Meeting 2 23 June 2012 I. CONCEPT A. Taxation and Tax defined. B.

. Tax as distinguished from other forms of exactions (Vitug, p. 29-30) 1. Tax vs. Tariff 2. Tax vs. License fee Cases: 1. OSMEA V ORBOS Ponente: NARVASA, C.J. DOCTRINE: Money named as tax but actually collected in the exercise of police power may be placed in a special trust account. FACTS: On October 10, 1984, President Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024, 7and ordered released from the National Treasury to the Ministry of Energy. The same Executive Order also authorized the investment of the fund in government securities, with the earnings from such placements accruing to the fund. President Corazon C. Aquino, amended P.D. 1956 and promulgated Executive Order No. 137, expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of Finance. ISSUE: WON The creation of the OPSF delegated the power of taxation of the State. NO RATIO: Petitioner contends that the "delegation of legislative authority" to the ERB violates Sec. 28 (2). Article VI of the Constitution, viz.: (2) The Congress may, by law, authorize the President to fix, within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government; And, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits, limitations and restrictions must be quantitative, that

is, the law must not only specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to tax." It thus appears that the challenge posed by the petitioner is premised primarily on the view that the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation power of the State. The Solicitor General observes that the "argument rests on the assumption that the OPSF is a form of revenue measure drawing from a special tax to be expended for a special purpose." The petitioner's perceptions are, in the Court's view, not quite correct. In Gaston v. Republic Planters Bank, this Court upheld the legality of the sugar stabilization fees and explained their nature and character, viz.: The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil. 148). . . .The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide a means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz v. Araneta, supra). Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State. DISPOSITION: Petition GRANTED, insofar as it prays for the nullification of the reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects. 2. PAL V EDU FACTS: Under its franchise, PAL is exempt from the payment of taxes. On the strength of an opinion of the Secretary of Justice, PAL has, since 1956, not been paying motor vehicle registration fees. However, in 1971, Land Transportation Commissioner Edu, issued a regulation requiring all tax exempt entities, among

them PAL, to pay motor vehicle registration fees. PAL thus paid under protest. PAL then wrote to Commissioner Edu requesting for a refund invoking the ruling in Calalang v Lorenzo where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. Edu denied the request for refund basing his action on the decision in Republic v Philippine Rabbit to the effect that motor vehicle registration fees are regulatory exactions and not revenue measures and, therefore, do not come within the exemption granted to PAL under its franchise. PAL filed a complaint against Edu and National Treasurer Carbonell with the CFI of Rizal. TC Ruled IFO Edu. Upheld Republic v Philippine Rabbit CA Certified the case to the SC

DOCTRINE: License fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. QUICK FACTS: Private owners and operators of public markets were ordered to pay 5% tax on gross receipts on rentals or lease of space. Progressive Devt filed a petition for prohibition alleging that such supervision fee or license tax imposed is in reality a tax on income the city cannot impose. CFI dismissed petition. SC affirmed dismissal. FACTS: The City Council of Quezon City adopted Ordinance 7997 (1969) where privately owned and operated public markets were ordered to pay 10% of the gross receipts from stall rentals to the City, as supervision fee. Such ordinance was amended by Ordinance 9236 (1972), which imposed a 5% tax on gross receipts on rentals or lease of space in privately-owned public markets in Quezon City. Progressive Development Corp., owner and operator of Farmers Market and Shopping Center, filed a petition for prohibition against the city on the ground that the supervision fee or license tax imposed is in reality a tax on income the city cannot impose. TC QC Council won; imposition is not a tax on income, but rather a privilege tax or license fee which local governments are empowered to impose and collect. ISSUE: WON the tax imposed is properly characterized as partaking of the nature of an income tax DECISION: No. SC Affirmed TC. HELD: The 5% tax imposed in Ordinance 9236 does not constitute a tax on income, nor a city income tax (distinguished from the national income tax by the Tax Code) within the meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for the regulation of business in which the company is engaged. Section 12, Article III of Republic Act No. 537, otherwise known as the Revised Charter of Quezon City, authorizes the City Council to provide for the levy and collection of taxes and other city revenues and apply the same to the payment of city expenses in accordance with appropriations, and to tax, fix the license fee, and regulate the business of the following: preparation and sale of meat, poultry, fish, etc. The scope of legislative authority conferred upon the Quezon City Council in respect of businesses like that of the petitioner, is comprehensive: the grant of authority is not only" [to] regulate" and "fix the license fee," but also " to tax". The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees

ISSUE: WoN motor vehicle registration fees are taxes HELD: YES. Motor vehicle registration fees have become a very convenient way of raising much needed revenues and have in recent years evolved from mere regulatory fees to taxes. Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law. Today (at the time of the case), the matter is governed by RA 4136 otherwise known as the Land Transportation Code. The legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions a presumption arising from the use of the term fees which appears to have been favored by the legislature to distinguish fees from other taxes. It is quite apparent that vehicle registration fees were originally simple exactions intended only for regulatory purposes in the exercise of the States police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modern life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier denomination of registration payments as fees, their nature has become that of taxes. CAVEAT: The claim for refund was still not granted even if the Court held that the motor vehicle registration fees were in the nature of taxes. Section 24 of RA 5431 dated 27 June 1968 repealed all earlier tax exemptions of corporate taxpayers found in legislative franchises similar to that invoked by PAL in this case. 3. PROGRESSIVE DEVELOPMENT V QC Ponente: Feliciano, J.

are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. To be considered a license fee, the imposition must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulations for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of the regulation, taking into account not only the costs of direct regulation but also its incidental consequences as well. The gross receipts from stall rentals have been used only as a basis for computing the fees or taxes due to the city to cover the latters administrative expenses. The use of the gross amount of stall rentals, as basis for the determination of the collectible amount of license tax, does not by itself convert or render the license tax into a prohibited city tax on income. For ordinarily, the higher the amount of stall rentals, the higher the aggregate volume of foodstuffs and related items sold in the privately owned market; and the higher the volume of goods sold in such market, the greater extent and frequency of inspection and supervision that may be reasonably required in the interest of the buying public. 4. COMPANIA GENERAL DE TABACOS V CITY OF MANILA Ponente. Dizon, J. NATURE: Appeal from the decision of the CFI of Manila ordering the City Treasurer of Manila to refund the sum of P15,280.00 to Compania General de Tabacos de Filipinas (Tabacalera). QUICK FACTS: Tabacalera instituted an action for refund claiming that it is only required to pay the license fees but not the sales tax on its wholesale and retail liquor dealership. FACTS: Tabacalera is a duly licensed first class wholesale and retail liquor dealer. As such it paid the City the fixed license fees prescribed by Ordinance 3358 as well as the municipal sales tax in accordance with Ordinances 3634, 3301 and 3816 for the years 1954 to 1857. After Tabacalera found that the City addressed a letter to Sycip, Gorres, Velayo & Co (SGV) expressing a view that liquor dealers paying the annual wholesale and retail fixed tax (license fees) are not subject to the wholesale and retail dealers' taxes, Tabacalera stopped including its sales of liquor it its quarterly declaration and demanded for a refund from the City. When the City denied the demand, it instituted an action for refund contending that in connection with its liquor sales, it should only pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes. Thus, for the years 1954 to 1957, it has an overpayment of tax amounting to P15,280.

The City of Manila contends that the license fees collected was for the issuance of the permit granting authority to engage in the sale of alcoholic beverage which is different from the sales tax. Assuming that Tabacalera is not subject to payment of sales tax, refund is not proper for the following reasons: a. Voluntary payment without protest b. Even if payment was made by mistake, it arose from the plaintiff's neglect of duty; c. The said amount had been passed to the consumers; and d. The said amount had been already expended by the City for public improvements and essential services of the City government, the benefits of which are enjoyed, and being enjoyed by the Tabacalera. CFI IFO City of Manila.

ISSUE: WoN Tabacalera was subjected to double taxation from 1954-1957 and therefore entitled to refund? NO RATIO: Generally speaking, the term tax applies to all kinds of exactions which become public funds including license fees. However, legally speaking, license fee is a legal concept quite distinct from tax. License fee is imposed in the exercise of police power for purposes of regulation, while the tax is imposed under the taxing power for the purpose of raising revenues. HELD: What is collected under Ordinance No. 3358 is a license fee for the privilege of engaging in the sale of liquor, a calling in which it is obvious not anyone or anybody may freely engage, considering that the sale of liquor indiscriminately may endanger public health and morals. What the three ordinances mentioned heretofore impose is a tax for revenue purposes based on the sales made of the same article or merchandise. It is already settled in this connection that both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article, this not being in violation of the rule against double taxation DISPOSITION: Appealed decision is reversed. 3. Tax vs. Toll Sec. 155 of LGC SEC. 155. Toll Fees or Charges. - The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and

members of the Philippine National Police on mission, post office personnel delivering mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older. When public safety and welfare so requires, the sanggunian concerned may discontinue the collection of the tolls, and thereafter the said facility shall be free and open for public use. 4. Tax vs. Special Assessment Sec. 240 of LGC SEC. 240. Special Levy by Local Government Units. - A province, city or municipality may impose a special levy on the lands comprised within its territorial jurisdiction specially benefited by public works projects or improvements funded by the local government unit concerned: Provided, however, That the special levy shall not exceed sixty percent (60%) of the actual cost of such projects and improvements, including the costs of acquiring land and such other real property in connection therewith: Provided, further, That the special levy shall not apply to lands exempt from basic real property tax and the remainder of the land portions of which have been donated to the local government unit concerned for the construction of such projects or improvements. Case: 5. REPUBLIC V BACOLOD MURCIA Ponente: Regala, J. DOCTRINE: The levy (for the Philsugin Fund) is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist. (Kindly read sugar companies contentions as these discuss special assessment vis--vis ordinary tax. SC did not mention these in its ratio) QUICK FACTS: Three sugar companies refused to contribute or pay their levies to the Philippine Sugar Institute (Philsugin) because they contended that the Purchase of the Insular Sugar Refinery is not authorized by the Charter of Philsugin, and is inimical to their interests. Philsugin incurred tremendous losses in its disastrous operation of the refinery, hence, the sugar companies argue that they should not only be released from the obligation but be refunded of all that they may have previously paid. FACTS: RA 632 created the Philippine Sugar Institute, a semipublic corporation, for the purpose of conducting research to advance the countrys sugar industry. To

carry out the objectives of RA 632 and raise the necessary funds, the charter authorized the levy of 10 cents per picul of sugar to be collected for a period of 5 years (1951-1952) and shall be borne by the sugar cane planters and sugar centrals. The proceeds of this levy would go to a special fund to be used exclusively by Philsugin. Philsugin purchased the Insular Sugar Refinery in 1951 using the money from the Philsugin Fund. However, the proceeds of the Fund was also used or applied to absorb the tremendous losses incurred by Philsugin in its disastrous operation of the refinery. For this, the sugar companies refused to continue with their contributions to the said Fund and left an unpaid balance of P216,070.50 for Bacolod-Murcia Milling Co., P235,800.20 for Ma-ao Sugar Central Co., P208,193.74 for Talisay-Silay Milling Co., and P48,059.77 for Central Azucarera del Danao. Sugar Companies Contention: The "10 centavos per picul of sugar" authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As such, the proceeds thereof may be devoted only to the specific purpose for which the assessment was authorized, a special assessment being a levy upon property predicated on the doctrine that the property against which it is levied derives some special benefit from the improvement. It is not a tax measure intended to raise revenues for the Government. Consequently, once it has been determined that no benefit accrues or inures to the property owners paying the assessment, or that the proceeds from the said assessment are being misapplied to the prejudice of those against whom it has been levied, then the authority to insist on the payment of the said assessment ceases. TC Sugar companies are liable for special assessments under RA 632. It would be dangerous to sanction the unilateral refusal of the appellants herein to continue with their contribution to the Fund for that conduct is no different "from the case of an ordinary taxpayer who refuses to pay his taxes on the ground that the money is being misappropriated by Government officials." This is taking the law into their own hands. (The TC cited four reasons but this is the only one related to tax) *Sugar Companies contention on TC ruling: Their refusal to continue paying the assessment under RA 632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes precisely because there is a substantial distinction between a "special assessment" and an ordinary tax. The purpose of the former is to finance the improvement of particular properties, with the benefits of the improvement accruing or inuring to the owners thereof who, after all, pay the assessment. The purpose of an ordinary tax, on the other hand, is to provide the Government with revenues needed for the financing of state affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be sanctioned because it would impair government functions, the same would not hold true in the case of a refusal to comply with a special assessment.

ISSUE: WON the levy was a special assessment or a tax measure. DECISION: Neither. Affirmed TC. HELD: The levy for the Philsugin Fund is not so much an exercise of the power of taxation, nor the imposition of a special assessment, but, the exercise of the police power for the general welfare of the entire country. It is, therefore, an exercise of a sovereign power which no private citizen may lawfully resist. In the case of Lutz v Araneta, the Court held that since sugar production is one of the leading industries of our nation, Its promotion, protection and advancement, therefore redounds greatly to the general welfare. Hence, it was competent for the Legislature to find that the general welfare demanded that the sugar industry should be stabilized in turn; and in the wide field of its police power, the law-making body could provide that the distribution of benefits therefrom be readjusted among its components, to enable it to resist the added strain of the increase in taxes that it had to sustain. In the case of Johnson v State ex rel., if objective and methods are alike constitutionally valid, there is no reason why the state may not levy taxes to raise funds for their (the protection and promotion of the sugar industry) prosecution and attainment. Taxation may be made the implement of the state's police power. 5. Tax vs. Ordinary debt Cases: 6. PHILEX MINING CORPORATION V CIR Ponente: Romero, J. DOCTRINE: Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. Debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. FACTS: BIR sent a letter to Philex asking it to settle its tax liabilities for 2nd-4th quarter of 1991 and 1st-2nd quarter of 1992 (total: Php123M+). Philex protested the demand for payment stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989-1991 (total: Php119M+). Therefore, Philex argues, these claims for tax credit/refund should be applied against the tax liabilities, citing the ruling in CIR v. Itogon-Suyoc Mines, Inc. (1969). BIR replied, saying that no legal compensation can take place since these pending claims have not yet been established or determined with certainty. CTA Ordered Philex to pay the tax liabilities of Php110M+ (a tax credit certificate amounting to Php13M was issued while the case was pending in CTA), saying that for legal compensation to

take place, both obligations must be liquidated and demandable In the instance case, the claimsfor VAT refund is still pending litigationthe liquidated debt of the Petitioner to the government cannot, therefore, be set off against the unliquidated claim which Petitioner conceived to exist in its favor. CA affirmed. MR denied.

A few days after the denial of its MR, Philex obtained its VAT input credit/refund. Philex now contends that the same should, ipso jure, off-set its excise tax liabilities since both had already become due and demandable, as well as fully liquidated. ISSUE: W/N tax credit/refund may be set-off against tax liabilities of a taxpayer HELD: NO. Taxes cannot be subject to set-off or compensation. 1)The government and the taxpayer are not creditors and debtors of each other. Debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. 2)Doctrine of CIR v. Itogon-Suyoc Mines, Inc. (1969) is now abandoned. The premise of the case was anchored on Section 51(d) of the National Revenue Code of 1939. However when the National Internal Revenue Code of 1977 was enacted, the same provision was omitted. Accordingly, the doctrine cannot be invoked by Philex. 3) Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. Evidently, to countenance Philexs whimsical reason would render ineffective our tax collection system. 4) Tax is compulsory rather than a matter of bargain. A tax does not depend upon the consent of the taxpayer. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. MINOR ISSUE: W/N BIR violated Section 106 (e) of the NIRC, which requires the refund of input taxes within 60 days HELD: YES. It took the BIR 5 years to grant its tax claim. Simple justice requires the speedy refund of wrongly-held taxes. However, the State is not bound by the neglect of its agents and officers. While the Court understands Philexs predicament, the same is not a valid reason for the non-payment of its tax liabilities. 7. CALTEX V COA II. THEORY AND BASIS OF TAXATION A. Lifeblood Theory

B. Necessity Theory Cases: 8. FERDINAND MARCOS II V CA Ponente: Torres, J. DOCTRINE: Enforcement of tax laws and the collection of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved QUICK FACTS: Marcos II questions the Commission of Internal Revenue in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of former Pres. Marcos FACTS: The Special Tax Audit Team found that after the death of Pres. Marcos, the Marcoses failed to file a written notice of the death of the decedent, an estate tax returns [sic], as well as several income tax returns covering the years 1982 to 1986 all in violation of NIRC. CIR then caused the prep and filing of the Estate Tax Return for the estate of the late president, the ITR of Sps and ITR of Marcos II. BIR issued deficiency income tax assessments which were not protested administratively by Mrs Marcos and heirs. Marcos II filed a petition for certiorari and prohibition under R65 w/ TRO. Arguments: 1. Sale of properties of Marcos is null and void for disregarding the established procedure for enforcement of taxes dues upon the estate of a deceased 2. Probate court is not precluded from denying a request by the gov for immediate payment of taxes and should order the payment only w/n the period fixed by probate court. BIR: states authority to collect taxes is paramount. The pendency of probate does not preclude the assessment and collection through summary remedies. ISSUE: WON proper avenues of assessment and collection were taken by BIR. YES

RATIO: Enforcement of tax laws and the collection of taxes, is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved The enforcement and collection of estate tax, is executive in character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue LIBERAL treatment of internal revenue taxes. Vectigalia nervi sunt rei publicae taxes are the sinews of the state. Taxes assessed against the estate of a deceased person, after administration is opened, need not be submitted to the committee on claims in the ordinary course of administration. In the exercise of its control over the administrator, the court may direct the payment of such taxes upon motion showing that the taxes have been assessed against the estate Government has two ways of collecting the taxes in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belong to the taxpayer for unpaid income tax, is by subjecting said property of the estate which is in the hands of an heir or transferee to the payment of the tax due the estate The approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection Under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. DISPOSITION: Petition of Marcos is denied. Other points: The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, Since the estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment, there is now no

reason why the BIR cannot continue with the collection of the said tax. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue, 16 whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. 9. NPC V CABANATUAN FACTS: Petitioner NPC sells electric power to the residents of Cabanatuan City. It posted a gross income of P107.8M in 1992. Pursuant to Sec 37 of Ordinance No. 165-92, the City of Cabanatuan assessed NPC a franchise tax of 75% of 1% of its gross receipts for the preceding year. NPC, whose capital stock was subscribed and paid wholly by the Philippine Government, refused to pay the tax assessment. It argued that the City had no authority to impose tax on government entities. Moreover, as a nonprofit organization, NPC is exempted from the payment of all forms of taxes, charges, duties or fees. City of Cabanatuan filed a collection suit in the RTC of Cabanatuan City alleging that NPCs exemption from local taxes has been repealed by Section 193 of RA 71601. TC CA Dismissed the case Reversed

exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges. This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. One of the most significant provisions of the Local Government Code is the removal of the blanket exclusion of instrumentalities and agencies of the national government from the coverage of local taxation. Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities. The doctrine in Basco v PAGCOR relied upon by NPC to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the LGUs to tax instrumentalities of the National Government was in effect. As the SC ruled in the case of Mactan Cebu International Airport v Marcos, nothing prevents Congress form decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. In enacting the LGC, Congress exercise its prerogative to tax instrumentalities and agencies of government as it sees fit. In section 131(m) of the LGC, Congress unmistakably defined a franchise in the sense of a secondary or special franchise2. As commonly used, a franchise tax is a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state. It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by government.

ISSUE: WoN the City of Cabanatuan has authority to tax NPC (a GOCC and also a non-profit entity) HELD: YES. The power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges. Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested
1

Sec. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemptions on incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government owned or controlled corporations, except local water districts, cooperatives duly registered under RA 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

In its general signification, a franchise is a privilege conferred by government authority, which does not belong to citizens of the country generally as a matter of common right. In its specific sense, a franchise may refer to a general or primary franchise, or to a special or secondary franchise. The former relates to the right to exist as a corporation, or a charter pursuant to a special law creating the corporation. The right under a primary or general franchise is vested in the individuals who compose the corporation and not in the corporation itself. On the other hand, the latter refers to the right or privileges conferred upon an existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect poles or string wires. The rights under a secondary or special franchise are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with public use.

Verily, to determine whether NPC is covered by the franchise tax in question, the following requisites should concur: that petitioner has a franchise in the sense of a secondary or special franchise; and that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. Petitioner fulfills both requisites: CA 120, as amended by RA 7395, constitutes NPCs primary and secondary franchises; and NPC is operating within Cabanatuan Citys territorial jurisdiction. On the issue of ownership by the government: A franchise tax is imposed based not on the ownership but on the exercise by the corporation of a privilege to do business. The taxable entity is the corporation which exercises the franchise, and not the individual stockholders. To be sure, the ownership by National Government of its entire capital stock does not necessarily imply that NPC is not engaged in business. NPC was created to undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal and other sources, as well as the transmission of electric power on a nationwide basis. Pursuant to this mandate, petitioner generates power and sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the government. They are purely private and commercial undertakings, albeit imbued with public interest. On the issue of whether NPCs tax exemptions under its charter subsist despite the passage of the LGC: As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal provisions. In the case at bar, NPCs sole refuge is Sec 13 of RA 6395 exempting from, among other, all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities. However, sec 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. Contrary to the contention of NPC, section 193 of the LGC is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. It is worth mentioning that section 193 of the LGC empowers the LGUs through ordinances duly approved, to grant tax exemptions, initiatives or reliefs. But in enacting section 37 of Ordinance 165-92 which imposes an annual franchise tax notwithstanding any exemption granted by law C. Benefits-Protection Relationship) Theory (Symbiotic

Case: 10. COMMISSIONER V ALGUE Ponente: Cruz, J. DOCTRINE: Every person who is able to pay must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power. QUICK FACTS: Algue was assessed by the CIR for delinquency income taxes. In response, Algue alleged that the P75,000.00 deduction being disallowed by the CIR was received from PSEDC as part of the commission paid by becoming the latters agent, and was eventually paid to the organizers of the VOICP. CTA sided with Algue, claiming that it was a legitimate business expense. SC affirmed CTA. FACTS: The Philippine Sugar Estate Development Company (PSEDC) appointed Algue Inc., a domestic corporation engaged in engineering, construction and other allied activities, as its agent. Algue received a commission of P125,000.00 and it was from this commission that it paid organizers of Vegetable Oil Investment Corporation of the Philippines (VOICP) P75,000.00 in proportional fees. In 1965, Algue received a letter from the Commissioner of Internal Revenue (CIR) assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. He filed a letter of protest or reconsideration. Petitioners Contention: The claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The payments are fictitious because most of the payees are members of the same family in control of Algue. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction. Respondents Contention: The P75,000.00 is a legitimate business expense in its income tax returns as it had been legitimately paid by the Algue for actual services rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of the VOICP and its subsequent purchase of the properties of the PSEDC. CTA legitimate business expense. Algue won. The P75K is a

MAIN ISSUE: WON the CIR correctly disallowed the P75,000 deduction DECISION: No. SC Affirmed CTA.

HELD: Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. Every person who is able to pay must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that is an arbitrary method of exaction by those in the seat of power. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. The petitioner had originally claimed the promotional fees to be personal holding company income but later conformed to the decision of the respondent court rejecting this assertion. There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. The Court of Tax Appeals also found, after examining the evidence, that no distribution of dividends was involved. The suspicions on fictitious payments were adequately met by Algue when its President and accountant testified that the payments were not made in one lump sum but periodically and in different amounts as each payee's need arose. It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the end of the year, when the books were to be closed, each payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation. The amount of the promotional fees was also not excessive. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the VOIC to the actual purchase by it of the Sugar Estate properties. This is in accord with Sec. 30 of the Tax Code, and Revenue Regulations No. 2, Section 70 (1). It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders. SUB-ISSUE (Procedural): WON the appeal by Algue was made on time HELD: Yes. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" and renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. The proven fact is that four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before the warrant of distraint and levy was

issued; indeed, such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served. As the Court of Tax Appeals correctly noted," the protest filed by private respondent was not pro forma and was based on strong legal considerations. D. Jurisdiction over Subject and Objects III. PURPOSES/OBJECTIVES OF TAXATION A. Revenue-raising B. Non-revenue/special or regulatory Case: CALTEX V COMMISSION ON AUDIT, Ibid. IV. GENERAL PRINCIPLES OF A SOUND TAX SYSTEM (Vitug, pp. 2-3) A. Fiscal adequacy B. Theoretical justice C. Administrative feasibility V. SCOPE AND LIMITATIONS OF TAXATION (Vitug, pp. 324) A. Inherent Limitations 1. Public Purpose Cases: 11. PASCUAL V SEC. PUBLIC WORKS Ponente: Concepcion, J. NATURE: Appeal from the decision of the CFI of Rizal QUICK FACTS: Pascual assails the validity of an item of RA 920 which appropriates P85,000 for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals which are allegedly projected subdivision roads that are part of the private property of Senator Zulueta. FACTS: On May 1953, Zulueta, then a Senator, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate the contested projected feeder roads to the municipality of Pasig, Rizal which the council accepted subject to the condition "that the donor would submit a plan of the said roads and agree to change the names of two of them."

On June 1953, RA 920, An Act Appropriating Funds for Public Works, was approved which includes the disputed item of P85,000 for the construction for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim). On Dec. 1953, Zulueta executed a deed of donation on 4 parcels of land constituting said projected feeder roads ifo the government on the condition that it would only be used for street purposes otherwise, it would revert to Zulueta. On August 31, 1954, Wenceslao Pascual, as Provincial Governor of Rizal, instituted an action for declaratory relief, with injunction alleging that as the projected feeder roads in question were private property at the time of the passage and approval of RA 920, the appropriation of P85k made for the construction, reconstruction, repair, extension and improvement of said projected feeder roads was illegal. Also, the donation made by Zulueta violated the provision of our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in any contract with the Government as the public works would greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense Zulueta moved to dismiss the petition on the ground that Pascual has no legal capacity to sue and that he is not aware of any law which makes illegal the appropriation of public funds for the improvement of what we, in the meantime, may assume as private property. Furthermore, according to him, a law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws. CFI IFO Zulueta MTD Granted. The legality of the donation made by Zulueta ifo and accepted by the Government may not be contested by Pascual because his "interest are not directly affected" and that, accordingly, the appropriation in question "should be upheld." ISSUE: WoN appropriation of public funds is limited for public purpose making the disputed item of RA 920 illegal? YES RATIO: Public funds may be used only for public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public purpose. The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals,

although each advantage incidentally serve the public.

to

individuals

might

HELD: The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. DISPOSITION: Appealed decision is reversed. 12. PLANTERS PRODUCTS, INC. V FERTIPHIL CORP Ponente: Reyes, J. DOCTRINE: An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose. QUICK FACTS: As mandated under LOI 1465, Fertiphil remitted the P10 per bag of fertilizer sold, to the Fertilizer and Pesticide Authority (FPA), which then ), which then remitted said amount to Far East Bank and Trust Company, the depository bank of Planters Products Inc. After EDSA, Fertiphil demanded refund from PPI but the latter refused. FACTS: Marcos issued LOI 1465, which provides that a capital contribution of not less than Php10.00 per bag should be included in the pricing of fertilizer. The levy was to continue until adequate capital was raised to make Planters Products Inc (PPI), a private corporation, financially viable. Fertiphil remitted the P10 per bag of fertilizer sold, to the Fertilizer and Pesticide Authority (FPA), which then remitted said amount to Far East Bank and Trust Company, the depository bank of PPI. Fertiphil paid P6,689,144 to FPA from July 8, 1985 to January 24, 198. After EDSA, FPA voluntarily stopped the imposition of the P10 levy. Fertiphil demanded from PPI a refund of the amount it remitted but PPI refused. Fertiphil filed a complaint for collection and damages against FPA and PPI. Fertiphils Contention: It questioned the constitutionality of LOI 1465 and claimed it was unjust, unreasonable, oppressive, invalid and an unlawful imposition that amounted to a denial of due process. Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which used the proceeds to maintain its monopoly of the fertilizer industry.

10

FPAs Contention: FPA on the other hand said that the issuance of LOI 1465 was a valid exercise of police power of the state in insuring the fertilizer industry, and that Fertiphil did not sustain any damage because the burden imposed by the levy fell on the ultimate consumer, not the seller. PPIs Contention: LOI No. 1465 is a valid exercise either of the police power or the power of taxation. It claims that the LOI was implemented for the purpose of assuring the fertilizer supply and distribution in the country and for benefiting a foundation created by law to hold in trust for millions of farmers their stock ownership in PPI. TC In favor of Fertiphil. The imposition of the P10 CRC was an exercise of the State's inherent power of taxation. The RTC invalidated the levy for violating the basic principle that taxes can only be levied for public purpose. LOI 1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the country and orders that the said amount should go to Planters Product, Inc. is unlawful because it violates the mandate that a tax can be levied only for a public purpose and not to benefit, aid and promote a private enterprise such as Planters Product, Inc. By virtue of LOI 1465, Fertiphil Corporation, which is a private domestic corporation, became poorer by the amount of P6,698,144.00 and Planters Product, Inc., another private domestic corporation, became richer by the amount of P6,698,144.00. CA Affirmed TC. Even on the assumption that LOI 1465 was issued under the police power of the state, it is still unconstitutional because it did not promote public welfare. In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said law was an invalid exercise of the State's power of taxation inasmuch as it violated the inherent and constitutional prescription that taxes be levied only for public purposes. It reasoned out that the amount collected under the levy was remitted to the depository bank of PPI, which the latter used to advance its private interest. ISSUE #1: WON the P10 levy under LOI 1465 is an exercise of the power of taxation of the state. DECISION: Yes. Affirmed CA. HELD: The imposition of the levy was an exercise by the State of its taxation power. While it is true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. The P10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no doubt, was a big burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by as much as five percent. A plain reading of the LOI

also supports the conclusion that the levy was for revenue generation. The LOI expressly provided that the levy was imposed "until adequate capital is raised to make PPI viable." Taxes are exacted only for a public purpose. The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give undue benefit to PPI. ISSUE #2: WON the levy was for a public purpose. DECISION: No. Affirmed CA. HELD: The P10 levy is unconstitutional because it was not for a public purpose. The levy was imposed to give undue benefit to PPI. An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or for the exclusive benefit of private persons. The reason for this is simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should be used only for a public purpose. LOI No. 1465 was not for a public purpose: First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company (ie, capital contribution shall be collected until adequate capital is raised to make PPI viable). Second, the LOI provides that the imposition of the P10 levy was conditional and dependent upon PPI becoming financially "viable." This suggests that the levy was actually imposed to benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially "viable." Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is made indefinite. They are required to continuously pay the levy until adequate capital is raised for PPI. Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI.49 This proves that PPI benefited from the LOI. It is also proves that the main purpose of the law was to give undue benefit and advantage to PPI. Fourth, the levy was used to pay the corporate debts of PPI. PPI was in deep financial problem because of its huge corporate debts. There were pending petitions for rehabilitation against PPI before the Securities and Exchange Commission. The government guaranteed payment of PPI's debts to its foreign creditors. To fund the payment, President Marcos issued LOI No. 1465. NOTES: On definition of public purpose: The term "public purpose" is not defined. Jurisprudence states that "public purpose" should be given a broad

11

interpretation. It does not only pertain to those purposes which are traditionally viewed as essentially government functions, such as building roads and delivery of basic services, but also includes those purposes designed to promote social justice. 13. TIO V VIDEOGRAM REGULATORY BOARD Ponente: Melencio-Herrera, J. DOCTRINE: The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. FACTS: PD 1987, entitled An Act Creating the Videogram Regulatory Board was enacted with broad powers to regulate and supervise the videogram industry. The rationale of the law is written in the Preamble clauses3. A month after, PD 1994 amended the NIRC,
31.

providing an annual tax of Php5.00 on each processed video-tape cassette, provided that locally manufactured or imported blank video tapes shall be subject to sales tax4. Petitioners assail the constitutionality of the decree on the ff: grounds (stated as issues in this digest): MAIN ISSUE (related to the topic): W/N the tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of the Constitution HELD: NO. 1) The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the Decree to protect the movie industry, the tax remains a valid imposition. A tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. Tax imposed is not only a regulatory but also a revenue measure. It is an end-user tax imposed on retailers for every videogram they make available for public viewing. OTHER ISSUES: W/N imposition of a 30% tax on the gross receipts payable to local government is a rider and the same is not germane to the subject matter of the decree (Section 105)

WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues; 2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of approximately P180 Million in taxes each year; 3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters; 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an environment conducive to growth and development of all business industries, including the movie industry which has an accumulated investment of about P3 Billion; 5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms; 6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to support the rearing of the youth for

2)

3)

1)

civic efficiency and the development of moral character and promote their physical, intellectual, and social well-being; 7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices which have flaunted our censorship and copyright laws; 8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of paragraphs supplied). 4 SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax.
5

Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or disposition of

12

Held: NO. Provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the decree, which is the regulation of the video industry through the VRB as expressed in the title. not inconsistent with the title and general subject 2) W/N there is factual or legal basis for the exercise by the President of the vast powers conferred upon him by Amendment no. 6 Held: Reserved resolution because still pending resolution in other cases W/N there is undue delegation of power and authority (Sec 116) Held: NO. Not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. W/N the decree is an ex-post facto7 law (Sec. 158) Held: NO. There is a rational connection between the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the decree, besides the fact that the prima facie presumption of the violation of the decree attaches only after the 45 day period counted from its effectivity and is, therefore, neither restrospective in character. W/N there is over-regulation of the video industry as if it were a nuisance

Held: NO. Being a relatively new industry, the need for regulation was apparent. The question of necessity, wisdom, and expediency of the decree is primarily and exclusively a matter of legislative concern. DECISION: Petition dismissed. Constitutionality of PD1987 upheld. 2. Inherently Legislative General Rule: Power to tax may not be delegated. Cases: 14. COMMISSIONER V SANTOS AND GUILD OF PHIL. JEWELERS, INC. Ponente: Hermosisima, Jr., J. FACTS: Private respondent Guild of the Philippines Jewelers, Inc. is an association of Filipino jewelers engaged in the manufacture of jewelry and allied undertakings. Viray, Regional Director of BIR issued Regional Mission Order No. 109-88 to BIR officers to conduct surveillance, monitoring, and inventory of all imported articles of Hans Brumann, Inc (member of the Guild) and place them under preventive embargo. The Mission Order was served and the inventory was done. Letter of Authority No. 0020596 was issued by Deputy Commissioner to examine the books of accounts and other accounting records of Hans Brumann but the latter failed to produce the documents required by the BIR. Similar LOA were issued to examine the books of the other members of the Guild.Petition for declaratory relief with writ of preliminary injunction and/or TRO was filed by Marco (Pres. of Guild) and Jewelry by Marco & Co., Inc. later amended to include the Guild as petitioner. Prayed that Sec. 126, 127(a) and (b) and 150(a) of the NIRC and Hdg. No. 71.01-71.04, Chapter 71, Tariff and Customs Code of the Philippines be declared unconstitutional and void. Presented exhaustive study on the tax rates on jewelry prevailing in other countries Philippines cant compete with the other countries. RTC questioned provisions declared INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are concerned Sec. 150: 20% excise tax on jewelry, pearls and other precious stones Sec. 104, Tariff Code: 3-10% tariff and customs duty on natural and cultured pearls and precious or semi-precious stones RTC has jurisdiction and there exists justiciable controversy Laws in question are confiscatory and oppressive Petitioners appeal: RTC had no authority to pass upon the taxation policy of the government

3)

4)

5)

a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission. 6 "solicit the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform enforcement functions for the Board" 7 An ex post facto law is, among other categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law required at the time of the commission of the offense." 8 All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the videogram business and to register with the BOARD all their inventories of videograms, including videotapes, discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of such videogram be for private showing and/or public exhibition.

13

No showing that the tax laws on jewelry are confiscatory and destructive of private respondents proprietary rights ISSUE: WON RTC JUDGE COMMITTED GRAVE ABUSE OF DISCRETION IN DECLARING THE PROVISIONS UNCONSTITUTIONAL DECISION: YES. GRAVE ABUSE HELD: PETITION GRANTED. RTC DECISION REVERSED AND SET ASIDE Note: dispositive portion of the RTC decisions says inoperative and without force and effect insofar as the private respondents are concerned while the body of the decision unequivocally but wrongly declared that the laws were violative of Art. III, Sec. 1 of the Constitution TC judge Santos encroached upon matters properly falling within the province of legislative functions Judge took it upon himself to supplant legislative policy regarding jewelry taxation In advocating the abolition of local tax and duty on jewelry simply because other countries have adopted such policies, he overlooked the fact that such matters are not for him to decide Wisdom of the law is not a justiciable question TC is not the proper forum for the ventilation of the issues raised should be with the legislature Legislature primarily has the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation Judges can only interpret and apply the law and, despite doubts about its wisdom, cannot repeal or amend it Tax rates of other countries should not be used as a yardstick in determining what may be the proper subjects of taxation in our own country Sovereign prerogative inherent in the power to tax that the State be free to select the subjects of taxation

1988, and which amended certain sections of the National Internal Revenue Code and adopted the value-added tax (VAT), for being unconstitutional in that its enactment is not allegedly within the powers of the President. Petitioners Contention: EO 273 is unconstitutional on the Ground that the President had no authority to issue EO. Respondents Contention: Petitioners merely asking for an advisory opinion from the Court, there being no justiciable controversy for resolution. ISSUE: WoN the President had the authority to issue the EO amending the NIRC and adopting the VAT. DECISION: Yes. HELD: It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states: Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise legislative powers. On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the Philippines, which was ratified in a plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides: Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened. It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a legislature under a new Constitution is convened (not day of oath taking/assumed office). The first Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional power and authority to legislate.

15. KAPATIRAN V TAN Ponente: Padilla, J. DOCTRINE: This is a peculiar case since the contested EO was issued before Congress was convened under the 1987 Constitution and hence, the President still has the authority to exercise legislative powers. QUICK FACTS: Petitioners challenge the constitutionality of EO 237 issued by the President on the ground that the latter has no authority to do so and amend the NIRC. FACTS: Petitioners seek to nullify EO 273 issued by the President on 25 July 1987, to take effect on 1 January

Exceptions from prohibition against delegation of power to tax: a) Delegation to Local Governments Sec. 5, Art. X, Philippine Constitution Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of

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local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. Local Government Code (RA 7160), Book ii Cases: 16. LTO V CITY OF BUTUAN Ponente: Vitug, J. DOCTRINE: Police power and taxation are inherent powers of sovereignty which the State might share with LGUs by delegation given under a constitutional or statutory fiat. But the registration of motor vehicles, TFH in particular, and the issuance of licenses to the drivers thereof is NOT a power delegated to LGUs under their broad taxing power. QUICK FACTS: Butuan City passed an ordinance which covers both the issuance of franchise and the issuance of registration and permit (driver's license) for tryk-for-hire (TFH). LTO questioned said ordinance saying that it is its function to issue registration and permit, a power that has not been delegated to LGUs like Butuan City. FACTS: The Sangguniang Panglungsod of Butuan City passed an ordinance entitled "An Ordinance Regulating the Operations of Tricycles-for-Hire, providing mechanism for the issuance of Franchise, Registration and permit, and Imposing Penalties for Violations thereof and for other purposes". The ordinance provided, among others, the payment of franchise fees for the grant of the franchise of TFH, fees for the registration, of the vehicle, and fees for the issuance of a permit for the driving thereof. LTO argued that, indeed, the local government has the franchising authority over TFH but local government does not have, but it is the LTO who has the authority to register all motor vehicle and to issue to qualified persons licenses to drive such vehicles. Butuan City argued that the matter is included in their broad taxing powers as an LGU. The TC ruled in favor of Butuan City; the CA sustained the TC. ISSUE: WON registration of motor vehicles, TFH in particular, and the issuance of licenses to the drivers thereof is a power delegated to LGUs HELD: NO. Under several laws, the newly delegated powers pertain to the franchising and regulatory powers theretofore exercised by the LTFRB and not to the functions of the LTO relative to the registration of motor vehicles and issuance of licenses for the driving thereof. DOTC has the authority to implement laws pertaining to land transportation. LTO, as a line agency of DOTC, has the power to deal with the

registration of all motor vehicles and the licensing of drivers thereof. LTFRB, also as a line agency of DOTC, has the power to regulate the operation of PUVs and to grant franchises or CPCs. However, the Local Government Code has transferred some of the powers of DOTC to LGUs such as now the power to regulate the operation of TFH and to grant franchises for the operation thereof; but such is still subject to the guidelines prescribed by DOTC. Police power and taxation are inherent powers of sovereignty which the State might share with LGUs by delegation given under a constitutional or statutory fiat. Police power aims for public good and welfare while taxation focuses on the power to raise revenue in order to support the government's existence and carry out its legitimate purpose. They are two separate and distinct powers. The tax provisions in the LGC (Sec. 133) did not intend to repeal the LTO's regulatory power. The powers of the LTO are regulatory in nature, exercised pursuant to police power, not taxation. 17. BASCO V PAGCOR Ponente: Paras, J. DOCTRINE: Congress has the power of control over Local governments and if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power (although in this case the Court made it clear that Manila was not granted the power to tax). QUICK FACTS: Petitioners seeks to annul PAGCOR Charter saying that provision exempting PAGCOR from paying tax impairs the citys right to impose taxes as recognized by law. FACTS: Petitioners seek to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, relying on supposed unconstitutionality of Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." Petitioners Contention: PD 1869 is allegedly contrary to morals, public policy and order, and because it constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City government's right to impose taxes and license fees, which is recognized by law. Moreover, they contend that the law has intruded into the local government's right to impose local taxes and license fees, which is in contravention of the constitutionally enshrined principle of local autonomy.

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ISSUE: WON the City of Manila has the power to impose tax. DECISION: No, since no provision in Charter. HELD: (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it. Its power to tax therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the inherent power to tax. (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that municipal corporations are mere creatures of Congress which has the power to create and abolish municipal corporations due to its general legislative powers. Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. (c) The City of Manila's power to impose license fees on gambling, has long been revoked. (d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers. PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. b) Delegation to the President Sec. 28 (2), Art. VI, Constitution Sec. 28 (2). The Congress may, by law, authorize the President to fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government. Sec. 401, Tariff and Customs Code Sec. 401. Flexible Clause. a. The President, upon investigation by the Commission and

recommendation of the National Economic Council, is hereby empowered to reduce by not more than fifty per cent or to increase by not more than five times the rates of import duty expressly fixed by statute (including any necessary change in classification) when in his judgment such modification in the rates of import duty is necessary in the interest of national economy, general welfare and/or national defense. chan robles virtual law library. b. Before any recommendation is submitted to the President by the Council pursuant to the provisions of this section, the Commission shall conduct an investigation in the course of which it shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, to produce evidence and to be heard. The Commission may also request the views and recommendations of any government office, agency or instrumentality, and such office, agency or instrumentality shall cooperate fully with the Commission. c. The President shall have no authority to transfer articles from the duty-free list to the dutiable list nor from the dutiable list to the dutyfree list of the tariff. d. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection "a" shall include the authority to modify the form of duty. In modifying the form of duty the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal concerning foreign country for the most recent representation period shall be used as basis. e. The Commissioner of Customs shall regularly furnish to the Commission a copy each of all customs import entries containing every pertinent information appearing in the collectors' liquidated duplicates, including the consular invoice and/or the commercial invoice. The Commission or its duly authorized agents shall have access to and the right to copy all the customs import entries and other documents appended thereto as finally in the General Auditing Office. f. The Commission is authorized to adopt such reasonable procedure, rules and regulations as it may deem necessary to carry out the provisions of this section. g. Any order issued by the President pursuant to the provisions of this section shall take effect thirty days after its issuance. h. The provisions of this section shall not apply to any article the importation of which into the Philippines is or may be governed by Section 402 of this Code.

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i. The authority herein granted to the President shall be exercised only when Congress is not in session. Cases: 18. GARCIA V EXECUTIVE SECRETARY Ponente: Feliciano, J. DOCTRINE: The enactment of appropriation, revenue, and tariff bills is within the province of the Legislative. Art. VI, Sec. 28(2) of the Constitution permits Congress to authorize the President subject to such limitations and restrictions as Congress may impose to fix within specific limits tariff rates and other duties and imposts. QUICK FACTS: President Aquino imposed additional ad valorem to all imported goods then reduced it except with imported crude and other oil products. In addition, the President levied a special duty on imported crude and other oil products. Rep. Garcia argued that the EOs are unconstitutional and illegal. FACTS: President Aquino promulgated, among others, three (3) Executive Orders: 1) 438 imposing an additional 5% ad valorem to all imported articles, which was increased further to 9% 2) 475 reducing the 9% ad valorem to 5% EXCEPT in cases of crude and other oil products 3) 478 levying IN ADDITION to the 9% ad valorem special duties of P0.95 and P1.00 per liter of imported crude and other oil products Rep. Garcia questioned the validity of EOs 475 and 478 on two (2) grounds: 1) unconstitutional, the Constitution vested the authority to enact revenue bills to Congress which, according to him, the President may not assume (Art. VI, Sec. 24) 2) illegal, 475 and 478 contravened the Tariff and Customs Code (Sec. 401) which, according to him, does not allow the President to increase or impose tariff and additional duties for the purpose of raising additional revenue but only to protect local industries and products ISSUE: WON 475 and 478 are unconstitutional and illegal HELD: NO. 1) The enactment of appropriation, revenue, and tariff bills is within the province of the Legislative. It does not mean however that 475 and 478, as revenue measures, are prohibited to the President and should be enacted instead by Congress. Art. VI, Sec. 28(2) of the Constitution permits Congress to authorize the President subject to such limitations and restrictions as Congress may impose to fix within specific limits

tariff rates and other duties and imposts. The relevant statute is the Tariff and Customs Code itself (Secs. 104 and 401). 2) The Tariff and Customs Code (Secs. 104 and 401) does not provide for such a sharp and absolute limitation of authority. The words "protective" and "protection" in Secs. 104 and 401 are not enough to support the very broad and encompassing limitation such as the one Rep. Garcia insists. Protection of local industries is NOT the only permissible objective that can be secured by the delegated authority to the President. Sec. 401 established general standards with which the exercise of the authority delegated to the President must be consistent: that authority must be exercised in the interest of national economy, general welfare, and/or national security. NOTE: The Bureau of Customs, which administers the Tariff and Customs Code, is one of the two principal generators of governmental revenue aside from the BIR. Customs duties (taxes on importation) are very much like taxes that are frequently imposed for both revenueraising and for regulatory purposes. 19. ABAKADA V ERMITA (Disclaimer: This digest only focuses on the issue concerning delegation; concurring and dissenting opinions of other Justices are excluded) Ponente: Austria-Martinez DOCTRINE: In order that a court may be justified in holding a statute unconstitutional as a delegation of legislative power, it must appear that the power involved is purely 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 of its exercise, which determines the validity of its delegation. The distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution, to be exercised under and in pursuance of the law. The power to ascertain facts is such a power which may be delegated. There is nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is a mental process common to all branches of the government. FACTS: Nature: Petition for Certiorari filed by the ABAKADA GURO Party-List, Sen. Aquilino Pimentel Jr., Association of Pilipinas Shell Dealers Inc., members of the HoR headed by Cong. Chiz Escudero, and Bataan Gov. Enrique Garcia questioning the constitutionality of R.A. No. 9337 an act which amended certain sections of the National Internal Revenue Code (NIRC).

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(Particular to the question of undue delegation of legislative power) Petitioners ABAKADA GURO, Pimentel, and Escudero et al, all contend that Sections 4, 5, and 6 of R.A. No. 9337, amending Sections 106, 107, and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax. The assailed provisions read as follows: SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows: SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied. (i) value-added tax collection as a percentage of GDP of the previous year exceeds two and fourfifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 %). SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows: SEC. 107. Value-Added Tax on Importation of Goods. (A) In General. There shall be levied, assessed and collected on every importation of goods a valueadded tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: provided, that where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following conditions has been satisfied: (i) value-added tax collection as a percentage of GDP of the previous year exceeds two and fourfifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 %). SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties

(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services: provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied: (i) value-added tax collection as a percentage of GDP of the previous year exceeds two and fourfifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and onehalf percent (1 %). Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by Congress of its exclusive power to tax because such delegation is not within the purview of Section 28 (2), Article VI of the Constitution, which provides: The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the government. ABAKADA GURO contends that the law effectively nullified the Presidents power of control, which includes the authority to set aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance. Pimentel on the other hand avers that the President has ample powers to cause, influence or create the conditions provided by the law to bring about either or both the conditions precedent. Escudero et al find it absurd that the imposition of the 12% rate would be subject to the whim of the Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation without representation. They submit that the Secretary of Finance is not mandated to give a favorable recommendation and he may not even give his recommendation. ISSUE: WoN Sections 4, 5, and 6 of R.A. No. 9337, amending Sections 106, 107, and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12% when a certain condition is met, constitutes undue delegation of the legislative power to tax (and as such is therefore unconstitutional). DECISION: No, the delegation is constitutionality of the law was upheld). valid (the

HELD: The rule is that in order that a court may be justified in holding a statute unconstitutional as a delegation of legislative power, it must appear that the power involved is purely legislative in nature that is,

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one appertaining exclusively to the legislative department. It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of its delegation. In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein the policy to be executed, carried out, or implemented by the delegate; and (b) fixes a standard the limits of which are sufficiently determinate and determinable to which the delegate must conform in the performance of his functions. A sufficient standard is one which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances under which the legislative command is to be effected. Both tests are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative. The power to ascertain facts is such a power which may be delegated. There is nothing essentially legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of a law. That is a mental process common to all branches of the government. What is thus left to the administrative official is not the legislative determination of what public policy demands, but simply the ascertainment of what the facts of the case require to be done according to the terms of the law by which he is governed. The efficiency of an Act as a declaration of legislative will must, of course, come from Congress, but the ascertainment of the contingency upon which the Act shall take effect may be left to such agencies as it may designate. While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends. It is simply a delegation of ascertainment of facts upon which enforcement and administration of the increase rate under the law is contingent. The 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. Highlighting the absence of discretion is the fact that the word shall is used in the common proviso. The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are present. In the cases mentioned in Sections 4 to 6 of R.A. No. 9337, the Secretary of Finance is not acting as the alter ego of the President or even her subordinate. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take effect.

The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in such instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the latter. c) Delegation to Administrative Agencies Cases: 20. MACEDA V MACARAIG Ponente: Gancayco FACTS: Nature: Petition for Certiorari, Prohibition and Mandamus with prayer for a writ of preliminary injunction and/or restraining order against FIRB Executive Secretary Macaraig and Finance Secretary Jayme restraining them from proceeding with the processing of Napocors (NPC) claims for tax credits/refunds. November 3, 1936 NPC was created by CA 120. June 4, 1949 RA 358 granted NPC tax and duty exemption privileges (under Sec. 2 of the law) Sept. 10, 1971 RA 6395 revised NPCs charter, and was now tasked to undertake the development of hydroelectric generation of power and the production of electricity from nuclear, geothermal, and other sources. Jan. 22, 1974 PD 380 specified the exemption of NPC from taxes, duties, fees, imposts, and other charges imposed directly or indirectly on all petroleum products that it uses in its operation: Sec. 13. Non-profit Character of the Corporation: Exemption from all Taxes, Duties, Fees, Imposts and other Charges by the Government and Government Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation, including its subsidiaries, is hereby declared, exempt: (a) From the payment of all taxes, duties, fees, imposts, charges, costs and services fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the

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Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities; (b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other governmental agencies and instrumentalities; (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operation and projects; and (d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum produced used by the Corporation in the generation, transmission,utilization, and sale of electric power. May 27, 1976 Issuance of PD 938 amending the aforementioned provision by integrating the tax exemption in general terms under one paragraph (no mention of the phrase directly or indirectly): Sec. 13. Non-profit Character of the Corporation: Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the Government and Government Instrumentalities.The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay the indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds,supersedeas bonds, in any court or administrative proceedings. Since May 27, 1976 (issuance of PD 938) until June 11, 1984 (issuance of PD 1931 withdrawing all tax exemptions), the oil firms (Caltex, Petrophil and Shell) never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to the NPC. These oil companies and likewise the BIR believed that NPC was exempt from indirect taxes (taxes paid by persons who can shift the burden to someone else). Beginning June 11, 1984 however, the oil companies started to pay specific and ad valorem taxes on their sales of oil products to NPC. June 11, 1984 PD 1931 withdrew all tax exemption privileges granted in favor of GOCCs including their subsidiaries. February 7, 1985 FIRB issued Resolution No. 10-85 restoring the tax and duty exemption privileges of NPC: Effective June 11, 1984, the tax and duty exemption privileges enjoyed by the NPC under CA 120, as amended, are restored up to June 30, 1985.

Due to this issuance, the NPC applied with the BIR a refund for Specific Taxes paid on petroleum products in the total amount of P58,020,110.79. January 7, 1986 FIRB Resolution No. 1-86 was issued restoring NPCs tax exemptions retroactively from July 1, 1985 to an indefinite period. By this time, NPCs total refund claim was already P468.58 million but only the P58 million was approved and released by way of a Tax Credit Memo (assigned by NPC to Caltex). NPC reiterated its request for the release of the balance of its pending refunds (about P410.58 million), but BIR ruled that NPCs tax free privilege to buy petroleum products covered only the period of June 11, 1984 up to June 30, 1985, and that despite FIRB No. 1-86, NPC had already lost its tax and duty exemptions because it only enjoys special privilege for taxes which it is directly liable. BIR eventually reversed on December 22, 1986. December 17, 1986 President Aquino enacted EO 93, which again withdrew all tax and duty incentives granted to govt and private entities, but gave the authority to FIRB to restore, revise the scope and prescribe the date of effectivity of such tax and/or duty exemptions. June 24, 1987 FIRB issued Resolution No. 17-87 restoring NPCs tax and duty exemption privileges effective March 10, 1987. President, through Executive Secretary Macaraig Jr., confirmed and approved said FIRB Resolution. August 6, 1987 Sec. Ordonez (DOJ) issued Opinion No. 77 opining that the power conferred upon FIRB by Section 2(a), (b), (c) and (d) of EO 93 constitute undue delegation of legislative power and therefore are unconstitutional. October 5, 1987 Macaraig confirmed and approved FIRB No. 17-87. DOF Sec. Jayme likewise was of the opinion that NPC, under the provisions of its Revised Charter, retains its exemption from duties and taxes imposed on petroleum products purchased locally and used for the generation of electricity. Newspapers also reported that the Office of the President and DOF had ordered BIR to refund the tax payments of NPC amounting to P1.58 billion. August 8, 1988 Petitioner Maceda wrote Usec Fernando and Commissioner Tan of BIR requesting them to hold in abeyance the release of the P1.58 billion and await the outcome of the investigation by the Senate Blue Ribbon Committee (Senate Resolution 227) regarding the matter. After conducting its investigation, the Senate Blue Ribbon Committee recommended the cancellation of the tax refund of the P1.58 billion to NPC as the latter did not have any indirect tax exemption since May 27, 1976 when PD 938 was issued.

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March 30, 1989 BIR nevertheless proceeded with the processing of claims for tax credits/refunds of the NPC. ISSUE: WoN NPC is legally entitled to the questioned tax and duty refunds. DECISION: YES. Sub-Issue #1: WoN NPC ceased to enjoy exemption from indirect tax when PD 938 stated the exemption in general terms. Decision: NO. NPC continues to enjoy both direct and indirect tax exemptions. NPC is a non-profit public corporation created for the general good and welfare, and wholly owned by the government of the Republic of the Philippines. From the very beginning of the corporations existence, NPC enjoyed preferential tax treatment to enable the corporation to pay the indebtedness and obligation and effective implementation of the policy enunciated in Section 1 of RA 6395. From the preamble of PD 938, it is evident that the provisions of PD 938 were not intended to be strictly construed against NPC. It is recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government political subdivision or instrumentality. In the case of property owned by the state or a city or other public corporations, the express exception should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property exception is the rule and taxation the exemption. Sub-Issue #2: WoN there was undue delegation of legislative power to administrative agencies. Decision: NO. The delegation was valid. True it is that the then Secretary of Justice in Opinion No. 77 dated August 6, 1977 was of the view that the powers conferred upon the FIRB by Sections 2(a), (b), (c), and (d) of Executive Order No. 93 constitute undue delegation of legislative power and is therefore unconstitutional. However, he was overruled by the respondent Executive Secretary in a letter to the Secretary of Finance dated March 30, 1989. The Executive Secretary, by authority of the President, has the power to modify, alter or reverse the construction of a statute given by a department secretary. A reading of Section 3 of said law shows that it set the policy to be the greater national interest: The standards of the delegated power are also clearly provided for. Sec. 3. In the discharge of its authority hereunder, the FIRB shall take in to account any or all of the following considerations: a) the effect on relative price levels; b) relative contribution of the beneficiary to the revenue generation effort; c) nature of the activity the beneficiary is engaged;

d) in general, the greater national interest to be served. The observation of petitioner Maceda that the approval of the President was not even required in said EO of the tax exemption privilege approved by the FIRB unlike in previous similar issuances, is incorrect. On the contrary, under Section l(f) of EO 93, such tax and duty exemptions extended by the FIRB must be approved by the President. In this case, FIRB Resolution No. 17-87 was approved by the respondent Executive Secretary, by authority of the President, on October 15, 1987. In Tablarin v. Gutierrez: The maxim of delegatus non potest delegare or delegati potestas non potest delegare, has been made to adapt itself to the complexities of modern government, giving rise to the adoption,within certain limits, of the principle of subordinate legislation, not only in the United States and England but in practically all modern governments. Accordingly, with the growing complexities of modern life, the multiplication of the subjects of governmental regulation, and the increased difficulty of administering the laws, there is a constantly growing tendency toward the delegation of greater power by the legislative, and toward the approval of the practice by the Courts. The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption privileges of persons or entities would be restored. The task may be assigned to an administrative body like the FIRB. E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB. The tax exemption privilege that was restored to NPC by FIRB Resolution No. 17-87 of June 1987 includes exemption from indirect taxes and duties on petroleum products used in its operation. OSMEA V ORBOS, Ibid. 21. COMMISSIONER TOBACCO CORP Ponente: VITUG, J FACTS: Fortune Tobacco Corporation is engaged in the manufacture of different brands of cigarettes, registered with the Philippine Patent Office as "Champion," "Hope," and "More" cigarettes. CIR classified the cigarettes as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the brands from the foreign brand category. RA 7654 was enacted by Congress on June 10, 1993 and took effect July 3, 1993. It amended Sec. 142[c] of the NIRC: Sec. 142[c]. There shall be levied, assessed and collected on cigarettesa tax at the rates prescribed below: V CA AND FORTUNE

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"(1) On locally manufactured cigarettes which are currently classified and taxed at 55%: fiftyfive (55%) "(2). On other locally manufactured cigarettes: forty-five percent (45%) Prior to RA 7654, these 3 brands were considered local brands subjected to an ad valorem tax of 20 to 45%. Applying the amendment, the 3 brands should fall under Sec 142(c)(2), NIRC and be taxed at 20 to 45%. On July 1, 1993, petitioner CIR issued Revenue Memorandum Circular 37-93 which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax. The reclassification was before RA 7654 took effect. In effect, the memorandum circular subjected the three brands to Sec. 142(c) (1), NIRC imposing upon them 55% instead of only 20-45% under Sec. 142(c)(2), NIRC. The CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. RMC 37-93 was issued without notice and hearing. Petitioners Contention: RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes. Respondents Contention: Lack of notice and hearing violated due process required for promulgated rules. It also infringed on the uniformity of taxation and equal protection since other local cigarettes bearing foreign brands had not been included in the memorandum circular. CTA CA Fortune

substantially increases the burden of those governed, the agency must accord, at least to those directly affected, a chance to be heard, before that new issuance is given the force and effect of law. 2. RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended. It was in fact issued to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to have them covered by RA 7654 which subjects mentioned brands to 55%. The BIR did not simply interpret the law but legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should have been observed. 3) Territorial Cases: 22. ILOILO BOTTLERS V CITY OF ILOILO Ponente: CORTES, J FACTS: The City of Iloilo demanded from Iloilo Bottlers Inc., a company in the business of bottling and selling soft drinks, to pay an amount of 59,505 as license tax. The City claims such license tax pursuant to an ordinance enacted on January 11, 1960 known as Ordinance No. 5, Series of 1960. The ordinance provides that manufacturers, bottlers, and distributers of soft drinks in Iloilo are subject to a municipal license tax of 10 centavos per case of 24 bottles. Petitioners Contention: Iloilo Bottlers asserted that since their plant base has moved to the municipality of Pavia shortly after the aforementioned ordinance was enacted, they are not liable for any tax. Respondents Contention: The City of Iloilo still demanded taxes and also demanded back taxes under the claim that IloiloBottlers is still distributing in the City of Iloilo since its transfer. Iloilo Bottlers paid the demanded license tax and back taxes under protest. CFI Iloilo Bottlers

Affirmed CTA RMC 37-93 is valid and

ISSUE: WON enforceable

DECISION: NO. SC affirmed CA and ruled in favor of Fortune HELD: 1. CIR may not disregard legal requirements of publication, filing and prior hearing in the exercise of its quasi-legislative powers. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. But when the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law and

ISSUE: WoN the CFI Iloilo was correct in its ruling that Iloilo Bottlers Inc. is free from liability and in directing the City of Iloilo to refund the tax paid under protest. HELD: NO. SC reversed in favor of the City of Iloilo RATIO: 1. Situs of taxation (place of taxation) depends on various factors including the nature of the tax and subject matter thereof both of which must be scrutinized to reach a fair decision. The tax ordinance enacted by the City of Iloilo imposes a tax on persons, firms, and corporations engaged in the business of

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distribution of softdrinks, manufacture of softdrinks, and bottling of soft drinks within the territorial jurisdiction of the City of Iloilo. There is no question that IloiloBottlers has moved out of Iloilo Citys jurisdiction and into the municipality of Pavia where its plant now stands. 2. The ruling now depends upon whether or not Iloilo Bottlers can be considered as distributing its products within Iloilo City. Iloilo Bottlers disclaims liability, saying that it does not independently distribute but rather actively sells directly to its consumers. Distribution is therefore only incidental to its business. 3. The Court finds that Iloilo Bottlers is indeed distributing since while the manufacturing and bottling occurs outside of Iloilo City, the drinks are sold in Iloilo city to consumers in a moving store fashion. The transactions are considered to occur within the city. 4. The tax imposed under Ordinance No. 5 is an excise tax. By its nature, the power to levy an excise tax depends upon the place where the business is done, or the occupation is engaged in, or where the transaction took place. In this case, it is a tax on the privilege of distributing, manufacturing or bottling soft drinks. Even though the base of operations is at Pavia, the areas of transaction where Iloilo Bottlers conducts its business are within Iloilocity limits. The situs for excise tax is the area. 23. SMITH V CIR Ponente: CA Justice Juanito Castaeda, Jr.

his claim for refund and the two-year prescriptive period was about to lapse, petitioner elevated his case to the Court of Appeals by way of Petition for Review. Petitioners Contention: Petitioner posits the view that the entire territory known as Subic Special Economic Zone) is a tax-free territory and as such, all income derived within the zone, including that of an alien individual, is exempt from income tax and other taxes. Respondents Contention: Petitioner's alleged claim for refund is still subject to administrative routinary investigation/examination by respondent's bureau. Further, only business establishments operating within the Subic Special Economic Zone are exempt from national and local taxes. Petitioner is not covered by the exemption granted under Section 12 (c) of Republic Act 7227, as implemented by Section 4 of Revenue Regulations No. 1-95. ISSUE: Whether or not aliens working within the Subic Special Economic Zone are subject to Philippine income taxes on income earned from such employment. DECISION: Petition for Review is denied for lack of merit with the CA deciding against Petitioner Smith. HELD: The National Internal Revenue Code operates with equal force and effect to all subjects within the territorial boundary of the Philippines. Being a general law, it covers all persons, properties and privileges, which are found within its jurisdictional limit. With the enactment of RA 7227, there came an exception to the general rule. Being a special law, it prevails over the general law but only in so far as a certain group of persons or things is concerned. Since the law, in granting tax incentives, only made mention of businesses and enterprises within the SSEZ, it follows then that said RA 7227 operates only on the said group. As no mention was made to individual taxpayers being tax-exempt, it follows that they still fall within the ambit of the general law pursuant to the maxim excepto firmat regulam in casibus non exceptis, a thing not being excepted must be regarded as coming within the purview of the general rule. 4) INTERNATIONAL COMITY Sec. 2, Art. II, Constitution Section 2. The Philippines renounces war as an instrument of national policy, adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation, and amity with all nations. Case: 24. TAADA V ANGARA Ponente: Panganiban, J.

DOCTRINE: All subjects over which the Philippines can exercise dominion are necessarily objects of taxation. As such, all subjects of taxation within its jurisdiction, including aliens residing in special economic zones within the territorial boundaries of the Philippines, are required to pay tax in exchange of the protection that the state gives QUICK FACTS: This Petition for Review involves a claim for refund in the amount of One Million Five Hundred Thirty Three Thousand Six Hundred and Sixty Pesos & 70/100 (P1,533,660.70) allegedly representing the income tax erroneously paid by herein petitioner for taxable year 1998. FACTS: Petitioner is a citizen of the United States and an employee of Coastal Subic Bay Terminal, Inc. Coastal Subic Bay Terminal Inc. is a business entity located within the Subic Special Economic Zone, exempt from tax until December 4, 1998. Petitioner, filed his annual income tax return and paid P1,533,660.70 in compensation income taxes for the income he derived from his employment with Coastal Subic Bay Terminal, Inc. Claiming that the payment of tax on his compensation income was erroneous, petitioner filed a written claim for refund with the Bureau of Internal Revenue (BIR) As there was no immediate action on

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DOCTRINE: While the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair. QUICK FACTS: This is a petition assailing the constitutionality of the WTO agreement as it violates Sec 19, Article II, providing for the development of a self-reliant and independent national economy, and Sections 10 and 12, Article XII, providing for the Filipino first policy. FACTS: On April 15, 1994, the Philippine Government represented by its Secretary of the Department of Trade and Industry signed the Final Act binding the Philippine Government to submit to its respective competent authorities the WTO (World Trade Organization) Agreements to seek approval for such. On December 14, 1994, Resolution No. 97 was adopted by the Philippine Senate to ratify the WTO Agreement. This is a petition assailing the constitutionality of the WTO agreement as it violates Sec 19, Article II, providing for the development of a self-reliant and independent national economy, and Sections 10 and 12, Article XII, providing for the Filipino first policy. Petitioners Contention: Petitioners vigorously argue that the letter, spirit and intent of the Constitution mandating economic nationalism are violated by the so-called parity provisions and national treatment clauses scattered in various parts not only of the WTO Agreement and its annexes but also in the Ministerial Decisions and Declarations and in the Understanding on Commitments in Financial Services. Further, petitioners maintained that this Agreement was an assault on the sovereign powers of the Philippines because it meant that Congress could not pass legislation that would be good for national interest and general welfare if such legislation would not conform to the WTO Agreement. Respondents Contention: Respondents counter that the nationalistic portions of the Constitution invoked by petitioners should not be read in isolation but should be related to other relevant provisions of Art. XII, particularly Secs. 1 and 13 thereof; that read properly, the cited WTO clauses do not conflict with the Constitution.

ISSUE: Whether the provisions of the WTO Agreement and its annexes limit, restrict, or impair the exercise of legislative power by Congress. DECISION: Petition for Review is denied for lack of merit with the Supreme Court holding the WTO Agreement constitutional. HELD: While sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to limitations and restrictions voluntarily agreed to by the Philippines as a member of the family of nations. One of the oldest and most fundamental rules in international law is pacta sunt servanda international agreements must be performed in good faith. A treaty engagement is not a mere moral obligation but creates a legally binding obligation on the parties xxx. A state which has contracted valid international obligations is bound to make in its legislation such modifications as may be necessary to ensure the fulfilment of the obligations undertaken. By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact. After all, states, like individuals live with coequals, and in pursuit of mutuality covenanted objectives and benefits, they also commonly agree to limit the exercise of their otherwise absolute rights. The sovereignty of a state therefore cannot in fact and in reality be considered absolute. Certain restrictions enter into the picture: (1) limitations imposed by the very nature of membership in the family of nations and (2) limitations imposed by treaty stipulations. 5) Exemption of Government Entities, Agencies, and Instrumentalities Sec. 27(C), NIRC SEC. 27. Rates of Income tax on Domestic Corporations. - (C) Government-owned or ControlledCorporations, Agencies or Instrumentalities. - The provisions of existing special or general laws to the contrary notwithstanding, all corporations, agencies, or instrumentalities owned or controlled by the Government, except the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable income as are imposed by this Section upon corporations or associations engaged in s similar business, industry, or activity. Cases: 25. MANILA INTERNATIONAL AIRPORT AUTHORITY V CA

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26. PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY V CA Ponente: YNARES-SANTIAGO, J.: DOCTRINE: An instrumentality of the national government is generally exempt from payment of real property tax, except those portions which have been leased to private entities. The PFDA is an instrumentality of the government; therefore, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions leased to private persons. QUICK FACTS: The PFDA leased out land and buildings of the Iloilo Fishing Port Complex (IFPC) which are owned by the Republic of the Philippines. The City of Iloilo assessed the entire IFPC for real property taxes which the PFDA opposed.

Iloilo City Assessors Office. The latter denied so the PFDA elevated the case to the DOF. DOF ruled that the Authority is liable to pay real property taxes to the City of Iloilo because it enjoys the beneficial use of the IFPC. The DOF added, however, that in satisfying the amount of the unpaid real property taxes, the property that is owned by the Authority shall be auctioned, and not the IFPC, which is a property of the Republic. OP MR. dismissed PFDAs petition; denied Affirmed OP. PFDA liable for real

CA property tax. ISSUE:

FACTS: President Marcos, through PD No. 977, created the PFDA and placed in under the direct control and supervision of the Secretary of Natural Resources. Pursuant to Administrative Code (EO 292), the PFDA became an attached agency of the Department of Agriculture. In October 1981, then Ministry of Public Works and Highways reclaimed from the sea a 21-hectare parcel of land in Barangay Tanza, Iloilo City, and constructed thereon the IFPC, consisting of breakwater, a landing quay, a refrigeration building, a market hall, a municipal shed, an administration building, a water and fuel oil supply system and other port related facilities and machineries. Upon its completion, the Ministry of Public Works and Highways turned over IFPC to the PFDA, with title to the land and buildings remaining with the Republic. PFDA thereafter leased portions of IFPC to private firms and individuals engaged in fishing related businesses. The City of Iloilo assessed the entire IFPC for real property taxes. The assessment remained unpaid until the alleged total tax delinquency of the PFDA for the fiscal years 1988 and 1989 amounted to P5,057,349.67, inclusive of penalties and interests. To satisfy the tax delinquency, the City of Iloilo scheduled on August 30, 1990, the sale at public auction of the IFPC. Petitioners Contention: PFDA filed an injunction case with the RTC, claiming that it should not be liable to pay taxes. Respondents Contention: PFDA is liable to pay real property taxes to the City of Iloilo because it enjoys the beneficial use of the IFPC. TC parties agreed to avail of administrative proceedings at the pre-trial, i.e., for the Authority to file a claim for tax exemption with the

(1) WoN the PFDA is liable to pay real property tax to the City of Iloilo. (2) If YES, WoN the IFPC may be sold at public auction to satisfy the tax delinquency. DECISION: (1) No. SC reversed CA. The PFDA is an instrumentality of the national government, hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with respect to those portions which are leased to private entities. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133 (o) states: SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities On the other hand, government-owned and controlled corporations may be organized as a stock or nonstock corporation. Two requisites must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares, and (2)

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that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. (2) No. SC reversed CA. The IFPC or any part thereof, being a property of public domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax delinquency through means other than the sale at public auction of the IFPC.

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