

CARLOS SUPERDRUG VS. DSWD

Facts: Petitioners are domestic corporations and proprietors operating drugstores in


the Philippines. Petitioners assail the constitutionality of Section 4(a) of RA 9257,
otherwise known as the Expanded Senior Citizens Act of 2003. Section 4(a) of RA
9257 grants twenty percent (20%) discount as privileges for the Senior Citizens.
Petitioner contends that said law is unconstitutional because it constitutes
deprivation of private property.
Issue: Whether or not RA 9257 is unconstitutional

Held: Petition is dismissed. The law is a legitimate exercise of police power which,
similar to the power of eminent domain, has general welfare for its object.
Accordingly, it has been described as the most essential, insistent and the least
limitable of powers, extending as it does to all the great public needs. It is the
power vested in the legislature by the constitution to make, ordain, and establish all

manner of wholesome and reasonable laws, statutes, and ordinances, either with
penalties or without, not repugnant to the constitution, as they shall judge to be for
the good and welfare of the commonwealth, and of the subjects of the same.
For this reason, when the conditions so demand as determined by the legislature,
property rights must bow to the primacy of police power because property rights,
though sheltered by due process, must yield to general welfare.

CHAMBER OF REAL ESTATE AND BUILDERS' ASSOCIATIONS, INC. VS. ROMULO, ET ALMINIMUM CORPORATE INCOME
Details
Category: Income Taxation
Congress has the power to condition, limit or deny deductions from gross income in
order to arrive at the net that it chooses to tax. This is because deductions are a
matter of legislative grace. The assignment of gross income, instead of net income,
as the tax base of the MCIT, taken with the reduction of the tax rate from 32% to
2%, is not constitutionally objectionable.

FACTS:
Chamber of Real Estate and Builders' Associations, Inc. (CHAMBER) is questioning
the constitutionality of Sec 27 (E) of RA 8424 and the revenue regulations (RRs)
issued by the Bureau of Internal Revenue (BIR) to implement said provision and
those involving creditable withholding taxes (CWT). [CWT issues will not be
discussed]
CHAMBER assails the validity of the imposition of minimum corporate income tax
(MCIT) on corporations and creditable withholding tax (CWT) on sales of real
properties classified as ordinary assets. Chamber argues that the MCIT violates the
due process clause because it levies income tax even if there is no realized gain.
MCIT scheme: (Section 27 (E). [MCIT] on Domestic Corporations.)
A corporation, beginning on its fourth year of operation, is assessed an MCIT of 2%
of its gross income when such MCIT is greater than the normal corporate income tax
imposed under Section 27(A) (Applying the 30% tax rate to net income).

If the regular income tax is higher than the MCIT, the corporation does not pay the
MCIT.
Any excess of the MCIT over the normal tax shall be carried forward and credited
against the normal income tax for the three immediately succeeding taxable years.
The Secretary of Finance is hereby authorized to suspend the imposition of the
[MCIT] on any corporation which suffers losses on account of prolonged labor
dispute, or because of force majeure, or because of legitimate business reverses.
The term gross income shall mean gross sales less sales returns, discounts and
allowances and cost of goods sold. "Cost of goods sold" shall include all business
expenses directly incurred to produce the merchandise to bring them to their
present location and use.
CHAMBER claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional
because it is highly oppressive, arbitrary and confiscatory which amounts to
deprivation of property without due process of law. It explains that gross income as
defined under said provision only considers the cost of goods sold and other direct
expenses; other major expenditures, such as administrative and interest expenses
which are equally necessary to produce gross income, were not taken into account.
Thus, pegging the tax base of the MCIT to a corporations gross income is
tantamount to a confiscation of capital because gross income, unlike net income, is
not "realized gain."

ISSUE:
1. WON the imposition of the MCIT on domestic corporations is unconstitutional
2. WON RR 9-98 is a deprivation of property without due process of law because the
MCIT is being imposed and collected even when there is actually a loss, or a zero or
negative taxable income

HELD:
1. NO. MCIT is not violative of due process. The MCIT is not a tax on capital. The
MCIT is imposed on gross income which 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. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the
normal net income tax, and only if the normal income tax is suspiciously low.
The MCIT merely approximates the amount of net income tax due from a
corporation, pegging the rate at a very much reduced 2% and uses as the base the
corporations gross income.
CHAMBER failed to support, by any factual or legal basis, its allegation that the MCIT
is arbitrary and confiscatory. It does not cite any actual, specific and concrete
negative experiences of its members nor does it present empirical data to show that
the implementation of the MCIT resulted in the confiscation of their property.
Taxation is necessarily burdensome because, by its nature, it adversely affects
property rights. The party alleging the laws unconstitutionality has the burden to
demonstrate the supposed violations in understandable terms.

2. NO. RR 9-98, in declaring that MCIT should be imposed whenever such


corporation has zero or negative taxable income, merely defines the coverage of
Section 27(E).
This means that even if a corporation incurs a net loss in its business operations or
reports zero income after deducting its expenses, it is still subject to an MCIT of 2%
of its gross income. This is consistent with the law which imposes the MCIT on gross
income notwithstanding the amount of the net income.

FACTS:
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.

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:
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. 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.
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.
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.

1.
Chamber of Real Estate and Builders Associations, Inc., v. The Hon. Executive
Secretary Alberto Romulo, et al
G.R. No. 160756. March 9, 2010

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 the MCIT at the rate of 2%
of gross income, beginning on the 4th taxable 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 as MCIT 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:

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

Issues: (1) Is the imposition of MCIT constitutional? (2) Is the imposition of CWT on
income from sales of real properties classified as ordinary assets constitutional?

Held: (1) Yes. The imposition of the MCIT is constitutional. An income tax is
arbitrary and confiscatory if it taxes capital, because it is income, and not capital,
which is subject to income tax. However, MCIT is imposed on gross income which is
computed by deducting from gross sales 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.
Clearly, the capital is not being taxed.

Various safeguards were incorporated into the law imposing MCIT.

Firstly, recognizing the birth pangs of businesses and the reality of the need to
recoup initial major capital expenditures, the MCIT is imposed only on the 4th
taxable year immediately following the year in which the corporation commenced
its operations.

Secondly, the law allows the carry-forward of any excess of the MCIT paid over the
normal income tax which shall be credited against the normal income tax for the
three immediately succeeding years.

Thirdly, since certain businesses may be incurring genuine repeated losses, the law
authorizes the Secretary of Finance to suspend the imposition of MCIT if a
corporation suffers losses due to prolonged labor dispute, force majeure and
legitimate business reverses.

(2) Yes. Despite the imposition of CWT on GSP or FMV, the income tax base for sales
of real property classified as ordinary assets remains as the entitys net taxable
income as provided in the Tax Code, i.e., gross income less allowable costs and
deductions. The seller shall file its income tax return and credit the taxes withheld
by the withholding agent-buyer against its tax due. If the tax due is greater than the
tax withheld, then the taxpayer shall pay the difference. If, on the other hand, the
tax due is less than the tax withheld, the taxpayer will be entitled to a refund or tax
credit.

The use of the GSP or FMV as basis to determine the CWT is for purposes of
practicality and convenience. The knowledge of the withholding agent-buyer is

limited to the particular transaction in which he is a party. Hence, his basis can only
be the GSP or FMV which figures are reasonably known to him.

Also, the collection of income tax via the CWT on a per transaction basis, i.e., upon
consummation of the sale, is not contrary to the Tax Code which calls for the
payment of the net income at the end of the taxable period. The taxes withheld are
in the nature of advance tax payments by a taxpayer in order to cancel its possible
future tax obligation. They are installments on the annual tax which may be due at
the end of the taxable year. The withholding agent-buyers act of collecting the tax
at the time of the transaction, by withholding the tax due from the income payable,
is the very essence of the withholding tax method of tax collection.

On the alleged violation of the equal protection clause, the taxing power has the
authority to make reasonable classifications for purposes of taxation. Inequalities
which result from singling out a particular class for taxation, or exemption, infringe
no constitutional limitation. The real estate industry is, by itself, a class and can be
validly treated differently from other business enterprises.

What distinguishes the real estate business from other manufacturing enterprises,
for purposes of the imposition of the CWT, is not their production processes but the
prices of their goods sold and the number of transactions involved. The income from
the sale of a real property is bigger and its frequency of transaction limited, making
it less cumbersome for the parties to comply with the withholding tax scheme. On
the other hand, each manufacturing enterprise may have tens of thousands of
transactions with several thousand customers every month involving both minimal
and substantial amounts.

DIAZ VS. SECRETARY OF FINANCE- VALUE ADDED TAX (VAT)


Details
Category: Value Added Tax
DIAZ VS. SECRETARY OF FINANCE- VALUE ADDED TAX (VAT)

May toll fees collected by tollway operators be subject to VAT?

YES.
(1) VAT is imposed on all kinds of services and tollway operators who are engaged
in constructing, maintaining, and operating expressways are no different from
lessors of property, transportation contractors, etc.
(2) Not only do they fall under the broad term under (1) but also come under those
described as all other franchise grantees which is not confined only to legislative
franchise grantees since the law does not distinguish. They are also not a franchise
grantee under Section 119 which would have made them subject to percentage tax
and not VAT.
(3) Neither are the services part of the enumeration under Section 109 on VATexempt transactions.
(4) The toll fee is not a users tax and thus it is permissible to impose a VAT on the
said fee. The MIAA case does not apply and the Court emphasized that toll fees are
not taxes since they are not assessed by the BIR and do not go the general coffers
of the government. Toll fees are collected by private operators as reimbursement for
their costs and expenses with a view to a profit while taxes are imposed by the
government as an attribute of its sovereignty. Even if the toll fees were treated as
users tax, the VAT can not be deemed as a tax on tax since the VAT is imposed on
the tollway operator and the fact that it might pass-on the same to the tollway user,
it will not make the latter directly liable for VAT since the shifted VAT simply
becomes part of the cost to use the tollways.
(5) The assertion that the VAT imposed is not administratively feasible given the
manner by which the BIR intends to implement the VAT (i.e., rounding off the toll
rates and putting any excess collection in an escrow account) is not enough to
invalidate the law. Non-observance of the canon of administrative feasibility will not
render a tax imposition invalid except to the extent that specific constitutional or
statutory limitations are impaired

Lung Center vs. QC


Facts: Lung Center of the Philippines is a non-stock and non-profit entity established
by virtue of PD No. 1823. It is the registered owner of the land on which the Lung
Center of the Philippines Hospital is erected. A big space in the ground floor of the
hospital is being leased to private parties, for canteen and small store spaces, and
to medical or professional practitioners who use the same as theirprivate clinics.

Also, a big portion on the right side of the hospital is being leased for commercial
purposes to a private enterprise known as the Elliptical Orchids and Garden Center.

When the City Assessor of Quezon City assessed both its land and hospital building
for real property taxes, the Lung Center of the Philippines filed a claim for
exemption on its averment that it is a charitable institution with a minimum of 60%
of its hospital beds exclusively used for charity patients and that the major thrust of
its hospital operation is to serve charity patients. The claim for exemption was
denied, prompting a petition for the reversal of the resolution of the City Assessor
with the Local Board of Assessment Appeals of Quezon City, which denied the same.
On appeal, the Central Board of Assessment Appeals of Quezon City affirmed the
local boards decision, finding that Lung Center of the Philippines is not a charitable
institution and that its properties were not actually, directly and exclusively used for
charitable purposes. Hence, the present petition for review with averments that the
Lung Center of the Philippines is a charitable institution under Section 28(3), Article
VI of the Constitution, notwithstanding that it accepts paying patients and rents out
portions of the hospital building to private individualsand enterprises.

Issue: Is the Lung Center of the Philippines a charitable institution within the context
of the Constitution, and therefore, exempt from real property tax?

Held: The Lung Center of the Philippines is a charitable institution. To determine


whether an enterprise is a charitable institution or not,the elements which should be
considered include the statute creating the enterprise, its corporate purposes, its
constitution and by-laws, the methods of administration, the nature of the actual
work performed, that character of the services rendered, the indefiniteness of the
beneficiaries and the use and occupation of the properties.

However, under the Constitution, in order to be entitled to exemption from real


property tax, there must be clear and unequivocal proof that (1) it is a charitable
institution and (2)its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used
for charitable purposes. While portions of the hospital are used for treatment of
patients and the dispensation of medical services to them, whether paying or nonpaying, other portions thereof are being leased toprivate individuals and
enterprises.

Exclusive is defined as possessed and enjoyed to the exclusion of others, debarred


from participation or enjoyment. If real property is used for one or more commercial
purposes, it is not exclusively used for the exempted purposes but is subject to
taxation.