TAX 1
Compiled Digests (Aug. 11, 2018)
01 CIR v Algue
Philippine Airlines Inc. v. Romeo F. Edu
J. Guiterrez
G.R. No. 204429 – 18 February 2014
Philippine Airlines Inc. and Romeo F Edu Land TransportatioN
Commissioner filed for a review of the decision the CFI of of Rizal on a pure
question of law whether or not the PAL was entitled to the refund of paid registration
fees. PAL claimed that it was exempt from paying such fees as it was exempt from
paying taxes. The Supreme Court eventually ruled PAL was not entitled to the refund
as the Sec 24 of RA 5448 had been repealed and any taxes collected from June 27,
1968 to April 9, 1979 were correctly collected.
FACTS & PROCEDURAL HISTORY:
Petitioner PAL was a corporation organized under existing laws of the
Philippines which had gained a legislative franchise from RA 42739 which stated in
Sec. 13 that levied a a tax of two per cent of the gross revenue or gross earning
derived by the grantee from its operations payable every quarter which then
exempted it from other local and national taxes. In 1971 Commissioner Romeo F.
Elevate issued a regulation requiring all tax exempt entities to start paying motor
registration fees. Despite PAL’s protests, Elevate refused to register PAL’s motor
vehicles unless the P19,529.75 fee was paid. Following their payment, PAL then
filed protests demanding refund of the payment stating that the fees were in reality
taxes. Elevate denied this on the grounds that that registration fees of motor vehicles
are not taxes, but regulatory fees imposed as an incident of the exercise of the police
power of the state and that the franchise of PAL did not exempt it from fees. The
RTC ruled in favour of Edu. The case was then brought to the CA who then passed it
on to the SC.
ISSUE/S & HELD:
1. W/N the motor registration vehicle fees are taxes
Yes. The Supreme Court held that the motor vehicle registration fees are taxes. It
was posited that if the purpose is primarily for revenue, or if revenue is, at least, one
of the real and substantial purposes, then the exaction is properly called a tax. In the
case at bar, the Supreme Court noted that under Sec. 61 of the Land Transportation
and Traffic Code which governs the collection of this fee is that twenty percent of its
monies collected would be used to pay for the creation and maintenance of
transportation infrastructure and pay for the operating expenses of the administering
agency.
2. W/N PAL may claim a refund
No. The Supreme Court held that the franchise given to PAL had already been
repealed such that they may now pay tax.
JUDGMENT:
The petition is hereby partially GRANTED. The prayed for refund of registration
fees paid in 1971 is DENIED. The Land Transportation Franchising and Regulatory
Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other charge on
the registration and licensing of the petitioner's motor vehicles from April 9, 1979 as
provided in Presidential Decree No. 1590.
Discussion and Dicta:
The Court cited Calalang v. Lorenzo for the distinction between taxes and fees. “For
not the name but the object of the charge determines whether it is a tax or a fee.
Geveia speaking, taxes are for revenue, whereas fees are exceptional. for purposes of
regulation and inspection and are for that reason limited in amount to what is
necessary to cover the cost of the services rendered in that connection.”
03 Progressive Development Corp. vs. Quezon City
Taxation | April 24, 1989 | Feliciano, J.
Nature of Case:
Digest maker: Arthur
SUMMARY: Progressive Development Corporation, owner and operator of a
public market known as the "Farmers Market & Shopping Center" filed a Petition
for Prohibition with Preliminary Injunction against respondent on the ground that
the supervision fee or license tax imposed by the above-mentioned ordinances is
in reality a tax on income which respondent may not impose, the same being
expressly prohibited by Republic Act No. 2264, as amended
Petitioner, however, insists that the "supervision fee" collected from rentals, being
a return from capital invested in the construction of the Farmers Market,
practically operates as a tax on income, one of those expressly excepted from
respondent's taxing authority, and thus beyond the latter's competence.
DOCTRINE: The term "tax" frequently applies to all kinds of exactions of monies
which become public funds. It is often loosely used to include levies for revenue
as well as levies for regulatory purposes such that license fees are frequently
called taxes although license fee is a legal concept distinguishable from tax: the
 former is imposed in the exercise of police power primarily for purposes of
regulation, while the latter is imposed under the taxing power primarily for
purposes of raising revenues.
FACTS:
 On 24 December 1969, the City Council of respondent Quezon City
adopted Ordinance No. 7997, Series of 1969, otherwise known as the
Market Code of Quezon City
 The Market Code was thereafter amended by Ordinance No. 9236, Series of
1972, on 23 March 1972
 On 15 July 1972, petitioner Progressive Development Corporation, owner
and operator of a public market known as the "Farmers Market & Shopping
Center" filed a Petition for Prohibition with Preliminary Injunction against
respondent before the then Court of First Instance of Rizal on the ground
that the supervision fee or license tax imposed by the above-mentioned
ordinances is in reality a tax on income which respondent may not impose
 Respondent contended that it had authority to enact the questioned
ordinances, maintaining that the tax on gross receipts imposed therein is not
a tax on income. The Solicitor General also filed an Answer arguing that
petitioner, not having paid the ten percent (10%) supervision fee prescribed
by Ordinance No. 7997, had no personality to question, and was estopped
from questioning, its validity; that the tax on gross receipts was not a tax on
income but one imposed for the enjoyment of the privilege to engage in a
particular trade or business which was within the power of respondent to
impose
 In its Supplemental Petition of 23 September 1972, petitioner alleged
having paid under protest the five percent (5%) tax under Ordinance No.
9236 for the months of June to September 1972. Two (2) days later, on 25
September 1972, petitioner moved for judgment on the pleadings, alleging
that the material facts had been admitted by the parties.
 On 21 October 1972, the lower court dismissed the petition, ruling 3 that the
questioned imposition is not a tax on income, but rather a privilege tax or
license fee which local governments, like respondent, are empowered to
impose and collect.
ISSUE/S & RATIO:
1. WON the tax imposed by Quezon City is an income tax - NO
a. The "Farmers' Market and Shopping Center" being a public market
in the sense of a market open to and inviting the, patronage of the
general public, even though privately owned, petitioner's operation
thereof required a license issued by the respondent City, the
issuance of which, applying the standards set forth above, was
done principally in the exercise of the respondent's police power
b. The operation of a privately-owned market is, as correctly noted by
the Solicitor General, equivalent to or quite the same as the
operation of a government-owned market
c. The five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax but rather a
license tax or fee for the regulation of the business in which the
petitioner is engaged.
d. The term "tax" frequently applies to all kinds of exactions of
monies which become public funds. It is often loosely used to
include levies for revenue as well as levies for regulatory purposes
such that license fees are frequently called taxes although license
fee is a legal concept distinguishable from tax: the former is
imposed in the exercise of police power primarily for purposes of
regulation, while the latter is imposed under the taxing power
primarily for purposes of raising revenues. Thus, if the generating
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 incidentally revenue is also obtained does not
make the imposition a tax.
e. To be considered a license fee, the imposition questioned 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 as well
RULING: ACCORDINGLY, the Decision of the then Court of First Instance of
Rizal, Quezon City, Branch 18, is hereby AFFIRMED and the Court Resolved to
DENY the Petition for lack of merit.
NOTE:
Market Code of Quezon City, Section 3 of which provided:
Sec. 3. Supervision Fee.- Privately owned and operated public markets shall submit
monthly to the Treasurer's Office, a certified list of stallholders showing the amount
of stall fees or rentals paid daily by each stallholder, ... and shall pay 10% of the
gross receipts from stall rentals to the City, ... , as supervision fee. Failure to submit
said list and to pay the corresponding amount within the period herein
prescribed shall subject the operator to the penalties provided in this Code ...
including revocation of permit to operate
Ordinance No. 9236, Series of 1972, on 23 March 1972, which reads:
SECTION 1. There is hereby imposed a five percent (5 %) tax on gross receipts on appeal. CA stated that while AUF is a tax-free entity, it is not exempt from
rentals or lease of space in privately-owned public markets in Quezon City. regulatory fees like building permit fees.
● AUF filed an MR but was denied. Hence current petition

Angeles University Foundation v City of Angeles ISSUE/S & RATIO:

Taxation | June 27, 2012| VIllarama
Issue: WON the building permit fee is a tax which AUF is exempted from
Nature of Case: Legislative Power - Taxation paying. NO.
Digest Maker: Marte Caronongan
Ratio:
SUMMARY: Petitioner AUF applied for a building permit for the construction of The building permit fee is neither a tax nor a charge on property. Based on Sections
an 11-storey building in its campus. It claimed that it was exempted from paying 102, 103 and 104 of the National Building Code, the building permit fee is a
the permit fee, which they believed were a form of tax, due to the nature of the regulatory imposition on certain activities the owner may conduct either to build
institution as a non-stock non-profit education foundation. SC denied the petition such structures or to repair, alter, renovate or demolish the same. Since building
as the permit fee was deemed a form of regulation and not a tax. permit fees are not charges on property, they are not impositions from which
petitioner is exempt.
DOCTRINE: 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 (A “charge” is broadly defined as the “price of, or rate for, something,” while the
and revenue is incidentally raised does not make the imposition a tax. word “fee” pertains to a “charge fixed by law for services of public officers or for
use of a privilege under control of government.” As used in the LGC, charges refers
to pecuniary liability, as rents or fees against persons or property, while fee means a
charge fixed by law or ordinance for the regulation or inspection of a business or
FACTS:
activity.)
● Petitioner AUF is an educational institution established on 5/25/1962 and
was converted into a non-stock non-profit education foundation under RA
As to petitioner’s argument that the building permit fees collected by respondents are
6055 on 12/4/1975
in reality taxes because the primary purpose is to raise revenues for the local
● 8/2005 AUF filed for an application for a building permit for the
government unit, the same does not hold water.
construction of an 11-storey building in its main campus. A Building Permit
Fee Assessment and an order of payment for Locational Clearance Fees was
In distinguishing tax and regulation as a form of police power, the determining factor
issued to AUF
is the purpose of the implemented measure. If the purpose is primarily to raise
● AUF claimed through a letter addressed to respondents City Treasurer and
revenue, then it will be deemed a tax even though the measure results in some form
Acting City Building Official that AUF is exempted from the payment of
of regulation. On the other hand, if the purpose is primarily to regulate, then it is
the fees, citing legal opinions by the DOJ
deemed a regulation and an exercise of the police power of the state, even though
● They argue that the fees are a tax, as it generates revenue for the
incidentally, revenue is generated.
government
● Respondents referred the matter to the Bureau of Local Government
Concededly, in the case of building permit fees imposed by the National Government
Finance (BLGF) of the Department of Finance, which was in turn referred
under the National Building Code, revenue is incidentally generated for the benefit
to the DOJ. DOJ affirmed the claim of AUF
of local government units.
● Despite AUF’s plea, respondents did not issue the permit. AUF paid under
protest P826,662.99. The permit was issued afterwards
NOTE:
● AUF formally requested for a refund through letters sent 6/15/06 and
8/07/06, but were denied
● 8/31/06 AUF filed a complaint before the RTC seeking for a refund. RTC
rendered judgement in favor of AUF, but the CA reversed the decision on 05 Smart Communications Inc. v. Municipality of Malvar, Batangas
J. Carpio
G.R. No. 204429 – 18 February 2014
Petition for review challenging the decision and resolution of the Court of
Tax Appeals (CTA) En Banc. In said decision, the CTA en banc affirmed the decision
of the CTA first division, which affirmed the trial court’s decision to declare void the
assessment imposed by respondent upon petitioner from 2001 to July 2003 and
ordered assessment only for the period starting 1 October 2003. The Supreme Court
denied the petition.
FACTS & PROCEDURAL HISTORY:
Petitioner Smart constructed a telecommunications tower within the
territorial jurisdiction of Malvar. The tower was meant to receive and transmit
telecommunications in the area. The Municipality then passed on 30 July 2003
Ordinance 18 series of 2003, which regulated the establishment of special projects,
including telecommunications towers. On 24 August 2004, Smart received from the
Permit and Licensing Division of the Office of the Mayor of Malvar an assessment
letter with a schedule for payment for the total amount of P389,500. Due to alleged
arrears (delays), there was also a posting of a notice of closure on the telecoms
tower. Aggrieved, Smart filed a protest vs. the Municipality on the assessment,
questioning the validity of Ordinance 18 as well, to no avail.
Smart then filed a petition before the RTC of Tanauan City, Batangas, Br. 6.
The RTC ruled partly in favor of Smart, holding that the assessment period of 2001
to July 2003 was void since Ordinance 18 only took effect on 30 July 2003.
However, the assessment from 1 October 2003 was declared valid, citing Art. 4 of
the NCC as well as Sec. 166 of RA 7160, the Local Government Code. The RTC
also denied the motion for reconsideration.
Smart then filed a petition before the CTA 1st division, which was denied
along with the motion for reconsideration. The CTA en banc also denied said petition
on the ground of lack of jurisdiction. As a court of special jurisdiction, the CTA en
banc declared it can only review local tax cases in the RTC, but it is not conferred
jurisdiction to resolve cases where the constitutionality of a law or rule is challenged
(cf. RA 9282, Sec. 7(a), par. 3). Hence, this petition.
ISSUE/S & HELD:
1. W/N the CTA En Banc decision should be reversed and set aside for being
contrary to law, considering the CTA en banc should’ve exercised its jurisdiction and
declared the Ordinance as illegal
No. The CTA En Banc’s decision is not contrary to law but can exercise its
jurisdiction over such a case. RA 1125, as amended, created the CTA. Sec. 7(a)(3) of
this law vests the CTA with this exclusive appellate jurisdiction.
2. W/N Ordinance 18 is valid, and if the fees it imposes are taxes
Yes. The said ordinance is valid, but the fees it imposes are not taxes. Sec. 5, Art. X
of the 1987 Constitution provides local government units with “power to create its
own sources of revenues…consistent with the basic policy of local autonomy.” The
LGC consequently grants taxing powers to local government units. Sec. 142 of the
LGC grants municipalities the power to levy fees not otherwise levied by provinces.
Sec. 143 of the LGC provides for the scale of taxes imposable upon businesses,
while Sec. 147 provides said fees. As defined in the LGC, “charges” refer to
pecuniary liability, as fees against persons or property, while “fees” mean “charges
fixed by law or ordinance for the regulation or inspection of a business or activity.
Ordinance 18 is in line with these laws, allowing the municipality to regulate
telephone wires and to address future environmental depredation, which includes
regulation through fees of Smart’s telecom tower. There are even requirements in
said ordinance for securing a preliminary development permit.
JUDGMENT:
Petition denied.
Discussion and Dicta:
“Charges” as defined by the LGC – Pecuniary liability, rents, fees against persons or
property
“Fee” – A charge fixed by law or ordinance for the regulation or inspection of a
business or activity
06 Republic vs. Bacolod-Murcia Milling Co.
GR L-19824-26, 9 July 1999
En Banc, Regala (J): 7 concur, 1 took no part
Facts:
RA 632 created the Philippine Sugar Institute, a semi-public corporation. In 1951,
the Institute acquired the Insular Sugar Refinery for P3.07 million payable in
installments from the proceeds of the sugar tax to be collected under RA 632. The
operation of the refinery for 1954 to 1957 was disastrous as the Institute suffered
tremendous losses. Contending that the purchase of the refinery with money from the
Institute’s fund was not authorized under RA 632, and that the continued operation
of the refinery is inimical to their interest, Bacolod-Murcia Milling Co., Ma-ao Sugar
Central, Talisay-Silay Milling Co. and the Central Azucarera del Danao refused to
continue with their contribution to said fund. The trial court found them liable under
RA 632.
Issue:
Whether the taxpayers may refuse to pay the special assessment, allegedly distinct
from an ordinary tax which no one can refuse to pay?

Held:
The nature of a “special assessment” similar to the case has been discussed and
explained in Lutz vs. Araneta. The special assessment or levy for the Philippine
Sugar Institute (Philsugin) Fund is not so much an exercise of the power of taxation,
nor the imposition of a special assessment, but the exercise of police power for the
general welfare of the entire country. It is, therefore, an exercise of a sovereign
power which no private citizen may lawfully resist.
Section 2a of the Charter authorizing Philsugin to “conduct research work for the
sugar industry in all its phases, either agricultural or industrial, for the purpose of
introducing into the sugar industry such practices or processes that will reduce the
cost of production and achieve greater efficiency in the industry, justifies the
acquisition of the refinery in question. The financial loss resulting from the operation
thereof is no means an index that the industry did not profit therefrom, as other gains
of a different nature (such as experience) may have been realized.
LUTZ VS ARANETA (Relevant Part of the Decision)
“The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax
or special assessment was unconstitutional because it was being "levied for the aid
and support of the sugar industry exclusively," and therefore, not for a public
purpose. In rejecting the theory advanced by the said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax provided for
in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of
the Act, and particularly Section 6, will show that the tax is levied with a regulatory
purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the
police power.”
07 Garcia vs. Executive Secretary
211 SCRA 219 – Political Law / Taxation 1 – Congress Authorizing the President to
Tax
Nature of Case: Petition for Certiorari, Prohibition and Mandamus
Digest maker: Karyza Leyble
In November 1990, President Corazon Aquino issued Executive Order No. 438
which imposed, in addition to any other duties, taxes and charges imposed by law on
all articles imported into the Philippines, an additional duty of 5% ad valorem tax.
This additional duty was imposed across the board on all imported articles, including
crude oil and other oil products imported into the Philippines. In 1991, EO 443
increased the additional duty to 9%. In the same year, EO 475 was passed reinstating
the previous 5% duty except that crude oil and other oil products continued to be
taxed at 9%. President issued Executive Order No. 478, dated 23 August 1991,
which levied (in addition to the aforementioned additional duty of nine percent (9%)
ad valorem and all other existing ad valorem duties) a special duty of P0.95 per liter
or P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil
products.
(Question of Constitutionality)
Enrique Garcia, a representative from Bataan, avers that EO 475 and 478 are
unconstitutional for they violate Section 24 of Article VI of the Constitution which
provides:
All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with amendments.
He contends that since the Constitution vests the authority to enact revenue bills in
Congress, the President may not assume such power by issuing Executive Orders
Nos. 475 and 478 which are in the nature of revenue-generating measures.
(Question of Legality)
Petitioner further argues that Executive Orders No. 475 and 478 contravene Section
401 of the Tariff and Customs Code, which Section authorizes the President,
according to petitioner, to increase, reduce or remove tariff duties or to impose
additional duties only when necessary to protect local industries or products but not
for the purpose of raising additional revenue for the government.
ISSUE: Whether or not EO 475 and 478 are a) unconstitutional and b) illegal – NO
& NO
HELD:
(On Question of Constitutionality)
Under Section 24, Article VI of the Constitution, the enactment of appropriation,
revenue and tariff bills, like all other bills is, of course, within the province of the
Legislative rather than the Executive Department. It does not follow, however, that
therefore Executive Orders Nos. 475 and 478, assuming they may be characterized as
revenue measures, are prohibited to be exercised by the President, that they must be
enacted instead by the Congress of the Philippines.
Section 28(2) of Article VI of the Constitution provides as follows:
(2) The Congress may, by law, authorize the President to fix within specified limits,
and subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts within
the framework of the national development program of the Government.
There is thus explicit constitutional permission to Congress to authorize the President
“subject to such limitations and restrictions as [Congress] may impose” to fix “within
specific limits” “tariff rates . . . and other duties or imposts . . . .”
(On Question of Legality)
The Tariff and Customs Code of the Philippines, and Sections 104 1and 401 2are the
provisions which the President explicitly invoked in promulgating Executive Orders
Nos. 475 and 478.
Note 1: Petitioner contends that the President is authorized to act under the Tariff
and Customs Code only "to protect local industries and products for the sake of the
national economy, general welfare and/or national security." He goes on to claim
that:
E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local
industries and products for the sake of national economy, general welfare and/or
national security.
Court is not persuaded.
1. Nothing in the language of either Section 104 or of 401 of the Tariff and
Customs Code that suggest such a sharp and absolute limitation of
authority. Contention of petitioner is anchored on just two (2) words --
"protective" and ''protection" – which are simply not enough to support the
very broad and encompassing limitation which petitioner seeks to rest on
those two (2) words.
2. Customs duties are frequently imposed for both revenue- raising and for
regulatory purposes.
 “taxes on the importation and exportation of commodities”
 may have in some measure the effect of protecting local industries
 the very same customs duties inevitably have the effect of producing
governmental revenues
 rarely, if ever, designed to achieve one policy objective only. Most
commonly, customs duties, which constitute taxes in the sense of exactions
the proceeds of which become public funds 6 — have either or both the
generation of revenue and the regulation of economic or social activity
1 Section 104 relevant part:
“xxx The rates of duty herein provided or subsequently fixed pursuant to Section Four Hundred One of this Code shall be subject to periodic
investigation by the Tariff Commission and may be revised by the President upon recommendation of the National Economic and
Development Authority.”
2Section 401 relevant part:
“a. In the interest of national economy, general welfare and/or national security, and subject to the limitations herein prescribed, the
President, upon recommendation of the National Economic and Development Authority (hereinafter referred to as NEDA), is
hereby empowered: (1) to increase, reduce or remove existing protective rates of import duty (including any necessary change in
Note 1: Petitioner insists that the "protection of local industries" is the only
permissible objective that can be secured by the exercise of that delegated authority,
and that therefore "protection of local industries" is the sum total or the alpha and the
omega of "the national economy, general welfare and/or national security."
Court not persuaded:
1. The protection of consumers, who after all constitute the very great bulk of
our population, is at the very least as important a dimension of "the national
economy, general welfare and national security" as the protection of local
industries. And so customs duties may be reduced or even removed
precisely for the purpose of protecting consumers from the high prices and
shoddy quality and inefficient service that tariff-protected and subsidized
local manufacturers may otherwise impose upon the community.
2. Tariff rates are commonly established and the corresponding customs duties
levied and collected upon articles and goods which are not found at all and
not produced in the Philippines. In such cases, customs duties may be seen
to be imposed either for revenue purposes purely or perhaps, in certain
cases, to discourage any importation of the items involved.
08 Francia v. IAC
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
Engracio Francia was the owner of a 328 square meter land in Pasay City. In October
1977, a portion of his land (125 square meter) was expropriated by the government
for P4,116.00. The expropriation was made to give way to the expansion of a nearby
road.
It also appears that Francia failed to pay his real estate taxes since 1963 amounting to
P2,400.00. So in December 1977, the remaining 203 square meters of his land was
sold at a public auction (after due notice was given him). The highest bidder was a
certain Ho Fernandez who paid the purchase price of P2,400.00 (which was lesser
than the price of the portion of his land that was expropriated).
classification). The existing rates may be increased or decreased but in no case shall the reduced rate of import duty be lower
than the basic rate of ten (10) per cent ad valorem, nor shall the increased rate of import duty be higher than a maximum of one
hundred (100) per cent ad valorem; (2) to establish import quota or to ban imports of any commodity, as may be necessary; and (3)
to impose an additional duty on all imports not exceeding ten (10) per cent ad valorem, whenever necessary; Provided, That upon periodic
investigations by the Tariff Commission and recommendation of the NEDA, the President may cause a gradual reduction of
protection levels granted in Section One hundred and four of this Code, including those subsequently granted pursuant to this
section. Xxx”
Later, Francia filed a complaint to annul the auction sale on the ground that the
selling price was grossly inadequate. He further argued that his land should have
never been auctioned because the P2,400.00 he owed the government in taxes should
have been set-off by the debt the government owed him (legal compensation). He
alleged that he was not paid by the government for the expropriated portion of his
land because though he knew that the payment therefor was deposited in the
Philippine National Bank, he never withdrew it.
ISSUE: Whether or not the tax owed by Francia should be set-off by the “debt”
owed him by the government.
HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the
contention. By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil
Code). This is not applicable in taxes. 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 being collected. The collection of a tax cannot await the results of a
lawsuit against the government.
The Supreme Court emphasized: 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. Neither are they a proper subject of recoupment since
they do not arise out of the contract or transaction sued on.
Further, the government already Francia. All he has to do was to withdraw the
money. Had he done that, he could have paid his tax obligations even before the
auction sale or could have exercised his right to redeem – which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same
is not tenable. The Supreme Court said: “alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem as when a sale is made at
public auction, upon the theory that the lesser the price, the easier it is for the owner
to effect redemption.” If mere inadequacy of price is held to be a valid objection to a
sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if
not rendered altogether impracticable. “Where land is sold for taxes, the inadequacy
of the price given is not a valid objection to the sale.” This rule arises from necessity,
for, if a fair price for the land were essential to the sale, it would be useless to offer
the property. Indeed, it is notorious that the prices habitually paid by purchasers at
tax sales are grossly out of proportion to the value of the land.
09 PHILEX Mining Corp v. CIR
April 16, 2008 | J. Ynares-Santiago
Nature of Case: Petition for Review on Certiorari
Digest maker: Ivan Paredes
SUMMARY: Philex entered into an agreement with Baguio Gold Mining Company
for the former to manage and operate the latter’s mining claim known as the Sto.
Nino Mine. The mine, however, suffered losses and an agreement was drafted
between Baguio Gold and petitioner to pay a total of 259 Million pesos. Petitioner
wanted to deduct at least 112 Million as bad debt which the BIR refused. Petitioner
appealed to CTA and CA where both sided with the BIR. Court ruled against
petitioner stating that the agreement between the 2 was a partnership where both
agreed to contribute to the business.
DOCTRINE: Deductions for income tax purposes partake of the nature of tax
exemptions and are strictly construed against the taxpayer, who must prove by
convincing evidence that he is entitled to the deduction claimed.
FACTS:
● Petitioner entered into an agreement with Baguio Gold Mining Co. for the
former to manage and operate the latter’s mining claim known as the Sto.
Nino Mine
● The agreement provided that Baguio Gold would make available 11 Million
as may be required by the managers within 3 years.
● Agreement also allowed the managers to transfer their own funds or
property to the Sto. Nino project
● The mine, however, continued to suffer loses which resulted in petitioner
withdrawing as manager of the mine
● An agreement was again drawn up between the 2 where Baguio Gold
agreed to pay petitioner 179 Million as debt
● The amount was later changed to 259 Million as it was discovered the
petitioners had acted as guarantors for Baguio Gold’s debts to several banks
● Petitioner then sought the BIR to deduct over 112 Million as bad debt from
its gross income (112 Million being the remaining debt owed by Baguio
Gold to Petitioner)
● BIR denied the request but petitioner argued that the deduction should be
allowed because the debt was valid, it was ascertained to be worthless, and
it was charged off within the taxable year when it was determined to be
worthless
● Petitioner appealed to the CTA which denied it on the basis that the
amounts advanced partook of the nature of an investment. CA affirmed the
findings of the CTA
ISSUE/S & RATIO:
1. WON Petitioner is entitled to the tax deduction of 112 Million – NO
a. The court looked at the nature of the agreement between petitioner
and Baguio Gold and saw that the relationship was not one of
agency but of a partnership
 b. Each party had a substantial contribution to the development and
operation of the mine. Baguio Gold would contribute over 11
Million while petitioner would contribute its expertise and provide
a manager’s account of 11M
c. As pointed out by the CTA, the petitioner was only entitled to a
proportionate amount of the mine’s assets and upon the dissolution
of the parties’ business relations. Further, the 259 Million they had
earlier agreed upon as Baguio Gold’s debt was in fact erroneous as
petitioner had advanced payment to the banks where Baguio Gold
had existing debts – these debts were not yet due and demandable
and one bank had in fact charged a penalty for early payment
d. It was clearly an effort by petitioner to declare the money it had
forwarded to Baguio Gold as bad debt. It is unlikely for a company
to lend hundreds of millions to another without any security or
collateral or a specific deed evidencing the terms and conditions of
such loans
e. The court noted that deductions for income tax purposes partake of
the nature of tax exemptions and are strictly construed against the
taxpayer who must prove by convincing evidence that he is entitled
to the deduction claimed.
RULING: CA decision is affirmed and petitioner is ordered to pay the deficiency in
tax worth 62 Million with a 20% deficiency interest
10 Tio v Videogram Regulatory Board
| June 18, 1987 | J. Melencio Herrera
Nature of Case:
Digest maker: LAC
SUMMARY:
DOCTRINE:
FACTS:
 Petition assails the constitutionality of the PD No. 1987 entitled “An Act
Creating the Videogram Regulatory Board”
 Sec. 134 provided
SEC. 134. Video Tapes. — There shall be collected on each processed video-tape
cassette, ready for playback, regardless of length, an annual tax of five pesos;
Provided, That locally manufactured or imported blank video tapes shall be subject
to sales tax.
 Rationale of the decree: the emergence of the circulation of videograms
greatly prejudiced the operations of moviehouses resulting to the loss of
livelihood, closing down of theaters, and decline in government revenue
from amusement and other taxes
 Petitioner attacked the constitutionality on multiple grounds:
1. Sec 10 w/c imposes a tax of 30% on gross receipts payable to local
government is a RIDER
2. Tax imposed is harsh, confiscatory, oppresive and/or in unlawful
trestrain of trade in violation of the due process clause of the
Constitution
3. No factual nor legal basis for the exercise by the President of the vast
powers conferred upon him by Amendment No. 6;
4. Undue delegation of power and authority
5. Decree is an ex-post facto law
6. Over regulation of the video industry as if it were a nuisance, w/c it is
not.
ISSUES ENUMERATED ABOVE DISCUSSED IN SERIATIM
HELD: Not unconstitutional. Petition dismissed
1. Sec. 10 not a rider. Foregoing provision is allied and germane to, and is
reasonably necessary for the accomplishment of, the general object of the
Decree
2. Tax does not cease to be valid just because it regulates, discourages of
even definitely deters the activities taxed. The levy of the 30% tax is for
a public purpose of regulating the video industry. The public purpose
of a tax may legally exist even if the motive w/c impelled the legislature
to impose the tax was to favor one industry over another. Rate of tax is
a legislative matter.
3. No actual case or controversy yet
4. The grant in Sec. 11 of authority to the Board to "solicit the direct assistance
of other agencies and units of the government and deputize, for a fixed and
limited period, the heads or personnel of such agencies and units to perform
enforcement functions for the Board" is not a delegation of the power to
legislate but merely a conferment of authority or discretion as to its
execution, enforcement, and implementation
5. Not violative of the ex-post facto doctrine. Sec. 15 of said law requires
videogram establishments to register in 45 days, otherwise they will be held
in violation of said decree. there is no question that there is a rational
 connection between the fact proved, which is non-registration, and the
ultimate fact presumed which is violation of the DECREE, besides the fact
that the prima facie presumption of violation of the DECREE attaches only
after a forty-five-day period counted from its effectivity and is, therefore,
neither retrospective in character.
6. As a relatively new industry, it is of public interest that it be regulated.
Public welfare is at bottom of its enactment, considering "the unfair
competition posed by rampant film piracy; the erosion of the moral fiber of
the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with
brutally violent sequences; and losses in government revenues due to the
drop in theatrical attendance, not to mention the fact that the activities of
video establishments are virtually untaxed since mere payment of Mayor's
permit and municipal license fees are required to engage in business.
11 Esso Standard Eastern v. Commissioner of Internal Revenue
FACTS:
• In CTA Case No 1251, ESSO claimed ordinary and necessary expenses in the
amount of P340, 822 representing margin fees it paid to the Central Bank on its
profit remittances to its New York head office
• In CTA Case No 1558, CIR assessed ESSO a deficiency income tax for 1960
which arose from the disallowance of the margin fees of P1M paid by ESSO to the
Central Bank on its profit remittances to its New York head office
• On May 1965, the CIR denied claims of ESSO for refund of the overpayment of its
1959 and 1960 income taxes, insisting that the margin fees paid to the Central Bank
could not be considered taxes or allowed as deductible business expenses
• ESSO appealed to the CTA and sought refund of P102K for 1959, arguing that the
margin fees were deductible from gross income either as tax or as an ordinary and
necessary business expense
• CTA denied ESSO’s claim for P102k refund for 1959 and P434k refund for 1960;
but sustained its claim for P39k as excess interest
ISSUES AND RULINGS:
1. WON the RA 2009, An Act to Authorize the Central Bank of the Philippines to
Establish a Margin Over Banks' Selling Rates of Foreign Exchange, is a police
measure or a revenue measure? Police Measure
2. WON the margin fees can be considered necessary and ordinary business expenses
and therefore still deductible from the company’s gross income? NO
• In Caltex v Acting Commissioner of Customs the Court held that a margin levy on
foreign exchange is a form of exchange control or restriction designed to discourage
imports and encourage exports and ultimately, ‘curtail any excessive demand upon
the international reserve’ in order to stabilize the currency
• A tax is levied to provide revenue for government operations while margin fees are
applied to strengthen our country’s international reserves
• The margin fee imposed by the state was done in the exercise of its police power
and not the power of taxation
• In Atlas Consolidated v CIR the Court stated that statutory test of deductibility: (1)
The expense must be ordinary and necessary (2) The expense must be paid or
incurred within the taxable year (3) The expense must be paid or incurred in carrying
on a trade or business.
• Not only must the taxpayer meet this test, he must also be able to substantially
prove by evidence or records the deductions claimed under the law, otherwise, the
same shall be disallowed
• The CTA correctly ruled that since the margin fees were incurred for the remittance
of funds to ESSO’s New York HQ (which is a separate income taxpayer from the
branch in the PH) for its disposal abroad, it can not be said therefore that the margin
fees were appropriate and helpful in the development of ESSO’s businesses in the
PH exclusively
• Neither was it incurred for purposes proper to the conduct of the affairs of ESSO’s
PH branch exclusively or for the purpose of realizing a profit or minimizing a loss in
the PH branch exclusively
• ESSO has not shown that the remittance to the head office of part of its profits was
made in furtherance of its own trade or business; the petitioner merely presumed that
all corporate expenses are necessary and appropriate in the absence of a showing that
they are illegal or ultra vires
• The taxpayer in every instance has the burden of justifying the allowance of any
deduction claimed
• It is clear that ESSO, having assumed an expense properly attributable to its head
office, cannot now claim this as an ordinary and necessary expense paid or incurred
in carrying on its own trade or business
G.R. No. L-22074 April 30, 1965
12 THE PHILIPPINE GUARANTY CO., INC. vs THE COMMISSIONER OF
INTERNAL REVENUE and THE COURT OF TAX APPEALS
FACTS
The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered
into reinsurance contracts with foreign insurance companies not doing business in
the country, thereby ceding to foreign reinsurers a portion of the premiums on
insurance it has originally underwritten in the Philippines. A proportionate amount
of taxes on insurance premiums not recovered from the original assured were to be
paid for by the foreign reinsurers. The foreign reinsurers further agreed, in
consideration for managing or administering their affairs in the Philippines, to
compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the
reinsurance premiums. The premiums paid by such companies were excluded by the
petitioner from its gross income when it file its income tax returns for 1953 and
1954. Furthermore, it did not withhold or pay tax on them. Consequently, the CIR
assessed against the petitioner withholding taxes on the ceded reinsurance premiums
which totaled to the amount of P375,345 for 1953-1954. Philippine Guaranty Co.
protested the assessment on the ground that the premiums are not subject to tax for
the premiums did not constitute income from sources within the Philippines because
the foreign reinsurers did not engage in business in the Philippines, and CIR's
previous rulings did not require insurance companies to withhold income tax due
from foreign companies.
ISSUE
W/N reinsurance premiums ceded to foreign reinsurers not doing business in the
Philippines are subject to tax
RULING
YES. The power to tax is an attribute of sovereignty. It is a power emanating from
necessity. It is a necessary burden to preserve the State's sovereignty and a means to
give the citizenry an army to resist an aggression, a navy to defend its shores from
invasion, a corps of civil servants to serve, public improvement designed for the
enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide.
Considering that the reinsurance premiums in question were afforded protection by
the government and the recipient foreign reinsurers exercised rights and privileges
guaranteed by our laws, such reinsurance premiums and reinsurers should share the
burden of maintaining the state. Furthermore, the reinsurance contracts show that the
transactions or activities that constituted the undertaking to reinsure Philippine
Guaranty Co., Inc. against losses arising from the original insurances in the
Philippines were performed in the Philippines. Section 24 of the Tax Code subjects
foreign corporations to tax on their income from sources within the Philippines
- “Sources”
o the activity, property, or service giving rise to the income. The
original insurance undertakings took place in the Philippines. It is
not required that the foreign corporation be engaged in business in
the Philippines. What is controlling is not the place of business,
but the place of activity that created the income. Thus, the
income is subject to income tax.
The petitioner's defense of reliance of good faith on rulings of the CIR requiring no
withholding of tax due on reinsurance premiums may free the taxpayer from the
payment of surcharges or penalties imposed for failure to pay the corresponding
withholding tax, but it certainly would not exculpate it from liability to pay such
withholding tax. The Government is not estopped from collecting taxes by the
mistakes or errors of its agents.
14 PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION
General Principles | March 14, 2008 | Justice R.T. Reyes
Nature of Case: Petition for review on certiorari of CA decision
Digest maker: Group 3
SUMMARY: Marcos issued an LOI which taxed fertiliser
companies in order to recover capital for a certain beneficiary.
One company, Fertiphil, filed a complaint against the FPA and
PPI after EDSA I on the basis that the LOI was
unconstitutional because the tax benefited a private company
and not the public. RTC, CA, and SC ruled in favour of
Fertiphil.
DOCTRINE: It is a general principle that revenues derived
from taxes cannot be used for purely private purposes or for
the exclusive benefit of private individuals.
FACTS:
● Petitioner and respondent are private corporations engaged in the
importation and distribution of fertilisers, pesticides, and agricultural
chemicals.
● Then President Marcos, in the exercise of his legislative powers, issued LOI
1465 on 3 June 1985 to impose, among others, a capital recovery
component on the domestic sale of all grades of fertilisers in the
Philippines.
● Pursuant to the LOI, Fertiphil paid P10 for every bag of fertiliser it sold in
the domestic market to the Fertilizer and Pesticide Authority (FPA). FPA
then remitted the amount collected to the Far East Bank and Trust
Company, the depositary bank of PPI. Fertiphil paid P6,689,144 to FPA
from July 8, 1985 to January 24, 1986.
● After the 1986 EDSA Revolution, FPA voluntarily stopped the imposition
of the P10 levy. With the return of democracy, Fertiphil demanded from PPI
a refund of the amounts it paid under LOI No. 1465, but PPI refused to
accede to the demand.
● Fertiphil filed a complaint for collection and damages against FPA and PPI
with the RTC in Makati.
● RTC ruled in favour of Fertiphil.
 ● CA affirmed RTC, with modification, deleting the award for attorney’s fees.
Hence, this petition.
ISSUE/S & RATIO:
1. PROCEDURAL: W/N the constitutionality of LOI 1465 can be collaterally
attacked via a default judgment, W/N the constitutionality was the lis mota
of the case, and W/N the person or entity attacking it has standing - YES,
YES, YES
a. Contrary to PPI’s claim, the constitutionality of LOI No. 1465 was
properly and adequately raised in the complaint for collection filed
with the RTC. Judicial review of official acts on the ground of
unconstitutionality may be sought or availed of through any of the
actions cognisable by courts of justice, not just by the Supreme
Court, and not necessarily in a suit for declaratory relief.
b. Direct injury test to determine standing in public suits (People v.
Vera): Fertiphil has standing because it suffered direct injury from
the enforcement of the legislation as it was required to pay P10
levy for every bag of fertiliser sold on the domestic market. Also,
factoring in the levy would increase the price of the product, and
would lead to fewer customers.
2. W/N LOI 1465 or the imposition of the levy is an exercise of the
taxation power of the State - YES
a. The primary purpose of the levy is revenue generation. If the
primary purpose is to generate revenue, or if revenue is, at least,
one of the real and substantial purposes, then the exaction is
properly called a tax.
b. The P10 levy is too excessive to serve a merely regulatory purpose.
It increased the price of a bag of fertiliser by as much as 5%, which
would be a big burden on the seller or the ultimate consumer.
c. The LOI also expressly provided that the levy was imposed until
adequate capital is raised to make PPI viable.
3. W/N LOI 165 is a valid legislation pursuant to the exercise of taxation
and police power for public purposes - NO
a. First, the LOI expressly provided in its Clause 3 that the levy be
imposed to benefit PPI, a private company, as the ultimate
beneficiary. This is a clear case of crony capitalism.
b. Second, the LOI provides that the imposition of the P10 levy was
conditional and dependent upon PPI becoming financially viable.
This suggests that the levy was actually imposed to benefit PPI.
c. Third, the RTC and the CA held that the levies paid under the LOI
were directly remitted and deposited by FPA to Far East Bank and
Trust Company, the depositary bank of PPI. This proves that PPI
benefited from the LOI. It is also proves that the main purpose of
the law was to give undue benefit and advantage to PPI.
d. Fourth, the levy was used to pay the corporate debts of PPI, as
evidenced by the Letter of Understanding written by Prime
Minister and Minister of Finance Cesar Virata, addressed to PPI’s
creditors.
4. W/N doctrine of operative fact is applicable, which would mean that PPI
will not have to refund Fertiphil - NO
a. The general rule is that an unconstitutional law is void. It produces
no rights, imposes no duties, and affords no protection. It has no
legal effect. It is, in legal contemplation, inoperative as if it has not
been passed. Being void, Fertiphil is not required to pay the levy.
All levies paid should be refunded in accordance with the general
Civil Code principle against unjust enrichment. Quite the reverse,
it would be inequitable and unjust not to order a refund. To do so
would unjustly enrich PPI at the expense of Fertiphil.
RULING: Petition denied. CA decision affirmed.
NOTE/Other things the Court said:
- Two limitations on the power of taxation: inherent limitations and
constitutional limitations
b. One inherent limitation: tax only for valid public purpose
i. A tax, however, is not made void on the ground of want
of public interest unless the want of such interest is clear.
15 Roxas v. CTA
GR No L-25043, April 26, 1968
FACTS:
Antonio, Eduardo and Jose Roxas, brothers and at the same time partners of the
Roxas y Compania, inherited from their grandparents several properties which
included farmlands. The tenants expressed their desire to purchase the farmland. The
tenants, however, did not have enough funds, so the Roxases agreed to a
purchase by installment. Subsequently, the CIR demanded from the brothers the
payment of deficiency income taxes resulting from the sale, 100% of the profits
derived therefrom was taxed. The brothers protested the assessment but the same
was denied. On appeal, the Court of Tax Appeals sustained the assessment. Hence
this petition.
ISSUE:
Is Roxas liable?

RULING:
No. It should be borne in mind that the sale of the farmlands to the very farmers
who tilled them for generations was not only in consonance with, but more in
obedience to the request and pursuant to the policy of our Government to allocate
lands to the landless.
In order to maintain the general public’s trust and confidence in the Government
this power must be used justly and not treacherously. It does not conform with the
sense of justice for the Government to persuade the taxpayer to lend it a helping
hand and later on penalize him for duly answering the urgent call.
ISSUE/S & RATIO:
In fine, Roxas cannot be considered a real estate dealer and is not liable for 100%
of the sale. Pursuant to Section 34 of the Tax Code, the lands sold to the farmers
are capital assets and the gain derived from the sale thereof is capital gain, taxable
only to the extent of 50%.
16 Kapatiran ng mga Naglilingkod sa Pamahalaan vs. Tan
VAT | 30 June 1988 | Padilla, J.
Digest maker: GROUP 4
SUMMARY: The Integrated Customs Brokers Association particularly contend
that EO 273 unduly discriminates against customs brokers (Section 103 [r]) as the
amended provision of the Tax Code provides that “service performed in the
exercise of profession or calling (except custom brokers) subject to occupational
tax under the Local Tax Code, and professional services performed by registered
general professional partnerships are exempt from VAT The phrase “except
custom brokers” is not meant to discriminate against custom brokers but to avert a
potential conflict between Sections 102 and 103 of the Tax Code, as amended.
FACTS:
 Four (4) consolidated petitions seek to nullify Executive Order No. 273
(EO 273, for short), issued by the President of the Philippines on 25 July
1987, which amended certain sections of the National Internal Revenue
Code and adopted the value-added tax (VAT, for short), for being
unconstitutional in that its enactment is not allegedly within the powers
of the President; that the VAT is oppressive, discriminatory, regressive,
and violates the due process and equal protection clauses and other
provisions of the 1987 Constitution.
 The VAT is a tax levied on a wide range of goods and services. It is a tax on
the value, added by every seller, with aggregate gross annual sales of
articles and/or services, exceeding P200,00.00, to his purchase of goods
and services, unless exempt. VAT is computed at the rate of 0% or 10%
of the gross selling price of goods or gross receipts realized from the sale of
services.
 Petitioners first contend that EO 273 is unconstitutional on the Ground that
the President had no authority to issue EO 273 on 25 July 1987.
 Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust
and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the
1987 Constitution.
 Petitioner Integrated Customs Brokers Association of the Philippines that
EO 273, more particularly the new Sec. 103 (r) of the National Internal
Revenue Code, unduly discriminates against customs brokers.
1. WON the President had authority to issue EO 273 on 25 July 1987.– YES
a. Under Proclamation No. 3, which decreed a Provisional
Constitution, sole legislative authority was vested upon the
President.
b. both the Provisional and the 1987 Constitutions, the President is
vested with legislative powers until a legislature under a new
Constitution is convened.
c. The first Congress, created and elected under the 1987
Constitution, was convened on 27 July 1987. Hence, the enactment
of EO 273 on 25 July 1987, two (2) days before Congress
convened on 27 July 1987, was within the President's
constitutional power and authority to legislate.
2. WON EO 273 is oppressive, discriminatory, unjust and regressive, in
violation of the provisions of Art. VI, sec. 28(1) of the 1987
Constitution.– NO
a. Art. VI, sec. 28(1) of the 1987 Constitution: The rule of taxation
shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation.
b. Petitioners merely rely upon newspaper articles which are actually
hearsay and have evidentiary value. To justify the nullification of a
law. othere must be a clear and unequivocal breach of the
Constitution, nt a doubtful and argumentative implication.
c. EO 273 satisfies all the requirements of a valid tax. It is uniform.
The sales tax adopted in EO 273 is applied similarly on all goods
and services sold to the public, which are not exempt, at the
constant rate of 0% or 10%.
3. WON EO 273, more particularly the new Sec. 103 (r) of the National
Internal Revenue Code, unduly discriminates against customs brokers..–
NO
 a. (see NOTE)
b. The phrase "except customs brokers" is not meant to discriminate
against customs brokers. It was inserted in Sec. 103(r) to
complement the provisions of Sec. 102 of the Code, which makes
the services of customs brokers subject to the payment of the VAT
and to distinguish customs brokers from other professionals
who are subject to the payment of an occupation tax under the
Local Tax Code.
c. The distinction of the customs brokers from the other professionals
who are subject to occupation tax under the Local Tax Code is
based upon material differences, in that the activities of customs
brokers (like those of stock, real estate and immigration brokers)
partake more of a business, rather than a profession and were
thus subjected to the percentage tax under Sec. 174 of the National
Internal Revenue Code prior to its amendment by EO 273.
d. EO 273 abolished the percentage tax and replaced it with the
VAT.
e. If the petitioner Association did not protest the classification of
customs brokers then, the Court sees no reason why it should
protest now.
RULING: WHEREFORE, the petitions are DISMISSED.
NOTE:
Art. II, sec. 1 of the Provisional Constitution states:Sec. 1. Until a legislature is
elected and convened under a new Constitution, the President shall continue to
exercise legislative powers.
National Internal Revenue Code, Sec. 102. Value-added tax on sale of services. —
There shall be levied, assessed and collected, a value-added tax equivalent to 10%
percent of gross receipts derived by any person engaged in the sale of services. The
phrase sale of services" means the performance of all kinds of services for others for
a fee, remuneration or consideration, including those performed or rendered by
construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; and similar services regardless of whether or not the
performance thereof call for the exercise or use of the physical or mental faculties: ...
Sec. 103. Exempt transactions. — The following shall be exempt from the value-
added tax:
(r) Service performed in the exercise of profession or calling (except customs
brokers) subject to the occupation tax under the Local Tax Code, and professional
services performed by registered general professional partnerships;
17 Humberto Basco vs Philippine Amusements and Gaming Corporation
In 1977, the Philippine Amusements and Gaming Corporation (PAGCOR) was
created by Presidential Decree 1067-A. PD 1067-B meanwhile granted PAGCOR the
power “to establish, operate and maintain gambling casinos on land or water within
the territorial jurisdiction of the Philippines.” PAGCOR’s operation was a success
hence in 1978, PD 1399 was passed which expanded PAGCOR’s power. In 1983,
PAGCOR’s charter was updated through PD 1869. PAGCOR’s charter provides that
PAGCOR shall regulate and centralize all games of chance authorized by existing
franchise or permitted by law. Section 1 of PD 1869 provides:
Section 1. Declaration of Policy. It is hereby declared to be the policy of the
State to centralize and integrate all games of chance not heretofore authorized by
existing franchises or permitted by law.
Atty. Humberto Basco and several other lawyers assailed the validity of the law
creating PAGCOR. They claim that PD 1869 is unconstitutional because a) it
violates the equal protection clause and b) it violates the local autonomy clause of the
constitution.
Basco et al argued that PD 1869 violates the equal protection clause because it
legalizes PAGCOR-conducted gambling, while most other forms of gambling are
outlawed, together with prostitution, drug trafficking and other vices.
Anent the issue of local autonomy, Basco et al contend that P.D. 1869 forced cities
like Manila to waive its right to impose taxes and legal fees as far as PAGCOR is
concerned; that Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the
franchise holder from paying any “tax of any kind or form, income or otherwise, as
well as fees, charges or levies of whatever nature, whether National or Local” is
violative of the local autonomy principle.
ISSUE:
1. Whether or not PD 1869 violates the equal protection clause.
2. Whether or not PD 1869 violates the local autonomy clause.
HELD:
1. No. Just how PD 1869 in legalizing gambling conducted by PAGCOR is violative
of the equal protection is not clearly explained in Basco’s petition. The mere fact that
some gambling activities like cockfighting (PD 449) horse racing (RA 306 as
amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by BP
42) are legalized under certain conditions, while others are prohibited, does not
render the applicable laws, PD. 1869 for one, unconstitutional.
Basco’s posture ignores the well-accepted meaning of the clause “equal protection of
the laws.” The clause does not preclude classification of individuals who may be
accorded different treatment under the law as long as the classification is not
unreasonable or arbitrary. A law does not have to operate in equal force on all
persons or things to be conformable to Article III, Sec 1 of the Constitution. The
“equal protection clause” does not prohibit the Legislature from establishing classes
of individuals or objects upon which different rules shall operate. The Constitution
does not require situations which are different in fact or opinion to be treated in law
as though they were the same.
2. No. Section 5, Article 10 of the 1987 Constitution provides:
Each local government unit shall have the power to create its own source of revenue
and to levy taxes, fees, and other charges subject to such guidelines and limitation as
the congress may provide, consistent with the basic policy on local autonomy. Such
taxes, fees and charges shall accrue exclusively to the local government.
A close reading of the above provision does not violate local autonomy (particularly
on taxing powers) as it was clearly stated that the taxing power of LGUs are subject
to such guidelines and limitation as Congress may provide.
Further, the City of Manila, being a mere Municipal corporation has no inherent right
to impose taxes. The Charter of the City of Manila is subject to control by Congress.
It should be stressed that “municipal corporations are mere creatures of Congress”
which has the power to “create and abolish municipal corporations” due to its
“general legislative powers”. Congress, therefore, has the power of control over
Local governments. And if Congress can grant the City of Manila the power to tax
certain matters, it can also provide for exemptions or even take back the power.
Further still, local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or controlled corporation
with an original charter, PD 1869. All of its shares of stocks are owned by the
National Government. Otherwise, its operation might be burdened, impeded or
subjected to control by a mere Local government.
This doctrine emanates from the “supremacy” of the National Government over local
governments.
18 ABAKADA Guro Partylist vs Ermita
G.R. 168056 | September 1, 2005
Petitioner: ABAKADA Guro Partylist, Officer Samson S. Alcantara and Ed Vincent
S. Albano
Respondents: The Honorable Executive Secretary Eduardo Ermita, Honorable
Secretary of the Department of Finance Cesar Purisima, and Honorable
Commissioner of Internal Revenue Guillermo Parayno, Jr.
FACTS
- Partylist challenged the constitutionality of RA 9337, particularly Sections 4, 5,
and 6, amending Sections 106, 107 and 108, respectively, of the National Internal
Revenue Code (NIRC). 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 any of the following
conditions have been satisfied:
(i) Value-added tax collection as a percentage of GDP of the previous year
exceeds two and four-fifth percent, or
(ii) National government deficit as a percentage of GDP of the previous year
exceeds one and a half percent
- Petitioners argue that the law is unconstitutional, as it constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes under Article VI,
Section 28(2) of the 1987 Constitution. They further argue that VAT is tax levied
on the sale or exchange of goods and services and cannot be included with 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 in 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. They
claim, nonetheless, that any recommendation of the Secretary of Finance can
easily be brushed aside by the President since the former is a mere alter ego of the
latter, such that, ultimately, it is the President who decides whether to impose the
increased tax rate or not.
ISSUES & RATIO:
1. W/N RA 9337 has violated the provisions in Article VI, Section 24, and
Article VI, Section 26(2) of the Constitution
- NO
- Basing from the ruling of the Tolentino case, it is not the law, but the
revenue bill which is required by the Constitution to "originate exclusively"
in the House of Representatives, but the Senate has the power not only to
propose amendments, but also to propose its own version even with respect
to bills which are required by the Constitution to originate in the House. The
Constitution simply means that the initiative for filing revenue, tariff or tax
 bills, bills authorizing an increase of the public debt, private bills and bills of
local application must come from the House of Representatives on the
theory that, elected as they are from the districts, the members of the House
can be expected to be more sensitive to the local needs and problems. On the
other hand, the senators, who are elected at large, are expected to approach
the same problems from the national perspective. Both views are thereby
made to bear on the enactment of such laws.
- The revenue bill exclusively originated in the HoR, the Senate was acting
within its constitutional power to introduce amendments to the house bill
when it included provisions in Senate Bill 1950 amending the corporate
income taxes, percentage, excise and franchise taxes. Verily, Article VI,
Section 24 of the Constitution does not contain any prohibition or limitation
on the extent of the amendments that may be introduced by the Senate to the
House revenue bill
2. W/N there was undue delegation of legislative power in violation of Article
VI, Section 28, Par. 1 and 2 of the Constitution
- NO
- In testing whether a statute constitutes an undue delegation of legislative
powers or not, it is usual to inquire whether the statute was complete in all
its terms and provisions when it left the hands of the legislature so that
nothing was left to the judgment of any other appointee or delegate of the
legislature
- 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
was 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. W/N there was a violation of the due process and equal protection under
Article III, Section 1 of the Constitution
- The equal protection clause under the Constitution means that "no person or
class of persons shall be deprived of the same protection of laws which is
enjoyed by other persons or other classes in the same place and in like
circumstances"
- SC held no decision on this matter. 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 State's 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.
19 La Suerte Cigar & Cigarette Factor v. Court of Appeals, Commissioner of
Internal Revenue
Facts: These cases involve the taxability of stemmed leaf tobacco imported and
locally purchased by cigarette manufacturers for use as raw material in the
manufacture of their cigarettes. La Suerte Cigar & Cigarette Factory (La Suerte) is a
domestic corporation engaged in the production and manufacture of cigars and
cigarettes. La Suerte import leaf tobacco from foreign sources and purchase locally
produced leaf tobacco to be used in the manufacture of cigars and cigarettes. On
January 3, 1990, La Suerte received a letter from then Commissioner Jose U. Ong
demanding the payment of P34,934,827.67 as deficiency excise tax on its entire
importation and local purchase of stemmed leaf tobacco. La Suerte protested
stressing that the BIR assessment was based solely on Section 141(b) of the Tax
Code without, however, applying Section 137 thereof, which expressly allows the
sale of stemmed leaf tobacco as raw material by one manufacturer directly to another
without payment of the excise tax. The Commissioner insisted that stemmed leaf
tobacco is subject to excise tax “unless there is an express grant of
exemption from [the] payment of tax.” The Court of Tax Appeals decided in favor of
La Suerte. The Commissioner appealed the Court of Tax Appeals’ decision before
the Court of Appeals which ruled against La Suerte and found that RR No. V-39
(The Tobacco Products Regulations) limits the tax exemption on transfers of
stemmed leaf tobacco to transfers between two manufacturers.
Tax Issues:
I. Whether stemmed leaf tobacco is subject to excise (specific) tax under Section 141
of the 1986 Tax Code;
II. Whether stemmed leaf tobacco imported by La Suerte, Fortune, and Sterling is
exempt from specific tax under Section 137 of the 1986 Tax Code;
III. Whether the imposition of excise tax on stemmed leaf tobacco under Section 141
of the 1986 Tax Code constitutes double taxation.
Ruling:
I. Stemmed leaf tobacco is subject to the specific tax under Section 141(b). It is a
partially prepared tobacco. The removal of the stem or midrib from the leaf tobacco
makes the resulting stemmed leaf tobacco prepared or partially prepared tobacco.
Since the Tax Code contained no definition of “partially prepared tobacco,” then the
term should be construed in its general, ordinary, and comprehensive sense.
II. However, importation of stemmed leaf tobacco is not included in the exemption
under Section 137. The transaction contemplated in Section 137 does not include
importation of stemmed leaf tobacco for the reason that the law uses the word “sold”
to describe the transaction of transferring the raw materials from one manufacturer to
another.
III. Finally, excise taxes are essentially taxes on property because they are
levied on certain specified goods or articles manufactured or produced in
the Philippines for domestic sale or consumption or for any other disposition, and on
goods imported. In this case, there is no double taxation in the prohibited sense
despite the fact that they are paying the specific tax on the raw material and on the
finished product in which the raw material was a part, because the specific tax is
imposed by explicit provisions of the Tax Code on two different articles or products:
(1) on the stemmed leaf tobacco; and (2) on cigar or cigarette.
Doctrine: Statutes granting tax exemptions must be construed in strictissimi juris
against the taxpayer and liberally in favor of the taxing authority.
20 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
tollway 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 a sale of services; that to 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 the non-impairment
clause of the constitution. The government avers that the NIRC imposes VAT on all
kinds of services of franchise grantees, including tollway 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 tollway operations has been the subject as 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 tollway operators. At
any rate, the non-impairment clause cannot limit the State's sovereign taxing power
which is generally read into contracts.
Issue:
May toll fees collected by tollway operators be subjected to VAT (Are tollway
operations a franchise and/or a service that is subject to VAT)?
Ruling:
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
latter's use of the tollway facilities over which the operator enjoys private proprietary
rights that its contract and the law recognize. In this sense, the tollway operator is no
different from the service providers under Section 108 who allow others to use their
properties or facilities for a 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.
Tollway 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 tollway operators as reimbursement for the costs and
expenses incurred in the construction, maintenance and operation of the tollways, 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.
21 CHEVRON PHILIPPINES, INC. (Formerly CALTEX PHILIPPINES,
INC.),Petitioner,
vs.
BASES CONVERSION DEVELOPMENT AUTHORITY and CLARK
DEVELOPMENT CORPORATION, Respondents
FACTS:
On June 28, 2002, the Board of Directors of respondent Clark Development
Corporation (CDC) issued and approved Policy Guidelines on the Movement of
Petroleum Fuel to and from the Clark Special Economic Zone. In one of its
provisions, it levied royalty fees to suppliers delivering Coastal fuel from outside
sources for Php0.50 per liter for those delivering fuel to CSEZ locators not
sanctioned by CDC and Php1.00 per litter for those bringing-in petroleum fuel from
outside sources. The policy guidelines were implemented effective July 27, 2002.
The petitioner Chevron Philippines Inc (formerly Caltex Philippines Inc) who is a
fuel supplier to Nanox Philippines, a locator inside the CSEZ, received a Statement
of Account from CDC billing them to pay the royalty fees amounting to Php115,000
for its fuel sales from Coastal depot to Nanox Philippines from August 1 to
September 21, 2002.
Petitioner, contending that nothing in the law authorizes CDC to impose royalty fees
based on a per unit measurement of any commodity sold within the special economic
zone, protested against the CDC and Bases Conversion Development Authority
(BCDA). They alleged that the royalty fees imposed had no reasonable relation to the
probably expenses of regulation and that the imposition on a per unit measurement of
fuel sales was for a revenue generating purpose, thus, akin to a “tax”.
BCDA denied the protest. The Office of the President dismissed the appeal as well
for lack of merit.
Upon appeal, CA dismissed the case. CA held that in imposing the royalty fees, CDC
was exercising its right to regulate the flow of fuel into CSEZ under the vested
exclusive right to distribute fuel within CSEZ pursuant to its Joint Venture
Agreement (JVA) with Subic Bay Metropolitan Authority (SBMA) and Coastal
Subic Bay Terminal, Inc. (CSBTI) dated April 11, 1996. The appellate court also
found that royalty fees were assessed on fuel delivered, not on the sale, by petitioner
and that the basis of such imposition was petitioner’s delivery receipts to Nanox
Philippines. The fact that revenue is incidentally also obtained does not make the
imposition a tax as long as the primary purpose of such imposition is regulation.
When elevated in SC, petitioner argued that: 1) CDC has no power to impose fees on
sale of fuel inside CSEZ on the basis of income generating functions and its right to
market and distribute goods inside the CSEZ as this would amount to tax which they
have no power to impose, and that the imposed fee is not regulatory in nature but
rather a revenue generating measure; 2) even if the fees are regulatory in nature, it is
unreasonable and are grossly in excess of regulation costs.
Respondents contended that the purpose of royalty fees is to regulate the flow of fuel
to and from the CSEZ and revenue (if any) is just an incidental product. They viewed
it as a valid exercise of police power since it is aimed at promoting the general
welfare of public; that being the CSEZ administrator, they are responsible for the
safe distribution of fuel products inside the CSEZ.
ISSUE:
Whether the act of CDC in imposing royalty fees can be considered as valid exercise
of the police power.
HELD: Yes. SC held that CDC was within the limits of the police power of the State
when it imposed royalty fees.
In distinguishing tax and regulation as a form of police power, the determining factor
is the purpose of the implemented measure. If the purpose is primarily to raise
revenue, then it will be deemed a tax even though the measure results in some form
of regulation. On the other hand, if the purpose is primarily to regulate, then it is
deemed a regulation and an exercise of the police power of the state, even though
incidentally, revenue is generated.
In this case, SC held that the subject royalty fee was imposed for regulatory purposes
and not for generation of income or profits. The Policy Guidelines was issued to
ensure the safety, security, and good condition of the petroleum fuel industry within
the CSEZ. The questioned royalty fees form part of the regulatory framework to
ensure “free flow or movement” of petroleum fuel to and from the CSEZ. The fact
that respondents have the exclusive right to distribute and market petroleum products
within CSEZ pursuant to its JVA with SBMA and CSBTI does not diminish the
regulatory purpose of the royalty fee for fuel products supplied by petitioner to its
client at the CSEZ.
However, it was erroneous for petitioner to argue that such exclusive right of
respondent CDC to market and distribute fuel inside CSEZ is the sole basis of the
royalty fees imposed under the Policy Guidelines. Being the administrator of CSEZ,
the responsibility of ensuring the safe, efficient and orderly distribution of fuel
products within the Zone falls on CDC. Addressing specific concerns demanded by
the nature of goods or products involved is encompassed in the range of services
which respondent CDC is expected to provide under Sec. 2 of E.O. No. 80, in
pursuance of its general power of supervision and control over the movement of all
supplies and equipment into the CSEZ.
There can be no doubt that the oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Fuel is a highly combustible product which, if left
unchecked, poses a serious threat to life and property. Also, the reasonable relation
between the royalty fees imposed on a “per liter” basis and the regulation sought to
be attained is that the higher the volume of fuel entering CSEZ, the greater the extent
and frequency of supervision and inspection required to ensure safety, security, and
order within the Zone.
Respondents submit that the increased administrative costs were triggered by
security risks that have recently emerged, such as terrorist strikes. The need for
regulation is more evident in the light of 9/11 tragedy considering that what is being
moved from one location to another are highly combustible fuel products that could
cause loss of lives and damage to properties.
As to the issue of reasonableness of the amount of the fees, SC held that no evidence
was adduced by the petitioner to show that the fees imposed are unreasonable.
Administrative issuances have the force and effect of law. They benefit from the
same presumption of validity and constitutionality enjoyed by statutes. These two
precepts place a heavy burden upon any party assailing governmental regulations.
Petitioner’s plain allegations are simply not enough to overcome the presumption of
validity and reasonableness of the subject imposition.
WHEREFORE, the petition is DENIED for lack of merit and the Decision of the
Court of Appeals dated November 30, 2005 in CA-G.R. SP No. 87117 is hereby
AFFIRMED.
22 Ferrer vs Bautista
Facts:
 The City of Quezon passed two ordinances namely.
 The first one was the Socialized Housing Tax of QC allowing the
imposition of special assessment (1/2 of the assessed valued of land in
excess of P100k)
 The second one was Ordinance No. SP-2235, S-2013 on Garbage Collection
Fees imposing fees depending on the amount of the land or floor area).
 Jose Ferrer, as a property in Quezon City questioned the validity of the city
ordinances.
 According to Ferrer:
 The city has no power to impose the tax.
 The SHT violates the rule on equality because it burdens real
property owners with expenses to provide funds for the housing of
informal settlers.
 The SHT is confiscatory or oppressive.
 Also, he assails the validity of the garbage fees imposition because:
 It violates the rule on double taxation.
 It violates the rule on equality because the fees are collected from
only domestic households and not from restaurants, food courts,
fast food chains, and other commercial dining places that spew
garbage much more than residential property owners.
Issue: WON the ordinances were valid.
Held:
1st ordinance: Socialized Housing Tax of Quezon City is valid.
Cities have the power to tax
It must be noted that local government units such as cities has the power to tax. The
collection for the socialized housing tax is valid. It must be noted that the collections
were made to accrue to the socialized housing programs and projects of the city.
The imposition was for a public purpose (exercise of power of taxation + police
power)
In this case, there was both an exercise of the power to tax (primary) and police
power (incidental). Removing slum areas in Quezon City is not only beneficial to the
underprivileged and homeless constituents but advantageous to the real property
owners as well.
The situation will improve the value of the their property investments, fully enjoying
the same in view of an orderly, secure, and safe community, and will enhance the
quality of life of the poor, making them law-abiding constituents and better
consumers of business products.
There is no violation of the rule on equality
Note: There is a substantial distinction between: real property owner and an informal
settler. In fact, the Supreme Court said that the disparity is so obvious. It is inherent
in the power to tax that a State is free to select the subjects of taxation. Inequities
which result from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation.
All these requisites are complied with: An ordinance based on reasonable
classification does not violate the constitutional guaranty of the equal protection of
the law. The requirements for a valid and reasonable classification are: (1) it must
rest on substantial distinctions; (2) it must be germane to the purpose of the law; (3)
it must not be limited to existing conditions only; and (4) it must apply equally to all
members of the same class.
The ordinance is not oppressive or confiscatory
The ordinance is also not oppressive since the tax rate being imposed is consistent
with the UDHA (Urban Development and Housing Act of 1992). While the law
authorizes LGUs to collect SHT on properties with an assessed value of more than
P50,000.00, the questioned ordinance only covers properties with an assessed value
exceeding P100,000.00. As well, the ordinance provides for a tax credit equivalent to
the total amount of the special assessment paid by the property owner beginning in
the sixth (6th) year of the effectivity of the ordinance.
2nd ordinance: The imposition of garbage fee is invalid.
Note: There was no violation of double taxation but there was a violation of the rule
on equity.
There is no violation of double taxation: the garbage fees are not taxes
In Progressive Development Corporation v. Quezon City, the Court declared that:
"if the generating 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 incidentally revenue is also obtained does not make the imposition a tax."
Contention of Ferrer: that the imposition of garbage fee is tantamount to double
taxation because garbage collection is a basic and essential public service that should
be paid out from property tax, business tax, transfer tax, amusement tax, community
tax certificate, other taxes, and the IRA of the Quezon City Government. All these
are valid taxes. The garbage fees are license fees
Footnote: In order to constitute double taxation in the objectionable or prohibited
sense the same property must be taxed twice when it should be taxed but once; both
taxes must be imposed on the same property or subject-matter, for the same purpose,
by the same State, Government, or taxing authority, within the same jurisdiction or
taxing district, during the same taxing period, and they must be the same kind or
character of tax.
There is a violation of the rule on equality: no substantial distinction
There is no substantial distinction between an occupant of a lot, on one hand, and an
occupant of a unit in a condominium, socialized housing project or apartment, on the
other hand.
Most likely, garbage output produced by these types of occupants is uniform and
does not vary to a large degree; thus, a similar schedule of fee is both just and
equitable.
The garbage fees or rates are unjust and inequitable
A resident of a 200 sq. m. unit in a condominium or socialized housing project has to
pay twice the amount than a resident of a lot similar in size; unlike unit occupants, all
occupants of a lot with an area of 200 sq. m. and less have to pay a fixed rate of
Php100.00; and the same amount of garbage fee is imposed regardless of whether the
resident is from a condominium or from a socialized housing project.
The classifications are not germane to the purpose of the ordinance
The declared purpose is: "promoting shared responsibility with the residents to attack
their common mindless attitude in over-consuming the present resources and in
generating waste."
Instead of simplistically categorizing the payee into land or floor occupant of a lot or
unit of a condominium, socialized housing project or apartment, respondent City
Council should have considered factors that could truly measure the amount of
wastes generated and the appropriate fee for its collection. Factors include, among
others, household age and size, accessibility to waste collection, population density
of the barangay or district, capacity to pay, and actual occupancy of the property.
SC:
→ Validity of Socialized Housing Tax of Quezon City is upheld.
→ Ordinance No. SP-2235, S-2013, which collects an annual garbage fee on all
domestic households in Quezon City, is unconstitutional and illegal.
23 Tolentino vs. Secretary of Finance G.R. No. 115455, August 25, 1994
Facts: These consolidated cases are motions for reconsideration of a 1994 case
concerning the constitutionality of RA 7716 proposing the implementation of value
added tax.
The valued-added tax (VAT) is levied on the sale, barter or exchange of goodsand
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.
Issue 1: Whether or not RA 7716 violates Art. VI, Secs. 24 and 26(2) of the
Constitution? (Did not exclusively originate in the HoR, since it is the consolidation
of 2 distinct bills from both HoR and Senate)
Held: NO.
 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 they are more attuned to local concerns
of their districts.
Issue 2: Whether or not S. No. 1630 is unconstitutional for not passing 3 readings on
separate days as required by the Constitution?
Held: NO.
 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 3 separate days.
ISSUE 3: Whether R.A. No. 7716 is unconstitutional on ground that it violates the
contractclause under Art. III, sec 10 of the Bill of Rights. (PAL raises this issue and
questions the constitutionality of this tax measure because they previously enjoyed
real estate tax exemption and they were being taxed in RA 7716.)
HELD: NO.
 The Supreme Court held 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 not violate the constitutional provision of non-impairment
of contracts.
 The parties to a contract cannot fetter the exercise of the taxing power of the
State. 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. The Contract Clause has never been
thought as a limitation on the exercise of the State's power of taxation.
It is inherent in the power to tax that the State be free to select subjects
of taxation.
ISSUE 4: Whether or not sales tax on bible sales violative of religious and press
freedom?
HELD: NO.
 The Court was speaking in American Bible Society v. City of Manila of a
license tax, which, unlike an ordinary tax, is mainly for regulation. Its
imposition on the press is unconstitutional because it lays a prior restraint
on the exercise of its right to religious and press freedom.
 The VAT is, however, is not a license tax. It is not a tax on the exercise
of a privilege, much less a constitutional right. It is imposed on the sale,
barter, lease or exchange of goods or properties or the sale or exchange of
services and the lease of properties purely for revenue purposes. To subject
the press to its payment is not to burden the exercise of its right any more
than to make the press pay income tax or subject it to general regulation is
not to violate its freedom under the Constitution.
ISSUE 5: Whether or not it violates the rule that taxes should be uniform and
equitable and that Congress shall evolve a progressive system of taxation?
HELD: NO
 Equality and uniformity means that all taxable articles or kinds of
property of the same class be taxed at the same rate. The taxing power
has the authority to make reasonable and natural classifications for purposes
of taxation. To satisfy the requirement, it is enough that the statute applies
equally to all persons, forms and corporations placed in a similar situation.
 Re: "evolve a progressive system of taxation" - It is not the mandate of
congress to prescribe but to evolve a progressive tax system. Resort to
indirect taxez should be minimized but not avoided entirely. VAT
minimizes the regressive effects of this imposition by providing exemptions
to other transactions (agricultural, petroleum, educational services,
medical/veterinary services, etc.)
24 SISON v ANCHETA
G.R. No. L-59431, July 25, 1984
Fernando, C.J.
Group 6 (Online Digest)
PETITIONER: ANTERO M. SISON, JR.
RESPONDENTS: RUBEN B. ANCHETA, Acting Commissioner, Bureau of
Internal Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal
Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
Commissioner on Audit, and CESAR E. A. VIRATA, Minister of Finance
DOCTRINE:
The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds.
RELEVANT PROVISION:
Article VIII, Section 17(1) of the 1973 Constitution [now Article VI, Section
21(1) of the 1987 Constitution]: The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation.
FACTS:
Batas Pambansa 135 [which further amends Section 21 of the National Internal
Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes, and other
winnings, (d) interest from bank deposits and yield or any other monetary benefit
from deposit substitutes and from trust fund and similar arrangements, (e) dividends
and share of individual partner in the net profits of taxable partnership, (f) adjusted
gross income] was enacted. Sison, as taxpayer, alleged that its provision (Section 1)
unduly discriminated against him by the imposition of higher rates upon his income
as a professional, that it amounts to class legislation, and that it transgresses against
the equal protection and due process clauses of the Constitution as well as the rule
requiring uniformity in taxation.
ISSUE:
WON BP 135 violates the due process and equal protection clauses, and the rule on
uniformity in taxation.
HELD:
NO. There is a need for proof of such persuasive character as would lead to a
conclusion that there was a violation of the due process and equal protection clauses.
Absent such showing, the presumption of validity must prevail.
Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the
authority to make reasonable and natural classifications for purposes of taxation.
Where the differentiation conforms to the practical dictates of justice and equity,
similar to the standards of equal protection, it is not discriminatory within the
meaning of the clause and is therefore uniform.
Taxpayers may be classified into different categories, such as recipients of
compensation income as against professionals. Recipients of compensation income
are not entitled to make deductions for income tax purposes as there is no practically
no overhead expense, while professionals and businessmen have no uniform costs or
expenses necessary to produce their income. There is ample justification to adopt the
gross system of income taxation to compensation income, while continuing the
system of net income taxation as regards professional and business income.
25 Republic of the Philippines vs. Caguioa
GR No. 168584 October 15, 2007
Ponente: Carpio Morales, J
Facts:
 In 1992, Congress enacted Republic Act No. 7227 also known as the Bases
Conversion and Development Act of 1992 which created the Subic Special
Economic and Freeport Zone (SBF) and the Subic Bay Metropolitan
Authority (SBMA)
 Included in RA 7227:
o 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 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….
o The provisions of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be
imposed within the Subic Special Economic Zone.
 Pursuant to the law, several private respondents applied for and were
granted Certificates of Registration and Tax Exemption by the SBMA.
Their respective certificates states that:
o The Company shall be entitled to tax and duty-free importation of
raw materials, capital equipment, and household and personal
items for use solely on the Subic Bay Freeport Zone.
 Congress subsequently passed RA 9334 effective Jan. 1, 2005 which states
that all importations of cigars, cigarettes, distilled spirits, fermented liquors
and wines into the SBF, including those intended to be transhipped to other
free ports in the Philippines, shall be treated as ordinary importations
subject to all applicable taxes, duties and charges, including excise taxes.
(Sec. 6)
 On Feb. 3, 2005, former BIR Commissioner Payano, requested the Customs
Commissioner Jereos to immediately collect the excise tax due on imported
alcohol and tobacco products brought to the Duty Free Philippines (DFP)
and Freeport zones.
 On Feb. 7, 2005, SBMA issued a Memorandum directing the departments
concerned to require locators/importers in the SBF to pay the corresponding
duties and taxes on their importations of cigars, cigarettes, liquors and
wines before said items are cleared and released from the Freeport.
However, certain SBF locators which were exclusively engaged in the
transhipment of cigarette products for foreign destinations were allowed by
the SBMA to process their import documents subject to their submission of
an Undertaking with the Bureau of Customs.
 On Feb. 15, 2005, private respondents wrote the offices of the Collector of
Customs and the SBMA Administrator requesting for a reconsideration of
the directives in the imposition of duties and taxes on cigars, cigarettes,
liquor and wines. Despite these letters, they were not allowed to file any
warehouse entry for shipment.
 Thus, the private respondent enterprises, brought before the RTC of
Olongapo City a civil action for declatory relief to have certain provisions
of RA 9334 declared unconstitutional. These are their arguments:
o RA 9334 should not be interpreted as altering, modifying or
amending the provisions of RA 7227 because repeals by
implication are not favoured
o A general law like RA 9334 cannot amend RA 7227, which is a
special law
o The assailed law violates the one-bill-one-subject rule embodied in
Sec. 26 Art. VI of the Constitution as well as the constitutional
proscription against the impairment of the obligations of contracts.
 The private respondents also prayed for the issuance of a writ of preliminary
injunction and/or Temporary Restraining Order (TRO) and preliminary
mandatory injunction alleging that great and irreparable loss and injury
would befall them as a consequence of the imposition of taxes on alcohol
and tobacco products brought into the SBF.
 Petitioners opposed the private respondents’ prayer arguing that:
o Tax exemptions are not presumed and even when granted, are
strictly construed against the grantee
o An increase in business expense is not the injury contemplated by
law
o The drawback mechanism established in the law clearly negates
the possibility of the feared injury
 o Taxes are the lifeblood of the government and their prompt and
certain availability is an imperious need. Greater injury would be
inflicted on the public should the writ be granted.
 On May 11, 2005 Caguioa granted private respondents’ application for
issuance of writ of preliminary injunction.
 Petitioners seek via petition for certiorari and prohibition to annul the May
4, 2005 Order issued by public respondent Caguioa of the RTC granting
private respondents’ application for issuance of writ of preliminary
injunction.
Issue:
 Whether or not, Caguioa erred in the issuance of the writ of preliminary
injunction
 Whether or not, RA 9334 is unconstitutional because it violates the
constitutional provision on the proscription against the impairment of
obligations of contracts.
Court’s Ruling:
 The arguments raised by private respondents which pertain to the
constitutionality of RA 9334 subject matter of the case pending
litigation before the trial court have no bearing in resolving the present
petition.
 On the issue of the issuance of the preliminary injunction and the
petitioners petition for certiorari:
o The writ of certiorari to nullify and set aside the Order of May
4, 2005 as well as the Writ of Preliminary Injunction issued by
respondent Caguioa is granted.
o As a rule, courts should avoid issuing a writ of preliminary
injunction which would in effect dispose of the main case
without trial.
o A court may issue a writ of preliminary injunction only when
the petitioner assailing a statute has made out a case of
unconstitutionality or invalidity strong enough, in the mind of
the judge, to overcome the presumption of validity, in addition
to a showing of a clear legal right to the remedy sought.
 Tax exemption being a mere statutory privilege, may be modified or
withdraw at will by the granting authority. Taxation is subject to
restrictions which rest on the discretion of the authority exercising it.
 As a general rule, tax exemptions are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority. The burden
of proof rests upon the party claiming exemption to prove that it is in
fact covered by the exemption so claimed. In case of doubt, non-
exemption is favored.
 A tax exemption cannot be grounded upon the continued existence of a
statute which precludes its change or repeal.
 The rights granted under the Certificates of Registration and Tax
Exemption of private respondents are not absolute and unconditional as
to constitute rights in esse - those clearly founded on or granted by law
or is enforceable as a matter of law.
 Whatever right may have been acquired on the basis of the Certificates
of Registration and Tax Exemption must yield to the State's valid
exercise of police power.
 The feared injurious effects of the imposition of duties, charges and
taxes on imported cigars, cigarettes, distilled spirits, fermented liquors
and wines on private respondents' businesses cannot possibly outweigh
the dire consequences that the non-collection of taxes, not to mention
the unabated smuggling inside the SBF, would wreak on the
government.
Note:
 Private respondents include Indigo Distribution Corporation, W Star
Trading and Warehousing Corporation, Freedom Brands Philippines
Corporation, Branded Warehouse, Inc., Altasia, Inc., Tainan Trade (Taiwan)
Inc., Subic Park `N Shop, Incorporated, Trading Gateways International
Philippines, Inc., Duty Free Superstore (DFS) Inc., Chijmes Trading, Inc.,
Premier Freeport, Inc., Future Trade Subic Freeport, Inc., Grand Comtrade
Int'l., Corp., and First Platinum International, Inc., (which are all domestic
corporations doing business at the SBF) represented by Caguioa.
 Petitioners include Republic of the Philippines, Represented by the
Honorable Secretary of Finance, the Honorable Commissioner of Bureau of
Internal Revenue, the Honorable Commissioner of Customs, and the
Collector of Customs of the Port of Subic.
26 CIR v St. Luke’s Medical
27 Pepsi Cola Bottling Company vs Municipality of Tanauan
69 SCRA 460 – Taxation – Delegation to Local Governments – Double Taxation
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September
1962, the Municipality approved Ordinance No. 23 which levies and collects “from
soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for
every bottle of soft drink corked.”
In December 1962, the Municipality also approved Ordinance No. 27 which levies
and collects “on soft drinks produced or manufactured within the territorial
jurisdiction of this municipality a tax of one centavo P0.01) on each gallon of
volume capacity.”
Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute
double taxation in two instances: a) double taxation because Ordinance No. 27
covers the same subject matter and impose practically the same tax rate as with
Ordinance No. 23, b) double taxation because the two ordinances impose percentage
or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows
for the delegation of taxing powers to local government units; that allowing local
governments to tax companies like Pepsi Cola is confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It argued, among
others, that only Ordinance No. 27 is being enforced and that the latter law is an
amendment of Ordinance No. 23, hence there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not
there is double taxation.
HELD: No. There is no undue delegation. The Constitution even allows such
delegation. Legislative powers may be delegated to local governments in respect of
matters of local concern. By necessary implication, the legislative power to create
political corporations for purposes of local self-government carries with it the power
to confer on such local governmental agencies the power to tax. Under the New
Constitution, local governments are granted the autonomous authority to create their
own sources of revenue and to levy taxes. Section 5, Article XI provides: “Each local
government unit shall have the power to create its sources of revenue and to levy
taxes, subject to such limitations as may be provided by law.” Withal, it cannot be
said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of
the legislative power to enact and vest in local governments the power of local
taxation.
There is no double taxation. The argument of the Municipality is well taken. Further,
Pepsi Cola’s assertion that the delegation of taxing power in itself constitutes double
taxation cannot be merited. It must be observed that the delegating authority
specifies the limitations and enumerates the taxes over which local taxation may not
be exercised. The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not forbidden by our
fundamental law unlike in other jurisdictions. Double taxation becomes obnoxious
only where the taxpayer is taxed twice for the benefit of the same governmental
entity or by the same jurisdiction for the same purpose, but not in a case where one
tax is imposed by the State and the other by the city or municipality.
28 Silkair v CIR
29 CIR v Shell
FACTS
 Pilipinas Shell, sought a refund/credit of the excise taxes allegedly paid
erroneously on sales and deliveries of gas and fuel oils to various
international carriers during the period of October to December 2001.
o Pilipinas Shell alleged that it was exempt from payment of excise
taxes levied on its petroleum products sold and delivered to
international carriers of foreign registry.
o CIR objected to the tax refund/credit granted by the CTAon the
ground that that the excise tax on petroleum products is levied on
the manufacturer of the petroleum product regardless of its
purchaser or buyer and that the grant of exemption under Section
135 of the NIRC simply means that the manufacturer cannot pass
on to the international carrier-buyer the excise taxes it paid on its
petroleum products.
 Initially, the Court sustained CIR's arguments, reversed the CTA ruling and
denied Pilipinas Shell's claim for tax refund/credit. In a Decision dated
April 25, 2012, the Court concluded that Pilipinas Shell's locally
manufactured petroleum products are subject to excise tax under Section
148 of the NIRC. The Court also ruled that the exemption from excise tax
payment on petroleum products under Section 135(a) "merely allows the
international carriers to purchase petroleum products without the excise tax
component as an added cost in the price fixed by the manufacturers or
distributors/sellers. Consequently, the oil companies which sold such
petroleum products to international carriers are not entitled to a refund of
excise taxes previously paid on the goods."
ISSUE: Whether or not Shell is entitled to refund for payment of the excise taxes
RULING: Yes. Section 135(a) intended the tax exemption to apply to petroleum
products at the point of production, among others.
 We maintain that Section 135 (a), in fulfillment of international agreement
and practice to exempt aviation fuel from excise tax and other impositions,
prohibits the passing of the excise tax to international carriers who buys
petroleum products from local manufacturers/sellers such as respondent.
o However, we agree that there is a need to reexamine the effect of
denying the domestic manufacturers/sellers' claim for refund of the
excise taxes they already paid on petroleum products sold to
international carriers, and its serious implications on our
Government's commitment to the goals and objectives of the
Chicago Convention.
  Construction of the tax exemption provision in question should give
primary consideration to its broad implications on our commitment under
international agreements.
[TL;DR]
FACTS: Shell filed a claim for refund for excise taxes it paid on sales of gas and fuel
oils to various international carriers. The Court initially denied the claims but the
respondent filed a Motion for Reconsideration.
ISSUE: Whether or not Shell is entitled to refund for payment of the excise taxes
RULING: Yes. Section 135 is concerned with the exemption of the article itself and
not the ostensible exemption of the international carrier-buyer. In addition, the
failure to grant exemption will cause adverse impact on the domestic oil industry
(similar to the practice of “tankering”) as well as result to violations of international
agreements on aviation. Thus, respondent, as the statutory taxpayer who is directly
liable to pay the excise tax, is entitled to a refund or credit for taxes paid on products
sold to international carriers.
30 Commissioner of Internal Revenue v. Court of Appeals, Alhambra Industries
Inc.
[G.R. No. 117982. February 6, 1997]
PONENTE: Bellosillo, J.
FACTS:
The present case rose from the discrepancy in the taxable base on which the excise
tax is to apply on account of two incongruous BIR Rulings:
(1) BIR Ruling 473-88 dated 4 October 1988 which excluded the VAT from the tax
base in computing the fifteen percent (15%) excise tax due; and,
(2) BIR Ruling 017-91dated 11 February 1991 which included back the VAT in
computing the tax base for purposes of the fifteen percent (15%) ad valorem tax.
Alhambra Industries, Inc. (Alhambra) is a domestic corporation engaged in the
manufacture and sale of cigar and cigarette products.
On May 7, 1991 private respondent received a letter dated April 26, 1991from the
Commissioner of Internal Revenue assessing its deficiency Ad Valorem Tax (AVT)
in the total amount of P488,396.62, inclusive of increments, on the removals of
cigarette products from their place of production during the period Nov. 2, 1990 to
January 22, 1991.
Alhambra filed against amount assessed by the CIR, however, it was denied by the
latter and at the same time increasing the amount assessed to P520,835.29.
Alhambra filed a petition for review with the CTA, despite payment under protest the
amount of P520,835.29. On December 1, 1993, CTA ordered petitioner to refund
said amount to Alhambra.
On appeal, the Court of Appeals affirmed the Court of Tax Appeals holding that the
retroactive application of BIR Ruling 017-91 cannot be allowed since private
respondent did not act in bad faith; private respondents computation under BIR
Ruling 473-88 was not shown to be motivated by ill will or dishonesty partaking the
nature of fraud; hence, this petition. Hence this petition.
ISSUE:
Whether the new ruling should be given retroactive effect thus, in effect revoking the
tax exemption given to the petitioner in the first BIR ruling - NO
HELD:
The court held in the negative. In its ruling, it states that well-entrenched is the rule
that rulings and circulars, rules and regulations promulgated by the Commissioner of
Internal Revenue would have no retroactive application if to so apply them would be
prejudicial to the taxpayers.
Consequently, the application of Sec. 127 (b) to the wholesale price of cigar and
cigarette products for purposes of computing the ad valorem tax is patently
erroneous. Accordingly, BIR Ruling 473-88 is void ab initio as it contravenes the
express provisions of Sec. 142 (d) of the Tax Code.
Section 246, Tax Code provides for the Non-retroactivity of rulings — “Any
revocation, modification, or reversal of any rules and regulations promulgated in
accordance with the preceding section or any of the rulings or circulars promulgated
by the Commissioner of Internal Revenue shall not be given retroactive application if
the revocation, modification, or reversal will be prejudicial to the taxpayers except in
the following cases:
a) where the taxpayer deliberately misstates or omits material facts from his return or
in any document required of him by the Bureau of Internal Revenue;
b) where thefacts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or
c) where the taxpayer acted in bad faith.”
WHEREFORE, there being no reversible error committed by respondent Court of
Appeals, the petition is DENIED and petitioner COMMISSIONER OF INTERNAL
REVENUE is ordered to refund private respondent ALHAMBRA INDUSTRIES,
INC., the amount of P520,835.29 upon finality of this Decision.