CASE DIGESTS

TAXATION 1 | WED 6-9 PM

ATTY. STEPHEN YU, CPA

1. Drugstore Association of the Philippines, Inc. and Northern Luzon Drug Corporation vs
National Council on Disability Affairs et.al.

Facts:

On March 24, 1992, RA 7277 or the “Magna Carta for Disabled Persons” was passed into law. It
was subsequently amended by RA 9442 to read as “Magna Carta for People with Disability” on
April 30, 2007. Aside from the change of all references on “disabled persons” to “people with
disability”, the law also granted the PWDs a discount of 20% on purchase of medicine, and a tax
deduction scheme was adopted wherein the covered establishments may deduct the discount
granted from their gross income based on the net cost of goods sold or services rendered. The
different agencies subsequently passed different orders and regulations supporting such law.

On July 28, 2009, the petitioners filed a Petition for Prohibition with application of Temporary
Restraining Order and/or Writ of Preliminary Injunction before the Court of Appeals to annul
and enjoin the implementation of the law and the orders and regulations passed by the other
agencies.

On July 26, 2010, the CA upheld the constitutionality of RA 7277 as amended as well as the
assailed issuances. However, they suspended the effectivity of NCDA A.O. No. 1, series of 2008,
which prescribed guidelines on the issuance of the PWD card because pending proof of
publication and filing in ONAR.

On November 19, 2010, the suspension was lifted after the NCDA showed proof of filing and
publication. This prompted the petitioner to raise the case hence this petition.

Issue:

Whether or not the mandated PWD Discount is a valid exercise of police power and not an
invalid exercise of eminent domain because it fails to give just compensation to the drugstores.

Ruling:

The petition was denied.

The law is a legitimate exercise of police power applying by analogy the case of Carlos
Superdrug Corporation et. Al., vs DSWD et. Al., which granted 20% discount on medicine of
Senior Citizen as a valid exercise of police power.
Police power is the power of the state to promote public welfare by restraining and regulating
the use of liberty and property. In its exercise, property rights of private individuals are
subjected to restraints and burden in order to secure the general comfort, health, and
prosperity with the state. RA 7277 was enacted primarily to provide support to the
improvement of the total well-being of PWD’s and their integration to mainstream society. They
found support in the Constitution:
ARTICLE XII

NATIONAL ECONOMY AND PATRIMONY

x xxx

Section 6. The use of property bears a social function, and all economic agents shall
contribute to the common good. Individuals and private groups, including corporations,
cooperatives, and similar collective organizations, shall have the right to own, establish, and
operate economic enterprises, subject to the duty of the State to promote distributive justice and
to intervene when the common good so demands.32 chanrobleslaw

ARTICLE XIII

SOCIAL JUSTICE AND HUMAN RIGHTS

x xxx

Section 11. The State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social services
available to all the people at affordable cost. There shall be priority for the needsof the
underprivileged, sick, elderly, disabled, women, and children. The State shall endeavor to provide
free medical care to paupers.33 chanrob

Hence, the PWD Discount is supported by a valid objective or purpose as

aforementioned. It has a valid subject considering that the concept of public use is no longer
confined to the traditional notion of use by the public, but held synonymous with public
interest, public benefit, public welfare, and public convenience. The means employed in
invoking the active participation of the private sector in order to achieve the purpose.

Lastly, the petitioners contend that the law violates equal protection clause because it
singles out drugstores to bear the burden of the discount and that it only targets drug retailers
and not the whole drug industry. The court applied by analogy the decision of the SC. The
petitioners must accept that the State, in the exercise of police power, can intervene in the
operations of a business which may result in an impairment of property rights.

The equal protection clause recognizes a valid classification, that is, a classification that
has a reasonable foundation or rational basis and not arbitrary. PWD form a class separate and
distinct from other citizens in our country. It is without doubt that such distinction is germane
and intimately related to the purpose of the law.

Thus, the petition assailing the validity of the PWD discount was denied.
2. G.R. No. 175356, December 3, 2013

MANILA MEMORIAL PARK, INC. AND LA FUNERARIA PAZ-SUCAT, INC. vs.

SECRETARY OF THE DEPARTMENT OF SOCIAL WELFARE AND DEVELOPMENT and THE SECRETARY OF THE
DEPARTMENT OF FINANCE

FACTS:

On April 23, 1992, RA 7432 was passed into law, granting senior citizens the following privileges: SECTION
4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:

a) the grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishment[s], restaurants and recreation centers and
purchase of medicine anywhere in the country: Provided, That private establishments may claim the cost as
tax credit;

b) a minimum of twenty percent (20%) discount on admission fees charged by theaters, cinema houses and
concert halls, circuses, carnivals and other similar places of culture, leisure, and amusement;

On August 23, 1993, Revenue Regulations (RR) No. 02-94 was issued to implement RA 7432. Sections 2(i)
and 4 of RR No. 02-94 provide:

Sec. 2. DEFINITIONS. – For purposes of these regulations: i. Tax Credit – refers to the amount representing
the 20% discount granted to a qualified senior citizen by all establishments relative to their utilization of
transportation services, hotels and similar lodging establishments, restaurants, drugstores, recreation
centers, theaters, cinema houses, concert halls, circuses, carnivals and other similar places of culture,
leisure and amusement, which discount shall be deducted by the said establishments from their gross
income for income tax purposes and from their gross sales for value-added tax or other percentage tax
purposes.

On February 26, 2004, RA 92578 amended certain provisions of RA 7432, to wit:SECTION 4. Privileges for
the Senior Citizens. – The senior citizens shall be entitled to the following:(a) the grant of twenty percent
(20%) discount from all establishments relative to the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior
citizens;

The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the
net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is granted. Provided, further, That
the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of
the National Internal Revenue Code, as amended.

To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006, the pertinent
provision of which provides:

SEC. 8. AVAILMENT BY ESTABLISHMENTS OF SALES DISCOUNTS AS DEDUCTION FROM GROSS INCOME. –

Establishments enumerated in subparagraph (6) hereunder granting sales discounts to senior citizens on
the sale of goods and/or services specified thereunder are entitled to deduct the said discount from gross
income subject to the following conditions:
Feeling aggrieved by the tax deduction scheme, petitioners filed the present recourse, praying that Section
4 of RA 7432, as amended by RA 9257, and the implementing rules and regulations issued by the DSWD
and the DOF be declared unconstitutional insofar as these allow business establishments to claim the 20%
discount given to senior citizens as a tax deduction; that the DSWD and the DOF be prohibited from
enforcing the same; and that the tax credit treatment of the 20% discount under the former Section 4 (a)
of RA 7432 be reinstated.

ISSUE:

WON Section 4 of Republic Act No. 9257 and its Implementing Rules And Regulations, insofar as they
provide that the twenty percent (20%) discount to senior citizens may be claimed as a tax deduction by the
private establishments, are invalid and unconstitutional.

RULING:

No. Based on the afore-stated DOF Opinion, the tax deduction scheme does not fully reimburse petitioners
for the discount privilege accorded to senior citizens. This is because the discount is treated as a deduction,
a tax-deductible expense that is subtracted from the gross income and results in a lower taxable income.
Being a tax deduction, the discount does not reduce taxes owed on a peso for peso basis but merely offers
a fractional reduction in taxes owed. Theoretically, the treatment of the discount as a deduction reduces
the net income of the private establishments concerned. The discounts given would have entered the
coffers and formed part of the gross sales of the private establishments, were it not for R.A. No. 9257. The
permanent reduction in their total revenues is a forced subsidy corresponding to the taking of private
property for public use or benefit. This constitutes compensable taking for which petitioners would
ordinarily become entitled to a just compensation. Just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator. The measure is not the takers gain but
the owners loss. The word just is used to intensify the meaning of the word compensation, and to convey
the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and
ample.

A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet
the definition of just compensation. Having said that, this raises the question of whether the State, in
promoting the health and welfare of a special group of citizens, can impose upon private establishments
the burden of partly subsidizing a government program. The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-
building, and to grant benefits and privileges to them for their improvement and well-being as the State
considers them an integral part of our society.

The priority given to senior citizens finds its basis in the Constitution as set forth in the law itself.

As a form of reimbursement, the law provides that business establishments extending the twenty percent
discount to senior citizens may claim the discount as a tax deduction. The law is a legitimate exercise of
police power which, similar to the power of eminent domain, has general welfare for its object.

While the Constitution protects property rights, petitioners must accept the realities of business and the
State, in the exercise of police power, can intervene in the operations of a business which may result in an
impairment of property rights in the process.

Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners
and the other private establishments concerned. This being the case, the means employed in invoking the
active participation of the private sector, in order to achieve the purpose or objective of the law, is
 reasonably and directly related. Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and
that the continued implementation of the same would be unconscionably detrimental to petitioners, the
Court will refrain from quashing a legislative act. Carlos Superdrug Corp v. DSWD, 553 Phil. 120 (2007).

When we ruled that petitioners in Carlos Superdrug case failed to prove that the 20% discount is arbitrary,
oppressive or confiscatory. We noted that no evidence, such as a financial report, to establish the impact of
the 20% discount on the overall profitability of petitioners was presented in order to show that they would
be operating at a loss due to the subject regulation or that the continued implementation of the law would
be unconscionably detrimental to the business operations of petitioners.

In the case at bar, petitioners proceeded with a hypothetical computation of the alleged loss that they will
suffer similar to what the petitioners in Carlos Superdrug Corporationdid.

We, thus, found that the 20% discount as well as the tax deduction scheme is a valid exercise of the police
power of the State. Thus, it is constitutional.

3. Gerochi v. DOE
G.R. No. 159796, July 17, 2007

Facts:

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

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

Issue: W/N the universal charge is a tax

Ruling:

NO. The assailed universal charge is not a tax, but an exaction in the exercise of
the States police power.

That public welfare is promoted may be gleaned from Sec. 2 of the EPIRA, which
enumerates the policies of the State regarding electrification. Moreover, the
Special Trust Fund feature of the universal charge reasonably serves and
assures the attainment and perpetuity of the purposes for which the universal
charge is imposed (e.g. to ensure the viability of the countrys electric power
industry), further boosting the position that the same is an exaction primarily in
pursuit of the States police objectives.
 If generation of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose, the fact
that revenue is incidentally raised does not make the imposition a tax.

The taxing power may be used as an implement of police power.

The theory behind the exercise of the power to tax emanates from necessity;
without taxes, government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.

4. PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA

NIYUGAN (PKSMMN), et al. v Executive Secretary, et al | G.R. No. 147036-37, April 20, 2012

Facts:

These are consolidated petitions to declare unconstitutional certain presidential decrees and
executive orders of the martial law era relating to the raising and use of coco-levy funds.

On June 19, 1971 Congress enacted Republic Act (R.A.) 6260thatestablished a Coconut
Investment Fund (CI Fund) for the development of the coconut industry through capital financing,
where the law imposed a levy of ₱0.55 on the coconut farmer’s first domestic sale of every 100
kilograms of copra, or its equivalent, for which levy he was to get a receipt convertible into CIC
shares of stock.

About a year following his proclamation of martial law in the country or on August 20, 1973
President Ferdinand E. Marcos issued Presidential Decree (P.D.) 276,which established a
Coconut Consumers Stabilization Fund (CCS Fund), to address the crisis at that time in the
domestic market for coconut-based consumer goods where there was an imposition of a ₱15.00-
levy for every first sale of 100 kilograms of copra resecada.The levy was to cease after a year or
earlier provided the crisis was over. Any remaining balance of the Fund was to revert to the CI
Fund established under R.A. 6260.

A year later or on November 14, 1974 President Marcos issued P.D. 582,creating a permanent
fund called the Coconut Industry Development Fund (CID Fund) to channel for the ultimate direct
benefit of coconut farmers part of the levies that they were already paying. The Philippine
Coconut Authority (PCA) was to provide ₱100 million as initial capital of the CID Fund and,
thereafter, give the Fund at least ₱0.20 per kilogram of copra resecada out of the PCA’s
collection of coconut consumers stabilization levy. In case of the lifting of this levy, the PCA was
then to impose a permanent levy of ₱0.20 on the first sale of every kilogram of copra to form part
of the CID Fund. Also, under P.D. 582, the Philippine National Bank (PNB), then owned by the
Government, was to receive on deposit, administer, and use the CID Fund.P.D. 582 authorized
the PNB to invest the unused portion of the CID Fund in easily convertible investments, the
earnings of which were to form part of the Fund.

In 1975 President Marcos enacted P.D. 755which approved the acquisition of a commercial bank
for the benefit of the coconut farmers to enable such bank to promptly and efficiently realize the
industry’s credit policy. Thus, the PCA bought 72.2% of the shares of stock of First United Bank,
headed by Pedro Cojuangco.Due to changes in its corporate identity and purpose, the bank’s
articles of incorporation were amended in July 1975, resulting in a change in the bank’s name
from First United Bank to United Coconut Planters Bank (UCPB).
 On July 14, 1976 President Marcos enacted P.D. 961,the Coconut Industry Code, which
consolidated and codified existing laws relating to the coconut industry. The Code provided that
surpluses from the CCS Fund and the CID Fund collections, not used for replanting and other
authorized purposes, were to be invested.UCPB was to make such investments and equitably
distribute these for free to coconut farmers.These investments constituted the Coconut Industry
Investment Fund (CIIF). P.D. 961 also provided that the coconut levy funds (coco-levy funds)
shall be owned by the coconut farmers in their private capacities.This was reiterated in the PD
1468 amendment of June 11, 1978.

In 1980, President Marcos issued P.D. 1699, suspending the collections of the CCS Fund and the
CID Fund. P.D. 1841 renamed the CCS Fund into the Coconut Industry Stabilization Fund (CIS
Fund).

In November 2000 then President Joseph Estrada issued Executive Order (E.O.)
312,establishing a Sagip Niyugan Program which sought to provide immediate income
supplement to coconut farmers and encourage the creation of a sustainable local market demand
for coconut oil and other coconut products. The Executive Order sought to establish a ₱1-billion
fund by disposing of assets acquired using coco-levy funds or assets of entities supported by
those funds.A committee was created to manage the fund under this program.

At about the same time, President Estrada issued E.O. 313,which created an irrevocable trust
fund known as the Coconut Trust Fund (the Trust Fund). This aimed to provide financial
assistance to coconut farmers, to the coconut industry, and to other agri-related programs.The
shares of stock of SMC were to serve as the Trust Fund’s initial capital.These shares were
acquired with CII Funds and constituted approximately 27% of the outstanding capital stock of
SMC. E.O. 313 designated UCPB, through its Trust Department, as the Trust Fund’s trustee
bank.

To implement its mandate, E.O. 313 directed the Presidential Commission on Good Government,
the Office of the Solicitor General, and other government agencies to exclude the 27% CIIF SMC
shares from Civil Case 0033, entitled Republic of the Philippines v. Eduardo Cojuangco, Jr., et
al., which was then pending before the Sandiganbayan and to lift the sequestration over those
shares.

On January 26, 2001, however, former President Gloria Macapagal-Arroyo ordered the
suspension of E.O.s 312 and 313.This notwithstanding, on March 1, 2001 petitioner
organizations and individuals brought the present action in G.R. 147036-37 to declare E.O.s 312
and 313 as well as Article III, Section 5 of P.D. 1468 unconstitutional. On April 24, 2001 the other
sets of petitioner organizations and individuals instituted G.R. 147811 to nullify Section 2 of P.D.
755 and Article III, Section 5 of P.D.s 961 and 1468 also for being unconstitutional.

` Issues: (1) Whether or not the coco-levy funds are public funds; and

` (2) Whether or not (a) Section 2 of P.D. 755, (b) Article III, Section 5 of P.D.s 961 and
1468, (c) E.O. 312, and (d) E.O. 313 are unconstitutional.

Rulings:

1. Whether or not the coco-levy funds are public funds;

The Court ruled in Republic of the Philippines v. COCOFED that these funds are not only affected
with public interest; they are, in fact, prima facie public funds.The Court was satisfied that the
coco-levy funds were raised pursuant to law through the use of the police and taxing powers of
the State for the benefit of the coconut industry and its farmers in general. The COA reviewed the
 use of the funds. The Bureau of Internal Revenue (BIR) treated them as public funds and the very
laws governing coconut levies recognize their public character.

The Court has also recently declared that the coco-levy funds are in the nature of taxes and can
only be used for public purpose.Taxes are enforced proportional contributions from persons and
property, levied by the State by virtue of its sovereignty for the support of the government and for
all its public needs.Here, the coco-levy funds were imposed pursuant to law, namely, R.A. 6260
and P.D. 276.

Unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost the
government’s general funds but to provide means for the rehabilitation and stabilization of a
threatened industry, the coconut industry, which is so affected with public interest as to be within
the police power of the State. The funds sought to support the coconut industry, one of the main
economic backbones of the country, and to secure economic benefits for the coconut farmers and
farm workers. The coco-levy funds, belong to the government and are subject to its administration
and disposition. Thus, these funds, including its incomes, interests, proceeds, or profits , as well
as all its assets, properties, and shares of stocks procured with such funds must be treated, used,
administered, and managed as public funds.

Lastly, the coco-levy funds are evidently special funds. In Gaston v. Republic Planters Bank,the
Court held that the State collected stabilization fees to finance the growth and development of the
sugar industry and all its components. In Osmeña v. Orbos, the Court held that the oil price
stabilization fund was a special fund mainly because this was segregated from the general fund
and placed in what the law referred to as a trust account. Yet it remained subject to COA scrutiny
and review. The Court finds no substantial distinction between these funds and the coco-levy
funds, except as to the industry they each support.

2. Whether or not (a) Section 2 of P.D. 755, (b) Article III, Section 5 of P.D.s 961 and 1468, (c)
E.O. 312, and (d) E.O. 313 are unconstitutional.

Notably, the raising of money by levy on coconut farm production, a form of taxation as already
stated, began in 1971 for the purpose of developing the coconut industry and promoting the
interest of coconut farmers. The use of the fund was expanded in 1973 to include the stabilization
of the domestic market for coconut-based consumer goods and in 1974 to divert part of the funds
for obtaining direct benefit to coconut farmers. After five years or in 1976, however, P.D. 961
declared the coco-levy funds private property of the farmers. P.D. 1468 reiterated this declaration
in 1978. But neither presidential decree actually turned over possession or control of the funds to
the farmers in their private capacity. The government continued to wield undiminished authority
over the management and disposition of those funds.

In any event, such declaration is void. There is ownership when a thing pertaining to a person is
completely subjected to his will in everything that is not prohibited by law or the concurrence with
the rights of another. Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III,
Section 5 of P.D. 1468 completely ignore the fact that coco-levy funds are public funds raised
through taxation. And since taxes could be exacted only for a public purpose, they cannot be
declared private properties of individuals although such individuals fall within a distinct group of
persons.On another point, in stating that the coco-levy fund "shall not be construed or interpreted,
under any law or regulation, as special and/or fiduciary funds, or as part of the general funds of
the national government," P.D.s 961 and 1468 seek to remove such fund from COA scrutiny.

Sec 5 of E.O. 312 and Sec 13 of E.O. 313b both have identical provision governing the
management and disposition of the Coconut Trust Fund capitalized with the substantial SMC
shares of stock that the coco-fund acquired. But, since coco-levy funds are taxes, the provisions
 of P.D.s 755, 961 and 1468 as well as those of E.O.s 312 and 313 that remove such funds and
the assets acquired through them from the jurisdiction of the COA violate Article IX-D, Section
2(1)69 of the 1987 Constitution. Section 2(1) vests in the COA the power and authority to examine
uses of government money and property. The cited P.D.s and E.O.s also contravene Section
270 of P.D. 898 (Providing for the Restructuring of the Commission on Audit), which has the force
of a statute.

And there is no legitimate reason why such funds should be shielded from COA review and audit.
The PCA, which implements the coco-levy laws and collects the coco-levy funds, is a
government-owned and controlled corporation subject to COA review and audit.

WHEREFORE, the Court GRANTS the petition in G.R. 147036-37, PARTLY GRANTS the
petition in G.R. 147811, and declares the following VOID:

a) E.O. 312, for being repugnant to Section 84(2) of P.D. 1445, and Article IX-D, Section 2(1) of
the Constitution; and

b) E.O. 313, for being in contravention of Section 84(2) of P.D. 1445, and Article IX-D, Section
2(1) and Article VI, Section 29(3) of the Constitution.

` The Court has previously declared Section 2 of P.D. 755 and Article III, Section 5 of P.D.s 961
and 1468 unconstitutional.

5. Francia v. Intermediate Appellate Court (G.R. No. 67649, June 28, 1988)

Facts:

Engracio Francia is the owner of the property in question, located in the District of Sta.
Clara, Pasay City. A portion of the same was expropriated by the Republic of the
Philippines for the sum of P4,116 on October 15, 1977.

Records show that Francia failed to pay the real estate taxes of said property from 1963
up to 1977. Thus, on December 5, 1977, his property was sold at public auction by the
City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464
known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00.
Ho Fernandez was the highest bidder for the property. Francia was not present during the
auction sale.

Subsequently, Francia received a notice of hearing pertaining to the TCT of the property
in question. Francia discovered that a Final Bill of Sale had been issued in favor of Ho
Fernandez by the City Treasurer on December 11, 1978.

On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended
his complaint on January 24, 1980. The lower court dismissed said petition and the same
was affirmed by the Intermediate Appellate Court.

The following are Francia’s arguments:

  His obligation to pay P2,400 was set-off by the amount of P4,116 owed to him by
the government because of the expropriation proceedings.
 He was not properly and duly notified of said auction sale
 The price paid by Ho Fernandez was grossly inadequate.

Issues

1. [Tax Related] Whether or not a tax delinquency can be compensated by a claim against
the government;
2. Whether or not there was proper notification of the auction sale.; AND
3. [Ratio touches on the Lifeblood Doctrine] Whether or not gross inadequacy of the
price can invalidate an auction sale.

Rulings:

(1) No, a tax delinquency cannot be compensated by a claim against the government. The
Supreme Court has consistently ruled that 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.

Legal compensation entails that that each one of the obligors be bound principally and
that he be at the same time a principal creditor of the other. In addition, the two debts
must be due.

The case of Cordero v. Gonda explains that internal revenue taxes cannot be the subject
of compensation: Reason: government and taxpayer ‘are not mutually creditors and
debtors of each other’ under Article 1278 of the Civil Code and a "claim for taxes is not such
a debt, demand, contract or judgment as is allowed to be set-off. Furthermore, the tax was
due to the city government while the expropriation was effected by the national
government. Moreover, the amount of P4,116.00 paid by the national government for the
expropriated portion of the lot was deposited with the Philippine National Bank long before
the sale at public auction.

(2) Yes, there was proper notification of the auction sale.

The case shows that petitioner received the notice in question and the same even signed it.
However, petitioner stated that he was not able to read its contents. The Supreme Court
ruled that it was negligence on his part when he ignored such notice.

(3) No, gross inadequacy of the price cannot invalidate an auction sale.
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.
 The Supreme Court further opined that ruling otherwise would unsettle long-established
rules and lead to uncertainty and difficulty in the collection of taxes which are the life
blood of the state.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. That the present rules are just, and that they bring hardship only
to those who have invited it by their own neglect.

6. DOMINGO v. GARLITOS June 29, 1963

Facts:
This case is a petition for certiorari and mandamus against Judge
Garlitosfor the orders of said judge and the SC in the case of
Commented [J1]: oscoc
Domingo v. Moscoso wherein it declared final and executory the
order for the payment by the estate of the estate and inheritance
taxes, charges and penalties amounting to P40,058.55 issued by
the CFI of Leyte.

In order to enforce the claims against the estate, the fiscal

presented a petition to the CFI for the execution of the judgment.
This petition was however denied by the court holding that the
execution is not justifiable as the government is indebted to the
estate under administration in the amount of P262,200.00. Hence
the action for certiorari and mandamus.

Issue: WON a tax and a debt may be compensated.

Ruling: The court having jurisdiction of the estate had found that
the claim of the estate against the government has been
recognized and an amount of P262, 000.00 has already been
appropriated for the purpose by a corresponding law. Under the
above circumstances, both the claim of the government for
inheritance taxes and the claim of the intestate for services
 rendered have already become overdue and demandable is well
as fully liquidated. Compensation therefore takes place by
operation of law in accordance with the provisions of Arts 1279
and 1290 of the Civil Code, and both debts are extinguished to the
concurrent amount. Therefore, the petitioner has no clear right to
execute the judgment for taxes against the estate of the deceased
Walter Scott Price.

7. 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: Affirmative.
 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.

8. BENJAMIN P. GOMEZ, petitioner-appellee,

vs. ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R. VALENCIA, in his
capacity as Secretary of Public Works and Communications, and DOMINGO GOPEZ, in his
capacity as Acting Postmaster of San Fernando, Pampanga, respondent-appellants.
G.R. No. L-23645 October 29, 1968

FACTS:

This appeal puts in issue the constitutionality of Republic Act 1635, an act to require the printing
and issue of semi-postal stamps in order to raise funds for the Philippine Tuberculosis Society.
The respondent Postmaster General, in implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7 (August 9, 1958), 9 (August 28, 1958), and
10 (July 15, 1960). The law in question requires an additional 5 centavo stamp for every mail
being posted, and no mail shall be delivered unless bearing the said stamp.

On September l5, 1963 the petitioner Benjamin P. Gomez mailed a letter at the post office in
San Fernando, Pampanga. Because this letter, addressed to a certain Agustin Aquino of 1014
Dagohoy Street, Singalong, Manila did not bear the special anti-TB stamp required by the
statute, it was returned to the petitioner.
In view of this development, the petitioner brough suit for declaratory relief in the Court of First
Instance of Pampanga, to test the constitutionality of the statute, as well as the implementing
administrative orders issued, contending that it violates the equal protection clause of the
Constitution as well as the rule of uniformity and equality of taxation. The lower court declared
the statute and the orders unconstitutional; hence this appeal by the respondent postal
authorities.

ISSUES:

1. Whether or not RA 1635 is invalid on the ground that it is a violation of the equal
protection clause;
2. Whether or not RA 1635 is invalid because it is not levied for a public purpose as no
special benefits accrue to mail users as taxpayers; and
3. Whether or not RA 1635 is invalid because it violates the rule of uniformity in taxation.

RULING:

(1) No. The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails. As
such the objections levelled against it must be viewed in the light of applicable principles of
taxation.

To begin with, it is settled that the legislature has the inherent power to select the subjects
of taxation and to grant exemptions. This power has aptly been described as "of wide range
and flexibility."Indeed, it is said that in the field of taxation, more than in other areas, the
legislature possesses the greatest freedom in classification. The reason for this is that
traditionally, classification has been a device for fitting tax programs to local needs and
usages in order to achieve an equitable distribution of the tax burden.

We are not wont to invalidate legislation on equal protection grounds except by the clearest
demonstration that it sanctions invidious discrimination, which is all that the Constitution
forbids. The remedy for unwise legislation must be sought in the legislature. Now, the
classification of mail users is not without any reason. It is based on ability to pay, let alone
the enjoyment of a privilege, and on administrative convenience. In the allocation of the tax
burden, Congress must have concluded that the contribution to the anti-TB fund can be
assured by those whose who can afford the use of the mails.

The classification is likewise based on considerations of administrative convenience. For it is

now a settled principle of law that "consideration of practical administrative convenience
and cost in the administration of tax laws afford adequate ground for imposing a tax on a
well recognized and defined class." In the case of the anti-TB stamps, undoubtedly, the
single most important and influential consideration that led the legislature to select mail
users as subjects of the tax is the relative ease and convenience of collecting the tax through
the post offices. The small amount of five centavos does not justify the great expense and
 inconvenience of collecting through the regular means of collection. On the other hand, by
placing the duty of collection on postal authorities the tax was made almost self-enforcing,
with as little cost and as little inconvenience as possible.

And then of course it is not accurate to say that the statute constituted mail users into a
class. Mail users were already a class by themselves even before the enactment of the
statue and all that the legislature did was merely to select their class. Legislation is
essentially empiric and Republic Act 1635, as amended, no more than reflects a distinction
that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences that exist in fact
is living law; to disregard [them] and concentrate on some abstract identities is lifeless
logic."

Granted the power to select the subject of taxation, the State's power to grant exemption
must likewise be conceded as a necessary corollary. Tax exemptions are too common in the
law; they have never been thought of as raising issues under the equal protection clause.

(2) No. The eradication of a dreaded disease is a public purpose, but if by public purpose the
petitioner means benefit to a taxpayer as a return for what he pays, then it is sufficient
answer to say that the only benefit to which the taxpayer is constitutionally entitled is that
derived from his enjoyment of the privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public purposes. Any other view would
preclude the levying of taxes except as they are used to compensate for the burden on
those who pay them and would involve the abandonment of the most fundamental
principle of government — that it exists primarily to provide for the common good.

(3) No. A tax need not be measured by the weight of the mail or the extent of the service
rendered. We have said that considerations of administrative convenience and cost afford
an adequate ground for classification. The same considerations may induce the legislature
to impose a flat tax which in effect is a charge for the transaction, operating equally on all
persons within the class regardless of the amount involved. As Mr. Justice Holmes said in
sustaining the validity of a stamp act which imposed a flat rate of two cents on every $100
face value of stock transferred:

One of the stocks was worth $30.75 a share of the face value of $100, the other $172. The
inequality of the tax, so far as actual values are concerned, is manifest. But, here again
equality in this sense has to yield to practical considerations and usage. There must be a
fixed and indisputable mode of ascertaining a stamp tax. In another sense, moreover, there
is equality. When the taxes on two sales are equal, the same number of shares is sold in
each case; that is to say, the same privilege is used to the same extent. Valuation is not the
only thing to be considered. As was pointed out by the court of appeals, the familiar stamp
tax of 2 cents on checks, irrespective of income or earning capacity, and many others,
illustrate the necessity and practice of sometimes substituting count for weight ...
 According to the trial court, the money raised from the sales of the anti-TB stamps is spent
for the benefit of the Philippine Tuberculosis Society, a private organization, without
appropriation by law. But as the Solicitor General points out, the Society is not really the
beneficiary but only the agency through which the State acts in carrying out what is
essentially a public function. The money is treated as a special fund and as such need not be
appropriated by law.

ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed, without
pronouncement as to costs.

9. Tio vs Videogram Regulatory Board

G.R. L-75697
Jun 18, 1987

Principles:

a. Constitutional requirement of one subject matter per bill is not necessary that the title
express each and every end that the statute wishes to accomplish. The requirement is
satisfied if all the parts of the statute are related and are germane to the subject matter
expressed in the title, or as long as they are not inconsistent with or foreign to the
general subject and title.
b. Power to impose taxes is one so unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any restrictions whatever, except
such as rest in the discretion of the authority which exercises it.

Facts:

Petitioners (including those whom are petitioners-in-intervention) assailed the constitutionality

of PD 1987 creating the videogram regulatory board.

The decree modified the NIRC, among other things as follows:

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.

Issues:

a. Whether or not Section 10 thereof, which imposes a tax of 30% on the gross receipts payable
to the local government is a RIDER and the same is not germane to the subject matter
thereof;
b. Whether or not the tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of the Constitution;

Rulings:

(a) The Constitutional requirement that "every bill shall embrace only one subject which shall
be expressed in the title thereof” is sufficiently complied with if the title be comprehensive
 enough to include the general purpose which a statute seeks to achieve. It is not necessary
that the title express each and every end that the statute wishes to accomplish. The
requirement is satisfied if all the parts of the statute are related and are germane to the
subject matter expressed in the title, or as long as they are not inconsistent with or foreign
to the general subject and title.

Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE
is a rider is without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any

provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of
the purchase price or rental rate, as the case may be, for every sale, lease or disposition
of a videogram containing a reproduction of any motion picture or audiovisual program.
Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and
the other fifty percent (50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.

The express purpose of the DECREE to include taxation of the video industry in order to
regulate and rationalize the heretofore uncontrolled distribution of videograms. The title of
the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive
enough to include the purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the title or that the latter be
an index to the body of the DECREE.

(b) Tax does not cease to be valid merely because it regulates, discourages, or even definitely
deters the activities taxed.

The power to impose taxes is one so unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to any restrictions whatever, except such
as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature
acts upon its constituents. This is, in general, a sufficient security against erroneous and
oppressive taxation.

The public purpose of a tax may legally exist even if the motive which impelled the
legislature to impose the tax was to favor one industry over another.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequities which result from a singling out of one particular
class for taxation or exemption infringe no constitutional limitation". Taxation has been
made the implement of the state's police power.
 10. WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner and
appellant, v. THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents
and appellees.

FACTS:

1. Republic Act No. 920, entitled An Act Appropriating Funds for Public Works was approved for
the construction of Pasig feeder road terminals (subdivision roads). These projected roads do
not connect to any government property or important premises to the main highway.
2. However, some of the projected feeder roads in question were part of private property;
projected and planned subdivision roads, not yet constructed within the Antonio Subdivision,
belonging to private respondent Zulueta(Senator and respondent), at the time of the passage
and approval of the Act.
3. It was subsequently donated by Zulueta in order to give semblance of legality.
4. Pascual instituted an action for declaratory relief with injunction on the ground that the
aforementioned illegal provision of law, would cause irreparable damage, detriment and
prejudice not only to the petitioner but to the Filipino nation.

ISSUE:

A. Whether or not it is feasible to use the public funds for private purpose.
B. Whether or not the subsequent donation by Zulueta cured theaformentioned defect.
C. Whether or not Pascual has a legal interest in this case.

HELD:

A. No, it is not feasible to use the public funds for private purpose.
1. It is a general rule that the legislature is without power to appropriate public revenue for
anything but a public purpose... It is the essential character of the direct object of the
expenditure which must determine its validity as justifying a tax, and not the magnitude of
the interests to be affected nor the degree to which the general advantage of the community,
and thus the public welfare, may be ultimately benefited by their promotion. Incidental
advantage to the public or to the state, which results from the promotion of private interests
and the prosperity of private enterprises or business, does not justify their aid by the use of
public money.
2. "In accordance with the rule that the taxing power must be exercised for public purposes only,
discussed supra sec. 14, money raised by taxation can be expanded only for public purposes and
not for the advantage of private individuals."
3. Generally, under the express or implied provisions of the constitution, public funds may be used
for a public purpose. The right of the legislature to appropriate funds is correlative with its right
to tax, under constitutional provisions against taxation except for public purposes and
prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose,
no appropriation of state funds can be made for other than a public purpose. . .
4. "The test of the constitutionality of a statute requiring the use of public funds is whether the
statute is designed to promote the public interests, as opposed to the furtherance of the
advantage of individuals, although each advantage to individuals might incidentally serve the
public. . . ."Needless to say, this Court is fully in accord with the foregoing views which, apart
 from being patently sound, are a necessary corollary to our democratic system of government,
which, as such, exists primarily for the promotion of the general welfare. Besides, reflecting as
they do, the established jurisprudence in the United States, after whose constitutional system
ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our own
constitutional law.

B. No, the subsequent donation by Zulueta does not cure the aformentioned defect.
1. Where the land on which projected feeder roads are to be constructed belongs to a private
person, an appropriation made by Congress for that purpose is null and void, and a donation to
the Government, made over five (5) months after the approval and effectivity of the Act for the
purpose of giving a "semblance of legality" to the appropriation, does not cure the basic defect.
Consequently, a judicial nullification of said donation need not precede the declaration of
unconstitutionality of said appropriation.
2. The validity of a statute depends upon the powers of Congress at the time of its passage or
approval, not upon events occupying, or acts performed, subsequently thereto, unless the
latter consist of an amendment of the organic law, removing, with retrospective operation, the
constitutional limitation infringed by said statute.

C. Yes, Pascual has the legal capacity to sue.

1."Again, it is well settled that the validity of a statute may be contested only by one who will
sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at
the instance of taxpayers, laws providing for the disbursement of public funds, upon the theory
that "the expenditure of public funds by an officer of the State for the purpose of administering
an unconstitutional act constitutes an misapplication of such funds," which may be enjoined at the
request of a taxpayer. Although there are some decisions to the contrary, 7 the prevailing view in
the United States is stated in the American Jurisprudence as follows:

"In the determination of the degree of interest essential to give the requisite standing to
attack the constitutionality of a statute the general rule is that only persons individually
affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of
moneys raised by taxation and may therefore question the constitutionality of statutes requiring
expenditure of public moneys."."
Side note: RIGHT OF TAXPAYERS TO CONTEST CONSTITUTIONALITY OF A LEGISLATION. — The relation between the people of the
Philippines and its taxpayers, on the one hand, and the Republic of the Philippines, on the other, is not identical to that obtaining
between the people and taxpayers of the U.S. and its Federal Government. The rule recognizing the right of taxpayers to
assailed the constitutionality of a legislation appropriating local or state public funds - which has been upheld by the
Federal Supreme Court (Crampton v. Zabriskie, 101 U.S. 601) - has greater application in the Philippines than that adopted with
respect to acts of Congress of the United States appropriating federal funds.

11. Sison vs. Ancheta (No digest submitted; full text attached)

[G.R. No. L-59431. July 25, 1984.]

ANTERO M. SISON, JR., Petitioner, v. 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, Respondents.

Antero M. Sison for petitioner and for his own behalf.

The Solicitor General for Respondents.

SYLLABUS

1. CONSTITUTIONAL LAW; POWER OF THE STATE TO TAX; EXERCISE THEREOF NECESSARY FOR THE
PERFORMANCE OF ITS VITAL FUNCTIONS. — It is manifest that the field of state activity has assumed a
much wider scope. Hence the need for more revenues. 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. To
paraphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain
availability is of the essence. (Cf. Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199)

2. ID., ID.; ID.; POWER TO TAX NOT WITHOUT RESTRICTIONS. — The power to tax, to borrow from Justice
Malcolm, "is an attribute of sovereignty. It is the strongest of all the powers of government." (Sarasola v.
Trinidad, 40 Phil. 252, 262 [1919]) It is, of course, to be admitted that for all its plenitude, the power to tax
is not unconfined. There are restrictions. The Constitution sets forth such limits. .Adversely affecting as it
does property rights, both the due process and equal protection clauses may properly be invoked, as
petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, there would be
truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to destroy."
(McCulloch v. Maryland, 4 Wheaton 316)

3. ID.; ID.; SECTION 1 BATAS PAMBANSA BLG. 135; NOT A TRANSGRESSION OF THE DUE PROCESS IN
THE ABSENCE OF A SHOWING OF ARBITRARINESS. — Petitioner alleges arbitrariness. A mere allegation
does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner would condemn the provision as void on its face, he has not made out a case. This is merely to
adhere to the authoritative doctrine that where the due process and equal protection clauses are invoked,
considering that they are not fixed rules but rather broad standards, there is a need for proof of such
persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of validity
must prevail.

4. ID.; ID.; ID.; INEQUALITY RESULTING FROM THE CLASSIFICATION MADE, NOT A TRANSGRESSION OF
THE EQUAL PROTECTION CLAUSE AND THE RULE ON UNIFORMITY. — Classification, if rational in character,
is allowable. In a leading case, Lutz v. Araneta, 98 Phil. 143 (1955), the Court went so far as to hold "at any
rate, it is inherent in the power to tax that a state be free to select the subject of taxation, and it has been
repeatedly held that ‘inequalities which result from a singling out of one particular class for taxation, or
exemption infringe no constitutional limitation.’" Petitioner likewise invoked the kindred concept of
uniformity. According to the Constitution: "The rule of taxation shall be uniform and equitable." (Art. VIII,
Sec. 17, par. 1) This requirement is met according to Justice Laurel in Philippine Trust Company v: Yatco, 69
Phil. 420 (1940) when the tax "operates with the same force and effect in every place where the subject
may be found. The rule of uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable."cralaw virtua1aw library

5. ID.; ID., ID., AMPLE JUSTIFICATION EXISTS FOR THE ADOPTION OF THE GROSS SYSTEM OF INCOME
TAXATION TO COMPENSATION INCOME. — In the case of the gross income taxation embodied in Batas
Pambansa Blg. 135, the discernible basis of classification is the susceptibility of the income to the application
of generalized rules removing all deductible items for all taxpayers within the class and fixing a set of
reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to make
deductions for income tax purposes because they are in the same situation more or less. On the other hand,
in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the
costs or expenses necessary to produce their income. It would not be just then to disregard the disparities
by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis
of gross income. There is ample justification for the Batasang Pambansa 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.
 DECISION
FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or prohibition proceeding 1 on the
validity of Section 1 of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The
assailed provision 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. 2 Petitioner 3 as
taxpayer alleges that by virtue thereof, "he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are
imposed upon fixed income or salaried individual taxpayers." 4 He characterizes the above section as
arbitrary amounting to class legislation, oppressive and capricious in character. 5 For petitioner, therefore,
there is a transgression of both the equal protection and due process clauses 6 of the Constitution as well as
of the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file an answer within 10 days from
notice. Such an answer, after two extensions were granted the Office of the Solicitor General, was filed on
May 28, 1982. 8 The facts as alleged were admitted but not the allegations which to their mind are "mere
arguments, opinions or conclusions on the part of the petitioner, the truth [for them] being those stated [in
their] Special and Affirmative Defenses." 9 The answer then affirmed: "Batas Pambansa Blg. 135 is a valid
exercise of the State’s power to tax. The authorities and cases cited, while correctly quoted or paraphrased,
do not support petitioner’s stand." 10 The prayer is for the dismissal of the petition for lack of merit.

This Court finds such a plea more than justified. The petition must be dismissed.

1. It is manifest that the field of state activity has assumed a much wider scope. The reason was so clearly
set forth by retired Chief Justice Makalintal thus:
jgc:chanrobles.com.ph

"The areas which used to be left to private enterprise and initiative and which the government was called
upon to enter optionally, and only ‘because it was better equipped to administer for the public welfare than
is any private individual or group of individuals,’ continue to lose their well-defined boundaries and to be
absorbed within activities that the government must undertake in its sovereign capacity if it is to meet the
increasing social challenges of the times. "11 Hence the need for more revenues. 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. To paraphrase a recent decision, taxes being the lifeblood of the government,
their prompt and certain availability is of the essence. 12

2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of government." 13 It is, of course, to be admitted that for all its plenitude, the
power to tax is not unconfined. There are restrictions. The Constitution sets forth such limits. Adversely
affecting as it does property rights, both the due process and equal protection clauses may properly be
invoked, as petitioner does, to invalidate in appropriate cases a revenue measure. If it were otherwise, there
would be truth to the 1803 dictum of Chief Justice Marshall that "the power to tax involves the power to
destroy." 14 In a separate opinion in Graves v. New York, 15 Justice Frankfurter, after referring to it as an
"unfortunate remark," characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of
the times [allowing] a free use of absolutes." 16 This is merely to emphasize that it is not and there cannot
be such a constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun
from Marshall’s famous dictum was brushed away by one stroke of Mr. Justice Holmes’s pen: ‘The power to
tax is not the power to destroy while this Court sits.’" 17 So it is in the Philippines.

3. This Court then is left with no choice. The Constitution as the fundamental law overrides any legislative or
executive act that runs counter to it. In any case therefore where it can be demonstrated that the
challenged statutory provision — as petitioner here alleges — fails to abide by its command, then this Court
must so declared and adjudge it null. The inquiry thus is centered on the question of whether the imposition
of a higher tax rate on taxable net income derived from business or profession than on compensation is
constitutionally infirm.

4. The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere allegation, as here,
does not suffice. There must be a factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he has not made out a case. This is
merely to adhere to the authoritative doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a need for proof of
such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it
finds no support in the Constitution. An obvious example is where it can be shown to amount to the
confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say
that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the
application of the Holmes dictum. It has also been held that where the assailed tax measure is beyond the
jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the police power or the power of
eminent domain is to demonstrate "that the governmental act assailed, far from being inspired by the
attainment of the common weal was prompted by the spirit of hostility, or at the very least, discrimination
that finds to support in reason. It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same manner, the conditions not
being different, both in the privileges conferred and the liabilities imposed. Favoritism and undue preference
cannot be allowed. For the principle is that equal protection and security shall be given to every person
under circumstances, which if not identical are analogous. If law be looks upon in terms of burden or
charges, those that fall within a class should be treated in the same fashion, whatever restrictions cast on
some in the group equally binding on the rest." 20 That same formulation applies as well to taxation
measures. The equal protection clause is, of course, inspired by the noble concept of approximating the
ideal of the laws’s benefits being available to all and the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of the idea of law. There is, however, wisdom, as well as
realism, in these words of Justice Frankfurter: "The equality at which the ‘equal protection’ clause aims is
not a disembodied equality. The Fourteenth Amendment enjoins ‘the equal protection of the laws,’ and laws
are not abstract propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, addressed to the attainment of specific ends by the use of specific
remedies. The Constitution does not require things which are different in fact or opinion to be treated in law
as though they were the same." 21 Hence the constant reiteration of the view that classification if rational in
character is allowable. As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court, through
Justice J.B.L. Reyes, went so far as to hold "at any rate, it is inherent in the power to tax that a state be free
to select the subjects of taxation, and it has been repeatedly held that ‘inequalities which result from a
singling out of one particular class for taxation, or exemption infringe no constitutional limitation.’" 23

7. Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution: "The rule of
taxation shall be uniform and equitable." 24 This requirement is met according to Justice Laurel in Philippine
Trust Company v. Yatco, 25 decided in 1940, when the tax "operates with the same force and effect in every
place where the subject may be found." 26 He likewise added: "The rule of uniformity does not call for
perfect uniformity or perfect equality, because this is hardly attainable." 27 The problem of classification did
not present itself in that case. It did not arise until nine years later, when the Supreme Court held: "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, . . . 28 As clarified by Justice Tuason, where "the differentiation" complained of
"conforms to the practical dictates of justice and equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." 29 There is quite a similarity then to the standard of equal protection for
all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar
situation." 30

8. Further on this point. Apparently, what misled petitioner is his failure to take into consideration the
distinction between a tax rate and a tax base. There is no legal objection to a broader tax base or taxable
income by eliminating all deductible items and at the same time reducing the applicable tax rate. Taxpayers
may be classified into different categories. To repeat, it is enough that the classification must rest upon
substantial distinctions that make real differences. In the case of the gross income taxation embodied in
Batas Pambansa Blg. 135, the discernible basis of classification is the susceptibility of the income to the
application of generalized rules removing all deductible items for all taxpayers within the class and fixing a
set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income
are set apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to
make deductions for income tax purposes because they are in the same situation more or less. On the other
hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in
the costs or expenses necessary to produce their income. It would not be just then to disregard the
disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates
on the basis of gross income. There is ample justification then for the Batasang Pambansa 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.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1) lack of
factual foundation to show the arbitrary character of the assailed provision; 31 (2) the force of controlling
doctrines on due process, equal protection, and uniformity in taxation and (3) the reasonableness of the
distinction between compensation and taxable net income of professionals and businessmen certainly not a
suspect classification.

WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerrero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la Fuente and
Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

Aquino, J., concurs in the result. The petitioner has no cause of action for prohibition.

Plana, J., took no part.

Abad Santos, J., This is a frivolous suit. While the tax rates for compensation income are lower than those
for net income such circumstance does not necessarily result in lower tax payments for those receiving
compensation income. In fact, the reverse will most likely be the case; those who file returns on the basis of
net income will pay less taxes because they can claim all sorts of deductions justified or not. I vote for
dismissal.

12. 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

(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; and
3. Whether or not there was a violation of the due process and equal protection under Article III
Sec. 1 of the Constitution.

Rulings:

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.”

13. Planters Products Inc. v. Fertphil Corporation

G.R. No. 166006 March 14, 2008

FACTS:

Petitioner PPI and private respondent Fertiphil are private corporations

incorporated under Philippine laws. They are both engaged in the importation
and distribution of fertilizers, pesticides and agricultural chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative
powers, issued a Letter of Instruction (LOI) No. 1465 which provided, among
others, for the imposition of a capital recovery component (CRC) on the
domestic sale of all grades of fertilizers in the Philippines.
The LOI provides:

3. The Administrator of the Fertilizer Pesticide Authority to include in its

fertilizer pricing formula a capital contribution component of not less than
₱10 per bag. This capital contribution shall be collected until adequate
capital is raised to make PPI viable.

Pursuant to the LOI, Fertiphil paid ₱10 for every bag of fertilizer 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 ₱6,689,144 to FPA from July 8, 1985 to January 24, 1986.

After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the ₱10
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. It questioned the constitutionality of LOI No. 1465 for being unjust,
unreasonable, oppressive, invalid, and an unlawful imposition that amounted to
a denial of due process of law.

The RTC rendered judgment in favor of Fertiphil. Ruling that the imposition of the
₱10 CRC was an exercise of the State’s inherent power of taxation, the RTC
invalidated the levy for violating the basic principle that taxes can only be levied
for public purpose.

The CA affirmed with modification the ruling of the RTC.

PPI filed a petition for review on certiorari.

ISSUES:

1. WON Fertphil Corporation has locus standi;

2. WON the RTC can resolve on the constitutionality of LOI 1465;

3. WON LOI 1465 is a valid exercise on the power of taxation; and

4. WON Ferphil cannot cannot claim a refund under the doctrine of operative
fact.

RULINGS:

1. Yes, Fertphil Corporation has locus standi.

PPI asserts that Fertiphil did not suffer any damage from the CRC imposition
because "incidence of the levy fell on the ultimate consumer or the farmers
themselves, not on the seller fertilizer company."

In People v. Vera, it was held that a person who impugns the validity of a
statute must have "a personal and substantial interest in the case such that
he has sustained, or will sustain direct injury as a result." The "direct injury test"
in public suits is similar to the "real party in interest" rule for private suits under
Section 2, Rule 3 of the 1997 Rules of Civil Procedure.

Whether or not the complaint for collection is characterized as a private or

public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct injury
from the enforcement of LOI No. 1465. It was required, and it did pay, the ₱10
levy imposed for every bag of fertilizer sold on the domestic market. It may be
true that Fertiphil has passed some or all of the levy to the ultimate consumer,
but that does not disqualify it from attacking the constitutionality of the LOI or
from seeking a refund. As seller, it bore the ultimate burden of paying the
levy. It faced the possibility of severe sanctions for failure to pay the levy. The
fact of payment is sufficient injury to Fertiphil.

Moreover, Fertiphil suffered harm from the enforcement of the LOI because it
was compelled to factor in its product the levy. The levy certainly rendered
the fertilizer products of Fertiphil and other domestic sellers much more
expensive. The harm to their business consists not only in fewer clients
because of the increased price, but also in adopting alternative corporate
strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer
sellers may have shouldered all or part of the levy just to be competitive in
the market. The harm occasioned on the business of Fertiphil is sufficient injury
for purposes of locus standi.

Even assuming arguendo that there is no direct injury, the liberal policy
consistently adopted by this Court on locus standi must apply. The issues
raised by Fertiphil are of paramount public importance. It involves not only
the constitutionality of a tax law but, more importantly, the use of taxes for
 public purpose. Former President Marcos issued LOI No. 1465 with the
intention of rehabilitating an ailing private company. This is clear from the text
of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the
levy. Worse, the levy was made dependent and conditional upon PPI
becoming financially viable. The LOI provided that "the capital contribution
shall be collected until adequate capital is raised to make PPI viable."

2. Yes, the RTC can resolve on the constitutionality of LOI 1465.

Section 5, Article VIII of the 1987 Constitution provides that the Supreme Court
shall have the following powers:

2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the

law or the Rules of Court may provide, final judgments and orders of lower
courts in:

(a) All cases in which the constitutionality or validity of any treaty,

international or executive agreement, law, presidential decree,
proclamation, order, instruction, ordinance, or regulation is in
question.

3. No, LOI 1465 is not a valid exercise on the power of taxation.

PPI insists that LOI No. 1465 is a valid exercise either of the police power or the
power of taxation. It claims that the LOI was implemented for the purpose of
assuring the fertilizer supply and distribution in the country and for benefiting a
foundation created by law to hold in trust for millions of farmers their stock
ownership in PPI.

Police power and the power of taxation are inherent powers of the State.
These powers are distinct and have different tests for validity. Police power is
the power of the State to enact legislation that may interfere with personal
liberty or property in order to promote the general welfare, while the power of
taxation is the power to levy taxes to be used for public purpose. The main
purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The "lawful subjects" and "lawful means" tests
are used to determine the validity of a law enacted under the police power.
The power of taxation, on the other hand, is circumscribed by inherent and
constitutional limitations.
 The imposition of the levy was an exercise by the State of its taxation power.
While it is true that the power of taxation can be used as an implement of
police power, the primary purpose of the levy is revenue generation. If the
purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax.

A plain reading of the LOI also supports the conclusion that the levy was for
revenue generation. The LOI expressly provided that the levy was imposed
"until adequate capital is raised to make PPI viable."

Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional
because it was not for a public purpose. The levy was imposed to give undue
benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are

exacted only for a public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.46 The reason for this is
simple. The power to tax exists for the general welfare; hence, implicit in its
power is the limitation that it should be used only for a public purpose. It
would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose.

Even if We consider LOI No. 1695 enacted under the police power of the
State, it would still be invalid for failing to comply with the test of "lawful
subjects" and "lawful means." Jurisprudence states the test as follows: (1) the
interest of the public generally, as distinguished from those of particular class,
requires its exercise; and (2) the means employed are reasonably necessary
for the accomplishment of the purpose and not unduly oppressive upon
individuals.

4. Yes, Fertphil can claim the refund because the Doctrine of operative fact is
not applicable.

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.
The general rule is supported by Article 7 of the Civil Code, which provides:

ART. 7. Laws are repealed only by subsequent ones, and their violation or
 non-observance shall not be excused by disuse or custom or practice to the
contrary.

When the courts declare a law to be inconsistent with the Constitution, the
former shall be void and the latter shall govern.

The doctrine of operative fact, as an exception to the general rule, only applies
as a matter of equity and fair play. It nullifies the effects of an unconstitutional
law by recognizing that the existence of a statute prior to a determination of
unconstitutionality is an operative fact and may have consequences which
cannot always be ignored. The past cannot always be erased by a new judicial
declaration.

The doctrine is applicable when a declaration of unconstitutionality will impose

an undue burden on those who have relied on the invalid law. Thus, it was
applied to a criminal case when a declaration of unconstitutionality would put
the accused in double jeopardy or would put in limbo the acts done by a
municipality in reliance upon a law creating it.

Here, We do not find anything iniquitous in ordering PPI to refund the amounts
paid by Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was
proven during the trial that the levies paid were remitted and deposited to its
bank account. 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. Article 22
of the Civil Code explicitly provides that "every person who, through an act of
performance by another comes into possession of something at the expense of
the latter without just or legal ground shall return the same to him." We cannot
allow PPI to profit from an unconstitutional law. Justice and equity dictate that
PPI must refund the amounts paid by Fertiphil.

14. Mactan Int’l Airport vs. Lapu-lapu City, G.R. No. 181756

Facts

Petitioner, Mactan-Cebu International Airport Authority (MCIAA) was created by Congress under
Republic Act No. 6958. Upon its creation, petitioner enjoyed exemption from realty taxes
imposed by the National Government or any of its political subdivision. However, upon the
effectivity of the LGC the Supreme Court rendered a decision that the petitioner is no longer
exempt from realty estate taxes.

Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots
comprising the Mactan International Airport which included the airfield, runway, taxi way and the
lots on which these are built. Petitioner contends that these lots, and the lots to which they are
built, are utilized solely and exclusively for public purposes and are exempt from real property
tax. Petitioner based its claim for exemption on DOJ Opinion No. 50.
Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner filed a
petition for Prohibition, TRO, and a writ of preliminary injunction with RTC Lapulapu which sought
to enjoin respondent City from issuing the warrant of levy against petitioner’s properties from
selling them at public auction for delinquency in realty tax obligations.

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any
ordinance authorizing the collection of real property tax, a tax for the special education fund
(SEF), and a penalty interest for its nonpayment. Petitioner argued that without the corresponding
tax ordinances, respondent City could not impose and collect real property tax, an additional tax
for the SEF, and penalty interest from petitioner.

RTC granted the writ of preliminary which was later on lifted upon motion by the respondents.

Ruling of the CA:

CA refused to use the 2006 MIAA Court decision, and instead used the 1996 MCIAA decision.

Court of Appeals held that petitioner’s airport terminal building, airfield, runway, taxiway, and the
lots on which they are situated are not exempt from real estate tax reasoning as follows: Under
the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate of
local autonomy, all natural and juridical persons, including government-owned or controlled
corporations (GOCCs), instrumentalities and agencies, are no longer exempt from local taxes
even if previously granted an exemption. The only exemptions from local taxes are those
specifically provided under the Code itself, or those enacted through subsequent legislation.

Issues:

WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT FROM

PAYING REAL PROPERTY TAXES

WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY, TAXIWAY

INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT FROM REALTY
TAXES

Ruling: The petition has merit.

The petitioner is an instrumentality of the government; thus, its properties actually, solely and
exclusively used for public purposes, consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated, are not subject to real property tax and
respondent City is not justified in collecting taxes from petitioner over said properties.

The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and
that petitioner is a GOCC. The 2006 MIAA case governs.

In 2006, the Court en banc decided a case that in effect reversed the 1996 Mactan ruling. The
2006 MIAA case had, since the promulgation of the questioned Decision and Resolution, reached
finality and had in fact been either affirmed or cited in numerous cases by the Court. The 2006
MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by a
Division.

In the 2006 MIAA case, we held that MIAA’s airport lands and buildings are exempt from real
estate tax imposed by local governments; that it is not a GOCC but an instrumentality of the
national government, with its real properties being owned by the Republic of the Philippines, and
these are exempt from real estate tax.
 The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also mentioned
several other government instrumentalities, among which was the Philippine Fisheries
Development Authority.

Philippine Ports Authority (PPA), the GSIS was also a government instrumentality. Petitioner
MCIAA is vested with corporate powers but it is not a stock or non-stock corporation, which is a
necessary condition before an agency or instrumentality is deemed a government-owned or
controlled corporation. Petitioner MCIAA has capital under its charter but it is not divided into
shares of stock. It also has no stockholders or voting shares.

The airport lands and buildings of MCIAA are properties of public dominion because they are
intended for public use. As properties of public dominion, they indisputably belong to the State or
the Republic of the Philippines, and are outside the commerce of man unless petitioner leases its
real property to a taxable person, the specific property leased becomes subject to real property
tax; only those portions of petitioner’s properties which are leased to taxable persons like private
parties are subject to real property tax by the City of Lapu-Lapu.

15. Tolentino v. Secretary of Finance 235 SCRA 630 August 25, 1994

Facts:

On May 5, 1994, The President signed a bill which later became R.A. 7716.The law gives
rise to the value-added tax (VAT) which is levied on the sale, barter or exchange of goods
and properties as well as on the sale or exchange of services. It is equivalent to 10% of the
gross selling price or gross value in money of goods or properties sold, bartered or
exchanged or of the gross receipts from the sale or exchange of services. Republic Act No.
7716 seeks to widen the tax base of the existing VAT system and enhance its administration
by amending the National Internal Revenue Code. Because of that, petitioners challenged
the constitutionality of Republic Act No. 7716.

Later on, Republic Act No. 7716 amended Sec. 103 by deleting this provision: (f) Printing,
publication, importation or sale of books and any newspaper, magazine, review, or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is
devoted principally to the publication of advertisements. As a result print media became
subject to the VAT with respect to all aspects of their operations. Later, however, based on a
memorandum of the Secretary of Justice, respondent Secretary of Finance issued Revenue
Regulations exempting the "circulation income of print media pursuant to Sec. 4 Article III of
the 1987 Philippine Constitution guaranteeing against abridgment of freedom of the press,
among others." The exemption of "circulation income" has left income from advertisements
still subject to the VAT.

Hence the following petitions:

Petitioner's Contention:

 Petitioner's argued that VAT is regressive and that it violates the requirement that "The
rule of taxation shall be uniform and equitable. Congress shall evolve a progressive
system of taxation." It explained that "VAT payment by low-income households will be a
higher proportion of their incomes (and expenditures) than payments by higher-income
households. That is, the VAT will be regressive."
 Petitioners contend that as a result of the uniform 10% VAT, the tax on consumption
goods of those who are in the higher-income bracket, which before were taxed at a rate
 higher than 10%, has been reduced, while basic commodities, which before were taxed
at rates ranging from 3% to 5%, are now taxed at a higher rate.
 They argued that VAT is regressive in the sense that it will hit the "poor" and middle-
income group in society harder than it will the "rich
 Petitioners claim violations of their right under ART III, Sec. 4 & 5 as a result of the
enactment of the VAT law.
 PPI questions the law insofar as it has withdrawn the exemption previously granted to the
press under § 103 (f) of the NIRC. Although the exemption was subsequently restored by
administrative regulation with respect to the circulation income of newspapers, the PPI
presses its claim because of the possibility that the exemption may still be removed by
mere revocation of the regulation of the Secretary of Finance
 PBS goes so far as to question the Secretary's power to grant exemption for two
reasons: (1) The Secretary of Finance has no power to grant tax exemption because this
is vested in Congress and requires for its exercise the vote of a majority of all its
members and (2) the Secretary's duty is to execute the law.
 It contends that by withdrawing the exemption previously granted to print media
transactions involving printing, publication, importation or sale of newspapers, Republic
Act No. 7716 has singled out the press for discriminatory treatment and that within the
class of mass media the law discriminates against print media by giving broadcast media
favored treatment.

Respondent's Contention:

 Respondents' explained that the law distributes the tax burden to as many goods and
services as possible particularly to those which are within the reach of higher-income
groups, even as the law exempts basic goods and services.
 The goods and properties subject to the VAT are those used or consumed by higher-
income groups. These include real properties held primarily for sale to customers or held
for lease in the ordinary course of business, the right or privilege to use industrial,
commercial or scientific equipment, hotels, restaurants and similar places, tourist buses,
and the like. On the other hand, small business establishments, with annual gross sales
of less than P500,000, are exempted. This, according to respondents, removes from the
coverage of the law some 30,000 business establishments. On the other hand, an
occasional paper of the Center for Research and Communication cities a NEDA study
that the VAT has minimal impact on inflation and income distribution and that while
additional expenditure for the lowest income class is only P301 or 1.49% a year, that for
a family earning P500,000 a year or more is P8,340 or 2.2%

Issues:
(a) Whether or not the law violates the provision on the Constitution specifically Art VI, Sec.
28 which states that "the rule of taxation shall be uniform and equitable. The Congress shall
evolve a progressive system of taxation.
(b) Whether or not the law violates petitioner's right under ART III, Sec. 4 & 5 as a result of
the enactment of the VAT law.

Ruling:
(a) There is, however, no justification for passing upon the claims that the law also violates
the rule that taxation must be progressive and that it denies petitioners' right to due process
and that equal protection of the laws. The reason for this different treatment has been
 cogently stated by an eminent authority on constitutional law thus: "[W]hen freedom of the
mind is imperiled by law, it is freedom that commands a momentum of respect; when
property is imperiled it is the lawmakers' judgment that commands respect. This dual
standard may not precisely reverse the presumption of constitutionality in civil liberties cases,
but obviously it does set up a hierarchy of values within the due process clause.”
(b) The SC is unable to find a differential treatment of the press by the law, much less any
censorial motivation for its enactment. If the press is now required to pay a value-added tax
on its transactions, it is not because it is being singled out, much less targeted, for special
treatment but only because of the removal of the exemption previously granted to it by law.
The law would perhaps be open to the charge of discriminatory treatment if the only privilege
withdrawn had been that granted to the press. But that is not the case.
In the cases at bar, the statute applies to a wide range of goods and services. The argument
that, by imposing the VAT only on print media whose gross sales exceeds P480,000 but not
more than P750,000, the law discriminates is without merit since it has not been shown that
as a result the class subject to tax has been unreasonably narrowed. The fact is that this
limitation does not apply to the press along but to all sales. Nor is impermissible motive
shown by the fact that print media and broadcast media are treated differently. The press is
taxed on its transactions involving printing and publication, which are different from the
transactions of broadcast media. There is thus a reasonable basis for the classification.

16. Tolentino vs. Secretary of Finance G.R. No. 115455 October 30, 1995

FACTS:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the
Expanded Value-Added Tax Law. Now it is contended by the Philippine Press Institute (PPI) that
by removing the exemption of the press from the VAT while maintaining those granted to others,
the law discriminates against the press. At any rate, it is averred, “even nondiscriminatory
taxation of constitutionally guaranteed freedom is unconstitutional.”

ISSUE:

Is sales tax on bible sales violative of religious and press freedom?

RULING:

No. The Court was speaking in that case 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. Hence, although its application to others, such those selling goods, is
valid, its application to the press or to religious groups, such as the Jehovah’s Witnesses, in
connection with the latter’s sale of religious books and pamphlets, is unconstitutional. As the U.S.
Supreme Court put it, “it is one thing to impose a tax on income or property of a preacher. It is
quite another thing to exact a tax on him for delivering a sermon.”
The VAT is, however, different. It 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.