1.

Taxation definition The reason is that the State has exclusively reserved the same for its
own prerogative. Moreover, double taxation, in general, is not
2. Power to tax is inherent in nature forbidden by our fundamental law unlike in other jurisdictions.
a. Pepsi Cola vs Municipality of Tanauan Double taxation becomes obnoxious only where the taxpayer is
taxed twice for the benefit of the same governmental entity or by
Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. the same jurisdiction for the same purpose, but not in a case
In September 1962, the Municipality approved Ordinance No. 23 where one tax is imposed by the State and the other by the city or
which levies and collects “from soft drinks producers and municipality.
manufacturers a tax of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked.” 3. Power to tax is the most powerful among the 3 inherent powers
of the State
In December 1962, the Municipality also approved Ordinance No. 27 a. Tio vs Videogram Regulatory Board
which levies and collects “on soft drinks produced or manufactured
within the territorial jurisdiction of this municipality a tax of one FACTS:
centavo () on each gallon of volume capacity.” On September 1, 1986, Petitioner Valentin Tio, a videogram operator,
assailed the constitutionality of Presidential Decree No. 1987 entitled
Pepsi Cola assailed the validity of the ordinances as it alleged that "An Act Creating the Videogram Regulatory Board" with broad
they constitute double taxation in two instances: a) double taxation powers to regulate and supervise the videogram industry.
because Ordinance No. 27 covers the same subject matter and impose
practically the same tax rate as with Ordinance No. 23, b) double On November 5, 1985, a month after the promulgation of the
taxation because the two ordinances impose percentage or specific abovementioned decree, Presidential Decree No. 1994 amended the
taxes. National Internal Revenue Code providing, inter alia: SEC. 134.
Video Tapes. — There shall be collected on each processed video-
Pepsi Cola also questions the constitutionality of Republic Act 2264 tape cassette, ready for playback, regardless of length, an annual tax
which allows for the delegation of taxing powers to local government of five pesos; Provided, that locally manufactured or imported
units; that allowing local governments to tax companies like Pepsi blank video tapes shall be subject to sales tax.
Cola is confiscatory and oppressive.
Petitioner, Valentin Tio is a videogram operator, attacks the
The Municipality assailed the arguments presented by Pepsi Cola. It constitutionality of the decree on the ground that the tax imposed is
argued, among others, that only Ordinance No. 27 is being enforced harsh, confiscatory, oppressive and/or in unlawful restraint of
and that the latter law is an amendment of Ordinance No. 23, hence trade in violation of the due process clause of the Constitution.
there is no double taxation.
Issue: Whether or not the said taxation law is valid.
ISSUE:
Whether or not there is undue delegation of taxing powers. Ruling:
Whether or not there is double taxation. Yes, it is valid. it is beyond serious question that a tax does not
cease to be valid merely because it regulates, discourages, or even
HELD: definitely deters the activities taxed. 8 The power to impose taxes is
1. No. There is no undue delegation. The Constitution even allows one so unlimited in force and so searching in extent, that the courts
such delegation. scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority
Legislative powers may be delegated to local governments in which exercises it. “
respect of matters of local concern. By necessary implication, the
legislative power to create political corporations for purposes of The power to impose taxes is one so unlimited in force and so
local self-government carries with it the power to confer on such searching in extent, that the courts scarcely venture to declare that
local governmental agencies the power to tax. 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
Under the New Constitution, local governments are granted the legislature acts upon its constituents. This is, in general, a sufficient
autonomous authority to create their own sources of revenue and security against erroneous and oppressive taxation.
to levy taxes.
Section 5, Article XI provides: “Each local government The tax imposed by the DECREE is not only a regulatory but
unit shall have the power to create its sources of revenue also a revenue measure prompted by the realization that earnings
and to levy taxes, subject to such limitations as may be of videogram establishments of around P600 million per annum
provided by law.” have not been subjected to tax, thereby depriving the
Government of an additional source of revenue. It is an end-user
Withal, it cannot be said that Section 2 of Republic Act No. 2264 tax, imposed on retailers for every videogram they make available for
emanated from beyond the sphere of the legislative power to enact public viewing. The public purpose of a tax may legally exist even if
and vest in local governments the power of local taxation. the motive which impelled the legislature to impose the tax was to
favor one industry over another.
2. NO. There is no double taxation. The argument of the
Municipality is well taken. Further, Pepsi Cola’s assertion that the It is inherent in the power to tax that a state be free to select the
delegation of taxing power in itself constitutes double taxation cannot subjects of taxation, and it has been repeatedly held that "inequities
be merited. which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". Taxation has been
It must be observed that the delegating authority specifies the made the implement of the state's police power.
limitations and enumerates the taxes over which local taxation may
not be exercised.
4. Marshall Doctrine vs Holmes Doctrine - Is the Power to Tax
the Power to Destroy?
 MARSHALL DOCTRINE: Justice Malcolm believed that the Petitioner, just like any concern organized for a lawful economic
power to tax "is an attribute of sovereignty. It is the strongest of all activity, has a right to maintain a legitimate business.” “The power of
the powers of government." This led Chief Justice Marshall of the taxation is sometimes called also the power to destroy. Therefore it
U.S. Supreme Court, in the celebrated case of McCulloch v. should be exercised with caution to minimize injury to the
Maryland, to declare: "The power to tax involves the power to proprietary rights of a taxpayer. It must be exercised fairly, equally
destroy." This might well be construed to mean that the power to tax and uniformly, lest the tax collector kill the "hen that lays the
includes the power to regulate even to the extent of prohibition or golden egg."
destruction, since the inherent power to tax vested in the
legislature includes the power to determine who to tax, what to 6. Lifeblood Theory
tax and how much tax is to be imposed. a. Republic vs Caguioa

This dictum was to be refuted later by Justice Holmes. 7. Power to tax is legislative in nature
a. Pepsi Cola vs Municipality of Tanauan
HOLMES DOCTRINE: Justice Holmes pronounced that "the
power to tax does not include the power to destroy as long as this 8. Power to Tax vs Police Power
Court sits." a. Republic vs Murcia

Both statements may be regarded as correct, but from different b. Gerochi vs Dept. of Energy
viewpoints. The power to tax may include the power to destroy if it is DOCTRINE:
used validly as an implement of the police power in discouraging and :The power to tax is an incident of sovereignty and is
in effect ultimately prohibiting certain things or enterprises inimical unlimited in its range, acknowledging in its very nature no limits, so
to the public welfare. Thus, if massage parlors are found to be mere that security against its abuse is to be found onlyin the responsibility
fronts for prostitution, they may be subjected to such onerous taxes as of the legislature which imposes the taxon the constituency that is to
to practically force them to stop operating. pay it.

A similar imposition, for the same purpose, may be levied upon non- The principle of separation of powers ordains that each of the three
useful businesses or things, like pool halls, slot machines, or idle branches of government has exclusive cognizance of and is
lands. supreme in matters falling within its own constitutionally
allocated sphere”
But where the power to tax is used solely for the purpose of raising
revenues, the modern view is that it cannot be allowed to FACTS:
confiscate or destroy. If this is sought to be done, the tax may be On June 8, 2001 Congress enacted RA 9136 or the Electric Power
successfully attacked as an inordi nate and unconstitutional exercise Industry Act of 2001. Petitioners Romeo P. Gerochi and company
of the discretion that is usually vested exclusively in the legislature in assail the validity of Section 34 of the EPIRA Law for being an
ascertain ing the amount of the tax. undue delegation of the power of taxation.

Section 34 provides for the imposition of a “Universal Charge” to all

5. Golden Egg Principle - The power of taxation is sometimes electricity end users after a period of (1) one year after the effectively
called also the power to destroy. Therefore it should be exercised of the EPIRA Law.
with caution to minimize injury to the proprietary rights of a SECTION 34. Universal Charge. — Within one (1)
taxpayer. It must be exercised fairly, equally and uniformly, lest the yearfrom the effectivity of this Act, a universal charge to
tax collector kill the "hen that lays the golden egg." bedetermined, fixed and approved by the ERC, shall be
imposed on all electricity end-users for the
following purposes:
a. Philippine Healthcare vs Commissioner (a) Payment for the stranded debts in excess of theamount
ISSUE: imposition of Documentary Stamp Taxes (DST). assumed by the National Government andstranded
contract costs of NPC and as well asqualified
When the SC 1st decided the case, it said that the PhilHealth should stranded contract costs of distributionutilities
pay the tax imposed. The PhilHealth filed a Motion for resulting from the restructuring of theindustry;(b)
Reconsideration. Missionary electrification; (c) The equalization of the taxes
and royalties appliedto indigenous or renewable sources of
The SC granted the MR. Naawa sya sa PhilHealth. For the reason energy vis-à-vis imported energy fuels;(d) An
that, the deficiency assessment is around 300M, it assets is only environmental charge equivalent to one-fourthof one
259M. centavo per kilowatt-hour (P0.0025/kWh),which shall
accrue to an environmental fund to beused solely for
“As a general rule, the power to tax is an incident of sovereignty and watershed rehabilitation andmanagement. Said fund
is unlimited in its range, acknowledging in its very nature no limits, shall be managed by NPCunder existing arrangements;
so that security against its abuse is to be found only in the and(e) A charge to account for all forms of cross-
responsibility of the legislature which imposes the tax on the subsidiesfor a period not exceeding three (3) years
constituency who is to pay it. So potent indeed is the power that it
was once opined that "the power to tax involves the power to The universal charge to be collected would serve as payment for
destroy." government debts, missionary electrification, equalization of taxes
and royalties applied to renewable energy and imported energy,
But: “Given the realities on the ground, imposing the DST on environmental charge and for a charge to account for all forms of
petitioner would be highly oppressive. It is not the purpose of the cross subsidies for a period not exceeding three years. The universal
government to throttle private business. On the contrary, the charge shall be collected by the ERC on a monthly basis from all end
government ought to encourage private enterprise. users and will then be managed by the PSALM Corp. through the
creation of a special trust fund.
Petitioners assail the validity of Section 34 that imposes a monthly Such can be deduced from Sec. 34 which enumerates the purposes
“Universal Charge” to all electricity end users that would serve as for which the Universal Charge is imposed and which can be amply
payment for government debts, equalization of taxes, and, discerned as regulatory in character. The EPIRA resonates such
environmental charge, among others, for being an undue regulatory purposes (Sec. 2). From the purposes, it can be gleaned
delegation of the power of taxation that the assailed Universal Charge is not a tax, but an exaction in
the exercise of the State's police power. Public welfare is surely
Petitioners' arguments: promoted.
 The power to tax is strictly a legislative function and as
such, the delegation of said power to any executive or The Court ruled that evidently, the establishment and maintenance of
administrative agency like the ERC is unconstitutional, the Special Trust Fund, under the last paragraph of Section 34, R.A.
giving the same unlimited authority. No.9136, is well within the pervasive and non-waivable
 ERC is also empowered to approve and determine where power and responsibility of the government to secure the physical
the funds collected should be used. and economic survival and well-being of the community, that
 Imposition of the Universal Charge on all end-users is comprehensive sovereign authority we designate as the police
oppressive and confiscatory and amounts to taxation power of theState.”2. SC: “The STF reasonably serves and
without representation as the consumers were not given a assures the attainment and perpetuity of the purposes for
chance to be heard and represented. whichthe Universal Charge is imposed, i.e., to ensure the
viability of the country's electric power industry.

Respondents' counter-arguments: 2. No, the universal charge as provided for in section 34 is not a
 PSALM contends that unlike a tax, the assailed Universal tax but an exaction of the regulatory power (police power) of the
Charge is levied for a specific regulatory purpose, which is state.
to ensure the viability of the country's electric power
industry. The universal charge under section 34 is incidental to the regulatory
 Thus, it is exacted by the State in the exercise of its duties of the ERC, hence the provision assailed is not for generation
inherent police power. of revenue and therefore it cannot be considered as tax, but an
 There is no undue delegation of legislative power to the execution of the states police power thru regulation.
ERC since the latter merely exercises a limited authority or
discretion as to the execution and implementation of the Moreover, the amount collected is not made certain by the ERC,
provisions of the EPIRA. but by the legislative parameters provided for in the law (RA
9136) itself, it therefore cannot be understood as a rule solely
ISSUE: coming from the ERC.
Whether or not the Universal Charge imposed under Sec. 34
of the EPIRA is a tax The ERC in this case is only a specialized administrative agency
Whether or not there is an undue delegation of the power to tax on which is tasked of executing a subordinate legislation issued by
the part of the ERC congress; which before execution must pass both the completeness
test and the sufficiency of standard test. The court in appreciating
HELD: Section 34 of RA 9136 in its entirety finds the said law and the
1. No. To resolve the first issue, it is necessary to distinguish the assailed portions free from any constitutional defect and thus deemed
State's power of taxation from the police power. complete and sufficient in form.
Xxxx
Power to tax is an incident of sovereignty and is unlimited in its TEST:
range, acknowledging in its very nature no limits, so that security Under the first test, the law must be complete in all its terms
against its abuse is to be found only in the responsibility of the and conditions when it leaves the legislature such that
legislature which imposes the tax on the constituency that is to pay when it reaches the delegate, the only thinghe will have to do
it. It is based on the principle that taxes are the lifeblood of the is to enforce it.
government, and their prompt and certain availability is an
imperious need. The second test mandates adequate guidelines or limitations in
the lawto determine the boundaries of the delegate's
Police power is the power of the state to promote public welfare by authorityand prevent the delegation from running riot.”
restraining and regulating the use of liberty and property. It is the
most pervasive, the least limitable, and the most demanding of the “Thus, the law is complete and passes the first testfor valid
three fundamental powers of the State. As an inherent attribute of delegation of legislative power.”
sovereignty which virtually extends to all public needs, police power
grants a wide panoply of instruments through which the State, as “As to the second test, this Court had, in the past,accepted as
parens patriae, gives effect to a host of its regulatory powers sufficient standards the following: "interest of law and order;"
"adequate and efficient instruction;""public interest;"
The conservative and pivotal distinction between these two powers "justice and equity;" "public convenience and welfare;"
rests in the purpose for which the charge is made. If generation of "simplicity, economy andefficiency;" "standardization and
revenue is the primary purpose and regulation is merely incidental, regulation of medicaleducation;" and "fair and equitable
the imposition is a tax; but if regulation is the primary purpose, the employmentpractices."
fact that revenue is incidentally raised does not make the imposition Provisions of the EPIRA such as, amongothers, "to ensure
a tax. the total electrification of the countryand the quality, reliability,
security and affordability ofthe supply of electric power"
In exacting the assailed Universal Charge through Sec. 34 of the and "watershedrehabilitation and management" meet
EPIRA, the State's police power, particularly its regulatory therequirements for valid delegation, as they provide
dimension, is invoked. thelimitations on the ERC's power to formulate the
IRR.These are sufficient standards.4. SC: “Finally, every law has
in its favor the presumptionof constitutionality, and to justify its
nullification, theremust be a clear and unequivocal breach now or in the future, including but not limited to the
of theConstitution and not one that is doubtful, speculative,or following:
argumentative. Indubitably, petitioners failed toovercome xxx xxx xxx
this presumption in favor of the EPIRA. Wefind no clear (5) All taxes, fees and other charges on the registration,
violation of the Constitution which wouldwarrant a license, acquisition, and transfer of airtransport equipment,
pronouncement that Sec. 34 of the EPIRA andRule 18 of its IRR motor vehicles, and all other personal or real property of
are unconstitutional and void. the gravitates

c. PAL vs Edu PAL's current franchise is clear and specific. It has removed the
Doctrine: Originally vehicle registration fees were exactions ambiguity found in the earlier law. PAL is now exempt from the
intended for regulatory purposes, but over the years, as vehicular payment of any tax, fee, or other charge on the registration and
traffic exploded in number and motor vehicles became a necessity, licensing of motor vehicles. Such payments are already included in
the Congress found the registration of vehicles as a convenient way the basic tax or franchise tax provided in Subsections (a) and (b) of
of raising revenue. Hence, the nature of registration payment as Section 13, P.D. 1590, and may no longer be exacted.
“fees” has become that of “taxes”
d. Chevron PH vs Bases Conversion Devt Authority & Clark Devt
FACTS: Corp
The Philippine Airlines filed a complaint for refund of registration e. City of Cagayan de Oro vs Cagayan Electric Power & Light Co.,
fees paid under protest, arguing that under Act No. 4271 as amended, Inc., GR 224825 (2018)
provides that the grantee of a franchise shall pay the national f. Municipality of San Mateo, Isabela vs Smart Communications Inc.,
government a tax of 2% of the gross revenue or gross earning derived GR 219506 (2021)
from its operations. Such tax is in lieu of all taxes of any kind, nature 9. Power to Tax vs Power of Eminent Domain – Senior Citizen’s
or description. Discount
a. CIR vs Central Luzon
Hence, PAL is arguing that is it exempted from payment of taxes b. Manila Memorial vs Sec of DSWD
under its franchise. It also invokes the ruling in Calalang v. Lorenzo c. Southern Luzon Drug vs DSWD, 824 SCRA 164 (2017)
where it was held that motor vehicle registration fees are actually
taxes, so PAL is exempt by virtue of its legislative franchise. 10.Power to Tax vs Police Power vs Power of Eminent Domain
However, appellee Romeo Edu in his capacity as Land
Transportation Commissioner argued that the Supreme Court held in
the case of Republic v. Philippine Rabbit Bus Lines, motor vehicle
registration fees are regulatory exactions and not revenue measure.
Hence, it is not included within the exemption granted to PAL under
its franchise

Issue of the case:

Whether or not motor vehicle registration fees are in the nature of
taxes or regulatory fees
WON respondent administrative agency be required to refund the
amounts stated in the complaint of PAL

RULING:
1. YES. The Supreme Court held that motor vehicle registration fees
are actually taxes intended for additional revenues of the government.

The court explained that if the purpose of exaction is primarily

revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called as tax. Originally
vehicle registration fees were exactions intended for regulatory
purposes, but over the years, as vehicular traffic exploded in number
and motor vehicles became a necessity, the Congress found the
registration of vehicles as a convenient way of raising revenue.
Hence, the nature of registration payment as “fees” has become that
of “taxes”.

2. NO. Any registration fees collected between June 27, 1968 and
April 9, 1979, were correctly imposed because the tax exemption in
the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979.

Section 13 of Presidential Decree No. 1590

The tax paid by the grantee under either of the above
alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license and other fees and charges
of any kind, nature or description imposed, levied,
established, assessed, or collected by any municipal, city,
provincial, or national authority or government, agency,
 2ND MEETING (2-8) MERALCO argues is violative of the non-impairment clause of the
11.GENERAL RULE: Power To Tax Cannot Be Delegated; Constitution and a previous decree granting tax exemptions to electric
 The power to tax is exclusively vested in the legislative body companies. The Supreme Court dismisses the petition, ruling that
franchise tax exemptions are not strictly contractual in nature and can be
and cannot be delegated to other branches of the
subject to amendment or repeal by Congress.
government. (Pepsi Col V. Municipality of Tanuan)
Facts:
EXCPTN: Certain municipalities of the Province of Laguna by virtue of
1. Delegation to the LGU existing laws then in effect, issued resolutions through their
2. Delegation to the President respective municipal councils granting franchise in favor of
3. Delegation to the administrative agencies petitioner for the supply of electric light, heat and power within
4. Delegation to the people at large their concerned areas.
5. Emergency powers of the President
MERALCO was likewise granted a franchise by the National
How are tax laws passed? Electrification Administration to operate an electric light and
1. It is in the House of Representative and power service in the Municipality of Calamba, Laguna.
2. It is submitted to the Congress and the latter may make
amendments and propose its amendments and then Senate. In 1991, RA 7160, otherwise known as the “Local Government
Code of 1991,” was enacted to take effect enjoining local
Scope of the legislative power to tax (PSAA-M) government units to create their own sources of revenue and
1. Discretion as to purposes for which taxes shall be levied to levy taxes, fees and charges, subject to the limitations
2. Discretion as to subjects of taxation expressed therein, consistent with the basic policy of local
3. Discretion as to amount or rate of tax autonomy.
4. Discretion as to the manner, means and agencies of
collection of taxes Pursuant to the provisions of the Code, respondent enacted an
5. Place or Situs of Taxation. Ordinance imposing a tax on businesses enjoying a franchise
(Franchise Tax .5%).
12.EXCEPTIONS:
1. Delegation to LGUs Respondent Provincial Treasurer sent a demand letter to
SEC 5 ARTICLE 10, CONSTITUTION: MERALCO for the corresponding tax payment. Petitioner paid the
Each local government unit shall have the power to create its own tax under protest.
sources of revenue, fees, charges, subject to such guidelines and
limitations as the Congress may provide consistent with the basic Petitioner filed a formal claim for refund to the Provincial
policy of local autonomy. Such taxes, fees and other charges shall Treasurer claiming that the franchise tax it had paid and
accrue exclusively to the local government. continued to pay to the National Government pursuant to P.D.
551 already included the franchise tax imposed by the
what is the nature of the LGU’s power to tax? Provincial Tax Ordinance.
 LGU has no inherent power to tax. ARGUEMENTABLE IF
DELEGATED OR DIRECT GRANT ,The claim for refund of petitioner was denied based from RA
7160 which is a more recent law that PS 551.
A. MANILA ELECTRIC CORPORATION V. PROVINCE OF
LAGUNA, 1999 Petitioner filed with the RTC a complaint for refund, with a prayer
DOCTRINE: The explicit language of section 137 which authorizes the for the issuance of a writ of preliminary injunction and/or TRO,
province to impose franchise tax ‘notwithstanding any exemption granted against the Respondent.
by any law or other special law’ is all-encompassing and clear. The
franchise tax is imposable despite any exemption enjoyed under special
laws. RTC: Denied claim for refund and upheld the validity of Laguna
Provincial Tax Ordinance.
The local governments do not have the inherent power to tax except to the
extent that such power might be delegated to them either by the basic law PETITIONER’S CONTENTION:
or by statute Cited several jurisprudence, where court ruled that the phrase “in
lieu of all taxes and assessments of whatever nature imposed by
CONTRACTUAL EXEMPTIONS V. FRANCHISE GRANTS any national or local authority on earnings, receipts, income and
Contractual tax exemptions, in the real sense of the term and where the
privilege of generation, distribution and sale of electric current.”
non-impairment clause of the Constitution can rightly be invoked, are
those agreed to by the taxing authority in contracts, such as those Is interepreted as an EXEMPTION.
contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its Issue:
PRIVATE CAPACITY, sheds its cloak of authority and waives its 1. Whether Republic Act No. 7160, otherwise known Local
governmental immunity. Truly, tax exemptions of this kind may not be Government Code of 1991, has repealed, amended or
revoked without impairing the obligations of contracts. modified Presidential Decree No. 551
2. Whether the imposition of a franchise tax under Provincial
These contractual tax exemptions, however, are not to be confused with
Ordinance authorized by RA 7160, otherwise known Local
tax exemptions granted under franchises.
A franchise partakes the nature of a GRANT which is beyond the purview Government Code of 1991, insofar as petitioner is concerned,
of the non-impairment clause of the Constitution. Indeed, Article XII, is violative of the non-impairment clause of the Constitution.
Section 11,Constitution is explicit that no franchise for the operation of a
public utility shall be granted except under the condition that such HELD:
privilege shall be subject to amendment, alteration or repeal by Congress YES. The explicit language of section 137 which authorizes the
as and when the common good so requires province to impose franchise tax ‘notwithstanding any
exemption granted by any law or other special law’ is all-
SYNOPSIS: The case involves the imposition of a franchise tax on encompassing and clear. The franchise tax is imposable despite
Manila Electric Company (MERALCO) by the Province of Laguna, which any exemption enjoyed under special laws.
 of that power has been given in favor of local government units. Under the
The local governments do not have the inherent power to tax now
except to the extent that such power might be delegated to prevailing Constitution, where there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist although Congress may
them either by the basic law or by statute.
provide statutory limitations and guidelines.
Section 193 buttresses the withdrawal of extant tax exemption The basic rationale for the current rule is to safeguard the viability and
privileges. By stating that unless otherwise provided in this Code, self-sufficiency of local government units by directly granting them
tax exemptions or incentives granted to or presently enjoyed by all general and broad tax powers. Nevertheless, the fundamental law did not
persons, whether natural or juridical, including government-owned intend the delegation to be absolute and unconditional;
or controlled corporations except
1. local water districts, The constitutional objective obviously is to ensure that, while the local
government units are being strengthened and made more autonomous, the
2. cooperatives duly registered under R.A. 6938,
legislature must still see to it that
3. non-stock and non-profit hospitals and educational a) the taxpayer will not be over-burdened or saddled with
institutions, are withdrawn upon the effectivity of this multiple and unreasonable impositions;
code, the obvious import is to limit the exemptions to b) each local government unit will have its fair share of available
the three enumerated entities. resources;
c) the resources of the national government will not be unduly
It is a basic precept of statutory construction that the express disturbed; and
mention of one person, thing, act, or consequence excludes all d) local taxation will be fair, uniform, and just.
others as expressed in the familiar maxim expressio unius est
The Local Government Code of 1991 has incorporated and adopted, by
exclusio alterius. In the absence of any provision of the Code to and large, the provisions of the now repealed Local Tax Code. The Local
the contrary, and no other provision in point, any existing tax Government Code explicitly authorizes provincial governments,
exemption or incentive enjoyed by MERALCO under existing notwithstanding any exemption granted by any law or other special law,
law was clearly intended to be withdrawn. the province may impose a tax on businesses enjoying a franchise”

Reading together sections 137 and 193 of the LGC, we conclude Indicative of the legislative intent to carry out the Constitutional mandate
that under the LGC the local government unit may now impose a of vesting broad tax powers to local government units, the Local
Government Code has effectively withdrawn under Section 193 thereof,
local tax at a rate not exceeding 50% of 1% of the gross annual
tax exemptions or incentives theretofore enjoyed by certain entities.
receipts for the preceding calendar based on the incoming
receipts realized within its territorial jurisdiction. The legislative The Code, in addition, contains a general repealing which all general and
purpose to withdraw tax privileges enjoyed under existing law or special laws, acts, city charters, decrees, executive orders, proclamations
charter is clearly manifested by the language used on (sic) and administrative regulations, or part or parts thereof which are
Sections 137 and 193 categorically withdrawing such exemption inconsistent with any of the provisions of this Code are hereby repealed or
subject only to the exceptions enumerated. modified accordingly.

These policy considerations are consistent with the State policy to ensure
Since it would be not only tedious and impractical to attempt to
autonomy to local governments and the objective of the LGC that they
enumerate all the existing statutes providing for special tax enjoy genuine and meaningful local autonomy to enable them to attain
exemptions or privileges, the LGC provided for an express, albeit their fullest development as self-reliant communities and make them
general, withdrawal of such exemptions or privileges. No more effective partners in the attainment of national goals.
unequivocal language could have been used
The power to tax is the most effective instrument to raise needed revenues
2. NO. While the Court has, not too infrequently, referred to tax to finance and support myriad activities if local government units for the
exemptions contained in special franchises as being in the delivery of basic services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of the people.
nature of contracts and a part of the inducement for carrying on
the franchise, tax exemptions, nevertheless, are far from being It may also be relevant to recall that the original reasons for the
strictly contractual in nature. withdrawal of tax exemption privileges granted to government-owned
and controlled corporations and all other units of government were that
Contractual tax exemptions, in the real sense of the term and such privilege resulted in serious tax base erosion and distortions in the
where the non-impairment clause of the Constitution can rightly tax treatment of similarity situated enterprises, and there was a need for
be invoked, are those agreed to by the taxing authority in these entities to share in the requirements of development, fiscal or
contracts, such as those contained in government bonds or otherwise, by paying the taxes and other charges due from them.
debentures, lawfully entered into by them under enabling laws in
which the government, acting in its PRIVATE CAPACITY, B. BATANGAS POWER V. BATANGAS, 2004
sheds its cloak of authority and waives its governmental The removal of the blanket exclusion of government
immunity. Truly, tax exemptions of this kind may not be instrumentalities from local taxation as one of the most significant
revoked without impairing the obligations of contracts. provisions of the 1991 LGC.

These contractual tax exemptions, however, are not to be Section 193 of the LGC, an express and general repeal of all
confused with tax exemptions granted under franchises. statutes granting exemptions from local taxes, withdrew the
sweeping tax privileges previously enjoyed by the NPC under its
A franchise partakes the nature of a GRANT which is beyond Charter.
the purview of the non-impairment clause of the Constitution. SYPNOSIS:
Indeed, Article XII, Section 11,Constitution is explicit that no
franchise for the operation of a public utility shall be granted FACTS:
except under the condition that such privilege shall be subject to In the early 1990’s, the country suffered from a crippling power
amendment, alteration or repeal by Congress as and when the crisis. Power outages lasted 8-12 hours daily and power generation
common good so requires was badly needed.

Presently, under Article X of the 1987 Constitution, a general delegation Addressing the problem, the government, through the National
Power Corporation (NPC), sought to attract investors in power  NPC’s tax exemption was withdrawn with the passage
plant operations by providing them with incentives, one of which of R.A. No. 7160;
was through the NPC’s assumption of payment of their taxes in  6-year tax holiday granted to pioneer business
the Build Operate and Transfer (BOT) Agreement. enterprises starts on the date of registration with the
BOI as provided in Section 133 (g) of R.A. No. 7160,
On June 29, 1992, Enron Power Development Corporation and not on the date of its actual business operations.
(Enron) and petitioner NPC entered into a Fast Track BOT
Project. Enron agreed to supply a power station to NPC and PETITIONER’S CONTENTION:
transfer its plant to the latter after ten (10) years of operation.  BPC’s 6-year tax holiday should commence on the
date of its actual commercial operations as certified to
Section 11.02 of the BOT Agreement provided that NPC shall be by the BOI, not on the date of its BOI registration.
responsible for the payment of all taxes that may be imposed on  NPC’s Charter is a special law which cannot be
the power station, EXCEPT income taxes and permit fees. impliedly repealed by a general and later legislation
like the LGC. They likewise anchor their claim of tax-
Subsequently, Enron assigned its obligation under the BOT exemption on Section 133 (o) of the LGC which exempts
Agreement to petitioner Batangas Power Corporation (BPC). government instrumentalities, such as the NPC, from
taxes imposed by local government units (LGUs)
On September 13, 1992, BPC registered itself with the Board
of Investments (BOI) as a pioneer enterprise. On September 23, ISSUE:
1992, the BOI issued a certificate of registration to BPC as a 1. whether BPC’s 6-year tax holiday commenced on the
pioneer enterprise entitled to a tax holiday for a period of six date of its BOI registration as a pioneer enterprise or on
(6) years. the date of its actual commercial operation as certified
by the BOI
The construction of the power station in respondent Batangas City 2. Whether or not NPC’s tax exemption privileges under
was then completed. BPC operated the station. its Charter were withdrawn by Section 193 of the Local
Government Code
Respondent, Batangas City (the city, for brevity), thru its legal RULING:
officer, sent a letter to BPC demanding payment of business 1. It is the provision of the Local Government Code that
taxes and penalties, commencing from the year 1994 as should apply to the tax claim of Batangas City against the
provided under Ordinance XI or the 1992 Batangas City Tax BPC.
Code.
Sec. 133 (g) of the LGC, which proscribes local government
BPC refused to pay, citing its TAX-EXEMPT STATUS as a units (LGUs) from levying taxes on BOI-certified pioneer
pioneer enterprise for six (6) years under Section 133 (g) of the enterprises for a period of six years from the date of
Local Government Code (LGC). registration, applies specifically to taxes imposed by the local
government, like the business tax imposed by Batangas City on
Furthermore, BPC asserted that the city should collect the tax BPC in the case at bar.
from the NPC as the latter assumed responsibility for its
payment under their BOT Agreement. The matter was not put Reliance of BPC on the provision of Executive Order No. 226,
to rest. specifically Section 1, Article 39, Title III, is clearly misplaced as
the six-year tax holiday provided therein which commences from
The City alleged that: the date of commercial operation refers to income taxes imposed
 BPC’s tax holiday has already expired , while the city by the national government on BOI-registered pioneer firm
argued that it directed its tax claim to BPC as it is the
entity doing business in the city and hence liable to pay Therefore, the 6-year tax exemption of BPC should thus
the taxes commence from the date of BPC’s registration with the BOI.
 it was not privy to NPC’s assumption of BPC’s tax
payment under their BOT Agreement as the only parties 2. YES. Section 193 of the LGC, an express and general repeal
thereto were NPC and BPC. of all statutes granting exemptions from local taxes, withdrew
the sweeping tax privileges previously enjoyed by the NPC
The NPC intervened. While admitting assumption of BPC’s under its Charter.
tax obligations under their BOT Agreement, NPC refused to pay
BPC’s business tax as it allegedly constituted an indirect tax on The removal of the blanket exclusion of government
NPC which is a tax-exempt corporation under its Charter. instrumentalities from local taxation as one of the most
significant provisions of the 1991 LGC.
In view of the deadlock, BPC filed a petition for declaratory relief
w/ the RTC against respondent BC & NPC. Taxation assumes even greater significance with the
ratification of the 1987 Constitution. Thenceforth, the power
Petitioner alleged that under the BOT Agreement, NPC is to tax is no longer vested exclusively on Congress; local
responsible for the payment of such taxes but as NPC is legislative bodies are now given direct authority to levy taxes,
exempt from taxes, both the BPC and NPC are not liable for fees and other charges pursuant to Article X, section 5 of the
its payment. 1987 Constitution

While the case was still pending, the city refused to issue a the 1987 Constitution mandates Congress to enact a local
permit to BPC for the operation of its business unless it paid the government code that will, consistent with the basic policy of
assessed business taxes. local autonomy, set the guidelines and limitations to this grant of
taxing powers.
RTC: Dismissed the petition for injunction and held BPC liable to
pay; The LGC is the most revolutionary piece of legislation on local
autonomy, the LGC effectively deals with the fiscal constraints RULING:
faced by LGUs. It widens the tax base of LGUs to include YES. As a rule, tax exemptions are construed strongly against the
taxes which were prohibited by previous law. claimant. Exemptions must be shown to exist clearly and
categorically, and supported by clear legal provisions.
Consequently, when NPC assumed the tax liabilities of the
BPC under their 1992 BOT Agreement, the LGC which In the case at bar, the petitioner's sole refuge is Section 13 of RA
removed NPC’s tax exemption privileges had already been in No. 6395 exempting itself from, among others, all income taxes,
effect for six (6) months. franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other
Thus, while BPC remains to be the entity doing business in government agencies and instrumentalities.
said city, it is the NPC that is ultimately liable to pay said
taxes under the provisions of both the 1992 BOT Agreement It must be noted, however, that Section 193 of the LGC
and the 1991 Local Government Code withdrew, subject to limited exceptions, the sweeping tax
privileges previously enjoyed by private and public
C. NPC V. PROVINCE OF CABANATUAN corporations.
DOCTRINE:
As a rule, tax exemptions are construed strongly against the Contrary to the contention of petitioner, Section 193 of the LGC
claimant. Exemptions must be shown to exist clearly and is an express, albeit general, repeal of all statutes granting tax
categorically, and supported by clear legal provisions. exemptions from local taxes.

SYNOPSIS: The Supreme Court ruled that the City of It is a basic precept of statutory construction that the express
Cabanatuan has the authority to impose a franchise tax on the mention of one person, thing, act, or consequence excludes all
National Power Corporation (NPC), a government-owned others as expressed in the familiar maxim expressio unius est
corporation, and that NPC is not exempt from paying taxes as a exclusio alterius.
non-profit organization.
Not being a local water district, a cooperative registered under
R.A. No. 6938, or a non-stock and non-profit hospital or
FACTS: educational institution, petitioner clearly does not belong to
Petitioner, National Power Corporation, is a government-owned the exception.
and controlled corporation created under C.A. 120, as amended.
Petitioner sells electric power to the residents of Cabanatuan City. It is therefore incumbent upon the petitioner to point to some
provisions of the LGC that expressly grant it exemption from local
Accordingly, pursuant to Section 37 of Ordinance No. 165-92, taxes. This, however, would be an exercise in futility. Section 137
the respondent assessed the petitioner of franchise tax of the LGC clearly states that the LGUs can impose franchise
amounting to P808,606.41, representing 75% of 1% of the latter’s tax notwithstanding any exemption granted by any law or
gross receipts for the preceding year. The petitioner refused to other special law. The said provision does not admit any
pay the tax assessment arguing that the respondent has no exception
authority to impose tax on government entities. It also
contended that as a non-profit organization, it is exempted from
the payment of all forms of taxes, charges, duties or fees in
accordance with Sec. 13 of RA No. 6395, as amended 2. Delegation to the President
ARTICLE VI, SECTION 28(2) OF THE CONSTITUTION
This prompted Respondent to file a collection suit before the The Congress may, by law, authorize the President to impose tariff
RTC, demanding petitioner to pay the assed tax due and that rates, import and export quotas, etc. [custom duties], subject to the
petitioner's exemption from local taxes has been repealed by limitations and guidelines as the Congress may impose, consistent
section 193 of RA 7160. with the national development program of the government.

RTC: Upheld NPC’s tax exemption

CA: reversed RTC’S decision; LGC expressly repealed NPC’s tax A. GARCIA V. EXECUTIVE SECRETARY
exemption DOCTRINE:
The President is vested with authority by law to increase tariff
PETITIONER’S CONTENTION: rates, even for revenue purposes only.
 Section 193 of Rep. Act No. 7160, withdrawing the tax
privileges of government-owned or controlled Article VI, Section 8(2) of the Constitution expressly grants
corporations, is in the nature of an implied repeal. A permission to Congress to authorize the President "to fix within
special law, its charter cannot be amended or modified specified limits and subject to such limitations and restrictions as
impliedly by the local government code which is a it may impose, tariff rates xxx and other duties and imposts xxx."
general law.
 its exemption from all taxes, fees or charges under its Custom duties which are assessed at the prescribed tariff rates are
charter subsists despite the passage of the LGC very much like taxes which are imposed for both revenue raising
 NPC, being a valid exercise of police power, should and regulatory purpose.
prevail over the LGC.
SYNOPSIS: EO 438 was issued by the President imposing
ISSUE: import duties. The rate was increased; then decreased by EO 475
W/N the respondent city government has the authority to issue with the exception of crude oil and other oil products. Cong.
Ordinance No. 165-92 and impose an annual tax on «businesses Garcia challenged constitutionality of the EO on the ground that in
enjoying a franchise issuing those EOs the President is in effect exercising the power to
tax which is vested exclusively in the Congress. SC upheld the
constitutionality of the EOs based on Art. VI, Sec. 28(2) customs duties levied and collected upon articles and goods which
are not found at all and not produced in the Philippines. The Tariff
FACTS: and Customs Code is replete with such articles and commodities.
In November 1990, President Corazon Aquino issued EO No. 438
which imposed, in addition to any other duties, taxes and charges In such cases, customs duties may be seen to be imposed either for
imposed by law on all articles imported into the Philippines, an revenue purposes purely or perhaps, in certain cases, to discourage
additional duty of 5% ad valorem tax. This additional duty was any importation of the items involved. In either case, it is clear
imposed across the board on all imported articles, including crude that customs duties are levied and imposed entirely apart from
oil and other oil products imported into the Philippines. In 1991, whether or not there are any competing local industries to protect.
EO 443 increased the additional duty to 9%. In the same year, EO
475 was passed reinstating the previous 5% duty except that crude EO Nos. 475 and 478 which may be conceded to be
oil and other oil products continued to be taxed at 9%. substantially moved by the desire to generate additional public
revenues, are not, for that reason alone, either constitutionally
Later, EO 478 was issued levied a special duty of P0.95/liter or flawed, or legally infirm under Section 401 of the Tariff and
P151.05/barrel of imported crude oil and P1/L of imported oil Customs Code. Petitioner has not successfully overcome the
products. presumptions of constitutionality and legality to which those
Executive Orders are entitled.
Enrique Garcia, a representative from Bataan, avers that EO 475
and 478 are unconstitutional for they violate Section 24 of Article
VI of the Constitution which provides: 3. Delegation to administrative bodies
All appropriation, revenue or tariff bills, bills a. ABAKADA v. ERMITA
authorizing increase of the public debt, bills of local DOCTRINE: There is no undue delegation of legislative power
application, and private bills shall originate exclusively but only of the discretion as to the execution of a law. This is
in the House of Representatives, but the Senate may constitutionally permissible. Congress does not abdicate its
propose or concur with amendments. functions or unduly delegate power when it describes what job
must be done, who must do it, and what is the scope of his
He contends that since the Constitution vests the authority to authority; in our complex economy that is frequently the only way
enact revenue bills in Congress, the President may not assume in which the legislative process can go forward. The case before
such power by issuing EOs Nos. 475 and 478 which are in the the Court is not a delegation of legislative power. It is simply a
nature of revenue-generating measures. delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The
Further, Garcia argues that the EOs contravene Section 401 of legislature has made the operation of the 12% rate effective
TCC which authorizes the President to increase, reduce or January 1, 2006, contingent upon a specified fact or condition. It
remove tariff duties or to impose additional duties ONLY when leaves the entire operation or non-operation of the 12% rate upon
necessary to protect local industries or products but not for factual matters outside of the control of the executive.
the purpose of raising additional revenue for the government. FACTS:
Petitioners assail sections 5, 4 to 6 of Republic Act No. 9337 as
ISSUE: violative of the principle of nondelegation of legislative power.
WON the President can validly increase tariff rates (Section 4 imposes a 10% VAT on sale of goods and properties,
Section 5 imposes a 10% VAT on importation of goods, and
RULING: Section 6 imposes a 10% VAT on sale of services and use or
YES. Customs duties which are assessed at the prescribed tariff lease of properties.)
rates are very much like taxes which are frequently imposed for
both revenue-raising and for regulatory purposes. Thus, it has These sections authorize the President, upon recommendation
been held that "customs duties" is "the name given to taxes on the of the Secretary of Finance, to RAISE the value-added tax
importation and exportation of commodities, the tariff or tax (VAT) rate to 12% effective January 1, 2006, upon satisfaction
assessed upon merchandise imported from, or exported to, a of the following conditions: viz:
foreign country. (i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
Section 28(2) of Article VI of the Constitution is an explicit percent (2 4/5%); or
constitutional permission to Congress to authorize the (ii) National government deficit as a percentage of GDP of the
President "subject to such limitations and restrictions as previous year exceeds one and one-half percent (1 ½%).
[Congress] may impose" to fix "within specific limits" "tariff
rates and other duties or imposts”. Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et
al., and Escudero, et al. contend in common that Sections 4, 5 and
(2) The Congress may, by law, authorize the President to fix 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
within specified limits, and subject to such limitations and
respectively, of the NIRC giving the President the stand-by
restrictions as it may impose, tariff rates, import and export
quotas, tonage and wharfage dues, and other duties or authority to raise the VAT rate from 10% to 12% when a certain
imposts within the framework of the national development condition is met, constitutes undue delegation of the legislative
program of the Government. power to tax.
.
Petitioners argue that the law is unconstitutional, as it constitutes
Furthermore, Section 401 of the Tariff and Customs Code abandonment by Congress of its exclusive authority to fix the
establishes general standards with which the exercise of the rate of taxes under Article VI, Section 28(2) of the 1987
authority delegated by that provision to the President must be Philippine Constitution.
consistent: that authority must be exercised in "the interest of
national economy, general welfare and/or national security." Petitioner ABAKADA also argue that the law also effectively
nullified the President’s power of control, which includes the
Tariff rates are commonly established and the corresponding authority to set aside and nullify the acts of her subordinates like
the Secretary of Finance, by mandating the fixing of the tax rate legislative department, to determine and declare the event upon
by the President upon the recommendation of the Secretary of which its expressed will is to take effect.
Finance.
The Secretary of Finance becomes the means or tool by which
On the other hand, respondents contend that there is no undue legislative policy is determined and implemented, considering
delegation of legislative power since the law is complete and that he possesses all the facilities to gather data and
leaves no discretion to the President but to increase the rate to information and has a much broader perspective to properly
12% once any of the two conditions provided therein arise. evaluate them.

ISSUE: XXXX
1. WON Sections 4, 5 and 6 of R.A. No. 9337, amending The principle of separation of powers ordains that each of the three great branches of
government has exclusive cognizance of and is supreme in matters falling within its
Sections 106, 107 and 108, respectively, of the NIRC own constitutionally allocated sphere. A logical corollary to the doctrine of
giving the President the stand-by authority to raise the separation of powers is the principle of non-delegation of powers, as expressed in the
VAT rate from 10% to 12% when a certain condition is Latin maxim: potestas delegata non delegari potest which means "what has been
met, constitutes undue delegation of the legislative delegated, cannot be delegated."
power to tax. This doctrine is based on the ethical principle that such as delegated power
2. WON the President losses its power of control under RA constitutes not only a right but a duty to be performed by the delegate through the
9337 by mandating the fixing of the tax rate by the instrumentality of his own judgment and not through the intervening mind of another.
President upon the recommendation of the Secretary of The powers which Congress is prohibited from delegating are those which are
Finance. strictly, or inherently and exclusively, legislative. Purely legislative power, which can
never be delegated, has been described as the authority to make a complete law –
RULING: complete as to the time when it shall take effect and as to whom it shall be
applicable – and to determine the expediency of its enactment. Thus, the rule is
1. NO. There is no undue delegation of legislative power but that in order that a court may be justified in holding a statute unconstitutional as a
only of the discretion as to the execution of a law. This is delegation of legislative power, it must appear that the power involved is purely
constitutionally permissible. Congress does not abdicate its legislative in nature – that is, one appertaining exclusively to the legislative
department. It is the nature of the power, and not the liability of its use or the manner
functions or unduly delegate power when it describes what job of its exercise, which determines the validity of its delegation.
must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only Nonetheless, the general rule barring delegation of legislative powers is subject to the
way in which the legislative process can go forward. following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of
Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23
In this case, Congress did not delegate the power to tax but the (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
mere implementation of the law. The intent and will to (4) Delegation to local governments; and
increase the VAT rate to 12% came from Congress and the (5) Delegation to administrative bodies.
task of the President is to simply execute the legislative policy.
In every case of permissible delegation, there must be a showing that
What exits is simply a delegation of ascertainment of facts the delegation itself is valid. It is valid only if the law:
upon which enforcement and administration of the increase a) is complete in itself, setting forth therein the policy to be
rate under the law is contingent. The legislature has made the executed, carried out, or implemented by the delegate; and
operation of the 12% rate effective January 1, 2006, b) fixes a standard — the limits of which are sufficiently
contingent upon a specified fact or condition. determinate and determinable — to which the delegate must
conform in the performance of his functions.
The Court ruled that the law leaves the entire operation or A sufficient standard is one which defines legislative policy, marks its
nonoperation of the 12% rate upon factual matters outside of limits, maps out its boundaries and specifies the public agency to apply it.
the control of the executive. No discretion would be exercised It indicates the circumstances under which the legislative command is to
by the President. be effected.

Highlighting the absence of discretion is the fact that the word Both tests are intended to prevent a total transference of legislative
“shall” is used in the common proviso. The use of the word authority to the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative.
“shall” connotes a mandatory order. Its use in a statute
denotes an imperative obligation and is inconsistent with the The legislature may delegate to executive officers or bodies the power to
idea of discretion, x x x Where the law is clear and determine certain facts or conditions, or the happening of contingencies,
unambiguous, it must be taken to mean exactly what it says, on which the operation of a statute is, by its terms, made to depend, but the
and courts have no choice but to see to it that the mandate is legislature must prescribe sufficient standards, policies or limitations on
obeyed their authority.

Moreover, while the power to tax cannot be delegated to executive

Therefore, the Supreme Court sustained the constitutionality of
agencies, details as to the enforcement and administration of an exercise of
R.A. 9337 authorizing the President to increase the VAT rate from such power may be left to them, including the power to determine the
10% to 12% effective January 1, 2006 upon recommendation of existence of facts on which its operation depends.
the Secretary of Finance on the existence of either of the two
conditions.

2. NO. In making his recommendation to the President on the

existence of either of the two conditions, the Secretary of b. CIR v Fortune Tobacco
Finance is not acting as the alter ego of the President or even DOCTRINE: An administrative agency issuing regulations may
her subordinate. not enlarge, alter or restrict the provisions of the law it
administers, and it cannot engraft additional requirements not
In such instance, he is not subject to the power of control and contemplated by the legislature.
direction of the President. He is acting as the agent of the
SYNOPSIS: The Supreme Court ruled in favor of Fortune Whether or not the revenue regulation has exceeded the allowable
Tobacco Corporation in a tax refund dispute, affirming that the limits of legislative delegation.
interpretation of the National Internal Revenue Code should be WON Fortune Tobacco was entitled to the refund of the overpaid
based on the literal wording of the law and rejecting the authority excise taxes.
of the Commissioner to promulgate rules and regulations that
amend or expand statutory requirements. RULING:
FACTS: YES. The Court ruled that Revenue Regulation No. 17-99 is
Fortune Tobacco is a domestic corporation duly organized and indeed indefensibly flawed. By adding the qualification that
existing under and by virtue of the laws of the Republic of the the tax due after the 12% increase becomes effective shall not
Philippines. It is engaged in manufacturing of various be lower than the tax actually paid prior to 1 January 2000,
cigarette brands. Revenue Regulation No. 17-99 effectively imposes a tax which
is the higher amount between the ad valorem tax being paid at
Prior to January 1, 1997, its cigarette brands were subject to ad the end of the three (3)-year transition period and the specific
valorem tax pursuant to then Section 142 of the Tax Code of 1977 tax, as increased by 12%—a situation not supported by the
but on January 1, 1997, R.A. No. 8240 took effect whereby a shift plain wording of Section 145 of the Tax Code.
from the ad valorem tax (AVT) system to the specific tax
system was made and subjecting its cigarette brands to specific Tax administrators are not allowed to expand or contract the
tax under SEC 145 of TAX CODE thereof:” The excise tax legislative mandate and that the "plain meaning rule" or
from any brand of cigarettes within the next three (3) years from verba legis in statutory construction should be applied such
the effectivity of R.A. No. 8240 shall not be lower than the tax, that where the words of a statute are clear, plain and free
which is due from each brand on October 1, 1996. …… the rates from ambiguity, it must be given its literal meaning and
applied without attempted interpretation.
of excise tax on cigars and cigarettes…shall be increased by
twelve percent (12%) on January 1, 2000.
An administrative agency issuing regulations may not enlarge,
alter or restrict the provisions of the law it administers, and it
To implement the provisions for a twelve percent (12%)
cannot engraft additional requirements not contemplated by the
increase of excise tax on, among others, cigars and cigarettes
legislature.
packed by machines by January 1, 2000, the Secretary of
Finance, upon recommendation of the respondent
Rule-making power must be confined to details for regulating
Commissioner of Internal Revenue, issued Revenue
the mode or proceedings in order to carry into effect the law
Regulations No. 17-99.
as it has been enacted, and it cannot be extended to amend or
expand the statutory requirements or to embrace matters not
Revenue Regulations No. 17-99 likewise provides in the last
covered by the statute. Administrative regulations must
paragraph of Section 1 thereof, "(t)hat the new specific tax rate
always be in harmony with the provisions of the law because
for any existing brand of cigars, cigarettes packed by machine,
any resulting discrepancy between the two will always be
distilled spirits, wines and fermented liquor shall not be lower
resolved in favor of the basic law.
than the excise tax that is actually being paid prior to January 1,
2000."
Section 145 of the Tax Code insofar as it mandates a 12%
increase effective on 1 January 2000. However, Revenue
For the period covering January 1-31, 2000, Fortune Tobacco paid
Regulation No. 17-99 went further and added that “The new
specific taxes on all brands manufactured so it filed a claim for
specific tax rate for any existing brand of cigars, cigarettes
refund or tax credit of its overpaid excise tax for the month of
packed by machine, distilled spirits, wines and fermented
January 2000.
liquor shall not be lower than the excise tax that is actually
being paid prior to January 1, 2000."
CTA: granted the tax refund; revenue regulation issued by the
The Commissioner cannot seek refuge in his claim that the
Commissioner of Internal Revenue exceeded legislative delegation
purpose behind the passage of the Tax Code is to generate
and that the interpretation of SEC. 145 of the (NIRC) was additional revenues for the government. Revenue generation has
incorrect.; undoubtedly been a major consideration in the passage of the Tax
Code. However, as borne by the legislative record, 25the shift from
CA: granted the tax refund or tax credit representing specific taxes the ad valorem system to the specific tax system is likewise meant
erroneously collected from its tobacco products. to promote fair competition among the players in the industries
concerned, to ensure an equitable distribution of the tax burden
CIR: reversed the decision. and to simplify tax administration by classifying cigarettes, among
others, into high, medium and low-priced based on their net retail
PETITIONER’S CONTENTION: price and accordingly graduating tax rates.
Fortune Tobacco argues that the CTA and the Court of Appeals
merely followed the letter of the law when they ruled that the basis 2. YES. Although tax refund partakes the nature of a tax
for the 12% increase in the tax rate should be the net retail price of exemption, this rule does not apply to Fortune Tobacco’s
the cigarettes in the market as outlined in paragraph C, sub claim. The parity between tax refund and tax exemption exists
paragraphs (1)-(4), Section 145 of the Tax Code only when the former is based either on a tax exemption
Commissioner allegedly has gone beyond his delegated rule- statute or a tax refund statute.
making power when he promulgated, enforced and implemented
Revenue Regulation No. 17-99, which effectively created a Tax exemption is granted by the legislature thus, the one who
separate classification for cigarettes based on the excise tax claims an exemption from the burden of taxation must justify his
"actually being paid prior to January 1, 2000." claim by showing that the legislature intended to exempt him by
words too plain to be mistaken. In the same manner, a claim for
Hence, this petition. tax refund may also be based on statutes granting tax exemption or
tax refund. In this case, the rule of strict interpretation against the
ISSUE: taxpayer is applicable as the claim for refund partakes of the
nature of an exemption. The LOI provides: 3. The Administrator of the Fertilizer
Pesticide Authority to include in its fertilizer pricing formula a
However, tax refunds (or tax credits) in this case is not capital contribution component of not less than ₱10 per bag.
founded principally on legislative grant but on the legal
principle of solutio indebiti, the government cannot unjustly This capital contribution shall be collected until adequate
enrich itself at the expense of the taxpayers. capital is raised to make PPI viable. Such capital contribution
shall be applied by FPA to all domestic sales of fertilizers in the
Under the Tax Code, in recognition of the pervasive quasi- Philippines.
contract principle, a claim for tax refund may be based on the
following: Pursuant to the LOI, Fertiphil paid ₱10 for every bag of
fertilizer it sold in the domestic market to the Fertilizer and
(a) erroneously or illegally assessed or collected Pesticide Authority (FPA). FPA then remitted the amount
internal revenue taxes; collected to the Far East Bank and Trust Company, the depositary
(b) penalties imposed without authority; and bank of PPI.
(c) any sum alleged to have been excessive or in any
manner wrongfully collected. Fertiphil paid ₱6,689,144 to FPA from July 8, 1985 to January 24,
1986. After the 1986 Edsa Revolution, FPA voluntarily
In the present case, Fortune Tobacco’s claim for refund is stopped the imposition of the ₱10 levy. With the return of
premised on its erroneous payment of the tax, or the democracy, Fertiphil demanded from PPI a REFUND of the
government’s exaction in the absence of a law. amounts it paid under LOI No. 1465, but PPI refused to accede
to the demand.

Fertiphil filed a complaint for Collection and Damages against

4. Delegation to the people at large (People’s initiative and FPA and PPI with the RTC in Makati. It QUESTIONED THE
referendum under RA 6735) 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.

Fertiphil alleged that the LOI solely favored PPI, a privately

13.INHERENT LIMITATIONS (PITIE) owned corporation, which used the proceeds to maintain its
monopoly of the fertilizer industry.
A. PUBLIC PURPOSE
In its Answer, FPA, through the Solicitor General, countered that
I. PLANTERS PRODUCTS VS FERTIPHIL the issuance of LOI No. 1465 was a valid exercise of the police
DOCTRINE: power of the State in ensuring the stability of the fertilizer
An inherent limitation on the power of taxation is public purpose. industry in the country. It also averred that Fertiphil did not
Taxes are exacted only for a public purpose. They cannot be sustain any damage from the LOI because the burden imposed
used for purely private purposes or for the exclusive benefit of by the levy fell on the ultimate consumer, not the seller
private persons. The reason for this is simple. The power to tax
exists for the general welfare; hence, implicit in its power is the RTC: Ruled in favor of Respondent - imposition of the levy
limitation that it should be used only for a public purpose. It was an exercise by the State of its taxation power not police
would be a robbery for the State to tax its citizens and use the power; One of the inherent limitations is that a tax may be levied
funds generated for a private purpose. As an old United States only for public purposes
case bluntly put it: "To lay with one hand, the power of the
government on the property of the citizen, and with the other to
bestow it upon favored individuals to aid private enterprises and CA: Affirmed decision of RTC – The LOI is still
build up private fortunes, is nonetheless a robbery because it is unconstitutional even if enacted under the police power; it did not
done under the forms of law and is called taxation. promote public interest.
SYNOPSIS:
President Ferdinand Marcos, exercising his legislative powers, issued ISSUE:
LOI No. 1465 which provided, among others, for the imposition of a 1. WON LOI is constitutional
Capital Recovery Component (CRC) on the domestic sale of all grades 2. WON LOI was a valid exercise of police power
of fertilizers in the Philippines. The Supreme Court ruled that a levy
imposed on fertilizer sales was unconstitutional as it solely benefited a RULING:
private corporation, ordering the refund of the amounts paid under the NO. LOI is unconstitutional because it was not for public
levy. purposes. Taxes are exacted only for a public purpose. The
FACTS: ₱10 levy is unconstitutional because it was not for a public
Petitioner PLANTERS PRODUCT INC. and private purpose. The levy was imposed to give undue benefit to PPI.
respondent FERTIPHIL are private corporations incorporated
under Philippine laws. They are both engaged in the importation It is a settled principle that the power of taxation by the state is
and distribution of fertilizers, pesticides and agricultural plenary. Comprehensive and supreme, the principal check upon its
chemicals. abuse resting in the responsibility of the members of the
legislature to their constituents. However, there are two kinds of
On June 3, 1985, then President Ferdinand Marcos, exercising limitations on the power of taxation: the inherent limitations and
his legislative powers, issued LOI No. 1465 which provided, the constitutional limitations.
among others, for the imposition of a Capital Recovery
Component (CRC) on the domestic sale of all grades of One of the inherent limitations is that a tax may be levied only
fertilizers in the Philippines. for public purposes.
The term "public purpose" is not defined. It is an elastic concept b. Property tax
that can be hammered to fit modern standards. Jurisprudence c. Excise tax
states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which i. Cia vs CIR (GR No. L-5896, August 31, 1955)
are traditionally viewed as essentially government functions, such DOCTRINE:
as building roads and delivery of basic services, but also includes
those purposes designed to promote social justice. Thus, public SYNOPSIS: Soriano y Cia. is held liable for sales tax on their
money may now be used for the relocation of illegal settlers, low- gross sales of surplus tractors to United Africa Co., Ltd. as they
cost housing and urban or agrarian reform. are considered importers and the sales were consummated in the
Philippines.
While the categories of what may constitute a public purpose are FACTS:
continually expanding in light of the expansion of government petitioner was engaged in the business of selling surplus
functions, the inherent requirement that taxes can only be exacted goods acquired from the Foreign Liquidation Commission
for a public purpose still stands. Public purpose is the heart of a pursuant to an agreement with the United
tax law. When a tax law is only a mask to exact funds from the States Government whereby petitioner undertook to rehabilitate
public when its true intent is to give undue benefit and the Veterans Administration Building (formerly Heacock
advantage to a private enterprise, that law will not satisfy the Building) for and in consideration of over a million pesos worth of
requirement of "public purpose." The purpose of a law is surplus goods.
evident from its text or inferable from other secondary sources.
Part of the surplus goods consisted of tractors which were then in
Here, the Court agree with the RTC and that CA that the levy the various U. S. military bases or depots in the Philippines
imposed under LOI No. 1465 was not for a public purpose.
Gibson, representantive of United Africa LTD, was looking for
First, the LOI expressly provided that the levy be imposed to surplus tractors for sale. He learned of the petitioner's business and
benefit PPI, a private company. The purpose is explicit from contracted to buy tractors from the latter, to be delivered FAS
Clause 3 of the law. (free alongside ship), Manila.

Second, the LOI provides that the imposition of the ₱10 levy was Tex Taylor, tractor expert, was employed by UAL to s elect,
conditional and dependent upon PPI becoming financially inspect and test the tractors before delivery. He ook the serial
"viable." This suggests that the levy was actually imposed to numbers of the tractors which he wanted, and gave the list thereof
benefit PPI. The LOI notably does not fix a maximum amount to the petitioner.
when PPI is deemed financially "viable." Worse, the liability of
Fertiphil and other domestic sellers of fertilizer to pay the levy Those found to be in good condition were approved by Taylor,
is made indefinite. They are required to continuously pay the wherefore petitioner presented to him the sales invoices for his
levy until adequate capital is raised for PP signature, stamping his approval thereon.

2. NO. The tractors were delivered by petitioner to the pier in Manila by

Police power and the power of taxation are inherent powers of means of barges as soon as notice was received from the
the State. These powers are distinct and have different tests representative of its foreign buyer that a carrying vessel was
for validity. Police power is the power of the State to enact ready.
legislation that may interfere with personal liberty or property
in order to promote the general welfare while the power of Philippine Refining Co., Inc. shipped the 57 tractors acquired
taxation is the power to levy taxes to be used for public from petitioner from the port of Manila to United Africa Co., Ltd.
purpose. The main purpose of police power is the regulation of at Dares Salaem, East Africa. The total value of the tractors was
a behavior or conduct, while taxation is revenue generation. P757,000.

The "lawful subjects" and "lawful means" tests are used to However, due to certain defects of some of them upon reaching
determine the validity of a law enacted under the police Africa, the sum of P4,959.19 was reimbursed by petitioner to
power. The power of taxation, on the other hand, is its foreign buyer by credit memo.
circumscribed by inherent and constitutional limitations.
BIR & BTA: held petitioner liable for the payment of sales tax
h the RTC that the imposition of the levy was an exercise by the on its gross sales of the tractors to the United Africa Co., Lt
State of its taxation power. While it is true that the power of under SEC. 186, NIRC for petitioner imported the tractors from
taxation can be used as an implement of police power, the primary the army bases (deemed importer)
purpose of the levy is revenue generation. If the purpose is
primarily revenue, or if revenue is, at least, one of the real and CIR: affirmed the decision.
substantial purposes, then the exaction is properly called a tax.
Hence, the petition.
PETITIONER’S CONTENTION:
 the goods in question did not acquire a taxable situs in the
b. Inherently legislative Philippines because they merely passed Philippine territory
c. Territorial jurisdiction in transit and that they were not intended for local use but for
d. International comity exportation to a foreign country.
e. Exceptions of the government from taxation  the repeal of the consignment or "export tax" under Sec. 187
of the Internal Revenue Code shows the intention of the
legislature to exempt all exports from tax;
14.Situs of taxation
 to tax one who sells goods intended for export would be to
nullify the legislative intent behind the repeal of the tax on
15. TYPES OF TAX SUBJECTS
consignments abroad, which is to encourage export
a. Income tax
 centavos per case of 24 bottles.
ISSUE:
Whether or not petitioner is liable for the payment of percentage Iloilo Bottlers challenged the validity of the assessment
or sales tax on its gross sales of the 57 tractors in question to the
United Africa Co., Ltd. under the provisions of Sec. 186 of the Petitioner alleged that it could not anymore be liable to pay the
National Internal Revenue Code. municipal license fee because its bottling plant (was) not anymore
inside the City of Iloilo, and that moreover, t by means of a fleet
RULING: of delivery trucks, plaintiff distributes its products from its
YES. Petitioner is liable. The sale of the tractors was bottling plant directly to its customers in the different towns of
consummated in the Philippines, for title was transferred to the Province of Iloilo as well as the City of Iloilo; it could not be
the foreign buyer at the pier in Manila; hence, the situs of the considered as a distributor
sale is Philippines and it is taxable in this country.
Petitioner further contended that the plaintiff is already paying the
Section 186. Percentage tax on sales of other articles.—There is levied, National Government a percentage Tax on all the softdrinks it
assessed and collected once only on every original sale, barter, exchange, manufactures.
and similar transaction intended to transfer ownership of, or title to, the
articles not enumerated in sections 184 and 185, a tax equivalent to five
per centum of the gross selling price or gross value in money of the Plaintiff filed a complaint with the CFI of Iloilo for the recovery
articles so sold, bartered, exchanged, or transferred, such tax to be paid by of the sum of P3,329.20, which allegedly constituted payments of
the manufacturer, producer, or importer municipal license taxes under Iloilo City Tax Ordinance No. 5
series of 1960 that the company paid under protest.
The rule is that where the contract is to deliver goods f.a.s, the
property passes on delivery at the wharf or the dock. CFI: rendered on January 26, 1973 a decision in favor of Iloilo
Otherwise stated, delivery to the carrier is delivery to the Bottlers, Inc. declaring the Corporation not liable under the
buyer. ordinance.

If the title consigned abroad passes to the buyer within the PETITIONER’S CONTENTION:
jurisdiction of the Philippines, the transaction is domestic and  contends that since it is not engaged in the
is subject to the sales tax; otherwise, the transaction will be independent business of distributing soft-drinks, but
considered a foreign sale and is exempt from the sales tax that its activity of selling is merely an incident to, or is
prescribed in section 186 of the Tax Code. a necessary consequence of its main or principal
business of bottling, then it is NOT liable under the city
Contrary to petitioner’s argument, consignment tax formerly tax ordinance.
imposed on exports by section 187 of the Tax Code (now
repealed by R. A. 41) is different from the sales tax imposed by ISSUE:
SEC. 186, which has not been repealed. 1. WON Iloilo Bottlers Inc. is liable is liable under Iloilo
City tax Ordinance No. 5, series of 1960, as amended,
Tax on consignment is a privilege tax pure and simple; it is a which imposes a municipal license tax on distributors of
tax on the business of consigning commodities abroad from soft-drinks.
the Philippines. If the tax were one on sale, in order to be 2. whether an entity engaged in the principal business of
taxable in the Philippines must be consummated there. manufacturing, is likewise engaged in the separate
business of selling,
As for the legislative policy to exempt consignments abroad RULING:
from tax in order to encourage exports, the Solicitor General YES. Sales were made by Iloilo Bottlers, Inc. in Iloilo City,
has pointed out that it is only the exportation of locally thus, the company liable under the tax ordinance.
produced or manufactured products, and not every kind of
exportation, that Congress wanted to encourage and promote The tax imposed under Ordinance No. 5 is an excise tax. It is a
tax on the privilege of distributing, manufacturing or bottling
softdrinks. Being an excise tax, it can be levied by the taxing
ii. Iloilo Bottlers vs City of Iloilo authority only when the acts, privileges or businesses are done
DOCTRINE: or performed within the jurisdiction of said authority.

SYNOPSIS:Iloilo Bottlers Inc. filed a complaint with the CFI of Specifically, the situs of the act of distributing, bottling or
Iloilo for the recovery of the sum of P3,329.20,which allegedly manufacturing softdrinks must be within city limits, before an
constituted payments of municipal license taxes under Iloilo City entity engaged in any of the activities may be taxed in Iloilo City.
Tax Ordinance No. 5 series of 1960 that the company paid under
protest. 2. For tax purposes, a manufacturer does not necessarily
FACTS: become engaged in the separate business of selling simply
Iloilo Bottlers, a company engaged in the business of bottling because it sells the products it manufactures. In certain cases,
softdrinks under the trade name of Pepsi Cola and 7-Up and however, a manufacturer may also be considered as engaged
selling the same to its customers. It closed its plant in Muelle in the separate business of selling its products.
Loney in Iloilo City and transferred its bottling operations to its
new plant in Barrio Ungca, Municipality of Pavia, Province of To determine whether an entity engaged in the principal
Iloilo, which is outside the jurisdiction of the City of Iloilo. business of manufacturing, is likewise engaged in the separate
business of selling, its marketing system or sales operations
However, even after the transfer of its plant, Iloilo Bottlers was must be looked into.
still assessed by the Municipality of Iloilo for payment of
municipal license tax in accordance with Ordinance No. 5 which Under the first system, the manufacturer enters into sales
provides that manufacturers, bottlers, and distributers of soft transactions and invoices the sales at its main office where
drinks in Iloilo are subject to a municipal license tax of 10 purchase orders are received and approved before delivery
orders are sent to the company's warehouses, where in turn years 1959 to 1963. Subsequent investigation resulted in the
actual deliveries are made. No warehouse sales are made; nor issuance of a new assessment. BOAC paid the assessment under
are separate stores maintained where products may be sold protest.
independently from the main office. The warehouses only
serve as storage sites and delivery points of the products BOAC filed a claim for refund of the amount of P858,307.79,
earlier sold at the main office. which claim was denied by the CIR. But before said denial,
BOAC had already filed a petition for review with the Tax
Under the second system, sales transactions are entered into Court, ,assailing the assessment and praying for the refund of the
and perfected at stores or warehouses maintained by the amount paid.
company. Any one who desires to purchase the product may
go to the store or warehouse and there purchase the CTA: ruled in favor of BOAC.
merchandise. The stores and warehouses serve as selling  proceeds of sales of BOAC passage tickets in the
centers. Philippines do not constitute BOAC income from
Philippine sources "since no service of carriage of
Entities operating under the first system are NOT considered passengers or freight was performed by BOAC within
engaged in the separate business of selling or dealing in their the Philippines" and, therefore, said income is not
products, independent of their manufacturing business. Entities subject to Philippine income tax.;
operating under the second system are considered engaged in the  income from transportation is income from services
separate business of selling. so that the place where services are rendered
determines the source.
It is clear from the ordinance that three types of activities are
covered: (1) distribution, (2) manufacture and (3) bottling of RESPONDENT'S MAIN ARGUMENT: BOAC's service of
softdrinks. A person engaged in any or all of these activities is transportation is performed outside the Philippines, the income
subject to the tax. derived is from sources without the Philippines and, therefore, not
taxable under our income tax laws.
In the case at bar, the company distributed its softdrinks by means
of a fleet of delivery trucks which went directly to customers in ISSUE:
the different places in lloilo province. Sales transactions with whether or not the revenue from sales of tickets by BOAC in the
customers were entered into and sales were perfected and Philippines constitutes income from Philippine sources and,
consummated by route salesmen. Truck sales were made accordingly, taxable under our income tax laws.
independently of transactions in the main office. The delivery hether or not during the fiscal years in question BOAC s a resident
trucks were not used solely for the purpose of delivering foreign corporation doing business in the Philippines or has an
softdrinks previously sold at Pavia. They served as selling units. office or place of business in the Philippines
They were what were called, until recently, "rolling stores".
RULING:
The delivery trucks were therefore much the same as the stores YES. The absence of flight operations to and from the
and warehouses under the second marketing system. Iloilo Philippines is not determinative of the source of income or the
Bottlers, Inc. thus falls under the second category above. That is, site of income taxation. Admittedly, BOAC was an off-line
the corporation was engaged in the separate business of selling international airline at the time pertinent to this case.
or distributing soft-drinks, independently of its business of
bottling them. The test of taxability is the "source"; and the source of an
income is that activity which produced the income. The source
of an income is the property, activity or service that produced
iii. CIR vs BOAC the income. For the source of income to be considered as
DOCTRINE: coming from the Philippines, it is sufficient that the income is
derived from activity within the Philippines.
SYNOPSIS:
Section 37(a) of the Tax Code, which enumerates items of
FACTS: gross income from sources within the Philippines, namely: (1)
British Overseas Airways Corporation (BOAC) is a British interest, (21) dividends, (3) service, (4) rentals and royalties,
Government-owned corporation organized and existing under the (5) sale of real property, and (6) sale of personal property,
laws of the United Kingdom. It is engaged in the international does not mention income from the sale of tickets for
airline business. international transportation. However, that does not render it
less an income from sources within the Philippines.
It did not carry passengers or cargo to or from the Philippines,
although during the period covered by the assessments, it Section 37, by its language, does not intend the enumeration
maintained a general sales agent in the Philip. Wamer Barnes and to be exclusive. It merely directs that the types of income listed
Company, Ltd., and later Qantas Airways - which was therein be treated as income from sources within the
responsible for selling BOAC tickets covering passengers and Philippines. A cursory reading of the section will show that it
cargoes. does not state that it is an all-inclusive enumeration, and that
no other kind of income may be so co

It is admitted that BOAC had no landing rights for traffic Unquestionably, In BOAC's case, the sale of tickets in the
purposes in the Philippines, and was not granted a Certificate Philippines is the activity that produces the income. The
of public convenience, except for a nine-month period, partly in tickets exchanged hands here and payments for fares were
1961 and partly in 1962, when it was granted a temporary landing also made here in Philippine currency. The site of the source
permit. of payments is the Philippines. The flow of wealth proceeded
from, and occurred within, Philippine territory, enjoying the
CIR assessed BOAC for deficiency income taxes covering the
protection accorded by the Philippine government. In
consideration of such protection, the flow of wealth should
share the burden of supporting the government.

2. YES. There is no doubt then that BOAC was "engaged in"

business in the Philippines through a local agent during the
period covered by the assessments. Accordingly, it is a resident
foreign corporation subject to tax upon its total net income
received in the preceding taxable year from all sources within
the Philippines.

In order that a foreign corporation may be regarded as doing

business within a State, there must be continuity of conduct and
intention to establish a continuous business, such as the
appointment of a local agent, and not one of a temporary
character.

BOAC, during the periods covered by the subject -

assessments, maintained a general sales agent in the
Philippines, That general sales agent, from 1959 to 1971, "was
engaged in
(1) selling and issuing tickets;
(2) breaking down the whole trip into series of trips — each
trip in the series corresponding to a different airline company;
(3) receiving the fare from the whole trip; and
(4) consequently allocating to the various airline companies on
the basis of their participation in the services rendered
through the mode of interline settlement as prescribed by
Article VI of the Resolution No. 850 of the IATA Agreement."

Those activities were in exercise of the functions which are

normally incident to, and are in progressive pursuit of, the
purpose and object of its organization as an international air
carrier. In fact, the regular sale of tickets, its main activity, is
the very lifeblood of the airline business, the generation of
sales being the paramount objective.
 16.PRINCIPLES OF SOUND TAX SYSTEM general revision of assessments is a continuing process
A. FISCAL ADEQUACY mandated by Section 21, PD 464: however, That if property
values in a province or city, or in any municipality, have greatly
changed since the last general revision, the provincial or city
I. CHAVEZ V ONGPIN assessor may, with the approval of the Secretary of Finance or
DOCTRINE: Fiscal adequacy, which is one of the characteristics upon his direction, undertake a general revision of assessments
of a sound tax system, requires that sources of revenues must be in the province or city, or in any municipality before the fifth
adequate to meet government expenditures and their variations. year from the effectivity of the last general revision.

Without Executive Order No. 73, the basis for collection of ISSUE:
real property taxes will still be the 1978 revision of property WON EO 73 is unconstitutional
values. Certainly, to continue collecting real property taxes
based on valuations arrived at several years ago, in disregard RUING:
of the increases in the value of real properties that have NO. EO No. 73 is constitutional, it does not impose new taxes
occurred since then, is not in consonance with a sound tax nor increase taxes. The general revision of assessments is a
system. ***** continuing process mandated by Section 21 of PD No. 464.

SYNOPSIS: Fiscal adequacy, which is one of the characteristics of a sound

tax system, requires that sources of revenues must be adequate
FACTS: to meet government expenditures and their variations.
EO No. 73 - PROVIDING FOR THE COLLECTION OF REAL
PROPERTY TAXES BASED ON THE 1984 REAL PROPERTY Without Executive Order No. 73, the basis for collection of
VALUES, AS PROVIDED FOR UNDER SECTION 21 OF PD real property taxes will still be the 1978 revision of property
464 (THE REAL PROPERTY TAX CODE, AS AMENDED) values. Certainly, to continue collecting real property taxes
based on valuations arrived at several years ago, in disregard
Due to the obsolete real property taxes which are still based on of the increases in the value of real properties that have
the 1978 revision property values, President Corazon Aquino occurred since then, is not in consonance with a sound tax
issued EO No. 73 stating that beginning January 1, 1987, the 1984 system. *****
real property assessments shall be the basis of real property taxes.
REASON: an urgent need for local governments to RATIO:
augment their financial resources to meet the rising Indeed, the government recognized the financial burden to the
cost of rendering effective services to the people taxpayers that will result from an increase in real property taxes.
Hence, Executive Order No. 1019 was issued on April 18, 1985,
Subsequently, MO No. 77 was issued suspending the deferring the implementation of the increase in real property taxes
implementation of EO 73 until June 30, 1987. resulting from the revised real property assessments, from January
1, 1985, to January 1, 1988.
The petitioner, FRANCISCO I. CHAVEZ, is a taxpayer and an
owner of three parcels of land. He alleges the following: The issuance of Executive Order No. 73 which changed the date
 that EO No. 73 accelerated the application of the of implementation of the increase in real property taxes from
general revision of assessments to January 1, 1987 January 1, 1988, to January 1, 1987 and therefore repealed
thereby mandating an excessive increase in real Executive Order No. 1019, also finds ample justification in its
property taxes by 100% to 400% on improvements, "whereas" clauses.
and up to 100% on land;
 that any increase in the value of real property brought It should be noted that Sec. 1, EO 73 merely directs that the real
about by the revision of real property values and property values in 1984 determined by the local assessors during
assessments would necessarily lead to a proportionate the latest general revision of assessments shall take effect
increase in real property taxes; beginning January 1, 1987 for purposes of real property tax
 sheer oppression is the result of increasing real collection.
property taxes at a period of time when harsh economic
conditions prevail; and The general revision of assessments completed in 1984 is based
 increase in the market values of real property as on Section 21 of PD 464: Beginning with the calendar year
reflected in the schedule of values was brought about 1978, the provincial or city assessor shall make a general
only by inflation and economic recession. revision of real property assessments in the province or city to
 Unreasonable increase in real property taxes brought take effect January 1, 1979, and once every five years thereafter:
about by EO No. 73 amounts to a confiscation of
property repugnant to the constitutional guarantee
of due process, invoking the cases of Ermita-Malate
Hotel, Et. Al. v. Mayor of Manila and Sison v. Ancheta II. ABAKADA V ERMITA
DOCTRINE: There is no undue delegation of legislative power
The intervenor Realty Owners Association of the Philippines, but only of the discretion as to the execution of a law. This is
Inc. (ROAP), which is the national association of owners- constitutionally permissible. Congress does not abdicate its
lessors, joins Chavez, functions or unduly delegate power when it describes what job
 PD 464 is unconstitutional; must be done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently the only way
 imposes an additional 1% tax on all property owners to
in which the legislative process can go forward. The case before
raise funds for education, as real property tax is
the Court is not a delegation of legislative power. It is simply a
admittedly a local tax for local governments;
delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The
OSG:
legislature has made the operation of the 12% rate effective
January 1, 2006, contingent upon a specified fact or condition. It
leaves the entire operation or non-operation of the 12% rate upon
factual matters outside of the control of the executive.
FACTS: RULING:
Petitioners assail sections 5, 4 to 6 of Republic Act No. 9337 as 1. YES. fiscal adequacy dictated the need for a raise in
violative of the principle of nondelegation of legislative power. revenue. The dire need for revenue cannot be ignored. Our
(Section 4 imposes a 10% VAT on sale of goods and properties, country is in a quagmire of financial woe. The image
Section 5 imposes a 10% VAT on importation of goods, and portrayed is chilling. Congress passed the law hoping for
Section 6 imposes a 10% VAT on sale of services and use or rescue from an inevitable catastrophe. Whether the law is
lease of properties.) indeed sufficient to answer the state’s economic dilemma is not
for the Court to judge.
These sections authorize the President, upon recommendation
of the Secretary of Finance, to RAISE the value-added tax the first condition amounts to an incentive to the President to
(VAT) rate to 12% effective January 1, 2006, upon satisfaction increase the VAT collection does not render it unconstitutional so
of the following conditions: viz: long as there is a public purpose for which the law was passed,
(i) VAT collection as a percentage of Gross Domestic which in this case, is mainly to raise revenue.
Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or In fact, fiscal adequacy dictated the need for a raise in revenue.
(ii) National government deficit as a percentage of
GDP of the previous year exceeds one and one-half Notably, Increase in VAT collection is not the only condition.
percent (1 ½%). There is another condition, i.e., (2) the national government
deficit as a percentage of GDP of the previous year exceeds one
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et and one-half percent (1 ½%).
al., and Escudero, et al. contend in common that Sections 4, 5
and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, Accrdng to Finance Secretary Purisima in the Bicameral
respectively, of the NIRC giving the President the stand-by Conference Committee hearing:
authority to raise the VAT rate from 10% to 12% when a certain 1.90% of revenue is used for debt service i.e. interest plus
condition is met, constitutes undue delegation of the legislative amortization
power to tax. 2. Our debt to GDP is approximately equal to our GDP. Again,
that shows you that this is not a sustainable situation.
Petitioners argue that the law is unconstitutional, as it constitutes 3. the environment that we are presently operating in is not as
abandonment by Congress of its exclusive authority to fix the benign as what it used to be the past five years; ((1) rapid
rate of taxes under Article VI, Section 28(2) of the 1987 increase in the interest rates in the leading economies of the
Philippine Constitution. world, (2) ability to borrow at reasonable prices is going to be
challenged, and our ability to access the financial markets)
In addition, Petitioner, Sen. Aquilino Q. Pimentel, Jr., et
al, contend that the increase in the VAT rate to 12% contingent “So given this situation, we at the Department of Finance believe
on any of the two conditions being satisfied violates the due that we really need to front-end our deficit reduction. Because it is
process clause embodied in Article III, Section 1 of the deficit that is causing the increase of the debt and we are in what
Constitution, as it imposes an UNFAIR and ADDITIONAL TAX we call a debt spiral. The more debt you have, the more deficit you
BURDEN on the people, in that: have because interest and debt service eats and eats more of your
(1) the 12% increase is ambiguous because it does not revenue. We need to get out of this debt spiral. And the only way,
state if the rate would be returned to the original 10% if I think, we can get out of this debt spiral is really have a front-end
the conditions are no longer satisfied; adjustment in our revenue base.”
(2) the rate is unfair and unreasonable, as the people are unsure
of the applicable VAT rate from year to year; and 2. NO. The law must have a valid governmental objective, i.e.,
(3) the increase in the VAT rate, which is supposed to be an the interest of the public as distinguished from those of a
incentive to the President to raise the VAT collection to at least particular class, requires the intervention of the State. This
2 4/5 of the GDP of the previous year, SHOULD ONLY BE objective must be pursued in a lawful manner, or in other words,
BASED ON FISCAL ADEQUACY. the means employed must be reasonably related to the
accomplishment of the purpose and not unduly oppressive.

RESPONDENT’S CONTENTION: There is no doubt that R.A. No. 9337 was enacted pursuant to
R.A. No. 9337 is the anchor of the government’s fiscal reform a valid governmental objective, i.e. to raise revenues for the
agenda. A reform in the value-added system of taxation is the government. However, with respect to the means employed to
core revenue measure that will tilt the balance towards a accomplish such objective, I am convinced that R.A. No. 9337,
sustainable macroeconomic environment necessary for particularly Sections 4, 5 and 6 thereof, are ARBITRARY
economic growth. AND UNDULY OPPRESSIVE.

The Senate deliberation reveals that the first condition constitutes

ISSUE: a reward to the President for her effective collection of VAT.
1. WON RA 9337 is compliant of “fiscal adequacy Thus, the President may increase the VAT rate from 10% to 12%
requirement if her VAT collection during the previous year exceeds 2 4/5% of
2. WON RA 9337 (1st condition) is a violation of due process the Gross Domestic Product
embodied in Article III, Section 1 of the Constitution “"no person
shall be deprived of life, liberty or property without due process of The Supreme Court questioned the authority of the President to
law/ whether or not, to begin with, it is a proper exercise of increase the VAT rate on the premise alone that she deserves an
legislative power. "incentive" or "reward"? Indeed, why should she be rewarded for
performing a duty reposed upon her by law?
The rationale stated by Senator Recto is flawed. One of the Petitioners Renato V. Diaz and Aurora Ma. F. Timbol hold the
principles of sound taxation is fiscal adequacy. The proceeds of view that Congress did not, when it enacted the NIRC, intend
tax revenue should coincide with, and approximate the needs of, to include toll fees within the meaning of "sale of services"
government expenditures. Neither an excess nor a deficiency of that are subject to VAT; that a toll fee is a "user’s tax," not a
revenue vis-à-vis the needs of government would be in keeping sale of services; that to impose VAT on toll fees would amount
with the principle. to a tax on public service; and that, since VAT was never
factored into the formula for computing toll fees, its imposition
Equating the grant of authority to the President to increase the would violate the non-impairment clause of the constitution.
VAT rate with the grant of additional allowance to a studious
son is highly inappropriate. Respondent government, through the OSG, avers that:
 the NIRC imposes VAT on all kinds of services of
Our Senators must have forgotten that for every increase of franchise grantees, including tollway operations,
taxes, the burden always redounds to the people. Unlike the except where the law provides otherwise;
additional allowance given to a studious son that comes from the  petitioners have no right to invoke the non-
pocket of the granting parent alone, the increase in the VAT rate impairment of contracts clause since they clearly have
would be shouldered by the masses. Indeed, mandating them to no personal interest in existing toll operating agreements
pay the increased rate as an award to the President is (TOAs) between the government and tollway operators.
arbitrary and unduly oppressive. Taxation is not a power to be  imposition of VAT on tollway operations has been
exercised at one’s whim. the subject as early as 2003 of several BIR rulings
and circulars.
VAT/GDP RATIO > 2.8% - government has weak or no  it cannot be claimed that the rights of tollway operators
capability of implementing the VAT or that VAT is not effective to a reasonable rate of return will be impaired by the
in the function of the tax collection; no value to increase it to 12% VAT since this is imposed on top of the toll rate
because such action will also be ineffectual.  imposition of VAT on toll fees would have very
minimal effect on motorists using the tollways
NGD/GDP > 1.5% -balanced budget position; no need to increase
the VAT rate since the fiscal house is in a relatively healthy PETITIONER’S CONTENTION:
position  Tollway operators cannot be regarded as franchise
grantees under the NIRC since they do not hold
The principle of fiscal adequacy as a characteristic of a sound legislative franchises
tax system was originally stated by Adam Smith in his Canons  BIR RMC 63-2010 which directs toll companies to
of Taxation (1776), as: record an accumulated input VAT of zero balance in
their books as of August 16, 2010, the date when the
IV. Every tax ought to be so contrived as both to take out and to VAT imposition was supposed to take effect. The
keep out of the pockets of the people as little as possible over and issuance allegedly violates Section 111(A) of the Code
above what it brings into the public treasury of the state. which grants first time VAT payers a transitional input
VAT of 2% on beginning inventory.
It simply means that sources of revenues must be adequate to
 tollway operators cannot be considered "franchise
meet government expenditures and their variations.
grantees" under Section 108 since they do not hold
legislative franchises.
 the public nature of the services rendered by tollway
B. ADMINISTRATIVE FEASIBILITY
operators excludes such services from the term "sale of
services" under Section 108 of the Code
I. DIAZ V SEC OF FINANCE
 VAT ON TOLLWAY OPERATIONS IS NOT
DOCTRINE: Administrative feasibility is one of the canons of a
ADMINISTRATIVELY FEASIBLE - the
sound tax system.
substantiation requirements for claiming input VAT
make the VAT on tollway operations impractical and
It simply means that the tax system should be capable of being
incapable of implementation.
effectively administered and enforced with the least inconvenience
o in order to claim input VAT, the name,
to the taxpayer.
address and tax identification number of
Non-observance of the canon, however, will not render a tax the tollway user must be indicated in the
imposition invalid "except to the extent that specific VAT receipt or invoice.
constitutional or statutory limitations are impaired." o The manner by which the BIR intends to
implement the VAT – by rounding off the
Thus, even if the imposition of VAT on tollway operations may toll rate and putting any excess collection in
seem burdensome to implement, it is not necessarily invalid unless an escrow account – is also illegal, while the
some aspect of it is shown to violate any law or the Constitution. alternative of giving "change" to thousands of
motorists in order to meet the exact toll rate
SYNOPSIS: This case involves the imposition of VAT by the would be a logistical nightmare.
BIR on the collections of tollway operators. The SC said that all
cars must be subject to VAT. Diaz argued that it this is very ISSUE:
difficult to implement, specifically the issuance of receipts to 1. Whether the imposition of VAT on tollway operators is
persons. not administratively feasible and cannot be implemented
FACTS: The relevant law in this case is SEC. 108 of the NIRC, as 2. Whether the government is unlawfully expanding VAT
amended. VAT is levied, assessed, and collected on the gross receipts coverage by including tollway operators and tollway
derived from the “sale or exchange of services” as well as from the use operations in the terms "franchise grantees" and "sale of
or lease of properties. services" under Section 108 of the Code.
 encompassing meaning. Thus, every activity that can be
RUING: imagined as a form of "service" rendered for a fee should be
1. NO. Any concern about how the VAT on tollway operations deemed included unless some provision of law especially excludes
will be enforced must first be addressed to the BIR on whom it.
the task of implementing tax laws primarily and exclusively
rests. The Court cannot preempt the BIR’s discretion on the Under P.D. 1112 (Toll Operation Decree) tollway operators
matter, absent any clear violation of law or the Constitution. construct, maintain, and operate expressways, also called tollways,
at the operators' expense. In consideration for constructing
Administrative feasibility is one of the canons of a sound tax tollways at their expense, the operators are allowed to collect
system. It simply means that the tax system should be capable government-approved fees from motorists using the tollways
of being effectively administered and enforced with the least until such operators could fully recover their expenses and earn
inconvenience to the taxpayer. reasonable returns from their investments.

Non-observance of the canon, however, will not render a tax Not only do they fall under the broad term under (1) but also
imposition invalid "except to the extent that specific come under those described as “all other franchise grantees”
constitutional or statutory limitations are impaired." Thus, which is not confined only to legislative franchise grantees
even if the imposition of VAT on tollway operations may seem since the law does not distinguish.
burdensome to implement, it is not necessarily invalid unless
some aspect of it is shown to violate any law or the Tollway operators are, owing to the nature and object of their
Constitution. business, "franchise grantees." The construction, operation, and
maintenance of toll facilities on public improvements are activities
Here, it remains to be seen how the taxing authority will actually of public consequence that necessarily require a special grant of
implement the VAT on tollway operations. Any declaration by the authority from the state. The term "franchise" has been broadly
Court that the manner of its implementation is illegal or construed as referring, not only to authorizations that
unconstitutional would be premature. Congress directly issues in the form of a special law, but also
to those granted by administrative agencies to which the
Although the transcript of the August 12, 2010 Senate hearing power to grant franchises has been delegated by Congress.
provides some clue as to how the BIR intends to go about it, the
facts pertaining to the matter are not sufficiently established for 3. Toll fee is not a user’s tax and thus it is permissible to
the Court to pass judgment on. impose a VAT on the said fee.
XXX
For the same reason, the Court cannot prematurely declare as TOLLWAY FEES v. TAXES
illegal, BIR RMC 63-2010 which directs toll companies to record Tollway fees are not taxes. They are not assessed and collected by
an accumulated input VAT of zero balance in their books as of the BIR and do not go to the general coffers of the government.
August 16, 2010, the date when the VAT imposition was supposed What the government seeks to tax here are fees collected from
to take effect. The issuance allegedly violates Section 111(A) of tollways that are constructed, maintained, and operated by
the Code which grants first time VAT payers a transitional input private tollway operators at their own expense under the build,
VAT of 2% on beginning inventory. operate, and transfer scheme that the government has adopted for
expressways. In sum, fees paid by the public to tollway operators
In this connection, the BIR explained that BIR RMC 63-2010 is for use of the tollways, are not taxes in any sense.
actually the product of negotiations with tollway operators who
have been assessed VAT as early as 2005, but failed to charge A tax is imposed under the taxing power of the government
VATinclusive toll fees which by now can no longer be collected. principally for the purpose of raising revenues to fund public
The tollway operators agreed to waive the 2% transitional input expenditures.
VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input Toll fees, on the other hand, are collected by private tollway
VAT belongs to the tollway operators who have not questioned operators as reimbursement for the costs and expenses incurred in
the circular’s validity. They are thus the ones who have a right to the construction, maintenance and operation of the tollways, as
challenge the circular in a direct and proper action brought for the well as to assure them a reasonable margin of income.
purpose.
Although toll fees are charged for the use of public facilities,
2. NO. Section 108 of the NIRC imposes VAT on "all kinds of therefore, they are not government exactions that can be properly
services" rendered in the Philippines for a fee, including those treated as a tax. Taxes may be imposed only by the government
specified in the list. under its sovereign authority, toll fees may be demanded by
either the government or private individuals or entities, as an
The 3RD par. of SEC. 108 defines "sale or exchange of services" attribute of ownership.
as: the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, including those VAT on tollway operations cannot be deemed a tax on tax due to
performed or rendered by construction and service the nature of VAT as an indirect tax. In indirect taxation, a
contractors……. services of franchise grantees of electric distinction is made between the liability for the tax and
utilities, telephone and telegraph, radio and television burden of the tax. The seller who is liable for the VAT may shift
broadcasting and all other franchise grantees except those under or pass on the amount of
Section 119 of this Code VAT it paid on goods, properties or services to the buyer. In such
a case, what is transferred is not the seller's liability but merely the
It is plain from the Section 108 of the NIRC imposes VAT on burden of the VAT.
"all kinds of services" rendered in the Philippines for a fee,
including those specified in the list. The enumeration of affected Thus, the seller remains directly and legally liable for payment
services is not exclusive. By qualifying "services" with the words of the VAT, but the buyer bears its burden since the amount
"all kinds," Congress has given the term "services" an all- of VAT paid by the former is added to the selling price.
 The basis for determining which LGU has the apparent right to
II. MUN. OF CAINTA VS CITY OF PASIG, 828 SCRA 527 (2017) collect local taxes is the location as appearing on the certificate
DOCTRINE: The basis for determining which LGU has the of title, unless an amendment thereto is duly made.
apparent right to collect local taxes is the location as appearing
on the certificate of title, unless an amendment thereto is duly Taxpayer is entitled to rely on the location clearly reflected in
made. the certificate of title covering the properties. To hold otherwise
would subject taxpayers to the vagaries of boundary disputes, to
Taxpayer is entitled to rely on the location clearly reflected in the their prejudice and inconvenience and to the detriment of proper
certificate of title covering the properties. To hold otherwise tax administration. Such scenario is contrary to the canons of a
would subject taxpayers to the vagaries of boundary disputes, to sound tax system.
their prejudice and inconvenience and to the detriment of proper
tax administration. Such scenario is contrary to the canons of a Administrative feasibility is one of the canons of a sound tax
sound tax system. system. It simply means that the tax system should be capable of
being effectively administered and enforced with the least
Administrative feasibility is one of the canons of a sound tax inconvenience to the taxpayer.
system. It simply means that the tax system should be capable of
being effectively administered and enforced with the least For purposes of complying with local tax liabilities, the taxpayer
inconvenience to the taxpayer is entitled to rely on the location stated in the certificate of title.

SYNOPSIS: Under the LGC, local business taxes are payable for every
separate or distinct establishment or place where business subject
FACTS: to the tax is conducted, which must be paid by the person
Petitioner Uniwide conducted and operated business in buildings conducting the same.
and establishments constructed on parcels of land. In the TCT, the
location of the parcels of land is indicated as being in Pasig. Section 150 provides the situs of taxation: the tax
thereon shall accrue and shall be paid to the
Uniwide applied for and was issued a building permit by Pasig for municipality where such branch or sales outlet is
its building. Uniwide also secured the requisite Mayor's Permit for located.
its business from Pasig and consequently paid thereto its business
and realty taxes, fees, and other charges from 1989 to 1996. For real property taxes, PD 464 or the Real Property Tax
Code, SEC. 5 & 57 provides that collection is vested in the
However, beginning 1997, Uniwide did not file any application locality where the property is situated. This was even affirmed
for renewal of its Mayor's Permit in Pasig nor paid the local taxes by SEC. 201 & 247, LGC.
thereto. Instead, it paid local taxes to Cainta after the latter gave it
notice, supported by documentary proof of its claims, that the It is undisputed that the subject properties are covered by TCTs
subject properties were within Cainta's territorial jurisdiction. which show on their faces that they are situated in Pasig; 19 that
Uniwide's business establishment is situated within the subject
Consequently, Pasig filed a case for Collection Of Local properties; that the stated location has remained unchanged since
Business Taxes, Fees, And Other Legal Charges due for fiscal their issuance; that prior payments of the subject taxes, fees, and
year 1997 against Uniwide w/ RTC. charges have been made by Uniwide to Pasig; and that there is no
court order directing the amendment of the subject TCTs with
Uniwide, in turn, filed a third-party complaint against Cainta for regard to the location stated therein.
reimbursement of the taxes, fees, and other charges it had paid to there is forum shopping when the following elements are present, namely:
the latter in the event that Uniwide was adjudged liable for a) identity of parties, or at least such parties as represent the same
payment of taxes to Pasig. interests in both actions;
b) identity of rights asserted and reliefs prayed for, the relief being
founded on the same facts; and
Uniwide sold the subject properties to Robinsons Land c) the identity of the two preceding particulars, such that any
Corporation. judgment rendered in the other action will, regardless of which
party is successful, amount to res judicata in the action under
RTC: Ruled in favor of Pasig, thus, TCTs indicate that the parcels consideration.
of land described therein are located within the territorial limits of As correctly found by the RTC-Pasig and affirmed by the CA, the first and
Pasig.(Local taxes and real estate taxes) second requisites are wanting. Uniwide is not a party to the boundary
 upheld the indefeasibility of Torrens title, TCTs indicate dispute case between Cainta and Pasig, and the first action is for settlement
of boundary dispute while the second action is for collection of tax.
that the parcels of land are located within the territorial
limits of Pasig. Moreover, the third requisite is also wanting, because regardless of which
party is successful, a judgment in the boundary dispute case will not
CA: Affirmed decision of RTC amount to res judicata in the tax collection case.

ISSUE: c. Theoretical Justice

WON local business taxes and realty taxes are to be collected by
Pasig 17. Theory and Basis of Taxation
how is location determined for purposes of identifying the LGU
entitled to collect taxes. a. Necessity theory

RUING: b. Benefits-protection theory

1.YES. Pasig has the apparent right to levy and collect realty
taxes on the subject properties and business taxes on the 18.Doctrines of Taxation
businesses conducted therein.
A. PROSPECTIVITY
 of P358,274.63 constitutes a written claim for refund
I. CIR V ACOSTA pursuant to the clear proviso stated in the last sentence
DOCTRINE: Tax laws are prospective in operation, unless the of Section 204(c) of the 1997 NIRC (new Tax Code):
language of the statute clearly provides otherwise. Provided, however, That a return filed showing an
overpayment shall be considered as a written claim
Revenue statutes are substantive laws and in no sense must their for credit or refund.
application be equated with that of remedial laws. revenue laws  New Tax Code should prevail - when the petition was
are not intended to be liberally construed. filed with the CTA on April 15, 1999, the 1997 NIRC
was already in effect, hence, Section 204(c) should
Considering that taxes are the lifeblood of the government and in apply, despite the fact that the refund being sought
Holmes’s memorable metaphor, the price we pay for civilization, pertains to a 1996 income tax.
tax laws must be faithfully and strictly implemented.  Invokes the liberal application of technicalities in tax
refund cases,
SYNOPSIS:
ISSUE:
FACTS: 1. W/N the 1997 tax reform can be applied retrospectively
Respondent, Rosemarie Acosta (Acosta) is an employee of Intel 1. Note that the issue on the retroactivity of Section
Manufacturing Phils., Inc. (Intel). For the period January 1 TO 204(c) of the 1997 NIRC arose because the last
December 31, 1996, she was assigned in a foreign country. paragraph of Section 204(c) was not found in
Section 230 of the old Code.
During that period, Intel withheld the taxes due on respondent's 2. W/N the amended return is sufficient compliance of
compensation income and remitted to the Bureau of Internal written claim
Revenue (BIR) the amount of P308,084.56.
RUING:
Acosta and her husband filed with the BIR their Joint Individual 1. NO. Tax laws are prospective in operation, unless the
Income Tax Return for the year 1996. Later, on June 17, 1997, language of the statute clearly provides otherwise.
Acosta, through her representative, filed an amended return and
a Non-Resident Citizen Income Tax Return, and paid the BIR Revenue statutes are substantive laws and in no sense must
P17,693.37 plus interests in the amount of P14,455.76. Acosta their application be equated with that of remedial laws.
filed another amended return indicating an overpayment of revenue laws are not intended to be liberally construed.
358,274.63. (Simply put, substantial compliance is not allowed)

Claiming that the income taxes withheld and paid by Intel and Considering that taxes are the lifeblood of the government
respondent resulted in an overpayment, Acosta filed a petition and in Holmes’s memorable metaphor, the price we pay for
for review in the CTA. civilization, tax laws must be faithfully and strictly
implemented.
CIR: dismissed the petition for Acosta's failure to file the
Mandatory Written Claim For Refund before the CIR. Moreover, a party seeking an administrative remedy must not
merely initiate the prescribed administrative procedure to obtain
CTA: dismissed the petition; relief, but also pursue it to its appropriate conclusion before
seeking judicial intervention in order to give the administrative
 Acosta failed to file a written claim for refund under
agency an opportunity to decide the matter itself correctly and
SEC 230 of the old tax code with the CIR, a condition
prevent unnecessary and premature resort to court action.
precedent to the filing of a petition for review before
the CTA;
Furthermore, as the CTA stressed, even the date of filing of the
 respondent's omission, inadvertently or otherwise, to Final Adjustment Return was omitted, inadvertently or otherwise,
allege in her petition the date of filing the final by respondent in her petition for review. This omission was fatal
adjustment return, deprived the court of its jurisdiction to respondent’s claim, for it deprived the CTA of its jurisdiction
over the subject matter of the case. over the subject matter of the case.
CA: reversed decision; filing of an amended return indicating an 2. NO. The applicable law on refund of taxes pertaining to the
overpayment was sufficient compliance with the requirement of a 1996 compensation income is Section 230 of the old Tax Code,
written claim for refund which was the law then in effect, and not Section 204(c) of the
 Applied Section 204(c) of the 1997 NIRC, Petitioner new Tax Code, which was effective starting only on January 1,
sought reconsideration, but it was denied. Hence, the 1998.
instant petition.
The requirements under Section 230 for refund claims are as
CIR's Arguments: follows:
 An amended return showing an overpayment does not 1. A written claim for refund or tax credit must be filed by the
constitute the written claim for refund required under taxpayer with the Commissioner;
Section 230 of the 1993 NIRC (old Tax Code). 2. The claim for refund must be a categorical demand for
 an actual written claim for refund is necessary before reimbursement;
a suit for its recovery may proceed in any court. 3. The claim for refund or tax credit must be filed, or the suit or
 The 1997 NIRC cannot be applied retroactively as proceeding therefor must be commenced in court within two (2)
the instant case involved refund of taxes withheld on years from date of payment of the tax or penalty regardless of
a 1996 income any supervening cause.

PETITIONER’S CONTENTION: The law is clear. A claimant must first file a written claim for
 filing of an amended return indicating an overpayment refund, categorically demanding recovery of overpaid taxes
with the CIR, before resorting to an action in court. This percentage tax under the Tax Code. SEC. 21 TO No. 7794 - Tax
obviously is intended, on Businesses Subject to the Excise, Value-Added or Percentage
1. first, to afford the CIR an opportunity to correct the Taxes under the NIRC: (50%) of ONE PERCENT (1%) per
action of subordinate officers; and annum on the gross sales or receipts of the preceding calendar
2. second, to notify the government that such taxes have year is imposed.. (8) Coal and coke… all registered businesses in
been questioned, and the notice should then be borne in the City of Manila that are already paying the aforementioned
mind in estimating the revenue available for tax shall be exempted from payment thereof.
expenditure
The City of Manila subsequently amended the ordinance by
Entrenched in our jurisprudence is the principle that tax refunds deleting the provision exempting businesses under the latter
are in the nature of tax exemptions which are section if they have already paid taxes under a different section in
construed strictissimi juris against the taxpayer and liberally in the ordinance.
favor of the government. Tax Ordinance No. 7988 amending certain sections of Tax
Ordinance No. 7794, particularly: (1) Section 14, by increasing
As tax refunds involve a return of revenue from the the tax rates applicable to certain establishments operating within
government, the claimant must show indubitably the specific the territorial jurisdiction of the City of Manila; and (2) Section
provision of law from which her right arises; it cannot be 21, by deleting the proviso found therein, which stated "that all
allowed to exist upon a mere vague implication or inference nor registered businesses in the City of Manila that are already
can it be extended beyond the ordinary and reasonable intendment paying the aforementioned tax shall be exempted from payment
of the language actually used by the legislature in granting the thereof”; Tax Ordinance No. 8011, amended Tax Ordinance No.
refund. 7988.

To repeat, strict compliance with the conditions imposed for This amending ordinances was later declared by the Supreme
the return of revenue collected is a doctrine consistently Court null and void.
applied in this jurisdiction.
Before such declaration, petitioner City of Manila alreaady
Sec. 230. Recovery of tax erroneously or illegally assessed respondent on the basis of Section 21 of Tax
collected. – No suit or proceeding shall be maintained in any Ordinance No. 7794, for deficiency local business taxes,
court for the recovery of any national internal revenue tax penalties, and interest.
hereafter alleged to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have been collected Respondent then filed a protest on the ground of double
without authority, or of any sum alleged to have been taxation; taxed twice, i.e., under Sections 14 and 21 of Tax
excessive or in any manner wrongfully collected, until a claim Ordinance No. 7794,
for refund or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained, whether or Respondent action for the Cancellation Of The Assessment
not such tax, penalty, or sum has been paid under protest or Against against the petitioner.
duress
RTC: DISMISSED the petition; business taxes imposed were not
b. Imprescriptibility of Taxation the same kind or character, thus, no double taxation but later on
reversed it decision, barred petitioners from further
c. Double Taxation imposing/assessing local business taxes against respondent in
conformity ruling of the court nullifying Tax Ordinance No. 7988
I. DIRECT DOUBLE TAXATION and Tax Ordinance No. 801.

1. CITY OF MANILA VS COCA COLA CTA: dismissed petition.

DOCTRINE:
PETITIONER’S ARGUMENT:
SYNOPSIS:  imposing upon respondent local business taxes under
both Sections 14 and 21 of Tax Ordinance No. 7794
FACTS: does not constitute direct double taxation. Section 143
petitioners Toledo and Santiago, are City Treasurer and Chief of of the LGC gives municipal, as well as city
the Licensing Division, respectively of petitioner public governments, the power to impose business taxes:
corporation City of Manila. Manufacturers, wholesalers, distributors or dealers
exporters
Respondent, Coca-Cola Bottlers Philippines, Inc. is a corporation  There can be no double taxation when respondent is
engaged in the business of manufacturing and selling beverages, being taxed under both Sections 14 and 21 of Tax
and which maintains a sales office in the City of Manila. Ordinance No. 7794, for under the first, it is being
taxed as a manufacturer; while under the second, it
Respondent had been paying the City of Manila local business tax is being taxed as a person selling goods in the course
only under Section 14 of Tax Ordinance No. 7794: There is of trade or business subject to excise, VAT, or
hereby imposed a graduated tax on manufacturers, assemblers, percentage tax.
repackers, processors, brewers, distillers, rectifiers, and  Even with the declaration of nullity of Tax Ordinance
compounders of liquors, distilled spirits, and wines or No. 7988 and Tax Ordinance No. 8011, respondent
manufacturers of any article of commerce of whatever kind or could still be made liable for local business taxes
nature, in accordance with any of the following schedule: under both Sections 14 and 21 of Tax Ordinance No.
7944 as they were originally read, without the
Respondent paid the local business tax only as a manufacturers as amendment by the null and void tax ordinances.
it was expressly exempted from the business tax under a different
section and which applied to businesses subject to excise, VAT or ISSUE:
WON the enforcement of the Sec. 21of TO No. 7794 constitute previously worded, with its exempting proviso, is back in
double taxation? effect. Accordingly, respondent should not have been
WON petitioner should be liable for the local tax imposed under subjected to the local business tax under Section 21 of Tax
SEC 21 of TO No. 7794 Ordinance No. 7794 for the third and fourth quarters of 2000,
given its exemption therefrom since it was already paying the
RUING: local business tax under Section 14 of the same ordinance.
YES. Petitioners obstinately ignore the exempting proviso in
Section 21 of Tax Ordinance No. 7794, to their own detriment.
Said exempting proviso was precisely included in said section 2. ERICSSON VS PASIG
so as to avoid double taxation. DOCTRINE: The imposition of local business tax based on
petitioner's gross revenue will inevitably result in the
Double taxation means taxing the same property twice when it constitutionally proscribed double taxation - taxing of the same
should be taxed only once; that is, "taxing the same person person twice by the same jurisdiction for the same thing -
twice by the same jurisdiction for the same thing." It is inasmuch as petitioner's revenue or income for a taxable year will
obnoxious when the taxpayer is taxed twice, when it should be definitely include its gross receipts already reported during the
but once. Otherwise described as "direct duplicate taxation," previous year and for which local business tax has already been
the two taxes must be imposed on the same subject matter, for paid. Thus, respondent committed a palpable error when it
the same purpose, by the same taxing authority, within the assessed petitioner's local business tax based on its gross revenue
same jurisdiction, during the same taxing period; and the as reported in its audited financial statements, as Section 143 of
taxes must be of the same kind or character. the Local Government Code and Section 22(e) of the Pasig
Revenue Code clearly provide that the tax should be computed
Using the aforementioned test, the Court finds that there is based on gross receipts
indeed double taxation if respondent is subjected to the taxes
under both Sections 14 and 21 of Tax Ordinance No. 7794, SYNOPSIS:
since these are being imposed:
(1) on the same subject matter – the privilege of doing FACTS:
business in the City of Manila; ricsson Telecommunications, Inc. (petitioner), a corporation with
(2) for the same purpose – to make persons conducting principal office in Pasig City, is engaged in the design,
business within the City of Manila contribute to city revenues; engineering, and marketing of telecommunication
(3) by the same taxing authority – petitioner City of Manila; facilities/system. In an Assessment Notice dated October 25, 2000
(4) within the same taxing jurisdiction – within the territorial issued by the City Treasurer of Pasig City, petitioner was assessed
jurisdiction of the City of Manila; a business tax deficiency for the years 1998 and 1999 amounting
(5) for the same taxing periods – per calendar year; and (6) of to P9,466,885.00 and P4,993,682.00, respectively, based on its
the same kind or character – a local business tax imposed on gross revenues as reported in its audited financial statements for
gross sales or receipts of the business. the years 1997 and 1998.

The distinction petitioners attempt to make between the taxes Petitioner filed a Protest dated December 21, 2000, claiming that
under Sections 14 and 21 of Tax Ordinance No. 7794 is the computation of the local business tax should be based on gross
specious. receipts and not on gross revenue.

The Court revisits Section 143 of the LGC, the very source of The City of Pasig (respondent) issued another Notice of
the power of municipalities and cities to impose a local Assessment to petitioner on November 19, 2001, this time based
business tax, and to which any local business tax imposed by on business tax deficiencies for the years 2000 and 2001,
petitioner City of Manila must conform. amounting to P4,665,775.51 and P4,710,242.93, respectively,
based on its gross revenues for the years 1999 and 2000. Again,
It is apparent from a perusal thereof that when a municipality petitioner filed a Protest on January 21, 2002, reiterating its
or city has already imposed a business tax on manufacturers, position that the local business tax should be based on gross
etc. of liquors, distilled spirits, wines, and any other article of receipts and not gross revenue.
commerce, pursuant to Section 143(a) of the LGC, said
municipality or city may no longer subject the same Respondent denied petitioner's protest and gave the latter 30 days
manufacturers, etc. to a business tax under Section 143(h) of within which to appeal the denial.
the same Code.
This prompted petitioner to file a Petition for Review with the
Section 143(h) may be imposed only on businesses that are Regional Trial Court (RTC) of Pasig, Branch 168, praying for the
subject to excise tax, VAT, or percentage tax under the NIRC, annulment and cancellation of petitioner's deficiency local
and that are "not otherwise specified in preceding business taxes totaling P17,262,205.66.
paragraphs."
Respondent and its City Treasurer filed a motion to dismiss on the
In the same way, businesses such as respondent’s, already subject grounds that the court had no jurisdiction over the subject matter
to a local business tax under Section 14 of Tax Ordinance No. and that petitioner had no legal capacity to sue. The RTC denied
7794 [which is based on Section 143(a) of the LGC], can no the motion in an Order dated December 3, 2002 due to
longer be made liable for local business tax under Section 21 of respondents' failure to include a notice of hearing. Thereafter, the
the same Tax Ordinance [which is based on Section 143(h) of the RTC declared respondents in default and allowed petitioner to
LGC]. present evidence ex - parte. The RTC canceled and set aside the
assessments made by respondent and its City Treasurer.
2, NO. With the pronouncement by the Court in the Coca-
Cola case that Tax Ordinance No. 7988 and Tax Ordinance On appeal, the Court of Appeals (CA) sustained respondent's
No. 8011 were null and void and without legal effect, then claim that the petition filed with the RTC should have been
Section 21 of Tax Ordinance No. 7794, as it has been dismissed due to petitioner's failure to show that Atty. Maria
Theresa B. Ramos (Atty. Ramos), petitioner's Manager for Tax whether or not the assessments issued to BPI for deficiency
and Legal Affairs and the person who signed the Verification and percentage and documentary stamp taxes for 1986 were valid
Certification of Non-Forum Shopping, was duly authorized by the whether or not BPI was liable for the said taxes.
Board of Directors. Its motion for reconsideration having been
denied, petitioner now comes before the Court via a Petition for RUING:
Review on Certiorari under Rule 45 of the Rules of Court
1.
ISSUE: Sec. 228. Protesting of Assessment. — When the [CIR]
or his duly authorized representative
finds that proper taxes should be assessed, he shall first
RUING: notify the taxpayer of his
findings: Provided, however, That a preassessment
notice shall not be required in the
3. CIR VS BPI following cases:
DOCTRINE: xxx xxx xxx
The taxpayer shall be informed in writing of the law and
SYNOPSIS: Petitioner, (CIR) assessed the respondent, BPI’s the facts on which the
Deficiency Percentage and Documentary Stamp Taxes for assessment is made; otherwise, the assessment shall be
the year 1986 in the total amount of 129,488,656.63 php void.
through two notices dated October 28,1988
Admittedly, the CIR did not inform BPI in writing of the law
FACTS: and facts on which the assessments of the deficiency taxes were
petitioner Commissioner of Internal Revenue (CIR) assessed made. He merely notified BPI of his findings, consisting only of
respondent Bank of the Philippine Islands’ (BPI’s) deficiency the computation of the tax liabilities and a demand for payment
percentage and documentary stamp taxes for the year 1986 in the thereof within 30 days after receipt.
total amount of ₱129,488,656.63:
In merely notifying BPI of his findings, the CIR relied on the
In reply, respondent expressed protest and inquiry as to the provisions of the former Section 270 prior to its amendment by
vagueness of the letter on what particular percentage tax is RA 8424 (also known as the Tax Reform Act of 1997).
involved and how your examiner arrived at the deficiency.
Accordingly, when the assessments were made pursuant to the
BPI then a letter from petitioner constituting a final decision former Section 270, the only requirement was for the CIR to
informing the former that letter failed to qualify as a protest under "notify" or inform the taxpayer of his "findings." Nothing in
Revenue Regulations No. 12-85 and that no valid issue was raised the old law required a written statement to the taxpayer of the
against the validity of our assessment. law and facts on which the assessments were based.

CIR: DENIED MR. The Court cannot read into the law what obviously was not
CTA: dismissed the case for lack of jurisdiction since the subject intended by Congress. That would be judicial legislation, nothing
assessments had become final and unappealable. less.
CA: eversed the tax court’s decision, remanded the case to
CTA; notices were not valid assessments because they did not Jurisprudence, on the other hand, simply required that the
inform the taxpayer of the legal and factual bases therefor. assessments contain a computation of tax liabilities, the
amount the taxpayer was to pay and a demand for payment
Hence, this petition. within a prescribed period.

PETITIONER’S CONTENTON: Everything considered, there was no doubt the October 28, 1988
 BIR Form No. 17.08 was (as revised in November 1964) notices sufficiently met the requirements of a valid assessment
which was designed for the precise purpose of notifying under the old law and jurisprudence.
taxpayers of the assessed amounts due and demanding
payment thereof The sentence the taxpayers shall be informed in writing of the law
 no law or jurisprudence then that required notices to and the facts on which the assessment is made; otherwise, the
state the reasons for assessing deficiency tax liabilities.2 assessment shall be void was not in the old Section 270 but was
only later on inserted in the renumbered Section 228 in 1997.
BPI ARGUMENTS: Evidently, the legislature saw the need to modify the former
 due process demanded that the facts, data and law upon Section 270 by inserting the aforequoted sentence. The fact that
which the assessments were based be provided to the the amendment was necessary showed that, prior to the
taxpayer. introduction of the amendment, the statute had an entirely
 It insists that the NIRC, as worded now (referring to different meaning. Contrary to the submission of BPI, the inserted
sentence in the renumbered Section 228 was not an affirmation of
Section 228), specifically provides that: "[t]he taxpayer
what the law required under the former Section 270.
shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the
The amendment introduced by RA 8424 was an innovation and
assessment shall be void."
could not be reasonably inferred from the old law. Clearly, the
SEC. 270, NIRC: When the [CIR] or his duly authorized
legislature intended to insert a new provision regarding the form
representative finds that proper taxes should be assessed, he
and substance of assessments issued by the CIR. Considering that
shall first notify the taxpayer of his findings; [CIR] shall issue
the October 28, 1988 notices were valid assessments, BPI should
an assessment based on his findings
have protested the same within 30 days from receipt thereof. The
December 10, 1988 reply it sent to the CIR did not qualify as a
ISSUE:
protest since the letter itself stated that "[a]s soon as this is
explained and clarified in a proper letter of assessment; we shall o the law must be reasonable and must be for
inform you of the taxpayer’s decision on whether to pay or protest public purpose
the assessment."36 Hence, by its own declaration, BPI did not
regard this letter as a protest against the assessments. PROCEDURAL:
o there must be no arbitrariness in the assessment
As a matter of fact, BPI never deemed this a protest since it did and collection; the prescribed rules must be
not even consider the October 28, 1988 notices as valid or proper followed before assessment and collection
assessments.

The inevitable conclusion is that BPI’s failure to protest the I. CASTRO VS. COLLECTOR (4 SCRA 119)
assessments within the 30-day period provided in the former DOCTRINE: The forfeiture need not be for the whole tax
Section 270 meant that they became final and unappealable. liability which could merely be for the amount equivalent to the
Thus, the CTA correctly dismissed BPI’s appeal for lack of fair market value of the property.
jurisdiction.
SYNOPSIS:
BPI was, from then on, barred from disputing the correctness of Maria B. Castro appeals a decision holding her liable under the
the assessments or invoking any defense that would reopen the War Profits Tax Law, despite her acquittal in the criminal case, as
question of its liability on the merits. the court rules in favor of the Collector of Internal Revenue on
various issues including the validity of determining cash on hand,
Not only that. There arose a presumption of correctness when BPI taxability of cash on hand, and the discharge of tax liabilities
failed to protest the assessments. Taxes are the lifeblood of the through forfeiture of properties.
government, for without taxes, the government can neither exist
nor endure. A principal attribute of sovereignty, the exercise of FACTS:
taxing power derives its source from the very existence of the state petitioner filed a complaint for the recovery of the properties
whose social contract with its citizens obliges it to promote public advertised for sale on auction which for lack of bidders were
interest and common good. The theory behind the exercise of the forfeited in favor of the Government pursuant to SEC. 328, NIRC.
power to tax emanates from necessity; without taxes, government
cannot fulfill its mandate of promoting the general welfare and This case rooted from the assessed war tax profit by the Pedrosa
well-being of the people. Committed amounting to P3,593.950.78 which the petitioner
failed to pay.

2 YES. BPI cannot be liability under the subject tax assessments A Criminal Case was filed against her for violation of the War
since it involves a considerable amount of money. Profits Tax Law, for allegedly defrauding the Republic of the
Philippines by her failure to render a true and accurate return
Otherwise, the state will be deprived of the taxes validly due it and of the war profits tax due from her, with intent to evade
the public will suffer if taxpayers will not be held liable for the payment of the tax.
proper taxes assessed against them:
The criminal action was filed against the respondent and
Taxes are the lifeblood of the government, for without taxes, the simultaneous with the filing of said action, the petitioner received
government can neither exist nor endure. A principal attribute of for the first time the notice of assessment dated November 19,
sovereignty, the exercise of taxing power derives its source from 1947 by registered mail from the CIR.
the very existence of the state whose social contract with its
citizens obliges it to promote public interest and common good. The letter of demand to pay the sum of P1,048,687.76 as war
The theory behind the exercise of the power to tax emanates from profits tax and surcharge, (This is based from the REPORT of
necessity; without taxes, government cannot fulfill its mandate of Supervising Examiner Felipe Aquino of BIR)
promoting the general welfare and well-being of the people.
Said criminal case was dismissed by the court from the motion to
ii. Indirect double taxation dismiss filed by Aquino that was granted.

iii. Ways to eliminate double taxation However, after dismissal of the criminal action, multiple report
was submitted by Aquino increasing the amount of the war tax
1. Tax treaties profit demanded from petitioner.

2. Tax credits A case was again referred to the City Fiscal's Office for another
prosecution based on the earlier demand but the same was again
3. Tax deduction dropped.

4. Tax reduction By the request of the petitioner, a committee was created to

reinvestigate and ascertain her war profit tax.
19.CONSTITUTIONAL LIMITATIONS
A. DUE PROCESS CTA: ruled that the foreclosure of her property were proper and
CONSTI: ART. 3, Section 1. No person shall be deprived of life, her tax liability amounts to P 3,077,394.66. (Surcharge 50% &
liberty, or property without due process of law, nor shall any person
interest of 1%
be denied the equal protection of the laws.
Petitioner now Petitioner-appellant Maria B. Castro asks for
Tax laws and their enforcement must comply with substantive and
partial reconsideration of the decision.
procedural due process.
SUBSTANTIVE
She alleged that:
 her acquittal in the criminal case instituted against her for
violation of the War Profits Tax Law is a bar to the Petitioner contends that the imposition of interest amounts to a
collection of the taxes assessed, and specially of the 50% penalty, and that laws imposing lighter penalties are given
surcharge retrospective effect. We disagree with the basic assumption, and
 the one percent (1%) monthly interest on the war profits tax hold that the imposition of 1% monthly interest is but a just
due from her should be limited to a total of thirty-six per compensation to the state for the delay in paying the tax, and for
centum (36%). This contention is made to rest on the the concomitant use by the taxpayer of funds that rightfully should
provisions of the Internal Revenue Code on Income Tax, be in the government’s hands (U.S. v. Goldstein, 189 F [2d] 752;
Section 51 (e), as amended by RA No. 2343 (approved on Ross v. U.S., 148 Fed. Supp. 330; U.S. v. Joffray, 97 Fed.[2d]
June 29, 1959), to the effect that: 488).
"SEC. 51 (e).Additions to the tax in case of
nonpayment.— (1) Tax shown on the return. — The fact that the interest charged is made proportionate to the
Where the amount determined by the taxpayer as the tax period of delay constitutes the best evidence that such interest is
imposed by this Title or any installment thereof, or any not penal but compensator.
part of such amount or installment, is not paid on or
before the date prescribed for its payment, there  NO. the defense of jeopardy and estoppel by reason of the
shall be collected as a part of the tax, interest upon petitioner's acquittal is untenable and without merit.
such unpaid amount at the rate of 1% a month from 
the date prescribed for its payment until it is paid: The acquittal of a taxpayer in the criminal case cannot operate
Provided, That the maximum amount that may be to discharge him from the duty to pay tax, because that duty is
collected as interest on deficiency shall in no case imposed by statute prior to and independent of any attempt on
exceed the amount corresponding to a period of three the part of the taxpayer to evade payment.
years, the present provisions regarding prescription to
the contrary notwithstanding." ."
The obligation to pay the tax is not a mere consequence of the
Petitioner alleged that the War Profits Tax Law (R.A. No. 55) is felonious acts charged in the information, nor is it a mere civil
unconstitutional and void on account of its retrospective operation. liability derived from crime that would be wiped out by the
judicial declaration that the criminal acts charged did not
Petitioner Castro complains (Errors I and VI) that the Tax Court exist.
had declared subject to the war profits tax her cash transactions
from June, 1945to December 31, 1946, when Republic Act No. Considering that the Government cannot seek satisfaction of the
55 levies that tax only on the value of the taxpayer's assets taxpayer's civil liability in a criminal proceeding under the tax law
(including real and personal property and/orcash in banks) as of or, otherwise stated, since the said civil liability is not deemed
February 26, 1945, minus his liabilities.. included in the criminal action, acquittal of the taxpayer in the
criminal proceeding does not necessarily entail exoneration
Castro argued that her acquittal in the criminal case should from his liability to pay the taxes.
discharge her from the duty to pay tax.
As to the 50% surcharge, additions of this kind to the main tax
ISSUE: are not penalties but civil administrative sanctions, provided
Whether or not Castro is correct primarily as a safeguard for the protection of the state revenue
WON the acquittal of Castro from criminal action exonerate her and to reimburse the government for the heavy expense of
duty to pay the tax investigation and the loss resulting from the taxpayer's fraud.

RULING: This is made plain by the fact that such surcharges are
NO. Assuming, without deciding, that this particular section is enforceable, like the primary tax itself, by distraint or civil
applicable to war profits taxes, we agree with the Solicitor suit, and that they are provided in a section of R.A. No. 55
General that there is no legal ground for applying (section 5) that is separate and distinct from that providing for
retroactively to the delinquencies of the petitioner under the criminal prosecution (section 7).
War Profits Tax Law (and which accrued since September 23,
1950, when the corresponding tax assessment was issued) the
terms of a law (R.A. 2343) enacted almost nine (9) years later. B. EQUAL PROTECTION CLAUSE

It is elementary that laws are presumed to operate only I. LUTZ VS. ARANETA (98 PHIL 148)
prospectively, and have no retroactive effect in the absence of DOCTRINE:
clear provision to the purpose. The State is free to select the subjects of taxation, and the Court
has repeatedly held that inequalities which result from a singling
As it stood in 1950, Section 51 (e) of the Revenue Code provided out of one particular class for taxation or exemption infringe no
for monthly interest without limitation of the number of constitutional limitation.
months:
SYNOPSIS: This case was initiated in the Court of First Instance
"SEC. 51 (E) SURCHARGE AND INTEREST IN of Negros Occidental to test the legality of the taxes imposed by
CASE OF DELINQUENCY. — To any sum or sums Commonwealth Act No. 567, otherwise known as the Sugar
due and unpaid after the dates prescribed in subsections Adjustment Act.
(b), (c) and (d) for the payment of the same, there shall FACTS:
be added the sum of five per centum on the amount of CA NO. 567, otherwise known as the SUGAR ADJUSTMENT
tax unpaid and interest at the rate of one per centum a ACT was promulgated in 1940.
month upon said tax from the time the same became SEC. 1 thereof states that with a declaration of
due, except from the estates of insane, deceased, or emergency, due to the threat to our industry by the
insolvent persons." imminent imposition of export taxes upon sugar as
 provided in the TYDINGS-MCDUFFE ACT, and the
"eventual loss of its preferential position in the If objective and methods are alike constitutionally valid, no reason
United States market"; wherefore, the national policy is seen why the state may not levy taxes to raise funds for their
was expressed "to obtain a readjustment of the prosecution and attainment. Taxation may be made the
benefits derived from the sugar industry by the implement of the state’s police power.
component elements thereof" and "to stabilize the
sugar industry so as to prepare it for the eventuality The funds raised under the Sugar Stabilization Act, should be
of the loss of its preferential position in the United exclusively spent in aid of the sugar industry, since it is that
States market and the imposition of the export taxes. very enterprise that is being protected. It may be that other
industries are also in need of similar protection; that the
SEC. 2, provides for an increase of the existing tax on legislature is not required by the Constitution to adhere to a
the manufacture of sugar, on a graduated basis, on policy of "all or none."
each picul of sugar manufactured;
The tax under said Act is levied with a regulatory purpose, to
while SECTION 3 levies on owners or persons in provide means for the rehabilitation and stabilization of the
control of lands devoted to the cultivation of sugar threatened sugar industry. Since sugar production is one of the
cane and ceded to others for a consideration, on lease great industries of our nation, its promotion, protection, and
or otherwise — a tax equivalent to the difference advancement, therefore redounds greatly to the general welfare.
between the money value of the rental or consideration Hence, said objectives of the Act is a public concern and is
collected and the am ount representing 12 per centum therefore constitutional.
of the assessed value of such land.

Furthermore, SEC. 6 states all the collections made II. SHELL VS. VANO (94 PHIL 389)
under said Act shall be for aid and support of the DOCTRINE:
sugar industry exclusively.

Plaintiff, WALTER LUTZ, in his capacity as Judicial SYNOPSIS:

Administrator of the Intestate Estate of Antonio Jayme Ledesma,
seeks to recover from the Collector of Internal Revenue the sum
of P14,666.40 paid by the estate as taxes, under SEC 3 of the FACTS:
Act, for the crop years 1948-1949 and 1949-1950; alleging that This case ensued when the Municipal council of Cordova issued 3
such tax is unconstitutional and void, being levied for the aid ordinances imposing annual taxes of: No.10 S.46 – P150 for
and support of the sugar industry exclusively, which in occupation or exercise of privilege of installation manager; No. 9
plaintiff's opinion is not a public purpose for which a tax may be S. 47 – P40 for local deposits in drums of combustible and
constitutionally levied
inflammable materials & 200 for tin can factories; No. 11 S.48 –
P150 for tin can factories with max. output capacity of 30,000.
RTC; Dismissed petition;
 Scrutiny of CA No. 567 shows that the law was Said ordinances were adopted pursuant to SEC. 2244 of the
primarily an exercise of police power, specifically, sec. Revised Administrative Code: municipal council in the exercise
6 will show that the tax was levied to provide means of the regulative authority may require any person engaged in
for the rehabilitation and stabilization of the any business or occupation, such as "storing combustible or
threatened sugar industry. explosive materials" or "the conducting of any other business of
an unwholesome, obnoxious, offensive, or dangerous” to obtain
ISSUE: a permit for a reasonable fee. In no case to exceed P10 per
W/N the tax levied under the Sugar Adjustment Act annum, may be charged, the annual tax of P40 and P200 are
(Commonwealth Act 567) is unconstitutional. unauthorized and illegal.
RULING: Whereas the ordinance which imposes the taxes in question was
NO. The tax levied under the Sugar Adjustment Act is adopted under and pursuant to the provisions of CA No. 472,
constitutional. which authorizes municipal councils and municipal district
councils "to impose license taxes upon persons engaged in any
The State has the power to select subject of taxation: it appears occupation or business, or exercising privileges in the
rational that the tax be obtained precisely from those who are to municipality or municipal district, by requiring them to secure
be benefited from the expenditure of the funds derived from it. licenses at rates fixed by the municipal council or municipal
district council," which shall be just and uniform but not
At any rate, it is inherent in the power to tax that a state be free "percentage taxes and taxes on specified articles."
to select the subjects of taxation, and it has been repeatedly
held that "inequalities which result from a singling out of one Likewise, Ordinance No. 10, series of 1946, which imposes an
particular class for taxation, or exemption infringe no annual tax of P150 on "installation manager" comes under the
constitutional limitation" provisions of Commonwealth Act No. 472.
As the protection and promotion of the sugar industry is a Petitioner, SHELL CO., a foreign corporation, n, filed suit for
matter of public concern, it follows that the Legislature may the refund of the taxes paid by it, on the ground that the
determine within reasonable bounds what is necessary for its ordinances imposing such taxes are ultra vires which the
protection and expedient for its promotion. Here, the legislative respondent denies.
discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided RTC: Upheld the validity of the ordinances
in SEC.6 the law (above quoted) bear no relation to the objective
pursued or are oppressive in character.
PETITIONER’S CONTENTION: because it is not a share or a tax based on the amount of the
 No. 9 S. 47 is illegal because in no case that the proceeds realized out of the sale of the tin cans manufactured
annual tax to exceed P10 per annum therein but on the business of manufacturing tin cans having
 "installation manager" is a designation made by the a maximum annual output capacity of 30,000 tin cans.
plaintiff and such designation cannot be deemed to be a
"calling" as defined in section 178 of the National
Internal Revenue Code 3. The permit and the fee referred to in Non. 9 S. 47 may be
 installation manager employed by the plaintiff is a required and charged by the Municipal Council of Cordova in
salaried employee which may not be taxed by the the exercise of its regulative authority.
municipal council under the provisions of
Commonwealth Act No. 472.
 ordinance is discriminatory and hostile because there is
no other person in the locality who exercises such III. MANILA RACE HORSE OWNERS ASSOCIATION VS.
"designation" or occupation DELA FUENTE (88 PHIL 60)
DOCTRINE: There is equality and uniformity in taxation if all
ISSUE: articles or kinds of property of the same class are taxed at the
 whether or not the ordinance is discriminatory same rate.
 WON the which imposes a municipal tax of P150 on tin
can factories having a maximum annual output capacity Equity in taxation is generally conceived in terms of ABILITY TO
of 30,000 tin can PAY in relation to the benefits received by the taxpayer and by the
PUBLIC from the business or property taxed.
RULING: SYNOPSIS:
1. NO. the ordinance which imposes the taxes to installation
managers was adopted under and pursuant to the provisions
of Commonwealth Act No. 472. FACTS:
Manila Race Horses Trainers Association, Inc. is a non-stock
CA No. 472 authorizes municipal councils and municipal district corporation duly organized and existing under and by virtue of
councils "to impose license taxes upon persons engaged in any the laws of the Philippines, who allege that they are owners of
occupation or business, or exercising privileges in the boarding stables for race horses and that their rights as such are
municipality or municipal district, by requiring them to secure affected by Ordinance No. 3065.
licenses at rates fixed by the municipal council or municipal
district council," which shall be just and uniform but not Petitioner instituted an action for declaratory relief. It assails the
"percentage taxes and taxes on specified articles." validity of Manila Ordinance No. 3065, which imposed license
fees to stable owners based on the number of race horses kept,
Even if the installation manager is a salaried employee of the for being unconstitutional.
plaintiff, still it is an occupation "and one occupation or line of
business does not become exempt by being conducted with some Petitioners argued that the ordinance was a tax on race horses as
other occupation or business for which such tax has been paid'1 distinct from the stables, since the tax was based on the
and the occupation tax must be paid "by each individual engaged number of horses in the stable. They also alleged that the same
in a calling subject thereto." ordinance was discriminatory and was essentially a form of
class legislation.
Furthermore, SEC. 179 of NIRC provides that : The payment
of . . .occupation tax shall not exempt any person from any tax In addition, petitioner argued that the Municipal Board of
provided by law or ordinance in places where such occupation in Manila (is) without power to enact ordinance taxing private
regulated by municipal law, nor shall the payment of any such tax stables for race horses,"
be held to prohibit any municipality from placing a tax upon the
same . . . occupation, for local purposes, where the imposition of ISSUE:
such tax is authorized by law. WON Ordinance No. 3065 was discriminatory and
unconstitutional
The fact that there is no other person in the locality who exercises
such a "designation" or calling does not make the ordinance RULING:
discriminatory and hostile, inasmuch as it is and will be NO. In taxing only boarding stables for race horse, the Court
applicable to any person or firm who exercises such calling or ruled that the ordinance do not make arbitrary classification.
occupation named or designated as "installation manager."
There is equality and uniformity in taxation if all articles or
2. NO. It is valid and lawful, because it is neither a percentage kinds of property of the same class are taxed at the same rate.
tax nor one on specified articles which are the only
exceptions provided in SEC. 1, CA 472. Neither does it fall Applying this criterion to the present case, there would be
under any of its prohibitions. discrimination if some boarding stables of the same class used
for the same number of horses were not taxed or were made to
Specific taxes enumerated in the National Internal Revenue pay less or more than others.
Code are those that are imposed upon "things manufactured
or produced in the Philippines for domestic sale or From the context of Ordinance No. 3065, the intent to tax or
consumption" and upon "things imported from the United license stables and not horses is clearly manifest. The tax is
States and foreign countries," assessed not on the owners of the horses but on the owners of
the stables,
And it is not a percentage tax because it is tax on business
and the maximum annual output capacity is not a percentage, It is also plain from the text of the whole ordinance that the
number of horses is used in the assessment purely as a method
of fixing an equitable and practical distribution of the burden ISSUE:
imposed by the measure. Far from being obnoxious, the W/N the ordinance violated the equal protection clause
method is fair and just. It is but fair and just that for a boarding W/N the ordinance is null and void
stable where only one horse is maintained proportionately less
amount should be exacted than for a stable where more horses RULING:
are kept and from which greater income is derived. 1. YES . There is no pretense that the ordinance equally
applies to motor vehicles who come to Manila for a temporary
From the viewpoint of economics and public policy the taxing of stay or for short errands, and it cannot be denied that they
boarding stables for race horses to the exclusion of boarding contribute in no small degree to the deterioration of the streets
stables for horses dedicated to other purposes is not and public highway. The fact that they are benefited by their
indefensible. use they should also be made to share the corresponding
burden. And yet such is not the case.
The owners of boarding stables for race horses and, for that
matter, the race horse owners themselves, who in the scheme of This is an inequality which we find in the ordinance, and
shifting may carry the taxation burden, are a class by which renders it offensive to the Constitution.
themselves and appropriately taxed where owners of other kinds
of horses are taxed less or not at all, considering that equity in
taxation is generally conceived in terms of ABILITY TO PAY 2. YES.
in relation to the benefits received by the taxpayer and by the
PUBLIC from the business or property taxed.  If it is clearly a property tax, it will be so regarded, even
though nominally and in form it is a license or occupation
Race horses are devoted to gambling if legalized, their owners tax; and, on the other hand, if the tax is levied upon persons
derive fat income and the public hardly any profit from horse on account of their business, it will be construed as a
racing, and this business demands relatively heavy police license or occupation tax, even though it is graduated
supervision. according to the property used in such business, or on the
gross receipts of the business.
Taking everything into account, the differentiation against which
the plaintiffs complain conforms to the practical dictates of  SEC. 70 (B), MOTOR VEHICLES LAW AS AMENDED
justice and equity and is not discriminatory within the OR ACT NO. 3992 provides that no fees may be exacted or
meaning of the Constitution. demanded for the operation of any motor vehicle other
than those therein provided, the only exception being that
iv. ASSOCIATION OF CUSTOMS BROKERS VS. which refers to the property tax which may be imposed by
MUNICIPAL BOARD OF MANILA (95 PHIL 107 a municipal corporation.
DOCTRINE:
In this case, while it refers to property tax and it is fixed ad
valorem yet it is merely levied on motor vehicles operating
SYNOPSIS: within the City of Manila with the main purpose of raising
funds to be expended exclusively for the repair, maintenance
and improvement of the streets and bridges in said city.
FACTS:
Ordinance No. 3379 ("An Ordinance Levying a Property Tax on This is precisely what the MOTOR VEHICLE LAW (Act No.
All Motor Vehicles Operating Within the City of Manila"): SEC. 3992) intends to prevent, for the reason that, under said Act,
1: tax should be 1% ad valorem per annum; proceeds of the tax municipal corporation already participate in the distribution
"shall accrue to the Streets and Bridges Funds of the City and of the proceeds that are raised for the same purpose of
shall be expended exclusively for the repair, maintenance and repairing, maintaining and improving bridges and public highway
improvement of its streets and bridges." (SEC. 73 of the Motor Vehicle Law).

Petitioner, Association of Customs Brokers, Inc., which is This prohibition is intended to prevent duplication in the
composed of all brokers and public service operators of motor imposition of fees for the same purpose. It is for this reason that
vehicles in the City of Manila challenge the validity Ordinance we believe that the ordinance in question merely imposes a
No. 3379 on the ground that: license fee although under the cloak of an ad valorem tax to
(1) while it levies a so-called property tax it is in circumvent the prohibition above adverted to
reality a license tax which is beyond the
power of the Municipal Board of the City of The ordinance infringes the rule of the uniformity of taxation
Manila; ordained by our Constitution.
(2) said ordinance offends against the rule of
uniformity of taxation; and Note that the ordinance exacts the tax upon all motor vehicles
(3) it constitutes double taxation. operating within the City of Manila. It does not distinguish
between a motor vehicle for hire and one which is purely for
Respondents contend on their part that the challenged ordinance private use. Neither does it distinguish between a motor
imposes a property tax which is within the power of the City of vehicle registered in the City of Manila and one registered in
Manila to impose under its Revised Charter [SEC. 18 (P) OF another place but occasionally comes to Manila and uses its
RA NO. 409], and that the tax in question does not violate the streets and public highways.
rule of uniformity of taxation, nor does it constitute double
taxation. The distinction is important if we note that the ordinance
intends to burden with the tax only those registered in the City
RTC: Sustained validity of the ordinance of Manila as may be inferred from the word "operating" used
therein.
 (1) it is based on substantial distinctions which make
The word "operating" denotes a connotation which is akin to a real differences;
registration, for under the Motor Vehicle Law no motor vehicle (2) these are germane to the purpose of the law;
can be operated without previous payment of the registration fees. (3) the classification applies not only to present
conditions but also to future conditions which are
substantially identical to those of the present;
V. ORMOC SUGAR VS. TREASURER OF ORMOC (4) the classification applies only to those who belong
(FEBRUARY 17, 1968) to the same class.
DOCTRINE:
The equal protection clause applies only to persons or things The questioned ordinance does not meet the requisites for a
identically situated and does not bar a reasonable classification of reasonable classification.
the subject of legislation. A classification is reasonable where
(1) it is based on substantial distinctions which make real The ordinace taxes only centrifugal sugar produced and
differences; exported by the Ormoc Sugar Company, Inc. and none other.
(2) these are germane to the purpose of the law; At the time of the taxing ordinance’s enactment, Ormoc Sugar
(3) the classification applies not only to present conditions but also Company, Inc., it is true, was the only sugar central in the city of
to future conditions which are substantially identical to those of Ormoc.
the present;
(4) the classification applies only to those who belong to the same To be reasonable, it should be applicable to future conditions
class. as well. The taxing ordinance should not be singular and
exclusive as to exclude any subsequently established sugar
SYNOPSIS: central, of the same class as plaintiff, for the coverage of the
tax.

FACTS: As it is now, even if later a similar company is set up, it cannot

Municipal Board of Ormoc City passed Ordinance No. 4, Series be subject to the tax because the ordinance expressly points
of 1964, imposing "on any and all productions of centrifugal only to Ormoc City Sugar Company, Inc. as the entity to be
sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City levied upon.
a municipal tax equivalent to one per centum (1%) per export
sale to the United States of America and other foreign WHY IS APPELANT NOT ENTITLED TO INTEREST ON
countries." THE REFUND?
Appellant is not entitled to interest on the refund because the
Payments for said tax were made, under protest, by petitioner, taxes were not arbitrarily collected. There is sufficient basis to
Ormoc Sugar Company. preclude arbitrariness. The constitutionality of the statute is
presumed until declared otherwise.
Subsequently, petitioner filed COMPLAINT AGAINST tagainst
the City of Ormoc as well as its Treasurer, Municipal Board and
Mayor, assailing the constitutionality of the subject ordinance al VI. SISON VS. ANCHETA (130 SCRA 654)
for being: DOCTRINE:
1. violative of the equal protection clause (Sec. 1[1], Art.
III, Constitution) and rule of uniformity in taxation
((Sec. 22[1]), Art. VI, Constitution). SYNOPSIS:
2. tax is neither a production nor a license tax which
Ormoc City is authorized to impose;
3. Tax imposed is an export tax forbidden under SEC. FACTS:
2287 of the Revised Administrative Code: "It shall not be Petitioner Antero Sison questioned the constitutionality of B.P.
in the power of the municipal council to impose a tax in any form 135. The assailed provision amends SEC. 21 of the NIRC which
whatever, upon goods and merchandise carried into the municipality, or provides for rates of tax on citizens or residents on (a)
out of the same, and any attempt to impose an import or export tax upon taxable compensation income, (b) taxable net income, x x x.
such goods in the guise of an unreasonable charge for wharfage use of
bridges or otherwise, shall be void."
4. tax amounts to a customs duty, fee or charge in violation Under this law, SALARIED INDIVIDUALS are subject to a
of par. 1 SEC. 2, RA 2264 because the tax is on both the graduated tax rates from 1% to 35% whereas a much higher
sale and export of sugar graduated tax rates of 5% to 60% are applied to
SELF-EMPLOYED & PROFESSIONALS.
RTC: upheld the constitutionality of the ordinance; taxing power Petitioner as taxpayer alleges that by virtue thereof, "he
of Municipality was broadened by Local Autonomy would be unduly discriminated against by the
imposition of higher rates of tax upon his income
ISSUE: arising from the exercise of his profession vis-à-vis those which
W/N the ordinance violates the equal protection clause are imposed upon Fixed income or salaried individual taxpayer."

RULING: For him, there is a transgression of both the equal protection and
Yes, the ordinance is unconstitutional for being violative of due process clauses of the constitution as well as of the rule
equal protection clause. requiring uniformity in taxation.

The equal protection clause applies only to persons or things ISSUE:

identically situated and does not bar a reasonable classification W/N the imposition of a higher tax rate on taxable net
of the subject of legislation. income derived from business or profession than on
compensation is constitutionally infirm.
A classification is reasonable where
RULING: SYNOPSIS:
NO. In summary, both the due process and equal
protection clauses were not violated. It is well-settled then
that there is indeed a substantial distinction between these two FACTS:
sets of individual taxpayers, in compliance with the requirement Republic Act No. 7716: AN ACT RESTRUCTURING THE
that taxation shall be uniform and equitable. VALUE- ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND
Equality and uniformity in taxation means that all taxable FOR THESE PURPOSES AMENDING AND REPEALING
articles or kinds of property of the same class shall be taxed at THE RELEVANT PROVISIONS OF THE NATIONAL
the same rate. The taxing power has the authority to INTERNAL REVENUE CODE, AS AMENDED, AND FOR
make reasonable and natural classifications for purposes OTHER PURPOSES.
of taxation.
By its title, it can be gleaned that the primary purpose of the
"The rule of uniformity does not call for perfect uniformity or statute is to expand the VAT system, and one way of doing this is
perfect equality, because this is hardly attainable. to widen its base by withdrawing some of the exemptions
granted before.
On the concept of uniformity, it was held that indeed, there is
a substantial distinction between the two groups that set them PPI contends that by removing the exemption of the press from
apart as a class. the VAT while maintaining those granted to others, the law
discriminates against the press.
In the case of the gross income taxation embodied in Batas
Pambansa Blg. 135, the discernible basis of classification is The PPI says that the discriminatory treatment of the press is
the susceptibility of the income to the application of highlighted by the fact that transactions, which are profit oriented,
generalized rules removing all deductible items for all continue to enjoy exemption under R.A. No. 7716.
taxpayers within the class and fixing a set of reduced tax rates to
be applied to all of them. Petitioner CHAMBER OF REAL ESTATE AND BUILDER'S
ASSOCIATION, INC (CREBA) asserts that R.A. No. 7716
Taxpayers who are recipients of compensation income are set imposing a 10% VAT on the gross selling price or gross value in
apart as a class. As there is practically no overhead expense, money of every sale, barter or exchange of goods or properties
these taxpayers are not entitled to make deductions for income (Section 2) and a 10% value-added tax on gross receipts derived
tax purposes because they are in the same situation more or less. from the sale or exchange of services, including the use or lease
Taxpayers who are recipients of compensation income are set of properties (Section 36):
apart as a class. (1) impairs the obligations of contracts,
(2) classifies transactions as covered or exempt
On the other hand, in the case of professionals in the practice of without reasonable basis and
their calling and businessmen, there is no uniformity in the (3) violates the rule that taxes should be uniform and
costs or expenses necessary to produce their income. equitable and that Congress shall "evolve a progressive
system of taxation. (ART. 6 SEC. 28(1))
It would not be just then to disregard the disparities by giving
all of them zero deduction and indiscriminately impose on all Petitioner, COOPERATIVE UNION OF THE PHILIPPINES
alike the same tax rates on the basis of gross income. (CUP) contend that Congress' withdrawal of exemption of
producers cooperatives, marketing cooperatives, and service
There is ample justification then for the Batasang Pambansa cooperatives, while maintaining that granted to electric
to adopt the gross system of income taxation to compensation cooperatives, not only goes against the constitutional policy to
income, while continuing the system of net income taxation as promote cooperatives as instruments of social justice (Art. XII, §
regards professional and business income. 15) but also denies such cooperatives the equal protection of the
The difficulty confronting petitioner is thus apparent. He law is actually a policy argument.
alleges arbitrariness. A mere allegation, as here, does not
suffice. There must be a factual foundation of such CREBA argues that it was to adopt a definite policy of granting
unconstitutional taint. Considering that petitioner here would tax exemption to cooperatives that the present Constitution
condemn such a provision as void on its face, he has not made embodies provisions on cooperatives. To subject cooperatives to
out a case. This is merely to adhere to the authoritative the VAT would therefore be to infringe a constitutional policy.
doctrine that where the due process and equal protection
prote clauses are invoked, considering that they are not fixed CUP's further ground for seeking the invalidation of R.A. No.
rules but rather broad standards, there is a need for proof of 7716 is that it denies cooperatives the equal protection of the
such persuasive character as would lead to such a conclusion. law because electric cooperatives are exempted from the VAT.
Absent such a showing, the presumption of validity must
prevail. The CREBA claims that the VAT is regressive. A similar
claim is made by the Cooperative Union of the Philippines,
C. UNIFORMITY AND EQUITY OF TAXATION Inc. (CUP), while petitioner Juan T. David argues that the law
contravenes the mandate of Congress to provide for a
I. TOLENTINO VS. SECRETARY OF FINANCE (235 SCRA progressive system of taxation because the law imposes a flat
630, 249 SCRA 628) rate of 10% and thus places the tax burden on all taxpayers
DOCTRINE: without regard to their ability to pay.
Equality and uniformity of taxation mean that all taxable articles
or kinds of property of the same class be taxed at the same rate. It ISSUE:
is enough that the statute or ordinance applies equally to all 1. WON by removing the exemption of the press from the VAT
persons, firms, and corporations placed in similar situation. while maintaining those granted to others, the law
discriminates against the press
2. WON R.A. No. 7716 also violates Art. VI, §28(1) which necessities, spared as they are from the incidence of the VAT, are
provides that "The rule of taxation shall be uniform and expected to be relatively lower and within the reach of the general
equitable. The Congress shall evolve a progressive system of public.
taxation."
3. WON RA 7716 denies cooperatives the equal protection of Equality and uniformity of taxation means that all taxable
the law because electric cooperatives are exempted from the articles or kinds of property of the same class be taxed at the
VAT same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation.
RULING: To satisfy this requirement it is enough that the statute or
1. NO. The VAT is not a license tax. It is imposed purely for ordinance applies equally to all persons, forms and
revenue purposes. corporations placed in similar situation.

Equality and uniformity of taxation mean that all taxable The Constitution does not really prohibit the imposition of indirect
articles or kinds of property of the same class be taxed at the taxes which, like the VAT, are regressive. What it simply provides
same rate. It is enough that the statute or ordinance applies is that Congress shall "evolve a progressive system of taxation."
equally to all persons, firms, and corporations placed in The constitutional provision has been interpreted to mean simply
similar situation. that "direct taxes are to be preferred [and] as much as possible,
indirect taxes should be minimized."
It would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime Resort to indirect taxes should be minimized but not avoided
without offense to the Constitution. entirely because it is difficult, if not impossible, to avoid them
by imposing such taxes according to the taxpayers' ability to pay.
The reason is simple: by granting exemptions, the State does In the case of the VAT, the law minimizes the regressive effects of
not forever waive the exercise of its sovereign prerogative. this imposition by providing for zero rating of certain transactions
(R.A. No. 7716, §3, amending §102 (b) of the NIRC), while
Indeed, in withdrawing the exemption, the law merely subjects granting exemptions to other transactions. (R.A. No. 7716, §4,
the press to the same tax burden to which other businesses amending §103 of the NIRC).
have long ago been subject. Nor is it true that only two
exemptions previously granted by E.O. No. 273 are withdrawn On the other hand, the transactions which are subject to the
"absolutely and unqualifiedly" by R.A. No. 7716. VAT are those which involve goods and services which are
used or availed of mainly by higher income groups. These
Other exemptions from the VAT, such as those previously granted include real properties held primarily for sale to customers or for
to PAL, petroleum concessionaires, enterprises registered with the lease in the ordinary course of trade or business, the right or
Export Processing Zone Authority, and many more are likewise privilege to use patent, copyright, and other similar property or
totally withdrawn, in addition to exemptions which are partially right, the right or privilege to use industrial, commercial or
withdrawn, in an effort to broaden the base of the tax. scientific equipment, motion picture films, tapes and discs, radio,
television, satellite transmission and cable television time, hotels,
As the Solicitor General says, such exemptions are granted, in restaurants and similar places, securities, lending investments,
some cases, to encourage agricultural production and, in other taxicabs, utility cars for rent, tourist buses, and other common
cases, for the personal benefit of the end-user rather than for carriers, services of franchise grantees of telephone and
profit. telegraph.

The PPI asserts that it does not really matter that the law does not The problem with CREBA's petition is that it presents broad
discriminate against the press because "even nondiscriminatory claims of constitutional violations by tendering issues not at retail
taxation on constitutionally guaranteed freedom is but at wholesale and in the abstract.
unconstitutional." PPI cites in support of this assertion the
following statement in Murdock v. Pennsylvania
3. NO. The classification between electric and other
2. NO. the VAT was already provided in E.O. No. 273 long before cooperatives (farmers cooperatives, producers cooperatives,
R.A. No. 7716 was enacted. R.A. No. 7716 merely expands the marketing cooperatives, etc.) apparently rests on a
base of the tax. The validity of the original VAT Law was congressional determination that there is greater need to
questioned in Kapatiran n Naglilingkod sa Pamahalaan ng provide cheaper electric power to as many people as possible,
Pilipinas, Inc. v. Tan, on similar grounds as in this case. especially those living in the rural areas, than there is to
provide them with other necessities in life. We cannot say that
EO 273 satisfies all the requirements of a valid tax. It is such classification is unreasonable
uniform.

The sales tax adopted in EO 273 is applied similarly on all D. PROGRESSIVE SYSTEM OF TAXATION
goods and services sold to the public, which are not exempt, at
the constant rate of 0% or 10%. I. TOLENTINO VS. SECRETARY OF FINANCE (235 SCRA
630, 249 SCRA 628)
The disputed sales tax is also equitable. DOCTRINE:
It is imposed only on sales of goods or services by persons
engaged in business with an aggregate gross annual sales
exceeding P200,000.00. SYNOPSIS:

Small corner sari-sari stores are consequently exempt from its

application. Likewise exempt from the tax are sales of farm and FACTS:
marine products, so that the costs of basic food and other Resort to indirect taxes should be minimized but not avoided
entirely because it is difficult, if not impossible, to avoid them by
imposing such taxes according to the taxpayers' ability to pay. In RULING:
the case of the VAT, the law minimizes the regressive effects of NO. the deed granted by the Government of Spain to the plaintiff,
this imposition by providing for zero rating of certain transactions constitute contracts between the parties; that SEC. 134 of the
(R.A. No. 7716, §3, amending §102 (b) of the NIRC), while Internal Revenue Law impairs the obligation of these
granting exemptions to other transactions contracts, and is therefore void as to them.

ISSUE: a State may be contract based on a consideration exempt the

property of an individual or corporation from taxation, either for a
specified period or permanently. And it is equally well settled that
RULING: the exemption is presumed to be on sufficient consideration, and
binds the State if the charter containing it is accepted

II. ABAKADA VS ERMITA

DOCTRINE: The royal decree and regulation (SEC. 5, ACT OF
VAT is admittedly regressive, because it is impose persons CONGRESS) for its enforcement provided that the deeds
regardless of income. However, it is still Valid the Constitution’s granted by the Government should be in a particular form,
mandate is simply to evolve a Progressive system of taxation. In which form was inserted in the regulations. It must be
any case, the VAT system miniminize the regressive effects by presumed that the deeds granted to the plaintiff were made as
providing zero-rated trans provided by law, and, in fact, one of such concessions was
exhibited during the argument in this court, and was found to
SYNOPSIS: be in exact conformity with the form prescribed by law

According to the court, the deeds granted by the Spanish

FACTS: government to the plaintiff constituted a contract between the two.

Furthermore, in the case at bar, there is found not only the

ISSUE: provisions for the payment of certain taxes annually, but there is
also found the provision contained in article 81, above quoted,
which expressly declares that no other taxes shall be imposed
RULING: upon these mines.

The concession in question an be canceled only by reason of

e. Prohibition against impairment of obligation of contracts illegality in the procedure by which they were obtained, or for
I. CASSANOVA VS. HORD (8 PHIL 125) failure to comply with the conditions prescribed as requisite
DOCTRINE: for their retention in the laws under which they were granted .
There is nothing in the section which indicates that they can be
canceled for failure to comply with the conditions prescribed by
SYNOPSIS: subsequent legislation.

In fact, the real intention of the act seems to be that such

FACTS: concession should be subject to the former legislation and not to
In January 1897, the Spanish Government granted the plaintiff any subsequent legislation. There is no claim in this case that there
mining rights in the granted the plaintiff mining rights in the was any illegality in the procedure by which these concessions
Ambos Camarines Province, based on a 1867 royal decree. were obtained, nor is there any claim that the plaintiff has not
complied with the conditions prescribed in the said royal decree of
The plaintiff currently owns these mines. 1867.

There were also valid and finalized mining concessions granted

before April 11, 1899, and these were acknowledged by the CIR
and subjected to taxes outlined in section 134 of Act No. 1189, II. TOLENTINO VS. SECRETARY OF FINANCE
known as the Internal Revenue Act. This section imposed taxes as DOCTRINE:
follows:
 A yearly tax of one hundred pesos on claims with an
area of sixty thousand square meters, with proportional SYNOPSIS:
rates for larger or smaller claims.
 An ad valorem tax of three percent on the actual
market value of the gross output of each claim. FACTS:

The defendant imposed these taxes on the plaintiff’s properties,

and the plaintiff paid them under protest. ISSUE:

The plaintiff, however, argues that these taxes are invalid under
SEC. 5 of the July 1,1902, Act of Congress which provides that RULING:
no law impairing the obligation of contracts shall be enacted.”

ISSUE: f. Prohibition against imprisonment for non-payment of poll tax

WON section 134 of Act No. 1189 is valid?