1.
Casanovas v Hord (1907)
Casanovas v Hord
GR No. 3473, March 22, 1907
FACTS:
In January 1897, the Spanish Government, in accordance with the provisions of the royal decree of May
14, 1867,
granted J. Casanovas certain mines in the Province of Ambos Camarines. They were so considered by the
Collector of Internal Revenue and were by him said to fall within the provisions of Section 134 of Act 1189
which imposes an annual tax and an ad valorem tax on all valid perfected mining concessions granted
prior to April 11th, 1899. The Commissioner, JNO S. Hord, imposed upon these properties the tax
mentioned in Section 134, which Casanovas paid under protest.
ISSUE:
Is Section 134 valid?
RULING:
No, the concessions granted by the Government of Spain to the plaintiff, constitute contracts between the
parties; that section 134 of the Internal Revenue Law impairs the obligation of these contracts, and is
therefore void as to them.
The deed constituted a contract between the Spanish Government and Casanovas. Furthermore, the
section conflicts with Section 60 of the Act of Congress of July 1, 1902, which indicate that concessions
can be cancelled only by reason of illegality in the procedure by which they were obtained, or for failure
to comply with the conditions prescribed as requisites for their retention in the laws under which they
were granted. The grounds were not shown nor claimed in the case.
CASSANOVAS VS. HORD [8 Phil 125; No. 3473; 22 Mar 1907]
Saturday, January 31, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Political Law
Facts: The Spanish Govt. by virtue of a royal decree granted the plaintiff certain mines. The plaintiff is now
the owner of those mines. The Collector of Internal Revenue imposed tax on the properties, contending
that they were valid perfected mine concessions and it falls within the provisions of sec.134 of Act No.
1189 known as Internal Revenue Act. The plaintiff paid under protest. He brought an action against the
defendant Collector of Internal Revenue to recover the sum of Php. 9, 600 paid by him as taxes. Judgment
was rendered in favor of the defendant, so the plaintiff appealed.
Issue:
Whether or Not Sec. 164 is void or valid.
Held:
The deed constituted a contract between the Spanish Government and the plaintiff. The obligation of
which contract was impaired by the enactment of sec. 134 of the Internal Revenue Law infringing sec. 5 of
the Act of Congress which provides that “no law impairing the obligation of contracts shall be enacted”.
Sec. 134 of the Internal Revenue Law of 1904 is void because it impairs the obligation of contracts
contained in the concessions of mine made by the Spanish Government. Judgment reversed.
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Casanovas vs. Hord
GR L-3473, 22 March 1907
First Division, Willard (J): 4 concur, 1 dissents
Facts:
In 1897, the Spanish Government, in accordance with the provisions of the royal decree of 14 may
1867, granted J. Casanovas certain mines in the province of Ambos Camarines, of which mines the latter is
now the owner. That these were validly perfected mining concessions granted to prior to 11 April 1899 is
conceded. They were so considered by the Collector of Internal Revenue and were by him said to fall within
the provisions of Section 134 of Act 1189 (Internal Revenue Act). The Commissioner, JNO S. Hord, imposed
upon these properties the tax mentioned in Section 134, which Casanovas paid under protest.
Issue:
Whether Section 134 of Act 1189 is valid.
Held:
The deed constituted a contract between the Spanish Government and Casanovas. The obligation in the
contract was impaired by the enactment of Section 134 ofthe Internal Revenue La, thereby infringing the
provisions of Section 5 of the Act of Congress of 1 July 1902. Furthermore, the section conflicts with Section
60 of the Act of Congress of 1 July 1902, which indicate that concessions can be cancelled only by reason of
illegality in the procedure by which they wer obtained, or for failure to comply with the conditions
prescribed as requisites for their retention in the laws under which they wer granted. The grounds were not
shown or claimed in the case. As to the allegation that the section violates uniformity of taxation, the Court
found it unnecessary to consider the claim in view of the result at which the Court has arrived.
2. Cagayan Electric Power & Light Co. Inc. v CIR (1985)
Cagayan Electric Power & Light Co. Inc. v CIR GR No. L-60126, September 25, 1985
FACTS:
Cagayan Electric is a holder of a legislative franchise under RA 3247 where payment of 3% tax on gross
earning is in lieu of all taxes and assessments upon privileges. In 1968, RA 5431 amended the franchise by
making all corporate taxpayers liable for income tax. In 1969, through RA 6020, its franchise was extended
to two other towns and the tax exemption was reenacted. The commissioner required the company to
pay deficiency income taxes for the intervening period (1968-1969).
ISSUE:
Is CEPALCO liable for the tax?
RULING:
Yes. Congress could impair the company’s legislative franchise by making it liable for income tax. The
Constitution
provides that a franchise is subject to amendment, alteration or repeal by the Congress when the public
interest so requires. However, it cannot be denied that the said 1969 assessment appears to be highly
controversial. It had reason not to pay income tax because of the tax exemption its franchise. For this
reason, it should be liable only for tax proper and should not be held liable for surcharge and interest.
TAXATION NON IMPAIRMENT III-C Page 1 of 11
Cagayan Electric Power & Light Co. vs. Commissioner
GR L-60126, 25 September 1985
Second Division, Aquino (J): 5 concur
Facts:
Cagayan Electric is a holder of a legislative franchise under Republic Act 3247 where payment of 3% tax on
gross earnings is in lieu of all taxes and assessments upon privileges, etc. In 1968, RA 5431 amended the
franchise by making all corporate taxpayers liable for income tax except those indicated in paragraph (c)
(1) of Section 24 of the Tax Code. In 1969, through RA 6020, its franchise was extended to two other towns
and the tax exemption was reenacted. In 1973, the Commissioner required the company to pay deficiency
income taxes for 1968 to 1971.
Issue:
Whether the withdrawal of the franchise’s tax exemption violates the non-impairment clause of the
Constitution.
Held:
Congress could impair the company’s legislative franchise by making it liable for income tax. The
Constitution provides that a franchise is subject to amendment, alteration or repeal by the Congress when
the public interest so requires. RA 3247 itself provides that the franchise is subject to amendment, etc. by
Congress. The enactment of RA 5431 had the effect of withdrawing the company’s exemption from income
tax. The exemption was restored by the enactment of RA 6020. The company is liable only for the income
tax for the period of 1 January to 3 August 1969.
3. Manila Electric Company v. Province of Laguna (G.R. No. 131359. May 5, 1999)
18 Aug
FACTS:
MERALCO was granted a franchise by several municipal councils and the National Electrification
Administration to operate an electric light and power service in the Laguna. Upon enactment of Local
Government Code, the provincial government issued ordinance imposing franchise tax. MERALCO paid
under protest and later claims for refund because of the duplicity with Section 1 of P.D. No. 551. This was
denied by the governor (Joey Lina) relying on a more recent law (LGC). MERALCO filed with the RTC a
complaint for refund, but was dismissed. Hence, this petition.
ISSUE:
Whether or not the imposition of franchise tax under the provincial ordinance is violative of the non-
impairment clause of the Constitution and of P.D. 551.
HELD:
No. There is no violation of the non-impairment clause for the same must yield to the inherent power of
the state (taxation). The provincial ordinance is valid and constitutional.
RATIO:
The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the now
repealed Local Tax Code. The 1991 Code explicitly authorizes provincial governments, notwithstanding “any
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exemption granted by any law or other special law, . . . (to) impose a tax on businesses enjoying a franchise.”
A franchise partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution. Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and
the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to amendment, alteration or repeal by
Congress as and when the common good so requires.
Manila Electric Company vs. Province of Laguna
G.R. No. 131359 May 5, 1999
Facts:
Certain municipalities of the Province of Laguna,by virtue of existing laws then in effect, issued resolutions
through their respective municipal councils granting franchise in favor of Manila Electric Company
("MERALCO") for the supply of electric light, heat and power within their concerned areas. MERALCO was
likewise granted a franchise by the National Electrification Administration to operate an electric light and
power service in the Municipality of Calamba, Laguna. On 12 September 1991, Republic Act No. 7160,
otherwise known as the "Local Government Code of 1991," was enacted to take effect on 01 January 1992
enjoining local government units to create their own sources of revenue and to levy taxes, fees and charges,
subject to the limitations expressed therein, consistent with the basic policy of local autonomy. Pursuant to
the provisions of the Code, the Province enacted Laguna Provincial Ordinance No. 01-92, effective 01
January 1993, providing, in part, as follows: “Sec. 2.09. Franchise Tax. — There is hereby imposed a tax on
businesses enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the gross annual
receipts, which shall include both cash sales and sales on account realized during the preceding calendar
year within this province, including the territorial limits on any city located in the province.” On the basis of
the ordinance, the Provincial Treasurer sent a demand letter to MERALCO for the corresponding tax
payment. MERALCO, contended that the imposition of a franchise tax under Section 2.09 of Laguna
Provincial Ordinance No. 01-92, insofar as it concerned MERALCO, contravened the provisions of Section 1
of P.D. 551 which read: “Any provision of law or local ordinance to the contrary notwithstanding, the
franchise tax payable by all grantees of franchises to generate, distribute and sell electric current for light,
heat and power shall be two per cent (2%) of their gross receipts received from the sale of electric current
and from transactions incident to the generation, distribution and sale of electric current. Such franchise
tax shall be payable to the Commissioner of Internal Revenue or his duly authorized representative on or
before the twentieth day of the month following the end of each calendar quarter or month, as may be
provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local
Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of
whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of
generation, distribution and sale of electric current.”
Issue:
Whether the Local Government Code of 1991, has repealed, amended or modified Presidential Decree No.
551.
Held:
Local governments do not have the inherent power to tax except to the extent that such power might be
delegated to them either by the basic law or by statute. Presently, under Article X of the 1987 Constitution,
a general delegation of that power has been given in favor of local government units. Under the now
prevailing Constitution, where there is neither a grant nor a prohibition by statute, the tax power must be
deemed to exist although Congress may provide statutory limitations and guidelines. The basic rationale for
the current rule is to safeguard the viability and self-sufficiency of local government units by directly
granting them general and broad tax powers. Nevertheless, the fundamental law did not intend the
delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that, while
TAXATION NON IMPAIRMENT III-C Page 2 of 11
the local government units are being strengthened and made more autonomous, 6 the legislature must still
see to it that (a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions; (b) each local government unit will have its fair share of available resources; (c) the resources
of the national government will not be unduly disturbed; and (d) local taxation will be fair, uniform, and
just. The Local Government Code of 1991 has incorporated and adopted, by and large, the provisions of the
now repealed Local Tax Code, which had been in effect since 01 July 1973, promulgated into law by
Presidential Decree
No. 231 7 pursuant to the then provisions of Section 2, Article XI, of the 1973 Constitution. The 1991 Code
explicitly authorizes provincial governments, notwithstanding "any exemption granted by any law or other
special law, . . . (to) impose a tax on businesses enjoying a franchise." Section 137 thereof provides: “Sec.
137. Franchise Tax — Notwithstanding any exemption granted by any law or other special law, the province
may impose a tax on businesses enjoying a franchise, at a rate not exceeding fifty percent (50%) of one
percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or
realized, within its territorial jurisdiction. In the case of a newly started business, the tax shall not exceed
one-twentieth (1/20) of one percent (1%) of the capital investment. In the succeeding calendar year,
regardless of when the business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein. “ Indicative of the legislative intent to
carry out the Constitutional mandate of vesting broad tax powers to local government units, the Local
Government Code has effectively withdrawn under Section 193 thereof, tax exemptions or incentives
theretofore enjoyed by certain entities. This law states: “Sec. 193. Withdrawal of Tax Exemption
Privileges — Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently
enjoyed by all persons, whether natural or juridical, including government-owned or controlled
corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. “
The Code, in addition, contains a general repealing clause in its Section 534; thus: “Sec. 534. Repealing
Clause. — . . .(f) All general and special laws, acts, city charters, decrees, executive orders, proclamations
and administrative regulations, or part or parts thereof which are inconsistent with any of the provisions of
this Code are hereby repealed or modified accordingly. “
4. RCPI v. Provincial Assesor of South Cotabato, et. al.
G.R. No. 144486. April 13, 2005
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI), Petitioner,
vs.
PROVINCIAL ASSESOR OF SOUTH COTABATO, PROVINCIAL TREASURER OF SOUTH COTABATO,
MUNICIPAL ASSESSOR OF TUPI, SOUTH COTABATO, and MUNICIPAL TREASURER OF TUPI, SOUTH
COTABATO, Respondents.
Facts:
R.A. No. 2036 of 1957, as amended by R.A. No. 4054, granted RCPI a 50-year franchise. Thus,
Sec. 14 of the amended law, in gist, provides that the grantee shall pay the same taxes as may
be required by law. Said tax shall be in lieu of any and all taxes of any kind, nature or
description levied, established or collected by any authority whatsoever, municipal, provincial
or national, from which taxes the grantee is hereby expressly exempted.
On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI real property
taxes from 1981 to 1985. The municipal treasurer demanded that RCPI pay P166,810 as real
property tax on its radio station building in Barangay Kablon, as well as on its machinery shed,
radio relay station tower and its accessories, and generating sets, based on the following tax
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declarations.
RCPI protested the assessment before the Local Board of Assessment Appeals (LBAA') and
claimed that all its assessed properties are personal properties and thus exempt from the real
property tax. It also pointed out that its franchise exempts RCPI from 'paying any and all taxes
of any kind, nature or description in exchange for its payment of tax equal to one and one-half
per cent on all gross receipts from the business conducted under its franchise. It further
claimed that any deviation from its franchise would violate the non-impairment of contract
clause of the Constitution. Finally, RCPI stated that the value of the properties assessed has
depreciated since their acquisition in the 1960s.
The Provincial Assessor of South Cotabato opposed RCPI's claims on all points.
The Local Board of Assessment Appeals ruled that appellant is ordered to pay the real property
taxes, inclusive of all penalties, surcharges and interest accruing as of the date of actual
payment, on the properties covered; in which the Central Board of Assessment Appeals
affirmed.
The Appelate Court ruled that decision of the Central Board of Assessment Appeals is hereby
MODIFIED. Petitioner is declared exempt from paying the real property taxes assessed upon its
machinery and radio equipment mounted as accessories to its relay tower. The decision
assessing taxes upon petitioner's radio station building, machinery shed, and relay station
tower is, however, affirmed.
Issues:
1. Whether the appellate court erred when it excluded RCPI's tower, relay station building, and
machinery shed from tax exemption; and
2. Whether the appellate court erred when it did not resolve the issue of nullity of the tax
declarations and assessments due to non-inclusion of depreciation allowance.
Held:
Exemption from Real Property Tax
First, Congress passed the Local Government Code that withdrew all the tax exemptions
existing at the time of its passage including that of RCPI's. Second, Congress enacted the
franchise of telecommunications companies, such as Islacom, Bell, Island Country, IslaTel,
TeleTech, Major Telecoms, and Smart, with the 'in lieu of all taxes' proviso. Third, Congress
passed RA 7925 entitled 'An Act to Promote and Govern the Development of Philippine
Telecommunications and the Delivery of Public Telecommunications Services' which, through
Section 23, mandated the equality of treatment of service providers in the telecommunications
industry.
The existing legislative policy is clearly against the revival of the 'in lieu of all taxes' clause in
franchises of telecommunications companies. After the VAT on telecommunications
companies took effect on January 1, 1996, Congress never again included the 'in lieu of all
taxes' clause in any telecommunications franchise it subsequently approved. RCPI cannot also
invoke the equality of treatment clause under Section 23 of Republic Act No. 7925. The
franchises of the petitioners all expressly declare that the franchisee shall pay the real estate
tax, using words similar to Section 14 of RA 2036, as amended.
It is an elementary rule in taxation that exemptions are strictly construed against the taxpayer
and liberally in favor of the taxing authority. It is the taxpayer's duty to justify the exemption by
words too plain to be mistaken and too categorical to be misinterpreted.
TAXATION NON IMPAIRMENT III-C Page 3 of 11

Exclusion of Depreciation Allowance
RCPI contends that the tax declarations and assessments covering its radio relay station tower,
radio station building, and machinery shed are void because the assessors did not consider
depreciation allowance in their assessments. The Court have examined the records of this case
and found that RCPI raised before the LBAA and the CBAA the nullity of the assessments due to
the non-inclusion of depreciation allowance. Therefore, RCPI did not raise this issue for the
first time. However, even if the court considers this issue, under the Real Property Tax Code
depreciation allowance applies only to machinery and not to real property.
The petition is denied and affirmed the decision of the Court of Appeals.
RCPI vs. Provincial Assessor of South Cotabato
(G.R. No. 144486, April 13, 2005)
FACTS: In 1957, Republic Act No. 2036 granted RCPI a 50 year franchise. Section 14 of RA 2036, reads:
Sec. 14. In consideration of the franchise and rights hereby granted and any provision of law to the contrary
notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be required by law from
other individuals, copartnerships, private, public or quasi-public associations, corporations or joint stock
companies, on real estate, buildings and other personal property except radio equipment, machinery and
spare parts needed in connection with the business of the grantee, which shall be exempt from customs
duties, tariffs and other taxes, as well as those properties declared exempt in this section. In consideration
of the franchise, a tax equal to one and one-half per centum of all gross receipts from the business
transacted under this franchise by the grantee shall be paid to the Treasurer of the Philippines each year,
within ten days after the audit and approval of the accounts as prescribed in this Act. Said tax shall be in lieu
of any and all taxes of any kind, nature or description levied, established or collected by any authority
whatsoever, municipal, provincial or national, from which taxes the grantee is hereby expressly exempted.
On 10 June 1985, the municipal treasurer of Tupi, South Cotabato assessed RCPI taxes from 1981 to 1985
in the amount of P166, 810 as real property tax on its radio station building in Barangay Kablon, as well as
on its machinery shed, radio relay station tower and its accessories, and generating sets.
RCPI protested the assessment before the Local Board of Assessment Appeals (LBAA). RCPI claimed that all
its assessed properties are personal properties and thus exempt from the real property tax. Assuming that
the assessed properties are real property, they are still exempt from real property taxes. Section 3 of
Presidential Decree No. 464 states that to be taxable, the machinery should be attached to the real estate
and essential for manufacturing, commercial, mining, industrial, or agricultural purposes. RCPI claimed that
the assessed properties are not used for manufacturing, commercial, mining, industrial, or agricultural
purposes. Besides, the assessed properties are attached to a building on a lot not owned by RCPI.
RCPI also pointed out that its franchise exempts RCPI from “paying any and all taxes of any kind, nature or
description in exchange for its payment of tax equal to one and one-half per cent on all gross receipts from
the business conducted under its franchise.” RCPI further claimed that any deviation from its franchise
would violate the non-impairment of contract clause of the Constitution. Finally, RCPI stated that the value
of the properties assessed has depreciated since their acquisition in the 1960s.
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ISSUES:
1. Whether the tower, relay station building and machinery are exempt from tax.
2. Whether the depreciation allowance is included in the computation of tax declarations and assessment.
HELD:
First issue: No. RCPI’s radio relay station tower, radio station building, and machinery shed are real
properties and are thus subject to the real property tax
It is an elementary rule in taxation that exemptions are strictly construed against the taxpayer and liberally
in favor of the taxing authority. It is the taxpayer’s duty to justify the exemption by words too plain to be
mistaken and too categorical to be misinterpreted.
Section 14 states that “in consideration of the franchise and rights hereby granted and any provision of law
to the contrary notwithstanding, the grantee shall pay the same taxes as are now or may hereafter be
required by law from other individuals, co-partnerships, private, public or quasi-public associations,
corporations or joint stock companies, on real estate, buildings and other personal property x x x.“ The clear
language of Section 14 states that RCPI shall pay the real estate tax”.
Second Issue: Yes, under the Real Property Tax Code depreciation allowance applies only to machinery and
not to real property.
5. City Government of Quezon City v. Bayan Telecommunications, Inc. [G.R. No.162015. March
6, 2006]
23 Nov
FACTS
Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under Republic Act
(R.A.) No. 3259 (1961) to establish and operate radio stations for domestic telecommunications,
radiophone, broadcasting and telecasting. Section 14 (a) of R.A. No. 3259 states: “The grantee shall be
liable to pay the same taxes on its real estate, buildings and personal property, exclusive of the franchise,
xxx”. In 1992, R.A. No. 7160, otherwise known as the “Local Government Code of 1991” (LGC) took effect.
Section 232 of the Code grants local government units within the Metro Manila Area the power to levy tax
on real properties. Barely few months after the LGC took effect, Congress enacted R.A. No. 7633, amending
Bayantel’s original franchise. The Section 11 of the amendatory contained the following tax provision: “The
grantee, its successors or assigns shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, xxx“. In 1993, the government of Quezon City enacted an
ordinance otherwise known as the Quezon City Revenue Code withdrawing tax exemption privileges.
ISSUE
Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes under its
franchise.
TAXATION NON IMPAIRMENT III-C Page 4 of 11
RULING
YES. A clash between the inherent taxing power of the legislature, which necessarily includes the power
to exempt, and the local government’s delegated power to tax under the aegis of the 1987 Constitution
must be ruled in favor of the former. The grant of taxing powers to LGUs under the Constitution and the
LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared
national policy. The legal effect of the constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal
corporations.
The legislative intent expressed in the phrase “exclusive of this franchise” cannot be construed other than
distinguishing between two (2) sets of properties, be they real or personal, owned by the franchisee,
namely, (a) those actually, directly and exclusively used in its radio or telecommunications business, and (b)
those properties which are not so used. It is worthy to note that the properties subject of the present
controversy are only those which are admittedly falling under the first category.
Since R. A. No. 7633 was enacted subsequent to the LGC, perfectly aware that the LGC has already
withdrawn Bayantel’s former exemption from realty taxes, the Congress using, Section 11 thereof with
exactly the same defining phrase “exclusive of this franchise” is the basis for Bayantel’s exemption from
realty taxes prior to the LGC. In plain language, the Court views this subsequent piece of legislation as an
express and real intention on the part of Congress to once again remove from the LGC’s delegated taxing
power, all of the franchisee’s (Bayantel’s) properties that are actually, directly and exclusively used in the
pursuit of its franchise.
The City Government of Quezon City and the City Treasurer, Dr. Victor B. Enriga vs. Bayantel
(G.R. No. 162015, March 6, 2006)
FACTS: Bayantel is a legislative franchise holder under Republic Act No. 3259 to establish and operate radio
stations for domestic telecommunications, radiophone, broadcasting and telecasting located at Quezon
City. Bayantel owned several real properties on which it maintained various telecommunications facilities.
The real properties are:
(a) Bayantel’s Head Office and Operations
(b) Bayantel’s land, building and equipment; and
© Bayantel’s Exchange Center.
On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real properties
in the city from the roll of taxable real properties but this request was denied. Bayantel interposed an appeal
with the Local Board of Assessment Appeals (LBAA). On its firm belief of its exempt status, Bayantel did not
pay the real property taxes assessed against it by the Quezon City government. The Quezon City Treasurer
sent out notices of delinquency for the total amount ofP43, 878,208.18, followed by the issuance of several
warrants of levy against Bayantel’s properties preparatory to their sale at a public auction set on July 30,
2002.
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ISSUE: Whether Bayantel’s real properties in Quezon City are exempt from real property taxes under its
legislative franchise
HELD: Yes, real properties in Quezon City are exempt from real property taxes under its legislative franchise.
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power
may be subject to such guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy.
Indeed, the grant of taxing powers to local government units under the Constitution and the LGC does not
affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy.
The legal effect of the constitutional grant to local governments simply means that in interpreting statutory
provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations.
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the LGC has already
withdrawn Bayantel’s former exemption from realty taxes, Congress opted to pass Rep. Act No. 7633 using,
under Section 11 thereof, exactly the same defining phrase “exclusive of this franchise” which was the basis
for Bayantel’s exemption from realty taxes prior to the LGC. In plain language, Section 11 of Rep. Act No.
7633 states that “the grantee, its successors or assigns shall be liable to pay the same taxes on their real
estate, buildings and personal property, exclusive of this franchise, as other persons or corporations are
now or hereafter may be required by law to pay.” The Court views this subsequent piece of legislation as
an express and real intention on the part of Congress to once again remove from the LGC’s delegated taxing
power, all of the franchisee’s (Bayantel’s) properties that are actually, directly and exclusively used in the
pursuit of its franchise.
----------------------------------------------------------------------------------------------------------------------------------
CITY GOVERNMENT OF QUEZON vs. BAYANTEL
G.R. No. 162015
Petitioners: The City Government of Quezon City, and The City Treasurer of Quezon City, Dr. Victor B. Enriga
Respondent: Bayan Telecommunications, Inc.
March 6, 2006
FACTS:
Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder under
Republic Act (Rep. Act) No. 3259 to establish and operate radio stations for domestic telecommunications,
radiophone, broadcasting and telecasting. On January 1, 1992, Rep. Act No. 7160, otherwise known as the
"Local Government Code of 1991" (LGC), took effect. Section 232 of the Code grants local government units
within the Metro Manila Area the power to levy tax on real properties. On July 20, 1992, barely few months
after the LGC took effect, Congress enacted Rep. Act No. 7633, amending Bayantel’s original franchise. The
amendatory law (Rep. Act No. 7633) contained the following tax provision: It is undisputed that within the
territorial boundary of Quezon City, Bayantel owned several real properties on which it maintained various
telecommunications facilities. In 1993, the government of Quezon City, pursuant to the taxing power vested
on local government units by Section 5, Article X of the 1987 Constitution, in relation to Section 232 of the
LGC, enacted City Ordinance No. SP-91, S-93, otherwise known as the Quezon City Revenue Code (QCRC),
imposing, under Section 5 thereof, a real property tax on all real properties in Quezon City, and, reiterating
TAXATION NON IMPAIRMENT III-C Page 5 of 11
in its Section 6, the withdrawal of exemption from real property tax under Section 234 of the LGC. On March
16, 1995, Rep. Act No. 7925, otherwise known as the "Public Telecommunications Policy Act of the
Philippines," envisaged to level the playing field among telecommunications companies, took effect. On
January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its real properties
in the city from the roll of taxable real properties. With its request having been denied, Bayantel interposed
an appeal with the Local Board of Assessment Appeals (LBAA). And, evidently on its firm belief of its exempt
status, Bayantel did not pay the real property taxes assessed against it by the Quezon City government. On
account thereof, the Quezon City Treasurer sent out notices of delinquency for the total amount of
P43,878,208.18, followed by the issuance of several warrants of levy against Bayantel’s properties
preparatory to their sale at a public auction set on July 30, 2002. Threatened with the imminent loss of its
properties, Bayantel immediately withdrew its appeal with the LBAA and instead filed with the RTC of
Quezon City a petition for prohibition with an urgent application for a temporary restraining order (TRO)
and/or writ of preliminary injunction. The trial court ruled in favor of respondent.
ISSUES:
1. Whether or not Bayantel’s real properties in Quezon City are exempt from real property taxes under its
legislative franchise; and
2. Whether or not Bayantel is required to exhaust administrative remedies before seeking judicial relief with
the trial court.
HELD:
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be
exercised by local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant
to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the
power may be subject to such guidelines and limitations as the Congress may provide which, however, must
be consistent with the basic policy of local autonomy. Clearly then, while a new slant on the subject of local
taxation now prevails in the sense that the former doctrine of local government units delegated power to
tax had been effectively modified with Article X, Section 5 of the 1987 Constitution now in place, the basic
doctrine on local taxation remains essentially the same. For as the Court stressed in Mactan, "the power to
tax is primarily vested in the Congress." Indeed, the grant of taxing powers to local government units under
the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons,
pursuant to a declared national policy. The legal effect of the constitutional grant to local governments
simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved
in favor of municipal corporations. Petitions for prohibition are governed by the provision of Rule 65 of the
Rules of Court. With the reality that Bayantel’s real properties were already levied upon on account of its
nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the LBAA is not
a speedy and adequate remedy within the context of the aforequoted Section 2 of Rule 65. This is not to
mention of the auction sale of said properties already scheduled on July 30, 2002. Moreover, one of the
recognized exceptions to the exhaustion- of-administrative remedies rule is when, as here, only legal issues
are to be resolved. In fact, the Court, cognizant of the nature of the questions presently involved, gave due
course to the instant petition. As the Court has said in Ty vs. Trampe:
xxx. Although as a rule, administrative remedies must first be exhausted before resort
to judicial action can prosper; there is a well-settled exception in cases where thecontroversy does not
involve questions of fact but only of law.
MASAOY,QMM
6. Smart communications vs City of Davao Sept. 16, 2008
610 Phil. 717
NACHURA, J.:
Before the Court is a Motion for Reconsideration[1] filed by Smart Communications, Inc. (Smart) of the
Decision[2] of the Court dated September 16, 2008, denying its appeal of the Decision and Order of the
Regional Trial Court (RTC) of Davao City, dated July 19, 2002 and September 26, 2002, respectively.
Briefly, the factual antecedents are as follows:
On February 18, 2002, Smart filed a special civil action for declaratory relief[3] for the ascertainment of its
rights and obligations under the Tax Code of the City of Davao, which imposes a franchise tax on
businesses enjoying a franchise within the territorial jurisdiction of Davao. Smart avers that its telecenter
in Davao City is exempt from payment of franchise tax to the City.
On July 19, 2002, the RTC rendered a Decision denying the petition. Smart filed a motion for
reconsideration, which was denied by the trial court in an Order dated September 26, 2002. Smart filed an
appeal before this Court, but the same was denied in a decision dated September 16, 2008. Hence, the
instant motion for reconsideration raising the following grounds: (1) the "in lieu of all taxes" clause in
Smart's franchise, Republic Act No. 7294 (RA 7294), covers local taxes; the rule of strict construction
against tax exemptions is not applicable; (2) the "in lieu of all taxes" clause is not rendered ineffective by
the Expanded VAT Law; (3) Section 23 of Republic Act No. 7925[4] (RA 7925) includes a tax exemption; and
(4) the imposition of a local franchise tax on Smart would violate the constitutional prohibition against
impairment of the obligation of contracts.
Section 9 of RA 7294 and Section 23 of RA 7925 are once again put in issue. Section 9 of Smart's legislative
franchise contains the contentious "in lieu of all taxes" clause. The Section reads:
Section 9. Tax provisions. -- The grantee, its successors or assigns shall be liable to pay the same taxes on
their real estate buildings and personal property, exclusive of this franchise, as other persons or
corporations which are now or hereafter may be required by law to pay. In addition thereto, the grantee,
its successors or assigns shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the
business transacted under this franchise by the grantee, its successors or assigns and the said percentage
shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee, its successors
or assigns shall continue to be liable for income taxes payable under Title II of the National Internal
Revenue Code pursuant to Section 2 of Executive Order No. 72 unless the latter enactment is amended or
repealed, in which case the amendment or repeal shall be applicable thereto.
Section 23 of RA 7925, otherwise known as the most favored treatment clause or equality clause, contains
the word "exemption," viz.:
SEC. 23. Equality of Treatment in the Telecommunications Industry -- Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto
become part of previously granted telecommunications franchises and shall be accorded immediately and
unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither
apply to nor affect provisions of telecommunications franchises concerning territory covered by the
franchise, the life span of the franchise, or the type of the service authorized by the franchise.[6]
A review of the recent decisions of the Court on the matter of exemptions from local franchise tax and the
interpretation of the word "exemption" found in Section 23 of RA 7925 is imperative in order to resolve
this issue once and for all.
TAXATION NON IMPAIRMENT III-C Page 6 of 11

In Digital Telecommunications Philippines, Inc. (Digitel) v. Province of Pangasinan,[7] Digitel used as an
argument the "in lieu of all taxes" clauses/provisos found in the legislative franchises of Globe,[8] Smart
and Bell,[9] vis-à-vis Section 23 of RA 7925, in order to claim exemption from the payment of local
franchise tax. Digitel claimed, just like the petitioner in this case, that it was exempt from the payment of
any other taxes except the national franchise and income taxes. Digitel alleged that Smart was exempted
from the payment of local franchise tax.
However, it failed to substantiate its allegation, and, thus, the Court denied Digitel's claim for exemption
from provincial franchise tax. Cited was the ruling of the Court in PLDT v. City of Davao,[10] wherein the
Court, speaking through Mr. Justice Vicente V. Mendoza, held that in approving Section 23 of RA No.
7925, Congress did not intend it to operate as a blanket tax exemption to all telecommunications entities.
Section 23 cannot be considered as having amended PLDT's franchise so as to entitle it to exemption from
the imposition of local franchise taxes. The Court further held that tax exemptions are highly disfavored
and that a tax exemption must be expressed in the statute in clear language that leaves no doubt of the
intention of the legislature to grant such exemption. And, even in the instances when it is granted, the
exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority.
The Court also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that the word
"exemption" as used in the statute refers or pertains merely to an exemption from regulatory or reporting
requirements of the Department of Transportation and Communication or the National Transmission
Corporation and not to an exemption from the grantee's tax liability.
In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna,[11] PLDT was a holder of a
legislative franchise under Act No. 3436, as amended. On August 24, 1991, the terms and conditions of its
franchise were consolidated under Republic Act No. 7082, Section 12 of which embodies the so-called "in-
lieu-of-all taxes" clause. Under the said Section, PLDT shall pay a franchise tax equivalent to three percent
(3%) of all its gross receipts, which franchise tax shall be "in lieu of all taxes." The issue that the Court had
to resolve was whether PLDT was liable to pay franchise tax to the Province of Laguna in view of the "in
lieu of all taxes" clause in its franchise and Section 23 of RA 7925.
Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts are
resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxing
powers, the Court held that Section 23 of RA 7925 could not be considered as having amended
petitioner's franchise so as to entitle it to exemption from the imposition of local franchise taxes.
In ruling against the claim of PLDT, the Court cited the previous decisions in PLDT v. City of Davao[12] and
PLDT v. City of Bacolod,[13] in denying the claim for exemption from the payment of local franchise tax.
In sum, the aforecited jurisprudence suggests that aside from the national franchise tax, the franchisee is
still liable to pay the local franchise tax, unless it is expressly and unequivocally exempted from the
payment thereof under its legislative franchise. The "in lieu of all taxes" clause in a legislative franchise
should categorically state that the exemption applies to both local and national taxes; otherwise, the
exemption claimed should be strictly construed against the taxpayer and liberally in favor of the taxing
authority.
Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolish the
payment of local franchise tax. It merely replaced the national franchise tax that was previously paid by
telecommunications franchise holders and in its stead imposed a ten percent (10%) VAT in accordance
with Section 108 of the Tax Code. VAT replaced the national franchise tax, but it did not prohibit nor
abolish the imposition of local franchise tax by cities or municipaties.
The power to tax by local government units emanates from Section 5, Article X of the Constitution which
empowers them to create their own sources of revenues and to levy taxes, fees and charges subject to
MASAOY,QMM
such guidelines and limitations as the Congress may provide. The imposition of local franchise tax is not
inconsistent with the advent of the VAT, which renders functus officio the franchise tax paid to the
national government. VAT inures to the benefit of the national government, while a local franchise tax is a
revenue of the local government unit.
WHEREFORE, the motion for reconsideration is DENIED, and this denial is final.
SO ORDERED.
Davao City wins franchise tax case versus Smart Communications
DAVAO CITY, Philippines — The city government of Davao represented by Mayor Rodrigo Duterte won its
case recently against Smart Communications, Incorporated involving the franchise tax the city had
imposed on the telecommunication company, the Philippine News Agency reported Saturday.
The Supreme Court’s 3rd Division has affirmed lower court’s decision denying Smart’s petition asking the
court to stop the city government from collecting franchise tax on them since they had already paid taxes
to the national government.
In a decision penned by Associate Justice Antonio Eduardo Nachura, the High Court favored the city
government in imposing local franchise taxes on Smart as it dismissed the Smart’s declaratory relief case.
Smart first questioned the imposition of local franchise taxes by the city government before the Regional
Trial Court (RTC) which on July 19, 1992 rendered a decision against the company.
Based on the tax code of Davao, the city imposed a tax on businesses enjoying franchise at a rate of 75
percent of one percent of the gross annual receipts for the preceding calendar year based on the income
or receipts realized within the territorial jurisdiction of Davao City.
But Smart argued that its telecenter in the city is exempt from the payment of franchise tax to the city,
since the company was exempted from paying such tax pursuant to their legislative franchise.
Smart further contended that Section 137 of RA 7260 or the Local Government Code which the city
insisted can only apply to exemptions already existing at the time of its effectivity and not to future
exemptions; and the power of the city to impose a franchise tax is subject to statutory limitations such as
the “in lieu of all taxes” clause in section 9 of RA 7294, the Smart’s franchise; and the imposition of the
franchise tax by the city would amount to a violation of the constitutional provision against impairment of
contracts.
But the city government invoked its power granted by the Constitution to local government units to
create their own sources of revenue.
Assessing the evidence on record, the lower court ruled against Smart citing the ambiguity of the phrase
“in lieu of all taxes” on Smart’s congressional franchise RA 7294.
Citing an earlier SC ruling, the RTC said that tax exemptions are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority and, thus, those who assert a tax exemption must
justify it with words too plain to be mistaken and too categorical not to be misinterpreted.
The RTC further declared that the city’s power to tax is based not merely on a valid delegation of
legislative power but on the direct authority granted to it by the fundamental law.
TAXATION NON IMPAIRMENT III-C Page 7 of 11
Aggrieved by the RTC decision, Smart filed a motion for reconsideration but was denied by the trial court
on September 26, 2002, thus, Smart elevated the issue to SC since it was a question of law.
But in a decision promulgated on September 16, 2008, the High Court upheld the lower court’s decision.
The SC also said the Smart’s franchise “does not expressly provide what kind of taxes Smart is exempted
from. “In is not clear whether the ‘in liue of all taxes’ provision in the franchise of Smart would include
exemption from local or national taxation,” the SC said.
“What is clear is that Smart shall pay franchise tax equivalent to three percent of all gross receipts of the
businesses transacted under its franchise,” the SC added.
The High Court added that Smart failed to show proof that Congress intended exempt the company from
all kinds of franchise taxes except from the three percent stated in its franchise.
“The uncertainty in the ‘in lieu if all taxes” clause in RA 7294 on whether Smart is exempted from both
local and national franchise tax must be construed strictly against Smart which claims exemption. Smart
has the burden of proving that…. However, Smart failed in this regard,” the SC ruled.
Although the SC decision favored the Davao City, the High Court the city should also based its franchise
tax to the local government code which states that the local franchise tax must not exceed 50 percent of 1
percent of the gross annual receipts for the preceding calendar year based on the income on receipt.
7. QUEZON CITY vs. ABS-CBN BROADCASTING CORPORATION - Local Franchise Tax
FACTS:
ABS-CBN was granted a franchise which provides that it “shall pay a 3% franchise tax and the said percentage
tax shall be “in lieu of all taxes on this franchise or earnings thereof”. It thus filed a complaint against the
imposition of local franchise tax.
ISSUE:
Does the “in lieu of all taxes” provision in ABS-CBN’s franchise exempt it from payment of the local franchise
tax?
HELD:
NO. The right to exemption from local franchise tax must be clearly established beyond reasonable doubt
and cannot be made out of inference or implications.
The uncertainty over whether the “in lieu of all taxes” provision pertains to exemption from local or national
taxes, or both, should be construed against Respondent who has the burden to prove that it is in fact
covered by the exemption claimed. Furthermore, the “in lieu of all taxes” clause in Respondent’s franchise
has become ineffective with the abolition of the franchise tax on broadcasting companies with yearly gross
receipts exceeding P10 million as they are now subject to the VAT.
MASAOY,QMM
QUEZON CITY vs. ABS-CBN G.R. No. 166408, October 6, 2008)
Facts:
Petitioner City Government of Quezon City is a local government unit duly organized and existing by virtue
of Republic Act (R.A.) No.537, otherwise known as the Revised Charter of Quezon City. Petitioner City
Treasurer of Quezon City is primarily responsible for the imposition and collection of taxes within the
territorial jurisdiction of Quezon City. ABS-CBN was granted the franchise to install and operate radio and
television broadcasting stations in the Philippines under R.A. No.7966. ABS-CBN had been paying local
franchise tax imposed by Quezon City. However, in view of the provision in R.A. No. 9766 that it “shall pay
a franchise tax x x x in lieu of all taxes,” the corporation developed the opinion that it is not liable to pay the
local franchise tax imposed by Quezon City. ABS-CBN filed a written claim for refund for local franchise tax
paid to Quezon City for 1996and for the first quarter of 1997. For failure to obtain any response from the
Quezon City Treasurer, ABS-CBN filed a complaint before the RTC in Quezon City seeking the declaration of
nullity of the imposition of local franchise tax by the City Government of Quezon City for being
unconstitutional. The RTC rendered judgment declaring as invalid the imposition on and collection from
ABS-CBN of local franchise tax and ordered the refund of all payments made. The City of Quezon and its
Treasurer filed a motion for reconsideration which was subsequently denied by the RTC. Thus, appeal was
made to the CA. The CA dismissed the petition of Quezon City and its Treasurer. According to the appellate
court, the issues raised were purely legal questions cognizable only by the Supreme Court.
ISSUE:
Whether or not the phrase "in lieu of all taxes" indicated in the franchise of the respondent appellee (Section
8 of RA 7966) serves to exempt it from the payment of the local franchise tax imposed by the petitioners-
appellants.
HELD: NO
The "in lieu of all taxes" provision in its franchise does not exempt ABS-CBN from payment of local franchise
tax.
The present controversy essentially boils down to a dispute between the inherent taxing power of Congress
and the delegated authority to tax of local governments under the 1987 Constitution and effected under
the LGC of 1991. Petitioners argue that the "in lieu of all taxes" provision in ABS-CBN's franchise does not
expressly exempt it from payment of local franchise tax. They contend that a tax exemption cannot be
created by mere implication and that one who claims tax exemptions must be able to justify his claim by
clearest grant of organic law or statute.
Taxes are what civilized people pay for civilized society. They are the lifeblood of the nation. Thus, statutes
granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the
taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to
be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. The burden of proof rests
upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed. The
basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions is to
minimize differential treatment and foster impartiality, fairness and equality of treatment among
taxpayers. He who claims an exemption from his share of common burden must justify his claim that the
legislature intended to exempt him by unmistakable terms. For exemptions from taxation are not favored
in law, nor are they presumed. They must be expressed in the clearest and most unambiguous language
and not left to mere implications. It has been held that "exemptions are never presumed, the burden is on
TAXATION NON IMPAIRMENT III-C Page 8 of 11
the claimant to establish clearly his right to exemption and cannot be made out of inference or implications
but must be laid beyond reasonable doubt. In other words, since taxation is the rule and exemption the
exception, the intention to make an exemption ought to be expressed in clear and unambiguous terms.
Section 8 of R.A. No. 7966 imposes on ABS-CBN a franchise tax equivalent to three (3) percent of all gross
receipts of the radio/television business transacted under the franchise and the franchise tax shall be "in
lieu of all taxes" on the franchise or earnings thereof. The "in lieu of all taxes" provision in the franchise of
ABS-CBN does not expressly provide what kind of taxes ABS-CBN is exempted from. It is not clear whether
the exemption would include both local, whether municipal, city or provincial, and national tax. What is
clear is that ABS-CBN shall be liable to pay three (3) percent franchise tax and income taxes under Title II of
the NIRC. But whether the "in lieu of all taxes provision" would include exemption from local tax is not
unequivocal.
As adverted to earlier, the right to exemption from local franchise tax must be clearly established and cannot
be made out of inference or implications but must be laid beyond reasonable doubt. Verily, the uncertainty
in the "in lieu of all taxes" provision should be construed against ABS-CBN. ABS-CBN has the burden to prove
that it is in fact covered by the exemption so claimed. ABS-CBN miserably failed in this regard.
ABS-CBN cites several cases to support its claim that that the "in lieu of all taxes" clause includes exemption
from all taxes. However, a review of the case laws reveals that the grantees' respective franchises expressly
exempt them from municipal and provincial taxes and ABS-CBN's franchise did not embody an exemption
similar to those cases. Too, the franchise failed to specify the taxing authority from whose jurisdiction the
taxing power is withheld, whether municipal, provincial, or national. In fine, since ABS-CBN failed to justify
its claim for exemption from local franchise tax, by a grant expressed in terms "too plain to be mistaken" its
claim for exemption for local franchise tax must fail.
8. ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005
Facts:
ABAKADA GURO Party List, et al., filed a petition for prohibition o questioning the constitutionality of
Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National
Internal Revenue Code (NIRC).
Section 4 imposes a 10% VAT on sale of goods and properties;
Section 5 imposes a 10% VAT on importation of goods; and
Section 6 imposes a 10% VAT on sale of services and use or lease of properties;
These provisions contain a provision which authorizing the President, upon recommendation of the
Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions have
been satisfied.
Issues:
Whether or not there is a violation of Article VI, Section 24 of the Constitution.
Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the
Constitution.
Whether or not there is a violation of the due process and equal protection of the Constitution.
Ruling:
MASAOY,QMM
No, the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes, percentage, and excise and franchise taxes.
No, there is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power when
it describes what job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward. In this case, it is
not a delegation of legislative power but a delegation of ascertainment of facts upon which enforcement
and administration of the increased rate under the law is contingent.
No, 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.
ABAKADA Guro Party List vs. Ermita
G.R. No. 168056 September 1, 2005
FACTS:
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for
prohibition on May 27, 2005 questioning the constitutionality of Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code (NIRC). Section
4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of
goods, and Section 6 imposes a 10% VAT on sale of services and use or lease of properties. These
questioned provisions contain a uniformp ro v is o authorizing the President, upon recommendation of
the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after specified conditions
have been satisfied. Petitioners argue that the law is unconstitutional.
ISSUES:
1. Whether or not there is a violation of Article VI, Section 24 of the Constitution.
2. Whether or not there is undue delegation of legislative power in violation of Article VI Sec 28(2) of the
Constitution.
3. Whether or not there is a violation of the due process and equal protection under Article III Sec. 1 of
the Constitution.
RULING:
1. Since there is no question that the revenue bill exclusively originated in the House of Representatives,
the Senate was acting within its constitutional power to introduce amendments to the House bill when it
included provisions in Senate Bill No. 1950 amending corporate income taxes, percentage, and excise and
franchise taxes.
TAXATION NON IMPAIRMENT III-C Page 9 of 11
2. There is no undue delegation of legislative power but only of the discretion as to the execution of a law.
This is constitutionally permissible. Congress does not abdicate its functions or unduly delegate power
when it describes what job must be done, who must do it, and what is the scope of his authority; in our
complex economy that is frequently the only way in which the legislative process can go forward.
3. The power of the State to make reasonable and natural classifications for the purposes of taxation has
long been established. Whether it relates to the subject of taxation, the kind of property, the rates to be
levied, or the amounts to be raised, the methods of assessment, valuation and collection, the 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.
ABAKADA Guro Party List vs Executive Secretary
Bills Must Originate EXCLUSIVELY from the House of Representatives; Undue Delegation of Legislative
Power; Equal Protection Clause
ABAKADA GURO PARTY LIST VS EXECUTIVE SECRETARY
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S.
ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE
DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE
GUILLERMO PARAYNO, JR., Respondent.
Facts:
Petitioners ABAKADA GURO Party List challenged the constitutionality of R.A. No. 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, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1,
2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has
been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
MASAOY,QMM
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 ½%).
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 Philippine
Constitution. They further argue that VAT is a tax levied on the sale or exchange of goods and services and
cannot be included within the purview of tariffs under the exemption delegation since this refers to
customs duties, tolls or tribute payable upon merchandise to the government and usually imposed on
imported/exported goods. They also said that the President has powers to cause, influence or create the
conditions provided by law to bring about the conditions precedent. Moreover, they allege that no guiding
standards are made by law as to how the Secretary of Finance will make the recommendation. 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:
1. Whether or not R.A. No. 9337 has violated the provisions in Article VI, Section 24, and Article
VI, Section 26 (2) of the Constitution.
2. Whether or not there was an undue delegation of legislative power in violation of Article VI Sec
28 Par 1 and 2 of the Constitution.
3. Whether or not there was a violation of the due process and equal protection under Article III
Sec. 1 of the Constitution.
Discussions:
1. Basing from the ruling of 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 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 is that the initiative for filing revenue, tariff or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come
from the House of Representatives on the theory that, elected as they are from the districts,
the members of the House can be expected to be more sensitive to the local needs and
problems. 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.
2. In testing whether a statute constitutes an undue delegation of legislative power 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.
3. 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.”
TAXATION NON IMPAIRMENT III-C Page 10 of 11
Rulings:

1. R.A. No. 9337 has not violated the provisions. The revenue bill exclusively originated in the
House of Representatives, the Senate was acting within its constitutional power to introduce
amendments to the House bill when it included provisions in Senate Bill No. 1950 amending
corporate income taxes, percentage, 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. There is no undue delegation of legislative power but only of the discretion as to the execution
of a law. This is constitutionally permissible. Congress does not abdicate its functions or unduly
delegate power when it describes what job must be done, who must do it, and what is the
scope of his authority; in our complex economy that is frequently the only way in which the
legislative process can go forward.
3. Supreme Court 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.

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