"No national of the United States, or
Arturo Tolentino vs Secretary of Finance
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 the House 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 the House 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 revenue statute and not only
the bill which initiated the legislative process culminating in
the enactment of the law must substantially be the same as the
House bill would be to deny the Senates power not only to
concur with amendments but also to propose amendments.
Indeed, what the Constitution simply means is that the
initiative for filing revenue, tariff or tax bills, bills authorizing
an increase of the public debt, private bills and bills of local
application must come from the House of Representatives on
the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to
the local needs and problems. Nor does the Constitution
prohibit the filing in the Senate of a substitute bill in
anticipation of its receipt of the bill from the House, so long as
action by the Senate as a body is withheld pending receipt of
the House bill.
The next argument of the petitioners was that S. No. 1630 did
not pass 3 readings on separate days as required by the
Constitution because 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 days. 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.
SEA-LAND SERVICE, INC., petitioner,
vs.
COURT OF APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
PARDO, J.:
The Case
Appeal via certiorari from the decision of the Court of Appeals
affirming in toto that of the Court of Tax Appeals which denied
petitioners claim for tax credit or refund of income tax paid
on its gross Philippine billings for taxable year 1984, in the
amount of P870,093.12.1
The Facts
The facts, as found by the Court of Appeals, are as follows:
"Sea-Land Service Incorporated (SEA-LAND), an American
international shipping company licensed by the Securities and
Exchange Commission to do business in the Philippines
entered into a contract with the United States Government to
transport military household goods and effects of U.S. military
personnel assigned to the Subic Naval Base.
"From the aforesaid contract, SEA-LAND derived an income for
the taxable year 1984 amounting to P58,006,207.54. During
the taxable year in question, SEA-LAND filed with the Bureau
of Internal Revenue (BIR) the corresponding corporate
Income Tax Return (ITR) and paid the income tax due thereon
of 1.5% as required in Section 25 (a)(2) of the National
Internal Revenue Code (NIRC) in relation to Article 9 of the
RP-US Tax Treaty, amounting to P870,093.12.
"Claiming that it paid the aforementioned income tax by
mistake, a written claim for refund was filed with the BIR on
15 April 1987. However, before the said claim for refund could
be acted upon by public respondent Commissioner of Internal
Revenue, petitioner-appellant filed a petition for review with
the CTA docketed as CTA Case No. 4149, to judicially pursue its
claim for refund and to stop the running of the two-year
prescriptive period under the then Section 243 of the NIRC.
"On 21 February 1995, CTA rendered its decision denying SEA-
LANDs claim for refund of the income tax it paid in 1984."2
On March 30, 1995, petitioner appealed the decision of the
Court of Tax Appeals to the Court of Appeals.3
After due proceedings, on October 26, 1995, the Court of
Appeals promulgated its decision dismissing the appeal and
affirming in toto the decision of the Court of Tax Appeals.4
Hence, this petition.5
The Issue
The issue raised is whether or not the income that petitioner
derived from services in transporting the household goods
and effects of U.S. military personnel falls within the tax
exemption provided in Article XII, paragraph 4 of the RP-US
Military Bases Agreement.
The Courts Ruling
We deny the petition.
The RP-US Military Bases Agreement provides:
corporation organized under the laws of
the United States, shall be liable to pay
income tax in the Philippines in respect
of any profits derived under a contract
made in the United States with the
government of the United States in
connection with the construction,
maintenance, operation and defense of
the bases, or any tax in the nature of a
license in respect of any service or work
for the United States in connection with
the construction, maintenance, operation
and defense of the bases."6
Petitioner Sea-Land Service, Inc. a US shipping company
licensed to do business in the Philippines earned income
during taxable year 1984 amounting to P58,006,207.54, and
paid income tax thereon of 1.5% amounting to P870,093.12.
The question is whether petitioner is exempted from the
payment of income tax on its revenue earned from the
transport or shipment of household goods and effects of US
personnel assigned at Subic Naval Base.
"Laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing
power. Taxation is the rule and exemption is the
exception."7 The law "does not look with favor on tax
exemptions and that he who would seek to be thus privileged
must justify it by words too plain to be mistaken
and too categorical to be misinterpreted."8
Under Article XII (4) of the RP-US Military Bases Agreement,
the Philippine Government agreed to exempt from payment of
Philippine income tax nationals of the United States, or
corporations organized under the laws of the United States,
residents in the United States in respect of any profit derived
under a contract made in the United States with the
Government of the United States in connection with
the construction, maintenance, operation and defense of
the bases.
It is obvious that the transport or shipment of household
goods and effects of U.S. military personnel is not included in
the term "construction, maintenance, operation and defense of
the bases." Neither could the performance of this service to the
U.S. government be interpreted as directly related to the
defense and security of the Philippine territories. "When the
law speaks in clear and categorical language, there is no
reason for interpretation or construction, but only for
application."9 Any interpretation that would give it an
expansive construction to encompass petitioners exemption
from taxation would be unwarranted.
The avowed purpose of tax exemption "is some public benefit
or interest, which the lawmaking body considers sufficient to
offset the monetary loss entailed in the grant of the
exemption."10 The hauling or transport of household goods
and personal effects of U. S. military personnel would not
directly contribute to the defense and security of the
Philippines.
We see no reason to reverse the ruling of the Court of Appeals,
which affirmed the decision of the Court of Tax Appeals. The
Supreme "Court will not set aside lightly the conclusion
reached by the Court of Tax Appeals which, by the very nature
of its function, is dedicated exclusively to the consideration of
tax problems and has necessarily developed an expertise on
the subject, unless there has been an abuse or improvident
exercise of authority."11
Hence, the Court of Appeals did not err or gravely abuse its
discretion in dismissing the petition for review. We can not
grant the petition.1a wphi1.ne t
The Judgment
WHEREFORE, the Court DENIES the petition for lack of merit.
No costs.
SO ORDERED.
31st INFANTRY POST EXCHANGE vs. POSADAS
G.R. No. 33403. September 4, 1930
FACTS: The 31st Infantry Post Exchange is a post exchange
constituted in accordance with Army regulations and the laws
of the United States. in the course of its duly authorized
business transactions, the Exchange made many purchases of
various and diverse commodities, goods, wares and
merchandise from various merchants in the Philippines. The
Commissioner collected a sales tax of 1 1/2 % of the gross
value of the commodities, etc. from the merchants who sold
said commodities to the Exchange. A formal protest was
lodged by the Exchange.
ISSUE:
Whether or not the petitioner is exempt from the sales tax
imposed against its suppliers.
RULING:
The court ruled in the negative. Taxes have been collected
from merchants who made sales to Army Post Exchanges since
1904 (Act 1189, Section 139). Similar taxes are paid by those
who sell merchandise to the Philippine Government, and by
those who do business with the US Army and Navy in the
Philippines. Herein, the merchants who effected the sales to
the Post Exchange are the ones who paid the tax; and it is the
officers, soldiers, and civilian employees and their families
who are benefited by the post exchange to whom the tax is
ultimately shifted.
An Army Post Exchange, although an agency within the US
Army, cannot secure exemption from taxation for merchants
who make sales to the Post Exchange.
CIR vs. MARUBENI
GR No. 137377| J. Puno
Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR
to desist from collecting the 1985 deficiency income, branch
profit remittance and contractors taxes from Marubeni Corp
after finding the latter to have properly availed of the tax
amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in general import
and export trading, financing and construction, is duly
registered in the Philippines with Manila branch office. CIR
examined the Manila branchs books of accounts for fiscal year
ending March 1985, and found that respondent had
undeclared income from contracts with NDC and Philphos for
construction of a wharf/port complex and ammonia storage
complex respectively.
On August 27, 1986, Marubeni received a letter from CIR
assessing it for several deficiency taxes. CIR claims that the
income respondent derived were income from Philippine
sources, hence subject to internal revenue taxes. On Sept 1986,
respondent filed 2 petitions for review with CTA: the first,
questioned the deficiency income, branch profit remittance
and contractors tax assessments and second questioned the
deficiency commercial brokers assessment.
On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid
income taxes for 1981-85, and that taxpayers who wished to
avail this should on or before Oct 31, 1986. Marubeni filed its
tax amnesty return on Oct 30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41s scope to include
estate and donors taxes under Title 3 and business tax under
Chap 2, Title 5 of NIRC, extended the period of availment to
Dec 15, 1986 and stated those who already availed amnesty
under EO 41 should file an amended return to avail of the new
benefits. Marubeni filed a supplemental tax amnesty return on
Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty
and deemed cancelled the deficiency taxes. CA affirmed on
appeal.
Issue:
W/N Marubeni is exempted from paying tax
Held:
Yes.
1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty
because it falls under the exception in Sec 4b of EO 41:
Sec. 4. Exceptions.The following taxpayers may not avail
themselves of the amnesty herein granted: xxx b) Those with
income tax cases already filed in Court as of the effectivity
hereof;
Petitioner argues that at the time respondent filed for income
tax amnesty on Oct 30, 1986, a case had already been filed and
was pending before the CTA and Marubeni therefore fell under
the exception. However, the point of reference is the date
of effectivity of EO 41 and that the filing of income tax cases
must have been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case questioning the
1985 deficiency was filed with CTA on Sept 26, 1986. When EO
41 became effective, the case had not yet been filed. Marubeni
does not fall in the exception and is thus, not disqualified from
availing of the amnesty under EO 41 for taxes on income and
branch profit remittance.
The difficulty herein is with respect to the contractors tax
assessment (business tax) and respondents availment of the
amnesty under EO 64, which expanded EO 41s coverage.
When EO 64 took effect on Nov 17, 1986, it did not provide for
exceptions to the coverage of the amnesty for business, estate
and donors taxes. Instead, Section 8 said EO provided that:
Section 8. The provisions of Executive Orders Nos. 41 and 54
which are not contrary to or inconsistent with this amendatory
Executive Order shall remain in full force and effect.
Due to the EO 64 amendment, Sec 4b cannot be construed to
refer to EO 41 and its date of effectivity. The general rule is
that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or
by necessary implication and no vested right or obligations of
contract are thereby impaired.
2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the
amnesty, it is still not liable for the deficiency tax because the
income from the projects came from the Offshore Portion as
opposed to Onshore Portion. It claims all materials and
equipment in the contract under the Offshore Portion were
manufactured and completed in Japan, not in the Philippines,
and are therefore not subject to Philippine taxes.
(BG: Marubeni won in the public bidding for projects with
government corporations NDC and Philphos. In the contracts,
the prices were broken down into a Japanese Yen Portion (I
and II) and Philippine Pesos Portion and financed either by
OECF or by suppliers credit. The Japanese Yen Portion I
corresponds to the Foreign Offshore Portion, while Japanese
Yen Portion II and the Philippine Pesos Portion correspond to
the Philippine Onshore Portion. Marubeni has already paid the
Onshore Portion, a fact that CIR does not deny.)
CIR argues that since the two agreements are turn-key, they
call for the supply of both materials and services to the client,
they are contracts for a piece of work and are indivisible. The
situs of the two projects is in the Philippines, and the
materials provided and services rendered were all done and
completed within the territorial jurisdiction of the Philippines.
Accordingly, respondents entire receipts from the contracts,
including its receipts from the Offshore Portion, constitute
income from Philippine sources. The total gross receipts
covering both labor and materials should be subjected to
contractors tax (a tax on the exercise of a privilege of selling
services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that
not all its work was performed in the Philippines because
some of them were completed in Japan (and in fact
subcontracted) in accordance with the provisions of the
contracts. All services for the design, fabrication, engineering
and manufacture of the materials and equipment under
Japanese Yen Portion I were made and completed in
Japan. These services were rendered outside Philippines
taxing jurisdiction and are therefore not subject to
contractors tax.Petition denied.
William Reagan vs Commissioner of Internal Revenue
William Reagan is a US citizen assigned at Clark Air Base to
help provide technical assistance to the US Air Force (USAF).
In April 1960 Reagan imported a 1960 Cadillac car valued at
$6,443.83. Two months later, he got permission to sell the
same car provided that he would sell the car to a US citizen or
a member of the USAF. He sold it to Willie Johnson, Jr. for
$6,600.00 as shown by a Bill of Sale. The sale took place within
Clark Air Base. As a result of this transaction, the
Commissioner of Internal Revenue calculated the net taxable
income of Reagan to be at P17,912.34 and that his income tax
would be P2,797.00. Reagan paid the assessed tax but at the
same time he sought for a refund because he claims that he is
exempt. Reagan claims that the sale took place in foreign soil
since Clark Air Base, in legal contemplation is a base outside
the Philippines. Reagan also cited that under the Military
Bases Agreement, he, by nature of his employment, is exempt
from Philippine taxation.
ISSUE: Is the sale considered done in a foreign soil not subject
to Philippine income tax?
HELD: No. The Philippines is independent and sovereign, its
authority may be exercised over its entire domain. There is no
portion thereof that is beyond its power. Within its limits, its
decrees are supreme, its commands paramount. Its laws
govern therein, and everyone to whom it applies must submit
to its terms. That is the extent of its jurisdiction, both
territorial and personal. On the other hand, there is nothing in
the Military Bases Agreement that lends support to Reagans
assertion. The Base has not become foreign soil or territory.
This countrys jurisdictional rights therein, certainly not
excluding the power to tax, have been preserved, the
Philippines merely consents that the US exercise jurisdiction
in certain cases this is just a matter of comity, courtesy and
expediency. It is likewise noted that he indeed is employed by
the USAF and his income is derived from US source but the
income derived from the sale is not of US source hence
taxable.
Tiu v Ca G.R. No. 127410. January 20, 1999
J. Panganiban
Facts:
On March 13, 1992, Congress, with the approval of the
President, passed into law RA 7227. This was for the
conversion of former military bases into industrial and
commercial uses. Subic was one of these areas. It was made
into a special economic zone.
In the zone, there were no exchange controls. Such were
liberalized. There was also tax incentives and duty
free importation policies under this law.
On June 10, 1993, then President Fidel V.
Ramos issued Executive Order No. 97 (EO 97), clarifying
the application of the tax and duty incentives. It said that
On Import Taxes and Duties. Tax and duty-free
importations shall apply only to raw materials, capital
goods and equipment brought in by business enterprises into
the SSEZ
On All Other Taxes. In lieu of all local and national taxes
(except import taxes and duties), all business enterprises in
the SSEZ shall be required to pay the tax specified in Section
12(c) of R.A. No. 7227.
Nine days after, on June 19, 1993, the
President issued Executive Order No. 97-A (EO 97-A),
specifying the area within which the tax-and-duty-free
privilege was operative.
conditions both as to privileges conferred and
Section 1.1. The Secured Area consisting of the presently
fenced-in former Subic Naval Base shall be the only completely
tax and duty-free area in the SSEFPZ. Business enterprises and
individuals (Filipinos and foreigners) residing within the
Secured Area are free to import raw materials, capital goods,
equipment, and consumer items tax and duty-free.
Petitioners challenged the constitutionality of EO 97-A for
allegedly being violative of their right to equal protection of
the laws. This was due to the limitation of tax incentives to
Subic and not to the entire area of Olongapo. The case was
referred to the Court of Appeals.
The appellate court concluded that such being the case,
petitioners could not claim that EO 97-A is unconstitutional,
while at the same time maintaining the validity of RA 7227.
The court a quo also explained that the intention of Congress
was to confine the coverage of the SSEZ to the "secured area"
and not to include the "entire Olongapo City and other areas
mentioned in Section 12 of the law.
Hence, this was a petition for review under Rule 45 of the
Rules of Court.
Issue:
Whether the provisions of Executive Order No. 97-A confining
the application of R.A. 7227 within the secured area and
excluding the residents of the zone outside of the secured area
is discriminatory or not owing to a violation of the equal
protection clause.
Held. No. Petition dismissed.
Ratio:
Citing Section 12 of RA 7227, petitioners contend that the
SSEZ encompasses (1) the City of Olongapo, (2) the
Municipality of Subic in Zambales, and (3) the area formerly
occupied by the Subic Naval Base. However, they claimed that
the E.O. narrowed the application to the naval base only.
OSG- The E.O. Was a valid classification.
Court- The fundamental right of equal protection of the laws is
not absolute, but is subject to reasonable classification. If the
groupings are characterized by substantial distinctions that
make real differences, one class may be treated and regulated
differently from another. The classification must also be
germane to the purpose of the law and must apply to all those
belonging to the same class.
Inchong v Hernandez- Equal protection does not demand
absolute equality among residents; it merely requires that all
persons shall be treated alike, under like circumstances and
liabilities enforced.
Classification, to be valid, must (1) rest on substantial
distinctions, (2) be germane to the purpose of the law, (3) not
be limited to existing conditions only, and (4) apply equally to
all members of the same class.
RA 7227 aims primarily to accelerate the conversion of
military reservations into productive uses. This was really
limited to the military bases as the law's intent provides.
Moreover, the law tasked the BCDA to specifically develop the
areas the bases occupied.
Among such enticements are: (1) a separate customs territory
within the zone, (2) tax-and-duty-free importations, (3)
restructured income tax rates on business enterprises within
the zone, (4) no foreign exchange control, (5) liberalized
regulations on banking and finance, and (6) the grant of
resident status to certain investors and of working visas to
certain foreign executives and workers. The target of the law
was the big investor who can pour in capital.
Even more important, at this time the business
activities outside the "secured area" are not likely to have any
impact in achieving the purpose of the law, which is to turn the
former military base to productive use for the benefit of the
Philippine economy. Hence, there was no reasonable basis to
extend the tax incentives in RA 7227.
It is well-settled that the equal-protection guarantee does
not require territorial uniformity of laws. As long as there
are actual and material differences between territories,
there is no violation of the constitutional clause.
Besides, the businessmen outside the zone can always channel
their capital into it.
RA 7227, the objective is to establish a "self-sustaining,
industrial, commercial, financial and investment center. There
will really be differences between it and the outside zone of
Olongapo.
The classification of the law also applies equally to the
residents and businesses in the zone. They are similarly
treated to contribute to the end gaol of the law.
JOHN HAY PEOPLES ALTERNATIVE COALITION VS LIM
Facts:
R.A. No. 7227 likewise created and grantedthe Subic SEZ incen
tives ranging from tax and duty-free importations, exemption
of businesses therein from local and national taxes, to other ha
llmarks of a liberalized financial and business climate.
And R.A. No. 7227 expressly gave authority to the President to
create through executive proclamation, subject to the concurre
nce of the local government units directly affected, other Speci
al Economic Zones (SEZ) in the areas covered respectively by t
he Clark military reservation, the Wallace Air Station in San Fe
rnando, La Union, and Camp John Hay.
On July 5, 1994 then President Ramos issued Proclamation No.
420 which established a SEZ on a portion of Camp John Hay.
In maintaining the validity of Proclamation No. 420, responde
nts contend that by extending to the John Hay SEZ economic in
centives similar to those enjoyed by the Subic SEZ which was e
stablished under R.A. No. 7227, the proclamation is merely im
plementing the legislative intent of said law to turn the US mili
tary bases into hubs of business activity or investment.
Issue:
WON Proclamation No. 420 is constitutional by providing for n
ational and local tax exemption within and granting other eco
nomic incentives to the John Hay SEZ
NO!
Nowhere in RA 7227 is there a grant of tax exemption to SEZs
yet to be established in base areas, unlike the grant under Sect
ion 12 which provides for tax exemption to the established Su
bic SEZ. The tax exemption grant to John Hay SEZ contravenes
Article VI, Section 28 (4) of the 1987 Constitution which provi
des that No law granting any tax exemption shall be passed w
ithout the concurrence of a majority of all the members of Con
gress.
Furthermore, it is the Legislature, unless limited by a provisio
n of the state constitution, which has the full power to exempt
any person or corporation or class of property from taxation, i
ts power to exempt being as broad as its power to tax. The gra
nt by Proclamation No. 420 of tax exemption and other privile
ges to the John Hay SEZ is VOID for being violative of the Const
itution.
Coconut Oil Refiners vs Torres GR 132527 29 July 2005
Facts: This is a Petition to enjoin and prohibit the public
respondent Ruben Torres in his capacity as Executive
Secretary from allowing other private respondents to continue
with the operation of tax and duty-free shops located at the
Subic Special Economic Zone (SSEZ) and the Clark Special
Economic Zone (CSEZ). The petitioner seeks to declare
Republic Act No. 7227 as unconstitutional on the ground that
it allowed only tax-free (and duty-free) importation of raw
materials, capital and equipment. It reads:
The Subic Special Economic Zone shall be operated and
managed as a separate customs territory ensuring free flow or
movement of goods and capital within, into and exported out of
the Subic Special Economic Zone, as well as provide incentives
such as tax and duty-free importations of raw materials, capital
and equipment. However, exportation or removal of goods from
the territory of the Subic Special Economic Zone to the other
parts of the Philippine territory shall be subject to customs
duties and taxes under the Customs and Tariff Code and other
relevant tax laws of thePhilippines [RA 7227, Sec 12 (b)].
Petitioners contend that the wording of Republic Act No. 7227
clearly limits the grant of tax incentives to the importation
of raw materials, capital and equipment only thereby violating
the equal protection clause of the Constitution.
He also assailed the constitutionality of Executive Order No.
97-A for being violative of their right to equal protection. They
asserted that private respondents operating inside the SSEZ
are not different from the retail establishments located
outside.
Issue: Whether or not Republic Act No. 7227 is valid on the
ground that it violates the equal protection clause.
Decision: The SC ruled in the negative. The phrase tax and
duty-free importations of raw materials, capital and
equipment was merely cited as an example of incentives that
may be given to entities operating within the zone. Public
respondent SBMA correctly argued that the maxim expressio
unius est exclusio alterius, on which petitioners impliedly rely
to support their restrictive interpretation, does not apply
when words are mentioned by way of example.
The petition with respect to declaration of unconstitutionality
of Executive Order No. 97-A cannot be, likewise, sustained.
The guaranty of the equal protection of the laws is not violated
by a legislation based which was based on reasonable
classification. A classification, to be valid, must (1) rest on
substantial distinction, (2) be germane to the purpose of the
law, (3) not be limited to existing conditions only, and (4)
apply equally to all members of the same class. Applying the
foregoing test to the present case, this Court finds no violation
of the right to equal protection of the laws. There is a
substantial distinctions lying between the establishments
inside and outside the zone. There are substantial differences
in a sense that, investors will be lured to establish and operate
their industries in the so-called secured area and the present
business operators outside the area. There is, then, hardly any
reasonable basis to extend to them the benefits and incentives
accorded in R.A. 7227.
ABAKADA Guro Party List vs. Ermita
Facts:
ABAKADA GURO Party List, et al., filed a petition for
prohibition o 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;
Petitioners also reiterate their argument that the input tax is a
property or a property right. Petitioners also contend that
even if the right to credit the input VAT is merely a statutory
privilege, it has already evolved into a vested right that the
State cannot remove.
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.
In the same breath, the Court reiterates its finding that it is not
a property or a property right, and a VAT-registered persons
entitlement to the creditable input tax is a mere statutory
privilege. As the Court stated in its Decision, the right to credit
the input tax is a mere creation of law. More importantly, the
assailed provisions of R.A. No. 9337 already involve legislative
policy and wisdom. So long as there is a public end for which
R.A. No. 9337 was passed, the means through which such end
shall be accomplished is for the legislature to choose so long
as it is within constitutional bounds.
Lutz vs. Araneta
Facts: 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. 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 Sec.3 of the Act, alleging that such tax is
unconstitutional and void, being levied for the aid and support
of the sugar industry exclusively, which in plaintiffs opinion is
not a public purpose for which a tax may be constitutionally
levied. The action has been dismissed by the Court of First
Instance.
Issue: Whether or not the tax imposed is constitutional.
Held: Yes. The act is primarily an exercise of the police power.
It is shown in the Act that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry.
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 toadhere to a policy of all or none.
COMMISSIONER OF INTERNAL REVENUE v. YMCA
G.R. No. 124043 October 14, 1998
Doctrine:
Rental income derived by a tax-exempt organization from
the lease of its properties, real or personal, is not exempt from
income taxation, even if such income is exclusively used for the
accomplishment of its objectives.
A claim of statutory exemption from taxation should be
manifest and unmistakable from the language of the law on
which it is based. Thus, it must expressly be granted in a
statute stated in a language too clear to be mistaken. Verba
legis non est recedendum where the law does not
distinguish, neither should we.
The bare allegation alone that one is a non-stock, non-profit
educational institution is insufficient to justify its exemption
from the payment of income tax. It must prove with
substantial evidence that (1) it falls under the classification
non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used actually,
directly, and exclusively for educational purposes.
The Court cannot change the law or bend it to suit its
sympathies and appreciations. Otherwise, it would be
overspilling its role and invading the realm of legislation. The
Court, given its limited constitutional authority, cannot rule on
the wisdom or propriety of legislation. That prerogative
belongs to the political departments of government.
Facts:
Private Respondent YMCA is a non-stock, non-profit
institution, which conducts various programs and activities
that are beneficial to the public, especially the young people,
pursuant to its religious, educational and charitable objectives.
YMCA earned income from leasing out a portion of its
premises to small shop owners, like restaurants and canteen
operators, and from parking fees collected from non-members.
Petitioner issued an assessment to private respondent for
deficiency taxes. Private respondent formally protested the
assessment. In reply, the CIR denied the claims of YMCA.
Issue:
Whether or not the income derived from rentals of real
property owned by YMCA subject to income tax
Held:
Yes. Income of whatever kind and character of non-stock non-
profit organizations from any of their properties, real or
personal, or from any of their activities conducted for profit,
regardless of the disposition made of such income, shall be
subject to the tax imposed under the NIRC.
Rental income derived by a tax-exempt organization from the
lease of its properties, real or personal, is not exempt from
income taxation, even if such income is exclusively used for the
accomplishment of its objectives.
Because taxes are the lifeblood of the nation, the Court has
always applied the doctrine of strict in interpretation in
construing tax exemptions (Commissioner of Internal Revenue
v. Court of Appeals, 271 SCRA 605, 613, April 18, 1997).
Furthermore, a claim of statutory exemption from taxation
should be manifest and unmistakable from the language of the
law on which it is based. Thus, the claimed exemption must
expressly be granted in a statute stated in a language too clear
to be mistaken (Davao Gulf Lumber Corporation v.
Commissioner of Internal Revenue and Court of Appeals, G.R.
No. 117359, p. 15 July 23, 1998).
Verba legis non est recedendum. The law does not make a
distinction. The rental income is taxable regardless of whence
such income is derived and how it is used or disposed of.
Where the law does not distinguish, neither should we.
Private respondent also invokes Article XIV, Section 4, par. 3 of
the Constitution, claiming that it is a non-stock, non-profit
educational institution whose revenues and assets are used
actually, directly and exclusively for educational purposes so it
is exempt from taxes on its properties and income. This is
without merit since the exemption provided lies on the
payment of property tax, and not on the income tax on the
rentals of its property. The bare allegation alone that one is a
non-stock, non-profit educational institution is insufficient to
justify its exemption from the payment of income tax.
For the YMCA to be granted the exemption it claims under the
above provision, it must prove with substantial evidence that
(1) it falls under the classification non-stock, non-profit
educational institution; and (2) the income it seeks to be
exempted from taxation is used actually, directly, and
exclusively for educational purposes. Unfortunately for
respondent, the Court noted that not a scintilla of evidence
was submitted to prove that it met the said requisites.
The Court appreciates the nobility of respondents cause.
However, the Courts power and function are limited merely to
applying the law fairly and objectively. It cannot change the
law or bend it to suit its sympathies and appreciations.
Otherwise, it would be overspilling its role and invading the
realm of legislation. The Court regrets that, given its limited
constitutional authority, it cannot rule on the wisdom or
propriety of legislation. That prerogative belongs to the
political departments of government.