Commissioner of Internal Revenue Vs.

San
Miguel Corporation
PONENTE: Villarama, J.
FACTS: Respondent San Miguel Corporation (SMC), a
domestic corporation engaged in the manufacture
and sale of fermented liquor, produces as one of its
products Red Horse beer which is sold in 500-ml.
and 1-liter bottle variants.
On January 1, 1998, Republic Act (R.A.) No. 8424 or
the Tax Reform Act of 1997 took effect. It
reproduced, as Section 143 thereof, the provisions of
Section 140 of the old National Internal Revenue
Code as amended by R.A. No. 8240 which became
effective on January 1, 1997. Section 143 of the Tax
Reform Act of 1997 reads:
SEC. 143. Fermented Liquor. -
There shall be levied, assessed and
collected an excise tax on beer, lager
beer, ale, porter and other fermented
liquors except tuba, basi, tapuy and
similar domestic fermented liquors in
accordance with the following schedule:
(a) If the net retail price (excluding
the excise tax and value-added tax) per
liter of volume capacity is less than
Fourteen pesos and fifty centavos
(P14.50), the tax shall be Six pesos and
fifteen centavos (P6.15) per liter;
(b) If the net retail price (excluding
the excise tax and the value-added tax)
per liter of volume capacity is Fourteen
pesos and fifty centavos (P14.50) up to
Twenty-two pesos (P22.00), the tax shall
be Nine pesos and fifteen centavos
(P9.15) per liter;
(c) If the net retail price (excluding
the excise tax and the value-added tax)
per liter of volume capacity is more than
Twenty-two pesos (P22.00), the tax shall
be Twelve pesos and fifteen centavos
(P12.15) per liter.
Variants of existing brands which
are introduced in the domestic market
after the effectivity of Republic Act No.
8240 shall be taxed under the highest
classification of any variant of that
brand.
Fermented liquor which are
brewed and sold at micro-breweries or
small establishments such as pubs and
restaurants shall be subject to the rate in
paragraph (c) hereof.
The excise tax from any brand of
fermented liquor within the next three
(3) years from the effectivity of
Republic Act No. 8240 shall not be
lower than the tax which was due from
each brand on October 1, 1996.
The rates of excise tax on
fermented liquor under paragraphs (a),
(b) and (c) hereof shall be increased by
twelve percent (12%) on January 1,
2000.

x x x x (Emphasis and underscoring
supplied.)

Thereafter, on December 16, 1999, the Secretary of
Finance issued Revenue Regulations No. 17-99
increasing the applicable tax rates on fermented
liquor by 12%.

This increase, however, was qualified by the last
paragraph of Section 1 of Revenue Regulations No.
17-99 which reads:
Provided, however, that the new
specific tax rate for any existing brand of
cigars, cigarettes packed by machine,
distilled spirits, wines and fermented
liquors shall not be lower than the
excise tax that is actually being paid
prior to January 1, 2000. (Emphasis and
underscoring supplied.)

Now, for the period June 1, 2004 to December 31,
2004, SMC was assessed and paid excise taxes
amounting to P2,286,488,861.58 for the 323,407,194
liters of Red Horse beer products removed from its
plants. Said amount was computed based on the tax
rate of P7.07/liter or the tax rate which was being
applied to its products prior to January 1, 2000, as
the last paragraph of Section 1 of Revenue
Regulations No. 17-99 provided that the new specific
tax rate for fermented liquors shall not be lower
than the excise tax that is actually being paid prior to
January 1, 2000. SMC, however, later contended
that the said qualification in the last paragraph of
Section 1 of Revenue Regulations No. 17-99 has no
basis in the plain wording of Section 143. SMC
argued that the applicable tax rate was only the P
6.89/liter tax rate stated in Revenue Regulations No.
17-99, and that accordingly, its excise taxes should
have been only P2,228,275,566.66.
On May 22, 2006, SMC filed before the BIR a claim for
refund or tax credit of the amount of P60,778,519.56
as erroneously paid excise taxes for the period of
May 22, 2004 to December 31, 2004. Later, said
amount was reduced to P58,213,294.92 because of
prescription. As CIR failed to act on the claim,
respondent filed a petition for review with the CTA.
CTA Second Division -- granted the petition and
ordered CIR to refund P58,213,294.92 to respondent
or to issue in the latters favor a Tax Credit Certificate
for the said amount for the erroneously paid excise
taxes. The CTA held that Revenue Regulations No.
17-99 modified or altered the mandate of Section
143 of the Tax Reform Act of 1997.

CTA En Banc - affirms

ISSUE: Whether the CTA committed reversible error
in ruling that the provision in the last paragraph of
Section 1 of Revenue Regulations No. 17-99 is an
invalid administrative interpretation of Section 143 of
the Tax Reform Act of 1997.

RATIO: No.
Section 143 of the Tax Reform Act of 1997 is clear
and unambiguous. It provides for two periods: the
first is the 3-year transition period beginning January
1, 1997, the date when R.A. No. 8240 took effect,
until December 31, 1999; and the second is the
period thereafter. During the 3-year transition
period, Section 143 provides that the excise tax
from any brand of fermented liquorshall not be
lower than the tax which was due from each brand
on October 1, 1996. After the transitory period,
Section 143 provides that the excise tax rate shall be
the figures provided under paragraphs (a), (b) and (c)
of Section 143 but increased by 12%, without regard
to whether such rate is lower or higher than the tax
rate that is actually being paid prior to January 1,
2000 and therefore, without regard to whether the
revenue collection starting January 1, 2000 may turn
out to be lower than that collected prior to said date.
Revenue Regulations No. 17-99, however, created a
new tax rate when it added in the last paragraph of
Section 1 thereof, the qualification that the tax due
after the 12% increase becomes effective shall not
be lower than the tax actually paid prior to January 1,
2000. As there is nothing in Section 143 of the Tax
Reform Act of 1997 which clothes the BIR with the
power or authority to rule that the new specific tax
rate should not be lower than the excise tax that is
actually being paid prior to January 1, 2000, such
interpretation is clearly an invalid exercise of the
power of the Secretary of Finance to interpret tax
laws and to promulgate rules and regulations
necessary for the effective enforcement of the Tax
Reform Act of 1997. Said qualification must,
perforce, be struck down as invalid and of no effect.
It bears reiterating that tax burdens are not to
be imposed, nor presumed to be imposed beyond
what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the
government. In case of discrepancy between the
basic law and a rule or regulation issued to
implement said law, the basic law prevails as said rule
or regulation cannot go beyond the terms and
provisions of the basic law. It must be stressed that
the objective of issuing BIR Revenue Regulations is to
establish parameters or guidelines within which our
tax laws should be implemented, and not to amend
or modify its substantive meaning and import. As
held in Commissioner of Internal Revenue v. Fortune
Tobacco Corporation,
x x x The rule in the interpretation
of tax laws is that a statute will not be
construed as imposing a tax unless it
does so clearly, expressly, and
unambiguously. A tax cannot be
imposed without clear and express
words for that purpose. Accordingly, the
general rule of requiring adherence to
the letter in construing statutes applies
with peculiar strictness to tax laws and
the provisions of a taxing act are not to
be extended by implication. x x x As
burdens, taxes should not be unduly
exacted nor assumed beyond the plain
meaning of the tax laws.
Hence, while it may be true that the
interpretation advocated by petitioner CIR is in
furtherance of its desire to raise revenues for the
government, such noble objective must yield to the
clear provisions of the law, particularly since, in this
case, the terms of the said law are clear and leave no
room for interpretation.






PLANTERS PRODUCTS, INC., vs. FERTIPHIL
CORPORATION. [G.R. No. 166006. March 14, 2008.]
Facts: President Ferdinand Marcos, exercising his
legislative powers, issued LOI No. 1465 which
provided, among others, for the imposition by the
Fertilizer Pesticide Authority (FPA) of a capital
recovery component (CRC) on the domestic sale of all
grades of fertilizers in the Philippines. The goal is to
make and keep respondent PPI viable. After the 1986
Edsa Revolution, FPA voluntarily stopped the
imposition of the P10 levy. With the return of
democracy, Fertiphil demanded from PPI a refund of
the amounts it paid under LOI No. 1465, but PPI
refused to accede to the demand
Fertiphil filed a complaint for collection and damages
against FPA and PPI with the RTC in Makati. It
questioned the constitutionality of LOI No. 1465 for
being unjust, unreasonable, oppressive, invalid and
an unlawful imposition that amounted to a denial of
due process of law. FPA, through the Solicitor
General, countered that the issuance of LOI No. 1465
was a valid exercise of the police power of the State
in ensuring the stability of the fertilizer industry in
the country
Issue/Held: Whether the levy is in exercise of police
power or taxation power- TAXATION
Ratio: We agree with the RTC that 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. 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 purpose of a
law is evident from its text or inferable from other
secondary sources. Here, we agree with the RTC and
that CA that the levy imposed under LOI No. 1465
was not for a public purpose because it expressly
provided that the levy be imposed to benefit PPI, a
private company. The purpose is explicit from Clause
3 of the law


Commissioner of Internal Revenue Vs. Fortune
Tobaco Corporation
PONENTE: Brion J.
FACTS: Respondent Fortune Tobacco Corporation
(Fortune Tobacco) paid in advance excise taxes for
the year 2003 in the amount of P11.15 billion, and for
the period covering January 1 to May 31, 2004 in the
amount of P4.90 billion.
In June 2004, Fortune Tobacco filed an
administrative claim for tax refund with the CIR for
erroneously and/or illegally collected taxes in the
amount of P491 million. Without waiting for the
CIRs action on its claim, Fortune Tobacco filed with
the CTA a judicial claim for tax refund.
CTA First Division - ruled in favor of Fortune Tobacco
and granted its claim for refund.
CTA En Banc affirms.
ISSUE: Whether or not the proviso in Section 1 of
RR 17-99 that requires the payment of the excise tax
actually being paid prior to January 1, 2000 if this
amount is higher than the new specific tax rate, i.e.,
the rates of specific taxes imposed in 1997 for each
category of cigarette, plus 12% is valid.

RATIO: No.
Except for the tax period and the amounts
involvedthe case at bar presents the same issue that
the Court already resolved in 2008 in CIR v. Fortune
Tobacco Corporation. In the 2008 Fortune Tobacco
case, the Court upheld the tax refund claims of
Fortune Tobacco after finding invalid the proviso in
Section 1 of RR 17-99. We ruled:
Section 145 states that during the
transition period, i.e., within the next
three (3) years from the effectivity of
the Tax Code, the excise tax from any
brand of cigarettes shall not be lower
than the tax due from each brand on 1
October 1996. This qualification,
however, is conspicuously absent as
regards the 12% increase which is to be
applied on cigars and cigarettes packed
by machine, among others, effective on
1 January 2000. Clearly and
unmistakably, Section 145 mandates a
new rate of excise tax for cigarettes
packed by machine due to the 12%
increase effective on 1 January 2000
without regard to whether the revenue
collection starting from this period may
turn out to be lower than that collected
prior to this date.
By adding the qualification that
the tax due after the 12% increase
becomes effective shall not be lower
than the tax actually paid prior to 1
January 2000, Revenue Regulation No.
17-99 effectively imposes a tax which is
the higher amount between the ad
valorem tax being paid at the end of the
three (3)-year transition period and the
specific tax under paragraph C, sub-
paragraph (1)-(4), as increased by 12%
a situation not supported by the plain
wording of Section 145 of the Tax Code.
Following the principle of stare decisis, our
ruling in the present case should no longer come as a
surprise. The proviso in Section 1 of RR 17-99 clearly
went beyond the terms of the law it was supposed to
implement, and therefore entitles Fortune Tobacco
to claim a refund of the overpaid excise taxes
collected pursuant to this provision.
The amount involved in the present case and
the CIRs firm insistence of its arguments nonetheless
compel us to take a second look at the issue, but our
findings ultimately lead us to the same conclusion.
Indeed, we find more reasons to disagree with the
CIRs construction of the law than those stated in our
2008 Fortune Tobacco ruling, which was largely based
on the application of the rules of statutory
construction.
Raising government
revenue is not the
sole objective of RA
8240
That RA 8240 (incorporated as Section 145 of
the 1997 Tax Code) was enacted to raise government
revenues is a given fact, but this is not the sole and
only objective of the law. Congressional
deliberations show that the shift from ad valorem to
specific taxes introduced by the law was also
intended to curb the corruption that became
endemic to the imposition of ad valorem taxes. Since
ad valorem taxes were based on the value of the
goods, the prices of the goods were often
manipulated to yield lesser taxes. The imposition of
specific taxes, which are based on the volume of
goods produced, would prevent price manipulation
and also cure the unequal tax treatment created by
the skewed valuation of similar goods.
Rule of uniformity of
taxation violated by
the proviso in Section
1, RR 17-99
The Constitution requires that taxation should
be uniform and equitable. Uniformity in taxation
requires that all subjects or objects of taxation,
similarly situated, are to be treated alike both in
privileges and liabilities. This requirement, however,
is unwittingly violated when the proviso in Section 1
of RR 17-99 is applied in certain cases. To illustrate
this point, we consider three brands of cigarettes, all
classified as lower-priced cigarettes under Section
145(c)(4) of the 1997 Tax Code, since their net retail
price is below P5.00 per pack:
Brand
Net
Retail
Price
per
pack
(A)

Ad
Valorem
Tax Due
prior to
Jan 1997
(B)

Specific
Tax under
Section
145(C)(4)
(C)

Specific
Tax Due
Jan 1997
to Dec
1999
(D)

New
Specific
Tax
imposing
12%
increase
by Jan
2000
(E)

New
Specific
Tax Due
by Jan
2000 per
RR 17-99
Camel KS 4.71 5.50 1.00/pack 5.50 1.12/pack 5.50
Champion
M 100
4.56 3.30 1.00/pack 3.30 1.12/pack 3.30
Union
American
Blend
4.64 1.09 1.00/pack 1.09 1.12/pack 1.12
Although the brands all belong to the same category,
the proviso in Section 1, RR 17-99 authorized the
imposition of different (and grossly disproportionate)
tax rates (see column [D]). It effectively extended the
qualification stated in the third paragraph of Section
145(c) of the 1997 Tax Code that was supposed to
apply only during the transition period:
The excise tax from any brand of
cigarettes within the next three (3) years
from the effectivity of R.A. No. 8240
shall not be lower than the tax, which is
due from each brand on October 1,
1996.
In the process, the CIR also perpetuated the unequal
tax treatment of similar goods that was supposed to
be cured by the shift from ad valorem to specific
taxes.
The omission in the
law in fact reveals
the legislative intent
not to adopt the
higher tax rule
The CIR claims that the proviso in Section 1 of
RR 17-99 was patterned after the third paragraph of
Section 145(c) of the 1997 Tax Code. Since the laws
intent was to increase revenue, it found no reason
not to apply the same higher tax rule to excise
taxes due after the transition period despite the
absence of a similar text in the wording of Section
145(c). What the CIR misses in his argument is that
he applied the rule not only for cigarettes, but also
for cigars, distilled spirits, wines and fermented
liquors:
Provided, however, that the new
specific tax rate for any existing brand of
cigars [and] cigarettes packed by
machine, distilled spirits, wines and
fermented liquors shall not be lower
than the excise tax that is actually being
paid prior to January 1, 2000.
When the pertinent provisions of the 1997 Tax Code
imposing excise taxes on these products are read,
however, there is nothing similar to the third
paragraph of Section 145(c) that can be found in the
provisions imposing excise taxes on distilled spirits
(Section 141) and wines (Section 14). In fact, the
rule will also not apply to cigars as these products fall
under Section 145(a).
Evidently, the 1997 Tax Codes provisions on
excise taxes have omitted the adoption of certain tax
measures. To our mind, these omissions are telling
indications of the intent of Congress not to adopt the
omitted tax measures; they are not simply
unintended lapses in the laws wording that, as the
CIR claims, are nevertheless covered by the spirit of
the law. Had the intention of Congress been solely to
increase revenue collection, a provision similar to the
third paragraph of Section 145(c) would have been
incorporated in Sections 141 and 142 of the 1997 Tax
Code. This, however, is not the case.
We note that Congress was not unaware that
the higher tax rule is a proviso that should ideally
apply to the increase after the transition period (as
the CIR embodied in the proviso in Section 1 of RR
17-99). During the deliberations for the law
amending Section 145 of the 1997 Tax Code (RA
9334), Rep. Jesli Lapuz adverted to the higher tax
rule after December 31, 1999 when he stated:
This bill serves as a catch-up
measure as government attempts to
collect additional revenues due it since
2001. Modifications are necessary
indeed to capture the loss proceeds and
prevent further erosion in revenue base.
x x x. As it is, it plugs a major loophole in
the ambiguity of the law as evidenced by
recent disputes resulting in the
government being ordered by the courts
to refund taxpayers. This bill clarifies
that the excise tax due on the products
shall not be lower than the tax due as of
the date immediately prior to the
effectivity of the act or the excise tax
due as of December 31, 1999.
This remark notwithstanding, the final version of the
bill that became RA 9334 contained no provision
similar to the proviso in Section 1 of RR 17-99 that
imposed the tax due as of December 31, 1999 if this
tax is higher than the new specific tax rates. Thus, it
appears that despite its awareness of the need to
protect the increase of excise taxes to increase
government revenue, Congress ultimately decided
against adopting the higher tax rule.

2. COMMISSIONER OF INTERNAL REVENUE V. BRITISH OVERSEAS
AIRWAYS CORP. (149 SCRA 395)
Topic: Test of taxability of income of resident
foreign corporations
Facts:
British Airways, a foreign company, is protesting a
deficiency income tax assessment by the
Commissioner of Internal Revenue for the period
covering the years 1959-1963. It contends that
although it maintained a general sales agent in the
Philippines which was responsible for selling British
Airways tickets covering passengers and cargoes, it
did not actually carry passengers and/or cargo to or
from the Philippines within the stated period and
thus should not have bee assessed taxes.
Issues and Ruling:
1. W/N British Airways was a resident foreign
corporation doing business in the Philippines
during the stated period.
YES. During the stated period, British Airways
maintained a general sales agent in the Philippines
which exercised functions which are normally
incident to, and are in progressive pursuit of, the
purpose and object of its organization as an
international air carrier. In fact, its main activity, the
regular sale of tickets, is the very lifeblood of the
airline business, the generation of sales being the
paramount objective. Accordingly, it is a resident
foreign corporation subject to tax upon its total net
income received in the preceding taxable year from
all sources within the Philippines, according to
Section 24(b)(2) of the same Code.
2. W/N the revenue of British Airways from ticket
sales in the Philippines for air transportation
constitute income of British Airways subject to
taxation in the Philippines, although they did
not actually carry passengers and/or cargo to
or from the Philippines within the stated
period.
YES. The absence of flight operations to and from the
Philippines is not determinative of the source of
income or the site of income taxation. The test of
taxability is the source, and the source of an
income is that activity which produced the income.
Even if the British Airways tickets sold covered the
transport of passengers and cargo to and from
foreign cities, it cannot alter the fact that income
from the sale of tickets was derived from the
Philippines. The passage documentations in these
cases were sold in the Philippines and the revenue
therefrom was derived from an activity regularly
pursued within the Philippines. The word source
conveys one essential idea, that of origin, and the
origin of the income herein is the Philippines.
Note:
Although there is no specific criterion as to what
constitutes doing or engaging in or transacting
business as stated under Section 20(h) of the 1977
Tax Code, the terms imply a continuity of commercial
dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the
exercise of some functions normally incident to, and
in progressive prosecution of, commercial gain or for
the purpose and object of the business organization.


Sison v. Ancheta
Facts: Batas Pambansa 135 was enacted. Sison, as
taxpayer, alleged that its provision (Section 1) unduly
discriminated against him by the imposition of higher
rates upon his income as a professional, that it
amounts to class legislation, and that it transgresses
against the equal protection and due process clauses
of the Constitution as well as the rule requiring
uniformity in taxation.
Issue: Whether BP 135 violates the due process and
equal protection clauses, and the rule on uniformity
in taxation.
Held: There is a need for proof of such persuasive
character as would lead to a conclusion that there
was a violation of the due process and equal
protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and
uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority
to make reasonable and natural classifications for
purposes of taxation. Where the differentitation
conforms to the practical dictates of justice and
equity, similar to the standards of equal protection, it
is not discriminatory within the meaning of the clause
and is therefore uniform. Taxpayers may be
classified into different categories, such as recipients
of compensation income as against professionals.
Recipients of compensation income are not entitled
to make deductions for income tax purposes as there
is no practically no overhead expense, while
professionals and businessmen have no uniform
costs or expenses necessaryh to produce their
income. There is ample justification to adopt the
gross system of income taxation to compensation
income, while continuing the system of net income
taxation as regards professional and business
income.

1. ARTURO M. TOLENTINO, petitioner, vs. THE
SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE,
respondents. G.R. No. 115455 August 25, 1994
FACTS: Herein various petitioners seek to declare RA
7166 as unconstitutional as it seeks to widen the tax
base of the existing VAT system and enhance its
administration by amending the National Internal
Revenue Code. The value-added tax (VAT) is levied on
the sale, barter or exchange of goods and properties
as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross
value in money of goods or properties sold, bartered
or exchanged or of the gross receipts from the sale or
exchange of services.
CREBA asserts that R.A. No. 7716 (1) impairs the
obligations of contracts, (2) classifies transactions as
covered or exempt without reasonable basis and (3)
violates the rule that taxes should be uniform and
equitable and that Congress shall "evolve a
progressive system of taxation."
With respect to the first contention, it is claimed that
the application of the tax to existing contracts of the
sale of real property by installment or on deferred
payment basis would result in substantial increases in
the monthly amortizations to be paid because of the
10% VAT. The additional amount, it is pointed out, is
something that the buyer did not anticipate at the
time he entered into the contract.
It is next pointed out that while Section 4 of R.A. No.
7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and
medical and veterinary services, it grants no
exemption on the sale of real property which is
equally essential. The sale of real property for
socialized and low-cost housing is exempted from the
tax, but CREBA claims that real estate transactions of
"the less poor," i.e., the middle class, who are equally
homeless, should likewise be exempted.
Finally, it is contended, for the reasons already noted,
that R.A. No. 7716 also violates Art. VI, Section 28(1)
which provides that "The rule of taxation shall be
uniform and equitable. The Congress shall evolve a
progressive system of taxation."
ISSUE: Whether or not RA 7166 violates the principle
of progressive system of taxation.
HELD: No, there is no justification for passing upon
the claims that the law also violates the rule that
taxation must be progressive and that it denies
petitioners' right to due process and that equal
protection of the laws. The reason for this different
treatment has been cogently stated by an eminent
authority on constitutional law thus: "When freedom
of the mind is imperiled by law, it is freedom that
commands a momentum of respect; when property
is imperiled it is the lawmakers' judgment that
commands respect. This dual standard may not
precisely reverse the presumption of constitutionality
in civil liberties cases, but obviously it does set up a
hierarchy of values within the due process clause."
Petitioners contend that as a result of the uniform
10% VAT, the tax on consumption goods of those
who are in the higher-income bracket, which before
were taxed at a rate higher than 10%, has been
reduced, while basic commodities, which before
were taxed at rates ranging from 3% to 5%, are now
taxed at a higher rate.
Just as vigorously as it is asserted that the law is
regressive, the opposite claim is pressed by
respondents that in fact it distributes the tax burden
to as many goods and services as possible particularly
to those which are within the reach of higher-income
groups, even as the law exempts basic goods and
services. It is thus equitable. The goods and
properties subject to the VAT are those used or
consumed by higher-income groups. These include
real properties held primarily for sale to customers or
held for lease in the ordinary course of business, the
right or privilege to use industrial, commercial or
scientific equipment, hotels, restaurants and similar
places, tourist buses, and the like. On the other hand,
small business establishments, with annual gross
sales of less than P500,000, are exempted. This,
according to respondents, removes from the
coverage of the law some 30,000 business
establishments. On the other hand, an occasional
paper of the Center for Research and Communication
cities a NEDA study that the VAT has minimal impact
on inflation and income distribution and that while
additional expenditure for the lowest income class is
only P301 or 1.49% a year, that for a family earning
P500,000 a year or more is P8,340 or 2.2%.
Lacking empirical data on which to base any
conclusion regarding these arguments, any discussion
whether the VAT is regressive in the sense that it will
hit the "poor" and middle-income group in society
harder than it will the "rich," is largely an academic
exercise. On the other hand, the CUP's contention
that Congress' withdrawal of exemption of producers
cooperatives, marketing cooperatives, and service
cooperatives, while maintaining that granted to
electric cooperatives, not only goes against the
constitutional policy to promote cooperatives as
instruments of social justice (Art. XII, 15) but also
denies such cooperatives the equal protection of the
law is actually a policy argument. The legislature is
not required to adhere to a policy of "all or none" in
choosing the subject of taxation.
44

Nor is the contention of the Chamber of Real Estate
and Builders Association (CREBA), petitioner in G.R.
115754, that the VAT will reduce the mark up of its
members by as much as 85% to 90% any more
concrete. It is a mere allegation. On the other hand,
the claim of the Philippine Press Institute, petitioner
in G.R. No. 115544, that the VAT will drive some of its
members out of circulation because their profits from
advertisements will not be enough to pay for their
tax liability, while purporting to be based on the
financial statements of the newspapers in question,
still falls short of the establishment of facts by
evidence so necessary for adjudicating the question
whether the tax is oppressive and confiscatory.
Indeed, regressivity is not a negative standard for
courts to enforce. What Congress is required by the
Constitution to do is to "evolve a progressive system
of taxation." This is a directive to Congress, just like
the directive to it to give priority to the enactment of
laws for the enhancement of human dignity and the
reduction of social, economic and political
inequalities (Art. XIII, 1), or for the promotion of the
right to "quality education" (Art. XIV, 1). These
provisions are put in the Constitution as moral
incentives to legislation, not as judicially enforceable
rights.
G.R. Nos. L-49839-46 April 26, 1991
JOSE B. L. REYES and EDMUNDO A. REYES,
petitioners,
vs.
PEDRO ALMANZOR, VICENTE ABAD SANTOS, JOSE
ROO, in their capacities as appointed and Acting
Members of the CENTRAL BOARD OF ASSESSMENT
APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL
ROSARIO, RAUL C. FLORES, in their capacities as
appointed and Acting Members of the BOARD OF
ASSESSMENT APPEALS of Manila; and NICOLAS
CATIIL in his capacity as City Assessor of Manila,
respondents.

J.B.L. Reyes, Edmundo and Milagros Reyes are owners
of parcels of land situated in Tondo which they lease
to their tenants for P300 monthly. Republic Act No.
6359 prohibiting for one year from its effectivity, an
increase in monthly rentals in properties used for
dwelling where such rental does not exceed P300 a
month but allowing an increase in rent by not more
than 10% thereafter. The said Act also suspended
paragraph (1) of Article 1673 of the Civil Code for two
years from its effectivity thereby disallowing the
ejectment of lessees upon the expiration of the usual
legal period of lease. P. D. No. 20 amended R.A. No.
6359 making the prohibition absolute and suspending
the said provision indefinitely excepting leases with
definite period. The City Assessor re-classified and
reassessed the property of the petitioner which
increased their tax rate prompting them to file a
Memorandum of Disagreement with the BTAA
contending that reassessments made were
"excessive, unwarranted, inequitable, confiscatory
and unconstitutional". The BTAA denied the
Memorandum of Disagreement, hence, the Reyeses
appealed to CBAA. CBAA conducted an ocular
inspection of the property and found out that some
of the properties were below street level affected by
tides. CBAA affirmed the decision of BTAA with
modification allowing a 20% reduction on the market
value of the properties affected by tides. A motion for
reconsideration by the petitioners was denied by the
CBAA, hence, this petition. Petitioners contended
that the Honorable Board erred in adopting the
"comparable sales approach" method in fixing the
assessed value of appellants' properties.

Issue: Whether or not the tax imposed by the BTAA is
excessive

Ruling: The power to tax is an attribute of
sovereignty. In fact, it is the strongest of all the
powers of government. But for all its plenitude, the
power to tax is not unconfined as there are
restrictions. Adversely effecting as it does property
rights, both the due process and equal protection
clauses of the Constitution may properly be invoked
to invalidate in appropriate cases a revenue measure.
If it were otherwise, there would be truth to the 1903
dictum of Chief Justice Marshall that the power to
tax involves the power to destroy. The web or
unreality spun from Marshalls famous dictum was
brushed away by one stroke of Mr. Justice Holmes
pen, thus: The power to tax is not the power to
destroy while this Court sits. So it is in the
Philippines. (Sison, Jr. v. Ancheta, 130 SCRA 655
*1984+; Obillos, Jr. v. Commissioner of Internal
Revenue, 139 SCRA 439 *1985+). *Reyes vs. Almanzor,
196 SCRA 322(1991)+)

Verily, taxes are the lifeblood of the government and
so 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 taxations, which
is the promotion of the common good, may be
achieved (Commissioner of Internal Revenue v. Algue,
Inc., et al., 158 SCRA 9 *1988+). Consequently, it
stands to reason that petitioners who are burdened
by the government by its Rental Freezing Laws (then
R.A. No. 6359 and P.D. 20) under the principle of
social justice should not now be penalized by the
same government by the imposition of excessive
taxes petitioners can ill afford and eventually result in
the forfeiture of their properties. *Reyes vs. Almanzor,
196 SCRA 322(1991)+

PREMISES CONSIDERED, (a) the petition is GRANTED;
(b) the assailed decisions of public respondents are
REVERSED and SET ASIDE; and (e) the respondent
Board of Assessment Appeals of Manila and the City
Assessor of Manila are ordered to make a new
assessment by the income approach method to
guarantee a fairer and more realistic basis of
computation.
SO ORDERED.